Thursday, 27 June 2013

Capital II, Chapter 3 - Part 3

In the circuit of commodity capital beginning with the end product C', it is assumed that the reproduction of the commodities (MP + L), which enable the production of the end product, can occur, but this requires them to exist. If these commodities, for whatever reason, have themselves not been produced, then the circuit breaks down.

Money capital, within the circuit of an industrial capital does not presume money capital in general. A capitalist firm might be the first ever capitalist firm. The same is true of the Productive Capital. But, C', does presume the existence of commodity capital outside the particular capital. That is because means of production and labour power are themselves sold as commodities. Even if the means of production are produced by non-capitalists, they are bought by merchants, and form their commodity capital.

“But just because the circuit C' ... C' presupposes within its sphere the existence of other industrial capital in the form of C (equal to L + MP) — and MP comprises diverse other capitals, in our case for instance machinery, coal, oil, etc. — it clamours to be considered not only as the general form of the circuit, i.e., not only as a social form in which every single industrial capital (except when first invested) can be studied, hence not merely as a form of movement common to all individual industrial capitals, but simultaneously also as a form of movement of the sum of the individual capitals, consequently of the aggregate capital of the capitalist class, a movement in which that of each individual industrial capital appears as only a partial movement which intermingles with the other movements and is necessitated by them. For instance if we regard the aggregate of commodities annually produced in a certain country and analyse the movement by which a part of it replaces the productive capital in all individual businesses, while another part enters into the individual consumption of the various classes, then we consider C' ... C' as a form of movement of social capital as well as of the surplus-value, or surplus-product, generated by it.” (p 99-100)

Partly for that reason, it is impossible to examine the circuit of commodity capital of one firm without also examining the intermingling with the circuits of commodity capital of other firms.

“Since in C' ... C' the starting-point is the total product (total value), it turns out that (if foreign trade is disregarded) reproduction on an extended scale, productivity remaining otherwise constant, can take place only when the part of the surplus-product to be capitalised already contains the material elements of the additional productive capital; that therefore, so far as the production of one year serves as the premise of the following year’s production or so far as this can take place simultaneously with the process of simple reproduction within one year, surplus-product is at once produced in a form which enables it to perform the functions of additional capital. Increased productivity can increase only the substance of capital but not its value; but therewith it creates additional material for the self-expansion of that value.” (p 101-2)

In other words, the production of surplus value itself cannot enable expanded reproduction to take place. The surplus value, must also meet in the market place an increased quantity of means of production and labour-power. There must also have been created a physical, surplus-product which is the equivalent of this surplus value.

Back To Part 2

Forward To Chapter 4

Back To Index

Tuesday, 25 June 2013

Capital II, Chapter 3 - Part 2

C', the end product is converted into money, M'. At this point, the surplus value, m = c, can always be separated out. If the commodity is homogeneous, like yarn, then even if it is sold in portions of the total end product, these portions can still function as commodity capital, because the money raised from their sale can go to purchase new means of production and labour power. Similarly, the proportion of surplus value contained in this portion of the total product can be separated out so that the original capital value can be thrown back into circulation, thereby reproducing the means of production and labour power used in the production of that portion of total output.

For example,

C 10,000 + V 5,000 + S 5,000 = E 20,000 = 20,000 kilos of yarn.

Of this 20,000 kilos, 5,000 is surplus product. In each kilo .25 kilos = surplus product. Put another way, as a kilo = £1, in each kilo, £0.25 = surplus value.

Suppose only 4,000 kilos are sold. 1,000 kilos = surplus product. The remaining 3,000 kilos have a value of £3,000. That is used to buy means of production and labour power. It buys C 2,000 and V 1,000. But, this is sufficient to replace the 4,000 kilos sold. Taking this separately,

C 2,000 + V 1,000 + S 1,000 = E 4,000 = 4,000 kilos.

Of course, as discussed in Volume I, the value of all the component parts can themselves be represented by physical amounts of yarn and the value obtained from their sale. So, the Constant Capital is equal to half the total output, the Variable Capital and the Surplus Value, each equal to a quarter. On this basis, if half the output were sold, it could pay for the replacement of all the Constant Capital. Alternatively, it could be used to cover the payment of wages, as well as revenue for the capitalist to spend. As the other half is sold, it produces the fund to cover purchase of the other components.

And, of course, in reality, the output always is sold in portions rather than one job lot. Even where output is sold to a wholesaler, it is usually sold to more than one. The industrial capitalist will always have some quantity of the end product, as commodity-capital, sitting in their warehouse. That is one reason, as discussed previously, why they need a money reserve to help smooth out the discrepancies between incomes and expenditures.

The buyer is not concerned with the particularities of the producer's costs, other than if they can use it to negotiate a lower price. They are only concerned with what that price is, for what they need to buy. How much they need to buy, will itself depend on the requirements of their business, and how much capital they have.

In the circuit of money capital, M – C – M', we have a complete business cycle. At its completion, a new cycle may commence or this could be the last cycle. All of M' could leave the circuit of capital.

In the circuit of productive capital, P...P', P' is not the production process represented by P, but the productive capital, now ready to engage in production.

The general form of the movement P ... P is the form of reproduction and, unlike M ... M', does not indicate the self-expansion of value as the object of the process. This form makes it therefore so much easier for classical Political Economy to ignore the definite capitalistic form of the process of production and to depict production as such as the purpose of this process; namely that as much as possible must be produced and as cheaply as possible, and that the product must be exchanged for the greatest variety of other products, partly for the renewal of production (M — C), partly for consumption (m — c). It is then possible to overlook the peculiarities of money and money-capital, for M and m appear here merely as transient media of circulation.” (p 95)

For commodity capital, the circuit begins with C', the commodities that comprise the end product, and in which the surplus value is embedded. It is transformed into money M', which then buys commodities, (means of production and labour power) which comprise the productive capital, P, production occurs resulting in C', again the end product.

The third form is distinguished from the first two by the fact that it is only in this circuit that the self-expanded capital-value — and not the original one, the capital-value that must still produce surplus-value — appears as the starting point of its self-expansion. C as a capital-relation is here the starting point and as such relation has a determining influence on the entire circuit because it includes the circuit of the capital-value as well as that of the surplus-value in its first phase, and because the surplus-value must at least in the average, if not in every single circuit, be expended partly as revenue, go through the circulation c — m — c, and must perform the function of an element of capital accumulation.” (p 96)

In other words, part is taken out to spend by the capitalist, but another part is accumulated. C' is transformed into C. C', the output, includes the surplus value. But, C' is bought as commodities. Some is bought by workers for their consumption, and some is bought by capitalists, part for their own consumption, and part as means of production. In all these cases, for all these buyers their purchase appears as M – C.

In M... M' possible enlargement of the circuit is included, depending on the volume of m entering into the renewed circuit.

In P ... P the new circuit may be started by P with the same or perhaps even a smaller value and yet may represent a reproduction on an extended scale, for instance when certain elements of commodities become cheaper on account of increased productivity of labour. Vice versa, a productive capital which has increased in value may, in a contrary case, represent reproduction on a materially contracted scale as for instance when elements of production have become dearer. The same is true of C' ... C'.” (p 96-7)

Which reinforces the point made previously, that for Marx the expansion of capital is not signified by an expansion of its value, but of its physical amount.

Monday, 24 June 2013

Storm Clouds Gathering - Part 2

The kind of overproduction of capital described by Marx, and detailed in Part 1, is not what we see at the moment. In fact, in large parts of the globe at the moment we see the exact opposite. In China, and other parts of Asia, as well as in large parts of Africa, far from seeing large quantities of unsold commodities that have been over produced, instead of seeing any kind of over production of means of production, we see rapid growth, rapidly rising demand for means of production, large increases in the demand for labour-power, and large rises in workers wages. Even in the developed economies of North America and Europe, that have suffered from the effects of a political crisis, leading to austerity, in the wake of the Financial Meltdown, we have not seen the kind of large scale over production of capital, leading to massive, widespread unemployment, and unsold stocks of commodities that are the hallmark of the kind of crisis of over production of capital described by Marx. There have been partial crises, for example, in large scale unemployment, in construction, in those economies like Spain and Ireland, that engaged in a frantic property speculation, but the large scale unemployment, even in these economies, is largely the consequence of direct political decisions, to impose austerity, rather than any kind of over production of capital as described by Marx.

What we really have in North America and Europe is the kind of financial as opposed to economic crisis that Marx describes in - Volume I of Capital, Chapter 3.

“The monetary crisis referred to in the text, being a phase of every crisis, must be clearly distinguished from that particular form of crisis, which also is called a monetary crisis, but which may be produced by itself as an independent phenomenon in such a way as to react only indirectly on industry and commerce. The pivot of these crises is to be found in moneyed capital, and their sphere of direct action is therefore the sphere of that capital, viz., banking, the stock exchange, and finance.” (note 1 p 137)

That kind of financial crisis described here by Marx is precisely what we have seen since 2007 within the context of a global economic boom. The roots of that financial, as opposed to economic, crisis themselves reside within the conditions described above, whereby the rising rate of profit, latterly combined with a global economic boom, led to huge quantities of money weighing on money markets, pushing down commodity-values, and interest rates, and the response to that from capitalist states in printing money to prevent deflation.

For orthodox, bourgeois economics, such as the
neo-Austrian School of Mises, it is exchange based
on subjective preferences that is the source of value,
 not actual production i.e. the expenditure of social
labour time.  For them, the exchange of bits of paper
transferring ownership of shares, bonds, property
is tantamount to creating new value and wealth.
 The neo-Austrians are some of the biggest critics
of bubbles, but their own ideology is the root cause
 of those bubbles.
It led to bubbles in stocks, bonds, and property that are the basis to the kind of financial crisis Marx describes above, and what we have seen, at least since 2007, and arguably since 2000, and before. There is a tendency under Capitalism to see profit arising simply from money-capital. Indeed, orthodox, bourgeois economics, which takes many of its examples from the world of financial markets believes that value is created not by production, but by exchange. So, if A and B both have houses priced at £100,000, then if A “subjectively” values B's house at £200,000, or simply more than their own house, and B feels likewise about A's house, they can exchange houses, and for orthodox economics this represents an increase in value! Of course, given that for humans there is always a tendency to believe that “the grass is always greener on the other side”, its quite likely that such subjective evaluation may cause us to make such decisions.

But, the ridiculous nature of this fundamental premise upon which bourgeois economics is founded, is simply to consider that having made this trade, A and B could then immediately make the opposite subjective evaluation, and move back to their original houses, yet this too would be seen as bringing about an increase in value! Its no wonder that with such a ridiculous concept sitting at the base of orthodox economic theory, market participants can delude themselves into believing that in continually swapping bits of paper that transfer ownership of shares, bonds and property they are increasing value and creating wealth. In fact, as Marx points out, the more this delusion takes hold, the more real wealth creation, the task of actually engaging in production, appears itself to be simply an inconvenient distraction from this circulation of capital.

Its no wonder that such societies place the highest status and wages on bankers and financial traders, and least on productive workers, and even upon professional engineers etc. The more it seems possible and desirable to simply make huge “profits” from this kind of financial speculation, the less money is turned into real money-capital to be engaged in productive activity, and the more remains simply as money hoards, swishing around within the circuit of money, hopping from one bit of fictitious capital to the next, one day in this share, tomorrow in another, this week in shares, next week in bonds, this month in bonds, next month in property. A fool's playground. A Ponzi scheme that ends badly once no more bigger fools are available to buy the over priced houses, bonds, stocks or whatever the latest fad is that must always continue to rise in price, because “this time its different”!

That is why at least since 2000, capitalist states have tried repeatedly to prevent that reality impinging. Each time these markets have crashed, they have printed even more money, and come out with other means of trying to attract in “even bigger fools” to those over priced assets. That is exactly what George Osborn is doing with is “Help To Buy” scam, which is a direct repetition of the policies used in the US ten years ago that led to the sub-prime crash of 2008. But, the volatility in financial markets last week is an indication that even that road is now looking to be closed. Nobody knows where to put their marginal pound, dollar, euro or yen even to have some certainty it will not be worth much less tomorrow than it is today, let alone try to make any kind of return upon it. Not even Gold looks safe, because its price had bubbled up, and crashed too. The only safe bet looks to be cash itself.

That indeed was the lesson of the 1929 Stock Market Crash. After it occurred, and prices of shares, property and bonds collapsed, sometimes up to 90%, cash was king. With cash you could buy a formerly $1 million mansion for $100,000. That happened in Japan in 1997, too, when property prices fell by 90%. When prices of fall by that extent, you can become rich over night if you have cash, precisely because you can buy all these things that formerly were beyond reach.

And as I pointed out a while ago - The Bust Without A Boom – there is a thirteen year cycle for stock market crashes, and this year is the next in that line. The falls we have seen in the last week are likely to be only the first rumblings. In reality, adjusted for inflation and currency variation, stock markets are no higher today than they were the last time they crashed in that sequence in 2000. But, the point is that they were already massively over priced in 2000 too. But, far worse than stock markets and the bond markets is the property market. Stock prices were elevated in 2000, and remain elevated today, but at least some of that was justified on the basis of the high rate of profit, and the potential of the economic boom. Bond markets were elevated, but that was because the high rate of profit had created an excess supply of money-capital over demand. But property prices were simply in a bubble. It was a bubble that had built up over at least 30 years, and possibly much more than that. Each time the bubble burst, it was reflated and then some more.

As global interest rates rise, whatever central banks now do, the cheap money and easy credit that blew up those property bubbles will finally come to an end, and the bubbles will burst violently. 

Back To Part 1

Sunday, 23 June 2013

Storm Clouds Gathering - Part 1

Last week global stock markets fell sharply, though for some reason, most news channels other than the business channels said little about it. More significantly, global bond markets also tumbled. The US 10 Year Treasury has now risen from around 1.5% yield to 2.54%. The UK 10 Year Gilt, has risen by a similar amount. These may not be large rises in absolute terms, but in percentage terms they are huge. On Thursday, some traders were saying that if the US Ten Year Treasury went above 2.5%, programme trades already in place, could see it sell off even more sharply sending interest rates even higher. On Thursday, it was still just below 2.4%. On Friday, it closed above 2.54%. This rise in global interest rates confirms the point I have been making for several months, we have seen a conjunctural shift in the Long Wave Cycle from Spring to Summer. It means the Rate of Profit from here will be trending downwards, for that reason, it also means that the supply of capital will fall relative to the demand for capital, so interest rates will rise, whatever central banks do in relation to money printing. The rise in interest rates is the reason that stock markets are tumbling, and next to fall will be bubbled up property markets.

There are a number of misconceptions both amongst orthodox economists, and some on the Left, which means that they are failing to properly analyse the current situation. Global interest rates began a secular down trend from the mid 1980's that has lasted until recently. Marx writes,

“It is indeed only the separation of capitalists into money-capitalists and industrial capitalists that transforms a portion of the profit into interest, that generally creates the category of interest; and it is only the competition between these two kinds of capitalists which creates the rate of interest.”

In other words, the rate of interest is determined by the demand for and supply of money-capital. The immediate reason for the fall in the rate of interest in the mid-1980's was that, in conditions of economic slump, the demand for capital fell. But, the reason that the rate of interest continued to fall was that, as always happens during the Winter Phase of the Long Wave, the Rate of Profit rose. Defeated workers saw their wage share fall, and the bringing into the global work force of hundreds of millions of Chinese workers saw a fall in the global value of Labour-Power, thereby increasing the production of Relative Surplus Value. Large rises in productivity, as new technologies began to be introduced, further reduced the value of constant capital, bringing a further rise in the rate of profit.

Source: Doug Henwood, LBO News
As, the Long Wave entered its Spring Phase around 1999, this rise in the rate of profit was accompanied by a significant increase in the volume of surplus value too, as global GDP doubled in a decade. Finally, the same increase in productivity also brought about a steady rise in the rate of turnover of capital. I have recently calculated adjusted rates of profit from 1947 to take account of the approximate increase in the rate of turnover. I will be detailing this in a further, more exhaustive analysis. But, in summary, assuming a 2% cumulative rise in the rate of turnover, consistent with a similar rise in productivity, the adjusted rate of profit for today would be three times the unadjusted rate! In other words, where some estimates of the current US Rate of Profit, put it at 7% -  – the adjusted rate, to take account of the rise in the rate of turnover, would be 21%.  That is the real rate of profit would be about 5 times higher today than it was back in 1950!

The consequence is that this real rate of profit rose massively during the 1980's up to now. It brought with it a huge increase in the volume of available money capital, which, in accordance with Marx’s analysis of the rate of interest, meant that global interest rates were continually forced downwards, because, even allowing for the doubling of global GDP, in the first decade of this century, and the accompanying doubling of fixed capital formation, the supply of money capital continued to exceed demand for it. It led to the build up of huge money hoards in the form of large cash position on the balance sheets of global corporations running into trillions of dollars, and into the formation of huge sovereign wealth funds in a range of economies that ran massive trade surpluses.

The other evidence of this trend is what happened with global prices. Despite the huge falls in the value of almost every commodity resulting from the massive rise in productivity, market prices in most cases failed to fall in tandem. The reason is that governments around the world printed massive quantities of money so that the value of these money tokens fell by at least as much as the value of the commodities whose value they measured. In other words, central banks prevented this massive rise in productivity bringing about a generalised deflation that would have necessitated huge reductions in nominal wages, and would also have sparked damaging price wars between oligopolistic companies. The same money printing led to the inflation of massive bubbles in the prices of all those things whose value had not been reduced as a result of increased productivity i.e. stock, bond and property prices.

The dominant industrial capitals of today, like Apple,
 have enjoyed high and rising rates of profit since the
mid 1980's.  They employ relatively little constant capital,
 and lots of highly skilled, complex labour.  The huge volumes
of profit have enabled them to amass huge cash hoards,
 from which to finance their capital expenditure.  Apple has
around $140 billion of cash on its Balance Sheet!
Yet, part of the rise in share prices, that occurred during the 1980's and 90's is also a reflection of the increase in the rate of profit itself. The view of orthodox economics that the low rate of interest is a function of money printing by central banks, is therefore, wrong. Interest rates are low, because massive rises in productivity brought about a large rise in the rate of profit, which created an excess supply of money capital over its demand. The same rise in productivity brought about a massive reduction in the value of globally traded commodities, which would have had damaging effects for monopoly capitalism had it led to deflation, so it was combated by large rises in money supply to reduce the value of money tokens.

Money is not Capital.  Money only becomes money-capital,
according to Marx when it is allocated to buy Productive-Capital.
Otherwise, it is simply a money hoard, that can circulate as money,
buying commodities, or being used for speculation to buy shares,
bonds or property.  It is the weight of real money, arising
from the massive growth of surplus value, that explains the
last 30 years of falling global interest rates, not money printing.
But, some on the Left also misunderstand the nature of overproduction of capital. The fact that Capital experienced this massive growth arising from this increase in productivity, and thereby experienced this huge rise in the rate of profit, some of which could not be productively invested, is not the same as an overproduction of capital. Indeed, as Marx describes in discussing the formation of such money hoards in Volume II of Capital, the very fact that this surplus value is transformed into a money hoard, itself means that it is not transformed into Capital, and so cannot be over accumulated or over produced to begin with!

When Marx talks about an over accumulation or over production of Capital, what he means is that money-capital has been used to buy productive-capital, which in turn has produced commodity-capital, which cannot be sold at prices that increase surplus value. Marx writes,

Throughout the 1920's, Ford saw its rate of profit
rise, as it continually revolutionised production, and
extracted more relative surplus value.  But, eventually that
very rise in productivity meant it had produced, and was
continuing to produce so many cars that the market to sell
them at prices that would reproduce its capital, and increase
its profits no longer existed.  It was neither "under consumption" -
 as Marx points out capital can be overproduced even as
demand continues to rise - nor a falling rate of profit, that explained
the crisis that hit Ford and other US industrial capitals in the
1930's, it was simply that capital expanded so fast that it exceeded
the capacity of the market to absorb the use values it produced,
at prices that increased its profits, or even reproduced its capital.
“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC.”

But, perhaps his clearest statement of what he means by over production of capital is given in another context in Vol. II in reference to the production of Fixed Capital. There he writes,

“The opposite case, in which the reproduction of demises of fixed capital II in a certain year is less and on the contrary the depreciation part greater, needs no further discussion.

There would be a crisis — a crisis of over-production — in spite of reproduction on an unchanging scale.”

In other words, Department 1 has continued to produce the same level of fixed capital, but for whatever reason, Department II fails to buy it all, does not retire the normal amount of fixed capital. The consequence is that Department I has over produced capital. The same would be the case if there were expanded reproduction, and Department 1 produced more means of production than were required by Department 2.

In general we have not seen this kind of overproduction of capital. In large parts of the globe, the Long Wave Boom continues to power economies forward with high rates of growth, and even in the developed economies after the financial meltdown we have seen slow growth and stagnation rather than large reduction in growth year after year, and little sign of actual over production of capital. What we have seen, as will be described tomorrow in part 2, is more like the kind of financial or monetary crisis that Marx describes in Volume I of Capital, than the economic crisis of over production he describes in Volume III. The signs of last week are that this financial as opposed to economic crisis is likely to reassert itself again. The bursting of the bubbles in property, bonds and stocks are, in fact a precondition for ending the period of economic weakness.

Forward To Part 2

Saturday, 22 June 2013

Thursday, 20 June 2013

Capital II, Chapter 3 - Part 1

The Circuit of Commodity-Capital 

The general formula for the circuit of commodity-capital is, C' — M' — C ... P ... C'. C' is not just the product, but also the premise of the previous two circuits – money capital and productive capital. That is because M - C for one capital is at the same time C – M for some other capital. A productive capitalist who lays out money-capital, to buy coal and machinery, M – C, thereby enables the capitalist who owns a coal mine, or produces machines, to sell those commodities, C – M.

The circuit P...P, and the circuit C' – C,as was previously described is assumed in the first repetition of the circuit M – M', because as soon as M' or M is used to buy new means of production, the only purpose of that is to undertake production, to produce additional commodities, embodying surplus value.

“If reproduction takes place on an extended scale, then the final C' is greater than the initial C' and should therefore be designated here as C''.” (p 89)

Capitalism can appear as a system in which money
 simply makes money.  That certainly is a central
aspect of orthodox economic theory, which believes
that increases in value arise as a result of exchange
rather than production.  Stock market and other speculative
 gains can seem to confirm that view.  On that basis, production
itself can appear as nothing more than an inconvenient
interruption in the process of money making from such exchanges. 
The circuit of money capital, M – C – M, appears to have production interrupting the circuit. The circuit of productive capital, P...P, is actually C – M – C, because P is made up of commodities (means of production and labour-power) transformed into new commodities, which are then sold, for money, which is then used to buy commodities (means of production and labour power). Here it is the two ends of the production process, which appear to be the interruption of the circuit i.e. the period of exchanging the final product for money, and the period of exchanging the money for means of production, and labour-power.

For the circuit of commodity capital, it is again C – M – C, but this time viewed from its opposite pole. Here the circuit begins not with those commodities bought as productive capital, but the commodities produced as the end product. They are exchanged for money, C – M, which is then exchanged for commodities (means of production and labour power). So, C – M – C.

But, there is a difference between this last circuit and the other two. In the circuit of money capital, M – M', where M then forms the start of the new circuit, it appears only as M not M', whether or not the surplus value from the previous circuit is accumulated, i.e. whether there is simple or expanded reproduction. That is because the M that commences the circuit is only the monetary equivalent of the capital value actually thrown into production. M' signifies that an expansion of the capital has occurred, which is the case in M – M'. But, at the start of the circuit, no such expansion has occurred, it is yet to be accomplished as a consequence of the production process. Whether M here is equal to the M that commenced the previous circuit, or else equal to the M + m that completed it, is not relevant. The new circuit can only begin with M as a monetary equivalent of the capital-value as it exists. Only when production occurs does this capital value expand.

The same is true in the circuit of the productive capital P...P'. If the surplus value from the previous cycle has been accumulated, then this still appears at the start of the new circuit as P, because its capital value is what it is. In this circuit it has not been expanded. It can only expand as a result of the production process.

Commodity Capital C' already incorporates surplus value.
Whether that surplus value is used for expanded
 reproduction or to finance unproductive consumption.
But, that is not the case in respect of the circuit of the commodity capital. It always begins with C', and that applies whether there is simple or expanded reproduction. That is because C here, as the end product, always starts life as a product in which surplus value has been embodied. Even with simple reproduction, the production process ensures that C has a higher value than the C (means of production and labour-power) which preceded it. So, the circuit is C' – M'. M – C … P... C'.

“Consequently if simple reproduction takes place in this form, the C' at the terminal point is equal in size to the C' at the starting-point. If a part of the surplus-value enters into the capital circuit, C'', an enlarged C', appears at the close instead of C'. This is merely a larger C' than that of the proceeding circuit, with a larger accumulated capital-value. Hence it begins its new circuit with a relatively larger, newly created surplus-value. In any event C' always inaugurates the circuit as a commodity-capital which is equal to capital-value plus surplus-value.” (p 90)

C', the end product, does not appear as C (means of production and labour-power) in the circuit of the industrial capital that produced it. It only appears as C in the circuit of some other capital. For example, a coal mine produces coal. Its circuit is C – M – C'. The coal is represented by C', because it includes a surplus value. But, when it is sold to some other company for fuel, it appears as means of production, i.e. as C. By, the same token, the coal mine buys machinery that appears in its circuit as means of production, C, but, for the machine maker, it is an end product embodying surplus value, and therefore, C'.

But, whilst means of production sold as a commodity by a capitalist constitute commodity capital, because they embody surplus value, that is not the case with the labour-power sold as a commodity by the worker. That is sold merely as a commodity. To the capitalist that buys means of production and labour-power, both appear merely as commodities, C. But, whilst for the seller of machines, for example, that C is actually C', for the worker, their labour-power only ever constitutes C. The production of the workers' labour-power is not a capitalistic process of production undertaken by the worker, in which they embed surplus value in the commodity they have to sell. The worker can only sell their Labour-Power at the price it costs to produce it, i.e. to buy the necessaries required to reproduce the worker.

Labour can only be capital as part of the productive capital of the capitalist, and therefore, capital not for the worker but for the capitalist that buys it.

Back To Chapter 2

Forward To Part 2

Wednesday, 19 June 2013

1975 Vietnam - 2013 Afghanistan

It is not the fact that the US is now going to be talking to the Taliban that is of real interest. It is true that all conflicts end with some kind of talks between the contending parties, even if it is only for one to sign a declaration of unconditional surrender! The US will not be doing the latter, and the Taliban certainly will not. But, the suggestion, that some politicians have made, that the proposed talks are comparable to the talks between Britain and the Provisional IRA, is ridiculous. On the contrary, these talks are comparable to those between the US and the North Vietnamese, in Paris, just before the US made its hurried departure from Vietnam, and the North Vietnamese tanks rolled in.

Its no wonder the Afghan government has called off its bilateral talks with the US following the news. The US, UK and others have been pulling out of Afghanistan for some time, and these talks are simply a formal recognition that that process is about to be speeded up, and control will return to the Taliban. It is not that which is interesting, but what lies behind it, what it says about the fruits of the US, UK, Al Qaeda Alliance .

According to Channel 4 News, yesterday, the talks will be between the US and representatives of Mullah Mohammed Omar, the leader of the most significant Taliban faction. In fact, it has also been revealed that the US a couple of years ago, secretly flew out Taliban representatives to Qatar, where the Taliban now also has its office. The significance of that is also fairly obvious. Qatar, is one of those feudal, Gulf regimes with which the US and UK are closely allied. It is Qatar that has been responsible, alongside Saudi Arabia, and other Sunni dominated, Gulf regimes, for providing masses of arms to the jihadist fighters in Syria, and in Libya before that, and which is supporting the same forces that are destabilising the Shia regime in Iraq.

Its not surprising that in these US-Taliban talks, the Taliban Political Commission will also be representing the, Al Qaeda linked, Haqqani Network. What is becoming clearer, by the day, is the extent to which an undeclared alliance exists between the US and UK with Al Qaeda, as the mercenary, jihadist wing of the Gulf Regimes. That alliance is a means of furthering the strategic interests both of the US and UK, who seek to minimise the power of Russia and China in the region, and consequently of Iran as their client. But, it is also a means by which the feudal, Gulf regimes assert their own local interests, as against Iran, and other Shia dominated states in the area.

Cameron is only using weasel words, that no one can believe, when he claims that UK support, for arming the jihadists, in Syria, is only intended to support “legitimate” forces. The bourgeois politicians, put up the Syrian National Council, have no more real legitimacy than did the bourgeois politicians of the Libyan National Council before them. Real legitimacy, in these conditions, comes down to who has control of the streets, and in Syria, as in Libya before it, the answer to that question is the jihadists. Cameron and other western bourgeois politicians are not stupid, and even if they were there has been literally billions of dollars spent in academic institutions to understand this basic political theory. Talk of wanting to support democracy by such politicians, therefore, is merely intended for public consumption back home, to sell their platitudes to a public that does not have the benefit of such academic research, but which, simply on the basis of its own experience, knows where such adventures lead, and what their consequences inevitably become.

The US talks with the Taliban no doubt have a further element to them. The reason the USSR invaded Afghanistan, in 1979, was itself based on the fears it has always had, going back to Lenin, and to the Tsarist Empire before that, of its own Islamists. Its what led Lenin to warn specifically in the Theses on The National and Colonial Questions about the danger of Pan-Islamism. Sooner or later, Lenin himself must have realised that ultimately Bolshevism would have to go to war with Political Islam. The extent of that problem is demonstrated, for Russia, almost daily, in the attacks it faces from jihadists, based in Chechnya, and the Central Asian Republics.

As part of its Great Game, the US undoubtedly seeks to keep Russia busy contending with its own terror problems, with Afghanistan once more becoming the swamp from which it rises. That is the more so, given that a rising China has itself begun to show interest in Afghanistan's mineral riches, in a similar way to its involvement in Africa. Without US troops as a target, the US, no doubt hopes that attention will once more focus on these other external powers, and given the US links with the Gulf regimes, that provide much of the financial backing for the Taliban, and Al Qaeda, its obvious how such encouragement might be given.  

Tuesday, 18 June 2013

Capital II, Chapter 2 - Part 7

2) Accumulation and Reproduction on an Extended Scale

Capital can only expand in technologically determined proportions. The Technical Composition of Capital determines, let us say, that with the existing machines, 10,000 kilos of cotton require 10 workers, working 20 hours to process into yarn, using 5 machines over two 10 hour shifts.

In order to increase production, i.e. expand the capital, it may then be necessary to buy an additional machine. But, the surplus value produced may may not be sufficient to fund this in one year. It will then be necessary to save/accumulate the surplus value over several years until a sufficient fund exists to purchase a machine, and to pay for the additional worker to operate it, and to buy the extra 2,000 kilos of cotton to be processed. In other words, a money hoard has to be produced as an inevitable part of capital expansion.

“The formation of a hoard thus appears here as a factor included in the process of capitalist accumulation, accompanying it but nevertheless essentially differing from it; for the process of reproduction itself is not expanded by the formation of latent money-capital. On the contrary, latent money-capital is formed here because the capitalist producer cannot directly expand the scale of his production.” (p 80)

Whether this hoard takes the form of actual money, bank deposits, the purchase of interest bearing securities, or commercial credit to customers, it does not enter the circulation of this capital. It may, of course, enter the circuit of some other capital, as provision of advanced money capital, used for the purchase of Productive Capital. Until such time as it does so, it is only money, only potential capital.

But, the essence of capitalist production is its self expansion, its conversion of surplus value into capital, and from this perspective the failure to convert the money hoard into Productive Capital represents a cost. Industrial Capital must always, therefore, seek to minimise the time when this money capital lies fallow.

The circuit M - M', giving the circuit of money capital, is qualitatively different to the circuit of Productive Capital, P – P'. The former indicates only that an amount of advanced money capital has been augmented, by the production of surplus value contained in C', and realised in an amount of money M'. There everything ends. But, P – P' tells us that the surplus value produced has been accumulated in additional Productive Capital, P'.

“M', as the simple close of M ... M', and also C', as it appears within all these circuits, do not if taken by themselves express the movement but its result: the self-expansion of capital-value realised in the form of commodities or money, and hence, capital-value as M plus m, or C plus c, as a relation of capital-value to its surplus-value, as its offspring. They express this result as various circulation forms of the self-expanded capital-value. But neither in the form of C' nor of M' is the self-expansion which has taken place itself a function of money-capital or of commodity-capital.” (p 82)

Money capital can only perform money functions, just as commodity-capital can only perform commodity functions, and productive capital, production functions. Each taken separately could perform these functions under other modes of production. Money is money, a commodity a commodity, and means of production and labour, forces of production under whatever mode of production. It is only in their totality, as stages within the circuit of industrial capital, that they can be properly understood as functioning as capital.

“But just as the totality of the elements of production announces itself at the outset as productive capital by the fact that the labour-power is labour-power that belongs to others and that the capitalist purchased it from its proprietor, just as he purchased his means of production from other commodity-owners; just as therefore the process of production itself appears as a productive function of industrial capital, so money and commodities appear as forms of circulation of the same industrial capital, hence their functions appear as the functions of circulation, which either introduce the functions of productive capital or emanate from them. Here the money-function and the commodity-function are at the same time functions of commodity-capital, but solely because they are interconnected as forms of functions which industrial capital has to perform at the different stages of its circuit. It is therefore wrong to attempt to derive the specific properties and functions which characterise money as money and commodities as commodities from their quality as capital, and it is equally wrong to derive on the contrary the properties of productive capital from its mode of existence in means of production.” (p 83)

Its clear that surplus value cannot have its origins in the properties either of money or of commodities. M' as the termination of the circuit M – M' exists only as a result, not as a process, revealing the origin of the surplus value m. The same is true of the circuit C – C'.

“C' is always the product of the function of P, and M' is always merely the form of C' changed in the circuit of industrial capital. As soon therefore as the realised money-capital resumes its special function of money capital, it ceases to express the capital-relation contained in M' = M plus m. After M ... M' has been passed through and M' begins the circuit anew, it does not figure as M even if the entire surplus-value contained in M' is capitalised.” (p 83-4)

Ford could not just set up in business.  To produce cars
 efficiently required a minimum amount of capital to
begin with.
If m, the money representation of the surplus value, is to be used as new capital, to start another business, then it must be of the minimum size required to start such a business. If its to be used to expand the existing business it must be of the minimum size required to do that as determined by the technical composition of the capital.

“Thus the owner of a spinning-mill cannot increase the number of his spindles without at the same time purchasing a corresponding number of carders and roving frames, apart from the increased expenditure for cotton and wages which such an expansion of his business demands.” (p 85)

If not then several circuits of this capital will be required so that the surplus value builds up to the necessary level.

“Hence the accumulation of money, hoarding, appears here as a process by which real accumulation, the extension of the scale on which industrial capital operates, is temporarily accompanied. Temporarily, for so long as the hoard remains in the condition of a hoard, it does not function as capital, does not take part in the process of creating surplus-value, remains a sum of money which grows only because money, come by without its doing anything, is thrown in the same coffer.” (p 85)

This money can take the form of actual money, but also of claims on debtors for commodities sold but not yet paid for. It can also take the form of interest bearing deposits etc., which, at least temporarily, takes this money out of the circuit of industrial capital. The nature of these latter, Marx discusses later.

The money hoard may be used for other functions besides the expansion of the capital. Suppose, there is a delay between the production of the commodities and their sale C' – M'. Then the money hoard can be used to purchase means of production and labour-power, so that production is not disrupted. Suppose also that the commodities are sold, but, before the replacement means of production and labour power are bought, the prices of either or both rise, compared to those consumed in the previous cycle. In that case, the money hoard can be used as additional capital in addition to that realised in the sale M', again to ensure that production can proceed on the same scale.

Marx says its important not to confuse this reserve fund with the money balances, which naturally accumulate within a continual process of production. Suppose, there was no surplus value, and so no money surplus waiting to be invested. There would still be money balances. That is because purchases and sales are not taking place simultaneously. A large amount of sales may take place on Day 1, bringing in a large amount of cash. However, there may not be a corresponding large amount of purchases of materials etc. until Day 10. So, this cash will sit as a balance for 10 days. But, it does not constitute a Reserve Fund, precisely because all of that cash is required on Day 10, to make those purchases. It is only the original capital-value in a money form. The Reserve Fund, by contrast, is a fund of money over and above the original capital-value.

“It is rather a part of capital in a preliminary stage of its accumulation, of surplus-value not yet transformed into active capital.” (p 87)

Marx then gives the circuit for Productive Capital.

It can be used to illustrate both simple and expanded reproduction.

“If P equals P, then M in 2) equals M' minus m; if P equals P', then M in 2) is greater than M' minus m; that is to say m has been completely or partially transformed into money-capital. 
The circuit of productive capital is the form in which classical Political Economy examines the circular movement of industrial capital.” (p 88) 

Saturday, 15 June 2013

The US, UK Al Qaeda Alliance

For weeks, prior to the decision, to arm the jihadists, fighting in Syria, the US has been building up its forces in the area. It has thousands of troops, on the border, in its client state Jordan, and it has been pouring weaponry, and resources in ready to establish a “No Fly Zone” over Syria, which as was seen in Libya, is just another name for it beginning to start bombing the hell out of an already devastated country. The decision to “start arming the rebels” is of course, pretty meaningless, because the US, along with its allies, the feudal, Sunni regimes in the Gulf, has been supplying the jihadists with more than enough of the latest weapons, for more than a year, and the CIA has been training the jihadists in Turkey and Jordan during that time too.  The US decision comes a week after the UK got the embargo on arms to Syria from the EU removed.

If there were any rationality or justice in politics, then, of course, David Cameron, and his Government, would be being dragged before a British Court, and charged with treason, because the forces they are allying with in Syria, and who Cameron calls the “legitimate” forces in Syria, are the same political forces that are responsible for the murder of Lee Rigby in Woolwich. They are the same political forces associated with Al Qaeda that have been launching attacks on British citizens, on British streets, as well as killing British soldiers in Afghanistan and elsewhere. But, of course, Cameron and his cronies will not be hauled before a court for such crimes, or for the crime of supporting and promoting terrorism, which any other British civilian would be charged with.

That is because, for now, the principle of “My Enemy's Enemy Is My Friend” applies, and for Cameron, as for Obama, the main enemy is not the Al Qaeda linked terrorists who are killing British citizens, but the Assad regime in Syria, which is not! This is the real logic of what British “Defence” policy amounts to. It has nothing to do with “defending” British citizens, and everything to do with defending the interests of British capital, and of the British state. In fact, the real enemy is not even Assad and his regime. They are merely a milestone on the way to the real goal, which is the overthrow of the regime in Iran, and the consequent weakening of the influence of the US and UK's main strategic opponents in the region – Russia and China.

In order to obtain that strategic goal, the US and UK is prepared to make an alliance with any reactionary force. It has done so many times in the past. In order to defeat the USSR in Afghanistan, the US created Al Qaeda, by financing and promoting Osama Bin Laden, whose family has close links with the Bush family. In the Balkans, the US financed and helped organise through the CIA, the fascists of the Kosovan Liberation Army, which launched attacks on Kosovan Serbs, thereby promoting ethnic violence, and ultimately leading to the murderous attacks of Milosevic, which then gave the pretext for the US invasion.

The Libyan Islamic Fighting Group is linked to Al Qaeda,
 and was backed by the US and its European and Gulf
allies against Gaddafi.  Many of its members come from Britain
 and other European countries.
In years gone by, of course, the US allied itself with all sorts of fascistic forces in Latin America to promote its strategic interests, and engaged in the Iran-Contra affair that involved it in illegally smuggling both drugs and guns, linking it up with its sworn enemy in Iran, in order to promote its closer ally the Nicaraguan Contras. In Libya, they promoted the same sunni, jihadist forces they have allied with in Syria now, and in Afghanistan against the USSR.

The history of these alliances has not even turned out well for the US and its allies. The defeat of the USSR in Afghanistan brought the Taliban to power, and provided Bin Laden with his power base. In Libya, the jihadists it supported against Gaddafi, are the same ones that attacked its Embassy in Benghazi and killed the US Ambassador. The same forces have spread jihad into Mali and other surrounding countries.

In Iraq, the US were led to ally with Shia forces to overthrow its former ally, Saddam, who was backed by the Sunnis. The consequence was a strengthening of the position of Iran. That is one reason I believe that the Iraq War was more a vanity project by the Bush, Neo-Con Government than a strategic project of the US State. But, in Iraq too, the US's Sunni allies within the Gulf, feudal monarchies are now fermenting sectarian war too, just as they are doing in Syria. On the route to Iran, the Shia dominated regime in Iraq will have to be toppled too, along with the regime of Assad. The US seems to be gambling that a regional sectarian war between Shia and Sunnis is a worthwhile cost to pay, to achieve that objective.

The proclamation by the US of arming the jihadists in Syria is virtually to declare that openly. In recent weeks the Assad regime, with the help of Hezbollah, has been pushing back the Sunni jihadists to an extent that it might have been coming close to a tipping point. In fact, a serious weakening of the forces of the Sunni jihadists is probably the best hope Syria has of some kind of peace deal. If the foreign jihadists were defeated, and the Syrian Alawites, and Christians could feel more confident that some kind of international peace deal could be reached that would safeguard them against the potential of being exterminated – which is now inevitable if Assad is defeated – that just might have opened the door for Russia, China and other international forces to have brought Assad to the negotiating table to bring in some form of Provisional Government. That kind of imperialist stitch up is not something Marxists would recommend or support, but it is probably the only hope of Syria not being drawn further into a never ending blood bath, that will probably spill over to the surrounding states, including Israel.

The US and UK decision, however, can only act to intensify the blood letting, and prolong it. The US has a track record in that too. In WWI and WWII, it waited to see which side was winning before deciding to come in on the losing side. That way, it could prolong the economic damage done to both sides, thereby strengthening the global position of the US. The US seems to have decided that its allies in the Gulf, feudal regimes are more important to it than is even Israel. That is not because of Gulf Oil. The US can get as much cheap oil from Saudi Arabia as it wants. Besides, with the development of shale oil and gas, the US now seems set to even surpass Saudi Arabia, as the world's largest oil producer.

The US concern is rather to maintain its dominant strategic position in a region that is vital to any future global conflicts. In WWII, Churchill pulled most of Britain's tanks out of Britain in 1940, and sent them to North Africa to defend its oil supply, and the Suez Canal, which controlled supplies to and from the Empire. Today, the Gulf represents the same strategic significance. In any global conflict, it has the ability to choke off oil supplies to your opponents, as well as providing an important strategic route to the resources of Central Asia. The Balkans were important for a similar reason, in providing a southern route up into Russia. US Imperialism has its eyes not on the immediate economic interests of today, but on the political and military conflicts of tomorrow. That is one reason it has also shifted its military forces to a much greater degree out of Europe, and into the Pacific.

Workers also need to have a longer term perspective of how to pursue their interests than simply trying to respond to the latest atrocity with moralistic sentiments that “something must be done”. What actually must be done is to build the labour movement up, internationally on the basis of the need to fight its own battles, and not to rely on the intervention at home or abroad of the capitalists state to achieve those aims. In the same way that we need to build workers defence groups at home to protect ourselves against that very state during strikes and other battles, as well as against the attacks of the fascists – be the fascists those of the BNP and EDL or the clerical-fascists of political Islam like those that killed Lee Rigby, and week after week get away with preaching the most rancid views – so we also need to build our own international, labour movement defence forces that can intervene directly to support workers anywhere in the world when they come under attack.

As Trotsky put it writing to oppose imperialist intervention in the Balkans,

“Democracy has no right, political or moral, to entrust the organisation of the Balkan peoples to forces that are outside its control – for it is not known when and where these forces will stop, and democracy, having once granted them the mandate of its political confidence, will be unable to check them.

The Balkans for the Balkan peoples! This means not merely that the hands of the Great Powers must not reach out towards the border of the Balkans but also that, within this border, the Balkan peoples must settle their own affairs, with their own forces, and according to their own ideas, in the land where they live.” (pp 148-52)

“But it is not at all a matter of indifference by what methods this emancipation is being accomplished...That positive, progressive result which history will, in the last analysis, extract from the ghastly events in the Balkans, will suffer no harm from the exposures made by Balkan and European democracy; on the contrary, only a struggle against the usurpation of history's tasks by the present masters of the situation will educate the Balkan peoples to play the role of superseding not only Turkish despotism but also those who, for their own reactionary purposes, are, by their own barbarous methods, now destroying that despotism...

Our agitation, on the contrary, against the way that history's problems are at present being solved, goes hand in hand with the work of the Balkan Social Democrats. And when we denounce the bloody deeds of the Balkan 'liberation' from above we carry forward the struggle not only against liberal deception of the Russian masses but also against enslavement of the Balkan masses.” (p 293-4)

And finally, in almost identical conditions to the destruction of Syria today, and of Libya and Iraq before it, Trotsky writes of this “Liberation”.

“'Free'! And to whom, pray, are the Macedonians to pay the costs of their 'liberation'? And exactly how much do these costs amount to? How easily people operate with words, and now with living concepts, when they are not involved themselves! ..'Free'! Have you any idea what the areas that were recently the theatre of war have been turned into? All through those places a terrible tornado has raged, which has torn up, broken, mangled, reduced to ashes everything that man's labour had created, has maimed and crushed man himself, and mortally laid low the young generation, down to the baby at the breast and even further to the foetus in the mother's womb. The Turks burned and massacre as they fled. The local Christians, where they had the advantage, burned and slaughtered as the allied armies drew near. The soldiers finished off the wounded, and ate up or carried off everything they could lay their hands on. The partisans, following at their heels, plundered, violated, burned. And, finally, along with the armies, epidemics of typhus and cholera advanced across the 'liberated' land.” (p 330) 

On past experience it is this kind of “freedom” that Imperialist intervention in Syria is likely to bring too.

See Also:
Whither Syria?
Lessons Of The Balkans
Trotsky v The Interventionists
Liberal Interventionism and the Law Of Unintended Consequences

Northern Soul Classics - Westbound No. 9 - Flaming Ember

This is classic early Torch pre- All-Nighter days.  Takes me back to when I was about 14 and first starting to go to the Torch mid week.

Thursday, 13 June 2013

Capital II, Chapter 2 - Part 6

Part of this circuit of productive capital is the purchase of labour-power, M – C(L). But, for the worker, this appears as C(L) – M – C, which constitutes a separate circuit outside the circuit of capital. But, it is, of course, a circuit nevertheless needed by capital, because unless the worker buys necessary commodities, M – C, they cannot continue to live!

“The only condition which the act C' — M' stipulates for capital-value to continue its circuit and for surplus-value to be consumed by the capitalist is that C' shall have been converted into money, shall have been sold. Of course, C' is bought only because the article is a use-value, hence serviceable for consumption of any kind, productive or individual. But if C' continues to circulate for instance in the hands of the merchant who bought the yarn, this at first does not in the least affect the continuation of the circuit of the individual capital which produced the yarn and sold it to the merchant. The entire process continues and with it the individual consumption of the capitalist and the labourer made necessary by it. This point is important in a discussion of crises.” (p 77)

It can easily be seen why. Having been sold to the merchant, the money from its sale, M1, goes to buy yet more productive capital, which is used to produce even more commodities of the same type. But, although the original commodities are now in the hands of the merchant, there is no guarantee they will find an ultimate consumer. Still less is there a guarantee that these even greater quantity of the same commodities, now being produced, to replace them, will find a buyer.

“The quantity of commodities created in masses by capitalist production depends on the scale of production and on the need for constantly expanding this production, and not on a predestined circle of supply and demand, on wants that have to be satisfied. Mass production can have no other direct buyer, apart from other industrial capitalists, than the wholesaler. Within certain limits, the process of reproduction may take place on the same or on an increased scale even when the commodities expelled from it did not really enter individual or productive consumption.” (p 77)

It is this fact that the consumption of commodities takes place outside the circuit of capital, that means that this circuit may not be completed. The commodities produced may not find an ultimate consumer, the labour-time expended on their production was not socially necessary, and, therefore, the productive capital (means of production and labour power) used for their production was over accumulated, and was in reality, therefore, not capital at all i.e. was not self-expanding value.
As Marx describes it,

“So long as the product is sold, everything is taking its regular course from the standpoint of the capitalist producer. The circuit of capital-value he is identified with is not interrupted. And if this process is expanded — which includes increased productive consumption of the means of production — this reproduction of capital may be accompanied by increased individual consumption (hence demand) on the part of the labourers, since this process is initiated and effected by productive consumption. Thus the production of surplus-value, and with it the individual consumption of the capitalist, may increase, the entire process of reproduction may be in a flourishing condition, and yet a large part of the commodities may have entered into consumption only apparently, while in reality they may still remain unsold in the hands of dealers, may in fact still be lying in the market. Now one stream of commodities follows another, and finally it is discovered that the previous streams had been absorbed only apparently by consumption. The commodity-capitals compete with one another for a place in the market. Late-comers, to sell at all, sell at lower prices. The former streams have not yet been disposed of when payment for them falls due. Their owners must declare their insolvency or sell at any price to meet their obligations. This sale has nothing whatever to do with the actual state of the demand. It only concerns the demand for payment, the pressing necessity of transforming commodities into money. Then a crisis breaks out. It becomes visible not in the direct decrease of consumer demand, the demand for individual consumption, but in the decrease of exchanges of capital for capital, of the reproductive process of capital.” (p 78)

Its important what Marx says here about “This sale has nothing whatever to do with the actual state of the demand”. In other words, Marx is not saying that this situation arises due to an inadequacy of demand, or under consumption. This situation can arise even if demand remains constant or even rises! In fact, as Marx describes elsewhere, a crisis may arise precisely at a time when wages are rising, and consumption along with it. As he says here, “this reproduction of capital may be accompanied by increased individual consumption (hence demand) on the part of the labourers” as well as the capitalist. The point is, as Marx again describes elsewhere, consumers only have a certain requirement for any particular commodity, and once it is satisfied, they have no need for more. In fact, the more wages and living standards have risen, the more likely it is that workers have reached that stage for a greater number of commodities. If the price of these commodities falls, they may or may not buy more of it. The example Marx gives elsewhere is of Sheffield cutlery. If wages rise, he says, workers may buy it, but having done so, they will not buy more, if their wages rise further. To use the terminology of orthodox economics, beyond a certain level, consumers would experience diminishing Marginal Utility, from additional purchases of such goods. Demand for them would become elastic so that even large reductions in their prices bring about only small increases in demand and revenue, or may even result in falling revenue.

This can be the cause of what Marx calls a partial crisis of overproduction. That is more of some particular commodity has been produced than can be sold, at prices that enable the capital used in their production to be reproduced. It means that capital has been mis-allocated. It is then one form of what Marx calls a crisis of disproportion i.e. capital has been allocated in the wrong proportions across the economy according to the requirements of the Law of Value. The more Capital raises its productive power, the more it accumulates, the more likely it is that such a crisis will occur, because the level of production will continue to increase inexorably, thereby exceeding the ability of the market to consume it. Elsewhere, Marx describes the crisis of the 1840's, for example, where British textile production rose so much that it flooded world markets with its products. It took three years, before all of the excess production sitting in the market could be cleared.

But, its also possible that such a crisis may arise, not just for one or several commodities/industries, but for all or a large number of commodities. Then a generalised crisis of overproduction occurs. Partial crises can be corrected by reallocating capital, but generalised crises cannot because there is nowhere for it to be reallocated to. Generalised crises are more frequent and prolonged during periods of Long Wave downturn, precisely because during such periods, there is a lack of a range of new types of commodity into which capital can be allocated.

The consequence of this failure of the circuit to complete is that money-capital is then not wholly thrown back into the production process. It might be that it is only a portion of m, i.e. of the surplus value, so that expansion is reduced, or it may be that a portion of M itself is withheld representing an actual contraction. The latter can transform a partial crisis into a generalised crisis, precisely because it does mean that then the level of aggregate demand in the economy is reduced.

Under these circumstances, the money-capital not thrown back in assumes the form of a hoard. In fact, if we look at the current situation that is what we see. Firms continue to make large profits, demand continues to rise, but only modestly outside China and other rapidly growing economies. There is no point then in firms throwing back all of these large profits into increased production that could not be sold, which is why that money-capital has built up in large money hoards on balance sheets, in bank deposits, and sovereign wealth funds, also contributing to low interest rates via Financial Repression.

Huge corporations have built up astronomical
money hoards, as they have made huge profits, only some
of which has been invested in new productive-capital.
  This excess supply of capital over demand, fuelled by
a rising rate of profit, over the last thirty years is also
why interest rates have steadily fallen over that period.
The shift from the Spring to Summer phase of the
Long Wave means that is ending, interest rates are set to rise.
“This part is only temporarily withheld from circulation, in order to go into action, perform its function, in due time. This storing of it is then in its turn a function determined by its circulation and intended for circulation. Its existence as a fund for purchase and payment, the suspension of its movement, the interrupted state of its circulation, will then constitute a state in which money exercises one of its functions as money-capital. As money-capital; for in this case the money temporarily remaining at rest is itself a part of money-capital M (of M' minus m, equal to M), of that portion of the value of commodity-capital which is equal to P, to that value of productive capital from which the circuit starts. On the other hand all money withdrawn from circulation has the form of a hoard. Money in the form of a hoard therefore becomes here a function of money-capital, just as in M — C the function of money as a means of purchase or payment becomes a function of money-capital. This is so because capital-value exists here in the form of money, because the money state here is a state in which industrial capital finds itself at one of its stages and which is prescribed by the interconnections within the circuit. At the same time it is here proved true once more that money-capital within the circuit of industrial capital performs no other functions than those of money and that these money-functions assume the significance of capital-functions only by virtue of their interconnections with the other stages of this circuit.” (p 78-9)

M does not become transformed into M1 as a result of being money-capital, but only because commodity-capital has been transformed from C to C1, that is a consequence of the production process.

“If the continuation of the process of circulation meets with obstacles, so that M must suspend its function M — C on account of external circumstances, such as the conditions of the market, etc., and if it therefore remains for a shorter or longer time in its money-form, then we have once more money in the form of a hoard, which happens also in simple commodity circulation whenever the transition from C — M to M — C is interrupted by external circumstances. It is an involuntary formation of a hoard. In the case at hand money has the form of fallow, latent money-capital. But we will not discuss this point any further for the present.

In either case however persistence of capital in its money state appears as the result of interrupted movement, no matter whether this is expedient or inexpedient, voluntary or involuntary, in accordance with its functions or contrary to them.” (p 79)

Back To Part 5

Forward To Part 7