Thursday, 28 November 2013

Capital II, Chapter 10 - Part 5

At root, Smith's confusion is one between fixed and circulating capital on the one hand, and productive and circulation capital on the other, though he chops and changes his definitions between them. The arguments Smith uses for defining capital as fixed can be used to describe productive capital, and those he uses to describe circulating capital to describe circulation capital. But, in the end the definitions are all jumbled together.

“In opposing circulating capital to fixed, no emphasis is placed on the fact that this opposition exists solely because it is that constituent part of productive capital which must be wholly replaced out of the value of the product and must therefore fully share in its metamorphoses, while this is not so in the case of the fixed capital. Instead the circulating capital is jumbled together with those forms which capital assumes on passing from the sphere of production to that of circulation, as commodity-capital and money-capital. But both forms, commodity-capital as well as money-capital, are carriers of the value of both the fixed and the circulating component parts of productive capital. Both of them are capital of circulation, as distinguished from productive capital, but not circulating (fluent) capital as distinguished from fixed capital.” (p 203)

Marx points out that this false distinction between fixed and circulating capital, rather than the distinction between constant and variable capital also then acts to obscure the real source of surplus value. 

Smith: “That part of the capital of the farmer which is employed in the instruments of agriculture is a fixed, that which is employed in the wages and maintenance of his labouring servants is a circulating capital.

He makes a profit of the one by keeping it in his own possession, and of the other by parting with it. The price or value of his labouring cattle is a fixed capital in the same manner as that of the instruments of husbandry; their maintenance” (that of the labouring cattle) “is a circulating capital in the same manner as that of the labouring servants. The farmer makes his profit by keeping the labouring cattle, and by parting with their maintenance. 

“Both the price and the maintenance of the cattle which are bought in and fattened, not for labour but for sale, are a circulating capital. The farmer makes his profit by parting with them.” [Vol. II, pp. 255-56.]” (p 204)

Back To Part 4

Forward To Part 6

Tuesday, 26 November 2013

Capital II, Chapter 10 - Part 4

In short, in the process of circulation, the same commodities are metamorphosed alternatively into money, and then other commodities, by changing from hand to hand, but in the process of production, the commodities that make up the productive capital, remain in the same hands, and their metamorphosis into new commodities is a real physical transformation.

The important distinction between fixed and circulating capital, moreover, is not as Smith also argues, that fixed capital only wears out by degrees. That is true, Marx says of similar means of production under all modes of production. This fact is only the point of departure for the real distinction. That is that as a result of this fact, a portion of the fixed capital's value remains fixed within, whilst another part circulates along with the product.

“To this different behaviour of material elements corresponds however the transmission of value to the product, and to this in turn corresponds the replacement of value by the sale of the product. That and that alone is what constitutes the difference in question. Hence capital is not called fixed because it is fixed in the instruments of labour but because a part of its value laid out in instruments of labour remains fixed in them, while the other part circulates as a component part of the value of the product.” (p 201-2)

Smith: “"If it (the stock) is employed in procuring future profit, it must procure this profit either by staying with him (the employer), or by going from him. In the one case it is a fixed, in the other it is a circulating capital." [p. 189.] (p 202)

Marx once again points out that this conception of profit essentially from the perspective of the individual capitalist, as stemming from their selling price being higher than their buying price, is crude compared with his more scientific analysis elsewhere. In fact, as Marx has demonstrated, if commodities exchange at their values, then it is impossible for a profit to arise if the product merely reproduces the prices of the commodities used in its production. Simply introducing a time dimension cannot change that.

“Not only the price of materials and that of the labour-power is replaced in the price of the product, but also that part of value which is transferred by wear and tear from the instruments of labour to the product. Under no circumstances does this replacement yield profit. Whether a value advanced for the production of a commodity is replaced entirely or piecemeal, at one time or gradually, by the sale of that commodity, cannot change anything except the manner and time of replacement. But in no event can it transform that which is common to both, the replacement of value, into a creation of surplus-value.” (p 202)

The mistake is to confuse the fact that profit only appears, is only realised, when the commodity is sold, for the reality that the surplus value is created in the process of production. The appearance creates the illusion that it is the exchange that creates the surplus rather than the act of production.

As Marx says, in this respect, Smith's position was a step back from the understanding developed by Quesnay.

“Quesnay, on the other hand, had derived these differences from the process of reproduction and its necessities. In order that this process may be continuous, the value of the annual advances must annually be replaced in full out of the value of the annual product, while the value of the investment capital need be replaced only piecemeal, so that it requires complete replacement and therefore complete reproduction only in a period of, say, ten years (by a new material of the same kind). Consequently Adam Smith falls far below Quesnay.” (p 202-3)

There is an obvious problem which Smith also needs to address which is if profit arises out of exchange, and his definition of fixed capital is that which is not exchanged, but remains in production, in the hands of its original master, how does this capital produce profit. Smith simply argues that fixed capital makes profit by remaining in production, whilst circulating capital makes profit by circulating.

Back To Part 3

Forward To Part 5

Monday, 25 November 2013

How High Can Stocks Go? - Part 1

Keynes, who was a successful investor as well as economist, wrote that markets can remain irrational longer than most people can remain solvent. On Friday, the Dow Jones 30 Index finished over 16,000. Markets are significantly higher for the year, and for the last few months have been hitting new all-time highs, week after week. As usual, in such conditions, the business channels continue to cheer on the rallies, whilst claiming to only report the facts. They and the market bulls proclaim that despite such rises, markets remain fairly valued, or at best only a bit frothy. Yet, on many measures such as Tobin's Q, or the Cyclically Adjusted Price Earnings, markets are at levels they have only ever been at during times when there have been crashes. But, that has been true for months now. In 1996, Alan Greenspan proclaimed that markets exhibited “irrational exuberance”, but it was another 4 years, until 2000, before they crashed. From around 2003, the UK property market was judged to be in a bubble, yet it was not until 2008 that it crashed, and even then it quickly bubbled up again as mortgage rates were slashed. So, how high can stocks go?

Logically, the value of a share should be equal to what it is a share of, that is the value of the company. That is basically what Tobin's Q measures. It is a ratio of the total value of the shares in a company compared to the cost of replacing the capital employed by the company. That measure can then be extended across all shares traded to determine whether markets are above or below a fair value. 

The point from where global stock markets, and particularly the US stock markets, began to rise substantially is 1982. Yet, its clear that the rise in the value of these markets has little or nothing to do with the growth of economic activity, and, therefore, of productive capital in the period after that. In fact, that is not unusual. Periods of stock price appreciation have frequently accompanied periods of sluggish economic growth, and vice versa, for reasons I will explain later.

US GDP rose by 848% between 1950 and 1980, from $294 billion to $2788 billion. Between 1980 and 2000, it rose from $2788 billion to $9951 billion, a rise of 257%. Between 2000 and 2012, it rose to $15094 billion, a rise of 51.68%. I have chosen these dates because they are the closest I can get to periods of the Long Wave, i.e. 1949 – 74 (boom), 1974-1999 (downturn), 1999 – (boom).

For a fair comparison, I have looked at the compound increase per annum for each period. For the first period it is 7.79%, and 6.57% and 3.53% for the further two. Because, these periods do not properly coincide with the Long Wave, I'd suggest that they underestimate the higher growth in the first period compared to the second. They include the period of the second slump between 1974 and 1980 – US GDP fell 14.4% between Q4 1973 and Q2 1975 alone - and that the figure for the period after 2000, reflects the effect of the relative decline of the US, and the effect of the recession after 2008, on what is still only the first half of the boom phase.  In addition, these figures are nominal values.  Given that inflation was generally low in the first period, and last period, but high in the second period, this also flatters the real growth between 1980 -2000.  I will look at real rates of growth later.

However, the point here is to compare these figures for economic growth, which can also be used as a proxy for the growth of capital value in the economy, against what happened with the stock markets. For the first period, the Dow Jones Index rose from 200 to 824 in 1980, to 11723 in 2000, and to 13593 in 2012. In terms of annual compound growth this is then, 4.83%, 14.2%, and 1.24%. In other words, between 1980 and 2000, the Dow Jones Index rose by three times as much on an annualised basis, as it did in the high growth post war boom period from 1950 to 1980.

The low figures for 2000 to 2012, reflects the effect of the 2000 Stock Market Crash. I started compiling this data a year ago, but during that time, the Dow has risen from 13593, to now over 16000, a rise of 18%. Factoring that in would then give an annualised figure around 3% for the period. So, although there is a general belief that bubbles have been blown up in financial markets over the last 10 years, the data here suggests that the period when these asset price bubbles were inflated was, in fact, the 1980's and 90's. The money printing of the last 10 years, despite being of astronomical proportions, seems to have been much less effective in that regard, and has only served to keep already inflated asset prices inflated. The same picture is seen for other markets.

For the S&P 500. it rose from 16.93 to 107.94, to 1469.25, to 1379.32 over the same period. That is compound annual rates of 6.37, 13.95 and - 0.53 respectively. Last week it closed at 1805, which gives an approximate rise since 2000 of 1.5% p.a.

Forward To Part 2

Sunday, 24 November 2013

US Politics and Economics v The UK and EU - Part 7

As I wrote in 2010,

“Josef Steindl in “Maturity and Stagnation in American Capitalism” (Monthly Review Press 1976), argued that in the 1930's it was the existence of Monopoly and Oligopoly that enabled very large firms to resist the need to restructure. They were able to use their massive size to push the burden on to others, and also to use their huge Balance Sheets to simply sit it out. I would argue that that is also precisely what the US giants like GM, Ford, and GEC did. To the extent that they did restructure, it was not into new areas of production, not into the new dynamic industries of technology, and so on, but into the burgeoning financial sector, which they could simply tack on or grow from their existing activities.

In short, the cleansing function of a generalised crisis was not allowed to do its job thoroughly.”

But, as I wrote there, its not that a restructuring of capital was not taking place. It was, and the type of restructuring in the US and in the UK, in particular, on the one hand explains, and on the other is explained by, the strength of Conservative parties in both countries. On the one hand, a process of de-industrialisation was taking place, in which large sections of big manufacturing capital was relocating to rapidly developing economies in Asia and elsewhere, with large supplies of the kind of cheap, unskilled labour it required. 

In Capital I, Marx asserts the fact, witnessed generally, that wherever wages are low, labour is expensive and vice versa. What he means is that low wages encourage capital not to invest in machines and new techniques, and vice versa. So low wages encourage low levels of productivity, which increases unit costs of labour. So, in the 19th century, wages in Europe were 50% of those in Britain, and conditions worse too. Yet, Britain was far more competitive, precisely because its workers were backed by far more capital in the shape of better bigger machines etc. But, in these developing economies low wages were, in fact combined with the latest machines in many cases. That is because, those machines had already been developed in the West as an alternative to higher western wages, and as a result of the commodities being produced entering their mature stage. The production techniques were then simply transported to these developing economies, where wages were a fraction of those in the West, and yet could still be above those generally applying within the local economy, thereby meeting the requirements of Fordism and social democracy. In fact, during this period there is a rapid development of bourgeois social democracy in many of these developing economies, sweeping away the Bonapartist regimes that existed there previously.

There is no way that western workers could then compete with production of mass produced, low value goods from these economies, because it would simply not have been possible to reduce western workers wages down to those low levels. To do so would have caused civil unrest to a destabilising degree, and the collapse of aggregate demand that would in any case have ensued, would have sent the global economy into a Depression far greater than that of the 1930's.

The restructuring that occurred was then both that this de-industrialisation took place, but also that the manufacturing industry that could continue to operate profitably in the West was led to become itself more efficient by shedding some of its non-core operations. They were sub-contracted out to a range of small firms of engineers, joiners, electricians, cleaners and so on, some of whom in turn sub-contracted out their work to home-workers and so on. At each stage of decentralisation, the wages of those employed to carry out the work tend to be lower, the conditions of work worse, the security of employment less, until today we reach the situation of millions of workers working on temporary contracts, and zero hours contracts etc.

In an article in Capital & Class 19, in Spring 1983, entitled, “The Decentralisation of Production – The Decline of The Mass-Collective Worker?”, Fergus Murray set out the various means by which this kind of restructuring was taking place. 

The process then of de-industrialisation, whereby the older huge manufacturing enterprises move to low wage economies, as part of a process of globalisation, goes along with a process, which increases the number of small companies, and thereby increases their social and political weight. Some of the changes in technology also facilitate such a change. For example, even before Eddie Shah established “Today” as an alternative to the Fleet Street dominated press, the path had been opened up by the development of a plethora of small “instant print” workshops that were able to massively undercut the traditional print shops, by utilising computers and word processors to do the typesetting and graphics, and utilising the latest print technology including photocopiers to produce large or small quantities at low cost, and to order.

On the one hand, bourgeois social democracy had failed to keep its side of the bargain, as the Long Wave Boom ended, and unemployment rose, whilst living standards failed to rise. Workers either failed to vote, or else turned to the more reactionary bourgeois parties. With the increased social weight of the small capitalists within these conservative parties, their own social-democratic wings became subdued, and the interests of small capital were pushed forward.

Back To Part 6

Forward To Part 8

Saturday, 23 November 2013

For A Political Revolution At The Co-op - Part 2

On the basis of workers' democracy, even where elections are required, for example to appoint managers, chairmen etc., or delegates to higher co-operative or labour movement bodies, workers can make decisions based on direct knowledge and experience of those fellow workers to be appointed to the position, and that same democracy can ensure that control is exerted over them. The benefits of that are obvious even when those appointed to such positions are not workers themselves, but have the required expertise. For example, Marx writes about the Lancashire textile co-operatives.

“The wages of management both for the commercial and industrial manager are completely isolated from the profits of enterprise in the co-operative factories of labourers, as well as in capitalist stock companies. The separation of wages of management from profits of enterprise, purely accidental at other times, is here constant. In a co-operative factory the antagonistic nature of the labour of supervision disappears, because the manager is paid by the labourers instead of representing capital counterposed to them...

It is manifest from the public accounts of the co-operative factories in England that — after deducting the manager's wages, which form a part of the invested variable capital much the same as wages of other labourers — the profit was higher than the average profit, although at times they paid a much higher interest than did private manufacturers. The source of greater profits in all these cases was greater economy in the application of constant capital. What interests us in this, however, is the fact that here the average profit ( = interest + profit of enterprise) presents itself actually and palpably as a magnitude wholly independent of the wages of management. Since the profit was higher here than average profit, the profit of enterprise was also higher than usual.” 


And, Marx points out that where former owners of failed companies were employed, by workers when they took over these factories, they were so on low wages compared to what they had previously paid themselves for the function of supervision.

But, its clear then why a member owned Co-operative cannot fulfil this function. The members of such a Co-op have no material reason for its continuation outside what meets their immediate needs for the supply of good quality commodities at a low price. If some other enterprise can provide that for them, they will have every incentive to simply buy from that alternative supplier. In fact, they will have every reason to take short term decisions that may be detrimental to the long-term interests of the business. One such reason might also be to extract as much in dividends from the business as possible.

The early retail Co-ops were established by workers to provide themselves with such quality goods at low prices, and because many of these workers had ideological reasons for establishing them. That meant they would be likely to participate actively in decision making. But, the very success of such Co-ops undermines that basis of their continuation. The larger the Co-op membership, the larger the number of members who have no real ideological commitment to it; the larger the number who are simply passive members, prepared to hand over the task of management and control to professional managers, or simply activists prepared to put themselves out enough to get elected to positions. In her book, “The Co-operative Movement and Communities in Britain, 1914-1960”, Nicole Robertson cites, studies of both the LP and even of the German SPD at its height, showing the number of activists was tiny compared to the enlisted membership. She quotes G.D.H. Cole who wrote that it represented,

“... a perpetual danger for Co-operative Societies as for many other voluntary bodies, [because] their affairs may fall into the hands of small cliques with little or no participation in the control of policy by the main body of members.” (p 215)

For workers in a worker-owned co-operative, the task of participating in decision-making is not a “voluntary” act, but an essential aspect of the labour process. But, as soon as direct ownership of the means of production is removed from the workers and handed to someone else, be it a capitalist manager, the capitalist state, or even a “workers' state”, that link is broken, other than at the most mundane level. In any of these situations, workers have to co-operate and communicate with each other because even capitalist production is based, via the division of labour, on co-operative labour. But, beyond that level there is no reason for them to have any concern. Their labour is alienated. In fact, that is more likely to be the case in a situation where the ownership of the means of production is in the hands of the state, precisely because such ownership encourages rent-seeking. If the enterprise you work for has the potential of going bust, you may feel, as a worker, that it is your interest to ensure its success, by producing commodities efficiently and of good quality, if only to help protect your job. If the firm is underwritten by the state and you get paid anyway, no such material incentive exists, which is part of the reason for poor quality and lack of care in the NHS, for instance. It was a major reason for the inefficiency and poor quality of products and services in the USSR.

Workers democracy is not something that can simply be plucked out of thin air to be imposed on alien property relations. It can only grow out of truly proletarian property relations based upon direct workers ownership and control of the means of production. But, for the same reasons as I will demonstrate, neither can proletarian property relations operate under a system of bourgeois representative democracy.

Northern Soul Classics - You Just Don't Know - Chubby Checker

Another Chubby classic from the Torch nighters.



Thursday, 21 November 2013

Capital II, Chapter 10 - Part 3

Marx points out that using Smith's earlier definition of circulating capital, as that in the process of circulation, the machine would have to be defined as circulating capital, because for the machine maker, it forms part of his commodity-capital.

“Consequently with Adam Smith things can function as fixed capital (as instruments of labour, elements of productive capital), or as “circulating” capital, commodity-capital (as products thrust out of the sphere of production into that of circulation), all depending on the position they occupy in the life-process of capital.” (p 198)

Marx points out, however, that Smith then seems to abandon his definition of fixed and circulating capital based on whether it is employed in production or selling and writes,

“Different occupations require very different proportions between the fixed and circulating capitals employed in them.” (p 198)

In other words, he then reverts to a definition of fixed and circulating capital based on these divisions within productive capital.

Smith's other use of fixed and circulating is a distinction in which the “circulating” capital is one that changes masters, and it is in this process of exchange that profit arises. The impossibility of that being a source of profit in general, was discussed at length in Volume I. But, this idea of circulating capital being that which changes masters makes no sense either. Marx gives the example of a copper mine. The copper itself is a product of nature. The worker who mines it continues to belong to himself, and is not transferred to a new master. His labour itself does not form any material component of the end product. But also, the coal used to power the mine's steam engine, and all the other auxiliary materials, which do not enter materially in the end product, would have to be defined, on Smith's definition, as “fixed” capital, because they do not change masters!

If we take yarn and the cotton that composes it, the cotton as an element of productive capital, does not change masters. It remains in the possession of the productive capitalist, who does not exchange it, but processes it.

So, these materials do not circulate any more than the machines on Smith's basis. In fact, a portion of these raw materials and auxiliary materials, as well as labour-power, must always be “fixed” in Smith's sense, precisely because they are productive capital, and are engaged in the production process, which appears as an interruption in the process of circulation – be that circulation of commodities or of money.

“And all the elements of productive capital, whether fixed or circulating, equally confront, as productive capital, the capital of circulation, i.e., commodity-capital and money-capital.” (p 200)

Smith: ““The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession or continues in the same shape.” [Vol. II, p. 254.]” (p 201)

But, this statement about fixed capital, confuses the appearance that the value of the commodity has increased, as a consequence of its exchange with the reality that it has increased in the process of production. The process of exchange can only ever bring about exchange of the same commodities and their monetary equivalents, their transfer into other hands. Only the production process can create new products and new value. The process of circulation is required for productive capital to exist, because the industrial capitalist must exchange money for productive capital, but this signifies something qualitatively different to the mere exchange of commodities and money, C – M – C, which characterises Merchant Capital.

Back To Part 2

Forward To Part 4

Wednesday, 20 November 2013

For A Political Revolution At The Co-op - Part 1

I'm not really concerned whether the Reverend Flowers is breaking bad, only whether he has been responsible for breaking the bank. The fact of him possibly buying crystal meth or other drugs is, as far as I'm concerned, a matter for him and no one else, and just yet another incidence of a bible thumper being shown to be a hypocrite. There's no more reason people should be criminalised or victimised for buying some drugs rather than buying other drugs such as tobacco or alcohol. It would, however, be just as much concern whether he was incapable of doing his job, because of being under the influence of an illegal drug as a legal one. That from what has been seen does not seem to be the case. He seems not to have been capable of doing his job whether he was under the influence of drugs or not.

The Government, who only months ago, under their Big Society scam were lauding the idea of Co-operatives, have been keen to act in their usual opportunist fashion, and use the incident as a means to beat the Labour Movement over the head. They are proposing an Inquiry. The Labour Movement should not be opposed to an inquiry into how come someone so apparently incapable of doing the job became Chairman of the Co-op Bank, but we should, not be happy that the capitalist state conducts that inquiry. We need a Workers Inquiry into what happened, and it should lead the Labour Movement to recognise failings with the way the Co-operative Movement is set up, indeed with the way the Labour Movement as a whole is set up, and lead us to take action to remedy it. Many of those failings are the same structural failings that led to Stalinism. The solution to Stalinism was a Political Revolution, to remove political power from the hands of a corrupted workers bureaucracy established on the back of statised property, and to bring political control under the workers, as well as to bring day to day control of property under the direct control of workers. We need a similar Political Revolution within the Co-operative Movement, and indeed throughout the Labour Movement.

In recommending to workers that they establish co-operatives, Marx suggested that they should establish worker owned, producer co-operatives rather than member owned retail co-operatives. He wrote,

“We recommend to the working men to embark in co-operative production rather than in co-operative stores. The latter touch but the surface of the present economical system, the former attacks its groundwork.” 


But, there are other reasons for workers to embark on worker owned production rather than member owned retailing, and it demonstrates why bourgeois representative democracy is not compatible with proletarian productive relations. The basis of worker owned, co-operative production requires that workers as part of their work process, co-operate, and the necessary concomitant of that co-operation is that they communicate with one another. Even at the most basic level of production, that co-operation and communication requires that they arrive at some degree of consensus about every day decisions. The fundamental aspects of workers democracy are built into the work process, rather than being something alien and additional to it, in the same way that, for example, workers democracy via a trade union takes place.

To take part in Trade Union democracy, requires that workers do something in addition to their normal work day. Anyone who has been a trade union workplace organiser knows how difficult this can be outside exception circumstances. As a UNISON Branch Secretary, I organised regular workplace meetings for members during lunch times. The Branch even laid on buffet lunches to encourage people to attend, and so they did not lose time getting their meals. Even then, relatively few turned up, though some did come back after having had their lunch break, and help themselves to the free food! The one time we managed to get an almost 100% attendance is when in addition to free food, we held a raffle with a £100 first prize, that you could only win if you stayed for the whole meeting.

But, decision making as part of the work process is not additional time that has to be spent. Moreover, where decision making at a higher level is required, workers having become confident in their ability to make day to day decisions, are more likely to participate fully in such additional activities if they are integrated into the general life of the factory or enterprise, and if workers themselves see that they have a direct material benefit from taking part in that process. In a worker-owned co-operative, the workers have several obvious material interests in taking part in such activities in order to ensure its success. Firstly, if the enterprise is not a success, they may lose their job. Secondly, as owners of the business, each individual worker has an interest in its success, because the more successful it is, the higher the wages it can pay, or the higher the dividend it can pay out of profits. That is another reason that Marx argues for the organisation of such Co-operatives to be on the basis of workers democracy.

“In order to prevent co-operative societies from degenerating into ordinary middle-class joint stock companies (societies par actions), all workmen employed, whether shareholders or not, ought to share alike. As a mere temporary expedient, we are willing to allow shareholders a low rate of interest.”

Tuesday, 19 November 2013

Capital II, Chapter 10 - Part 2

Marx accuses Smith of a crude empiricism that leads from the start to a lack of clarity. So, Smith states,

““There are two different ways in which a capital may be employed so as to yield a revenue or profit to its employer.” (Wealth of Nations, Book II, Chap. I, p. 189, Aberdeen edition, 1848.)” (p 194)

But, as Marx says, this is neither true nor tells us anything about the division of PRODUCTIVE CAPITAL into fixed and circulating capital. In fact, there are as many different ways of utilising capital to turn a profit as there are different branches of industry to invest in. Then there are those uses of capital such as Merchant Capital or Money Capital that are not productive and yet turn a profit for the owner of the capital.

Smith himself goes on to describe the use of capital in agriculture, manufacture and commerce, but, in doing so, moves backwards, even from the understanding of the Physiocrats that the distinction of fixed and circulating capital is a distinction only in relation to productive capital.

“More. He uses merchant’s capital as an illustration in a problem which concerns exclusively differences within the productive capital in the product and value-creating process, which in turn cause differences in its turnover and reproduction.” (p 195)

Smith: ““The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession or continues in the same shape.” [Vol. II, p. 254.]” (p 195)

But, its not clear what “this manner” means. If it means it produces no profit until its product is sold, this takes us no further forward. As demonstrated earlier, money-capital can be neither fixed nor circulating. It only becomes so when it is transformed into productive capital. Likewise, the productive capital, when it becomes the end product i.e. commodity-capital, is no longer fixed or circulating. Both those forms have become subsumed within it.

Smith: ““The goods of the merchant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again exchanged for goods. His capital is continually going from him in one shape, and returning to him in another, and it is only by means of such circulation, or successive exchanges, that it can yield him any profit. Such capitals therefore may very properly be called circulating capitals.” [Vol. II, p. 254.]” (p 196)

But, this blurs the distinction correctly made by the Physiocrats, because it confuses the capital involved in the process of circulation with circulating capital, as a form of productive capital.

“These are not different kinds into which the industrial capitalist divides his capital, but different forms over and over again assumed and stripped off successively by the same advanced capital-value during its curriculum vitae. Adam Smith lumps this together — and this is a big step back compared to the Physiocrats — with the distinctions in form which arise in the sphere of circulation of capital-value, in its circular course through its successive forms, while the capital-value exists in the form of productive capital; and they arise because of the different ways in which the different elements of productive capital take part in the formation of values and transfer their value to the product.” (p 196) 

Smith: “Secondly, it (capital) may be employed in the improvement of land, in the purchase of useful machines and instruments of trade, or in suchlike things as yield a revenue or profit without changing masters, or circulating any further. Such capitals therefore may very properly be called fixed capitals. Different occupations require very different proportions between the fixed and circulating capitals employed in them. ... Some part of the capital of every master artificer or manufacturer be fixed in the instruments of his trade. This part, however, is very small in some, and very great in others. ... The far greater part of the capital of all such master artificers (such as tailors, shoemakers, weavers) however is circulated, either in the wages of their workmen, or in the price of their materials, and to be repaid with a profit by the price of work.” (p 197)

For Smith here, profit is more or less assumed to arise merely as a result of the price charged for the product being greater than its cost of production, which begs the question of how this is possible without providing the solution, which only Marx was able to produce. For Smith, the profit arose out of the process of exchange itself – the change of masters.

Back To Part 1

Forward To Part 3

Monday, 18 November 2013

Osbourne's Sugar Rush Looks Short-Lived

George Osbourne's attempt to garner votes for the next election in 2015, by providing the economy with a sugar rush via the property market, already looks to be running out of steam. Osbourne first announced the “Help to Buy” scam back in 2012. It was launched at that time under the pretext of helping first-time buyers to buy new houses, thereby also stimulating house building. It was essentially a flop. In the first year, only about 1% of the people it was supposed to con into buying over priced houses did so. So, in the 2013 Budget, Osbourne offered an even bigger, more obvious bribe. As well as extending Part 1 of the scam, he introduced a Part 2, aimed at anybody stupid enough to go into debt slavery to buy over priced houses up to a value of £600,000. When even property asking prices continued to fall, and as the Tories popularity waned, he announced that Part 2 of the scam would be brought forward by 3 months to start this October, rather than next January. But, according to this month's Rightmove survey, asking prices for houses fell last month compared to the previous month by a whopping 2.4%. In London, where the bubble has been blown up to supernova proportions, the fall has been significantly higher than in other parts of the country.

In Greater London, the fall was 5%; in Waltham Forest down 6.8%; in City of Westminster down 6.3%; in Greenwich down 6.2%; in Haringey down 6.1%; and in Havering down 5.5%. Given that Osbourne's main concern is to shore up core Tory support in the South-East, the prospect that the London property bubble might even be deflating – and ultimately bubbles never just deflate they always burst – despite Osbourne's attempts to keep it expanding by using all of the measures that caused the sub-prime crisis of 2008, must be troubling for the Tories this far out from an election.

The Liberal-Tories have been cock-a-hoop over recent economic data showing the economy growing strongly, even more strongly that the UK's competitors. But, that data is largely a mirage induced by the sugar high that Osbourne and the Bank of England caused with their money printing, and debt binge. Like a drunk it led to a confidence to fight anyone, only to find that it falls over soon afterwards. Far from it bringing about the kind of restructuring of the economy into investment in real productive capital, that is actually necessary, and which the Liberal-Tories claimed was their goal, it has simply promoted the same conditions that led to the crisis in the first place. The low-wage/high debt model for the economy established by Thatcher in the 1980's, has locked the economy in to a dependence upon precisely that – low wages, and high levels of debt. Just as the US is locked into the need to keep printing vast quantities of money, because even the slightest indication that they might even reduce it, causes markets to crash, so the UK economy is locked into the need to keep property prices high, because once they start to fall sharply, private borrowing against it will tumble, and the banks that are basically bust, and have tens of billions of pounds of what is really bad mortgage debt, will go bust.

In fact, as I've pointed out before - Incredible Indices – the house price indices put out by the Estate Agents, Mortgage providers etc. are a sham. They only focus on the newly listed asking prices of properties, not the actual prices at which properties sell. I'm experiencing this personally at the moment. I'm in the process, with my sister, of selling my cousin's house as executor's of his estate. She keeps looking at the prices of similar properties listed in Estate Agents' windows with a belief that the house will actually fetch at least that kind of price. That belief has, of course, been encouraged by the Estate Agents. The house is going to auction, and the Estate Agents have been saying from the beginning that the house, which is in a pretty poor state, will attract interest from speculators and builders, who will bid the price up.

Of course, you always hope that will be the case, but I've had to try to get over to my sister, that all of mine and my wife's extensive analysis of local property prices over the last few years suggests otherwise. A look at the lists of sold house prices as opposed to asking prices continues to show prices falling. A further look shows that initial asking prices are often very quickly reduced, suggesting that Estate Agents are attempting to obtain business by giving potential clients inflated estimates of what their house is worth, only having done so to then recommend a reduction in that asking price. I was looking at one house recently that was advertised in June of this year, and by the end of July the asking price had been reduced by more than 10%! It still seems to be the case that in order to sell people are having to reduce their initial asking price by between 25-30%, and where they don't, the house simply remains unsold.

In fact, what “Help To Buy” seems to be doing is to make it harder to sell at the lower end. The estate agent told me that they are finding that where a year ago, people were prepared to offer up to £50,000 for a really good terraced house, now they will not, because with just £5,000 deposit they can get a decent £100,000 semi-detached with gardens. At the same time, as Moneyweek have described, there is evidence of very rich people using “Help to Buy” to speculate and buy up £600,000 houses.

On the other hand, there is every reason why properties in the £300,000 - £600,000 range are falling as they are. Firstly, there are fewer potential buyers to begin with, but also many of those in this range who need to obtain mortgages may not be helped by “Help to Buy”. For one thing, many people in this category could well be part of the “squeezed middle”, who have seen their Child Tax Credit removed and so on. Moreover, the rules for “Help to Buy” mean that simply obtaining a 95% mortgage is not enough. Banks are charging up to 6% for 95% mortgages whether they are in or out of the scheme. That compares to around 3% for an 80% mortgage. In other words, the monthly mortgage payment is double! But, banks now have to also check that borrowers can cope with mortgage payments if interest rates rise. On that basis it seems that many people who might have expressed an interest in the help to Buy scam, may have found that they do not qualify. According to Rightmove, one of the active "Help to Buy" lenders has approved only 169 out of 1,075 applications.

But, it has been the debt fuelled sugar rush into the economy based on the idea of rising property prices that has been behind the growth of the last few months, and prognosis of growth next year. But, in fact a look at the underlying fundamentals shows no reasons for optimism. After a short period of increased retail sales, even they fell back last month. In most of the country, wages are stagnant in nominal terms, and falling sharply in real terms. The fact that the figure for inflation was shown lower this month rings hollow with most people who find that their shopping bill continues to rise each week, and who face 10% rises in energy prices, large rises in water bills, transport costs and so on. And as I set out previously - Wages, Jobs, Productivity and Prices – the other side of the UK's low-wage/high debt economy is that productivity is low and falling.

The Eurozone economy has had a short lived bounce induced by the underlying fundamentals of the Long Wave Boom, and the phase of the 3 year cycle, but, as a result of the effects of austerity on the periphery, that bounce has been muted, and appears to be already running out of steam. Given that 40% of UK trade is with the EU, any fall off in Eurozone growth will have a bad effect on UK growth prospects. The 3 year trade cycle is due to turn down again in the third quarter of 2014, and with Osbourne's sugar rush via the property market, already looking to be leading to the kind of crash that follows any sugar rush, the chances of the UK economy continuing to grow strongly after that look slim.

But, Osbourne may have miscalculated anyway.  A recent Ipsos/Mori survey found that 57% of people thought that rising house prices was a bad thing compared to only 20% who thought they were a good thing.  That's three times as many who beleive that rising house prices are a bad thing as think they are a good thing.  Even in terms of their own personal position 41% thought that rising prices would be bad for them personally, as opposed to 29% who thought they would be good for them personally.  In both case around 25% strongly felt that rising house prices are a bad thing.  They are, of course correct.  High and rising house prices are only good news for builders and landlords.  For the vast majority of other people, whether they own their house, rent it on a mortgage from a bank, or do not currently have a house, high house prices are a very bad thing, just as high prices of anything else that workers have to buy is a bad thing.

Sunday, 17 November 2013

US Politics and Economics v The UK and Europe - Part 6

In the US, as in the UK, the failure to restructure capital, in the 1980's and 90's, and instead to try to create a low-wage/high debt economy, had created that situation. Both the US and UK had essentially devoured their own accumulated wealth during that period in pursuit of this short-sighted policy, geared to the needs of small capital. That was true in two ways.
Firstly, at the level of the state itself, accumulated wealth was used as collateral for borrowing. In the UK that was perhaps clearest of all. Norway has used its windfall of North Sea oil and gas to build up a sovereign wealth fund that will finance its social welfare programmes into the next century. By contrast, Britain, under Thatcher, used North Sea revenues to finance the huge rise in welfare that was the result of the massive rise in unemployment, which in turn was needed , by the Tories, in the 1980's, to destroy the power of the workers and their unions.

But, secondly, it was true at the level of the individual, as the real assets that workers had built up after WWII, in the form of houses, were inflated, and then used as collateral to finance increasing levels of personal debt.

By contrast, Germany had followed a classically social-democratic course. The same kinds of 'labour market reforms' that were introduced in the UK and US over the bones of the workers, were implemented in Germany mostly by agreement with the Trades Union bureaucracy, although there was significant opposition to the reforms introduced by Gerhardt Schroder. But, Germany was able thereby to develop its high value added sector in a way that the US and UK could not. Germany might not have been able to compete with China in the production of cheap mass produced commodities, but it could provide China and other such economies with the high quality machine tools and equipment required for that production. It could also supply them with the high quality, high value commodities their rapidly rising middle classes desired, and for which the question of price comes a distant second to the question of quality and status.

Obama was then hamstrung by the situation he confronted. But, he was also hamstrung by the limitations of social democracy. Those limitations essentially come from the fact that it represents a compromise between the interests of workers and the interests of big capital, but always ultimately for the benefit of the latter. As Engels put it, it is not that the big capitalists have actually had some Damascene conversion, that they have really become moral and proponents of Socialism and social harmony.

“The competition of manufacturer against manufacturer by means of petty thefts upon the workpeople did no longer pay. Trade had outgrown such low means of making money; they were not worth while practising for the manufacturing millionaire, and served merely to keep alive the competition of smaller traders, thankful to pick up a penny wherever they could. Thus the truck system was suppressed, the Ten Hours’ Bill was enacted, and a number of other secondary reforms introduced — much against the spirit of Free Trade and unbridled competition, but quite as much in favour of the giant-capitalist in his competition with his less favoured brother. Moreover, the larger the concern, and with it the number of hands, the greater the loss and inconvenience caused by every conflict between master and men; and thus a new spirit came over the masters, especially the large ones, which taught them to avoid unnecessary squabbles, to acquiesce in the existence and power of Trades’ Unions, and finally even to discover in strikes — at opportune times — a powerful means to serve their own ends. The largest manufacturers, formerly the leaders of the war against the working-class, were now the foremost to preach peace and harmony. And for a very good reason. The fact is that all these concessions to justice and philanthropy were nothing else but means to accelerate the concentration of capital in the hands of the few, for whom the niggardly extra extortions of former years had lost all importance and had become actual nuisances; and to crush all the quicker and all the safer their smaller competitors, who could not make both ends meet without such perquisites.”


“The manufacturing capitalists set about the realisation of this their great object with that strong common sense and that contempt for traditional principles which has ever distinguished them from their more narrow-minded compeers on the Continent. Chartism was dying out. The revival of commercial prosperity, natural after the revulsion of 1847 had spent itself, was put down altogether to the credit of Free Trade. Both these circumstances had turned the English working class, politically, into the tail of the ‘great Liberal Party’, the party led by the manufacturers. This advantage, once gained, had to be perpetuated. And the manufacturing capitalists, from the Chartist opposition, not to Free Trade, but to the transformation of Free Trade into the one vital national question, had learnt, and were learning more and more, that the middle class can never obtain full social and political power over the nation except by the help of the working class. Thus a gradual change came over the relations between both classes. The Factory Acts, once the bugbear of all manufacturers, were not only willingly submitted to, but their expansion into acts regulating almost all trades was tolerated. Trades Unions, hitherto considered inventions of the devil himself, were now petted and patronised as perfectly legitimate institutions, and as useful means of spreading sound economical doctrines amongst the workers. Even strikes, than which nothing had been more nefarious up to 1848, were now gradually found out to be occasionally very useful, especially when provoked by the masters themselves, at their own time. Of the legal enactments, placing the workman at a lower level or at a disadvantage with regard to the master, at least the most revolting were repealed. And, practically, that horrid People’s Charter actually became the political programme of the very manufacturers who had opposed it to the last.”


Big industrial capital dominates modern capitalist economies. It is the main source of surplus value, and so ultimately it is the material condition underpinning everything else. But, the number of big industrial capitalists is infinitesimally small, perhaps amounting to only 0.001% of the population, and so as Engels describes above, always dependent for its political rule on the working-class via the medium of bourgeois social democratic regimes, the ideology of which forms the basis of the state. But, the other fractions of the ruling class, the small capitalists, and the layers of the middle classes attached to them, are far more numerous than the big capitalists. As an organised political force they continue to be powerful.

For so long as the workers themselves continue to be dominated by bourgeois ideas, for so long as they see no credible alternative to capitalism in practical operation, therefore, whenever social democracy fails to keep its side of the bargain, by ensuring that workers living standards continue to rise, the beneficiaries are always the political representatives of these more reactionary sections of capital.

I will examine the consequences of that in Part 7

Back To Part 5

Forward To Part 7

Saturday, 16 November 2013

Pic Of The Day

In the Alps.  On the Italian/Swiss border near the top of the St. Bernard's pass.


Market Value

“On the one hand, market-value is to be viewed as the average value of commodities produced in a single sphere, and, on the other, as the individual value of the commodities produced under average conditions of their respective sphere and forming the bulk of the products of that sphere.”

When Marx uses the term “average” here, it is clear that what he means is not the arithmetic mean, or median average, but the modal average. That is the the conditions under which the bulk of production takes place. The mean average would entail totalling up all of the abstract labour-time required for production of a particular type of commodity, and then dividing the total production of that commodity by this total labour-time. But, the figure derived from that might represent the actual labour-time of no producer. The median average would involve taking the labour-time required for production by the most inefficient producer, and the most efficient producer, and calculating a point midway between the two.

Marx does suggest this when he says,

“If the ordinary demand is satisfied by the supply of commodities of average value, hence of a value midway between the two extremes, then the commodities whose individual value is below the market-value realise an extra surplus-value, or surplus-profit, while those, whose individual value exceeds the market-value, are unable to realise a portion of the surplus-value contained in them.”

(ibid) 

But, its clear he does not mean this literally. Firstly, this median point might again be a theoretical average that corresponds to the labour-time required by no actual producer. But, more importantly, as Marx goes on to point out, different producers are of different sizes, and account for different proportions of the total social production. If there is just one large efficient producer, and a large number of small inefficient producers, or vice versa, it would be silly to take a midway point between the two without taking into consideration the fact that the bulk of production is undertaken by the one large producer.

“The value of the entire mass of commodities is equal to the actual sum of the values of all individual commodities taken together, whether produced under average conditions, or under conditions above or below the average. In that case, the market-value, or social value, of the mass of commodities — the necessary labour-time contained in them — is determined by the value of the preponderant mean mass.”

(Capital III, Chapter 10)

Marx sets out the way Market Value actually refers to the same thing, which has different forms depending upon whether we are talking about simple commodity production and exchange, or capitalist production. In both Volume I and Volume III, Marx describes the process by which products become commodities, and value is transformed into social value along with it.

A product is a use value that is produced for individual consumption by an individual (Robinson Crusoe), a collective (primitive commune), or peasant family. As Marx sets out in his letter to Kugelmann, this production is determined by the Law Of Value

“And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour.”

For Robinson Crusoe, or for the primitive commune, or the peasant family, and the same will apply in future to the communist society, the decision is how to balance the value of the product, i.e. the labour-time required for its production, against the use value obtained from that product. In other words, if it takes 10 hours to produce 10 kilos of fish, and only 5 hours to produce 10 kilos of venison, the decision of whether to spend 10 hours just producing fish, or just producing venison, or some combination of time spent producing both, will depend upon the use value (utility) obtained from different amounts of both fish and venison.

As Engels puts it.

“The useful effects of the various articles of consumption, compared with one another and with the quantities of labour required for their production, will in the end determine the plan.”

And,

“As long ago as 1844 I stated that the above-mentioned balancing of useful effects and expenditure of labour on making decisions concerning production was all that would be left, in a communist society, of the politico-economic concept of value. (Deutsch-Französische Jahrbücher, p. 95) The scientific justification for this statement, however, as can be seen, was made possible only by Marx's Capital.”


To be accurate then, Engels is wrong when he says, in his supplement to Capital III, that the Marxian Law of Value only operates from around 7,000 B.C. until about the 15th century. What applies during that period is the particular form of the Law of Value appropriate to simple commodity production and exchange.

“It is self-evident that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.” 

(Marx Letter To Kugelmann)

Prior to that period, the Law of Value still applies, but it applies to the value of products not commodities, just as that will be the case under Communism. Under capitalism it applies in a modified form, because commodities no longer exchange at these values, but at Prices Of Production. From around the 15th century, as Engels says, and as Marx describes in Capital III, Chapters 9 and 10, as one industry after another is taken over by capitalist production, so these Prices of Production gradually replace Exchange Value as the basis upon which commodities are sold in the market. This is the basis of the change in the form of the market value of commodities.

Prior to commodity production and exchange, use values are produced as products. For each producer, the product has an individual value determined by the labour-time they require to produce it. But, over time, the various primitive communes come into contact with others, and sporadic exchanges of these products occur, usually as a result of marriages etc. These exchanges between different communities precede, therefore, trade within communities.

“This agrees also with the view we expressed previously that the evolution of products into commodities arises through exchange between different communities, not between the members of the same community. It holds not only for this primitive condition, but also for subsequent conditions, based on slavery and serfdom, and for the guild organisation of handicrafts, so long as the means of production involved in each branch of production can be transferred from one sphere to another only with difficulty and therefore the various spheres of production are related to one another, within certain limits, as foreign countries or communist communities.”

(Capital III, Chapter 10)

As soon as we move towards simple commodity production and exchange, it becomes necessary to determine a single market value for each commodity, as opposed to the range of individual values of products that precedes it. The means of achieving this, is of course, competition. Each individual producer is led to produce under the most efficient conditions, because the market value of their commodity is determined as stated at the beginning by the average conditions of production. Even if production remains in the hands of a multitude of small producers this is the case, because the output of these producers is brought together in large masses by merchants.

“Looking closer, we find that the conditions applicable to the value of an individual commodity are here reproduced as conditions governing the value of the aggregate of a certain kind of commodity. Capitalist production is mass production from the very outset. But even in other, less developed, modes of production that which is produced in relatively small quantities as a common product by small-scale, even if numerous, producers, is concentrated in large quantities — at least in the case of the vital commodities — in the hands of relatively few merchants. The latter accumulate them and sell them as the common product of an entire branch of production, or of a more or less considerable contingent of it.)

(ibid) 

So, we have here the form of Market Value as it applies to commodity production and exchange prior to Capitalism. But, as Marx sets out, this Market Value has to be distinguished from Market Price. The market price for these commodities only corresponds with the market value, if the supply of commodities into the market at that value matches the demand for those commodities at that value. If for any reason, the supply of commodities into the market is less than the demand for those commodities at that value, then the market price will rise, and vice versa.

This is important for understanding the transition from Exchange Value to Prices of Production. The individual commodity producer is only interested in producing commodities to exchange, in order to obtain in return other commodities to consume. It is this fact, which confuses Smith, Ricardo, Say and Mill, as Marx describes in “Theories of Surplus Value”, in the shape of “Say's Law”. The individual commodity producer supplies a certain value of commodities into the market, and either by direct barter, or via the intermediary of money, then acquires the commodities they require for their own consumption – supply creates its own demand.

But, this is not the case for capitalist production. The capitalist does not engage in production of any commodity in order to exchange it for some other commodity to consume, or even for pure exchange value – money – in order to buy other commodities to consume. They produce only to obtain exchange value, and they seek exchange value only in order to reproduce the capital they have consumed, and by realising surplus value, to expand that capital. Capitalist production is no longer production for consumption, but purely for production! Consequently, so long as the capitalist producer can continue to increase their profits by producing more, they will continue to expand their production. But, the necessary consequence of this is that production is expanded, beyond the point where demand is satisfied at the market value/exchange value. The market price, must, thereby fall below the market value/exchange value. This will continue until such time as the rate of profit that capital can obtain in this line of production falls beneath that it can obtain by engaging in some other form of commodity production. This is the historical process, Marx describes by which capital invaded one line of production after another in that period after the 15th Century.

The more capitalist production spreads from industry to industry, so the different rates of profit in each of these industries will tend to be equalised, because capital will continually move out of those areas of production where the rate of profit is low, and into those where the rate of profit is high. As capital moves out of the former, supply into the market declines, pushing up market prices, and with it profits. As capital moves into the high profit areas, so supply will increase, and that will cause market prices to fall, and with it the rate of profit.

So, now the locus around which the market price rotates is no longer the Exchange-value of the commodity, but its Price of Production, because Price of Production is the cost-price of the commodity plus the average profit. It is now the Price of Production not the Exchange Value which constitutes the market value. Now, if the demand exceeds the supply at this Market Value/Price of Production, the market price will rise, and vice versa.

Where the actual rate of profit in any industry is higher than the average rate of profit, the market price must be higher than the market value, therefore. And in order for the actual rate of profit to fall, the market price must fall to the market value. But, unless this is merely a short term fluctuation, the only means by which the market price can fall to the market value is if the supply increases accordingly, and that requires that more capital is employed in that production.

Similarly, if the actual rate of profit is lower than the average this means that the market price is lower than the market value, and in order for both the rate of profit and the market price to rise, supply must contract, capital must be withdrawn.

The implication, as Marx says here, is that demand itself plays an important role. In the first part of his analysis he had, for simplification, assumed that everything produced found an adequate demand in the market, but no such assumption can be made.

“...to say that a commodity has a use-value is merely to say that it satisfies some social want. So long as we dealt with individual commodities only, we could assume that there was a need for a particular commodity — its quantity already implied by its price without inquiring further into the quantity required to satisfy this want. This quantity is, however, of essential importance, as soon as the product of an entire branch of production is placed on one side, and the social need for it on the other. It then becomes necessary to consider the extent, i.e., the amount of this social want.”

(Capital III, Chapter 10) 

“Now, the difference between the quantity of the produced commodities and that quantity of them at which they are sold at market-value may be due to two reasons. Either the quantity itself changes, becoming too small or too large, so that reproduction would have taken place on a different scale than that which regulated the given market-value. In that case, the supply changed, although demand remained the same, and there was, therefore, relative over-production or under-production. Or else reproduction, and thus supply, remained the same, while demand shrank or increased, which may be due to several reasons. Although the absolute magnitude of the supply was the same, its relative magnitude, its magnitude relative to, or measured by, the demand, had changed. The effect is the same as in the first case, but in the reverse direction.”

(ibid)