Capital II, Chapter 20 - Part 5

2) The Two Departments of Social Production 

All of the production of industries within the economy can be grouped together as part of these two Departments. Obviously, the production of some industries can go to either means of production or means of consumption. Coal can be used as means of production, to power steam engines, or means of consumption, as fuel for domestic fires, for example. But, the output of all these industries can be divided as belonging to either of these two departments.

The point is perhaps more clearly stated by the fact that all commodity-capital in the economy constitutes either means of production or means of consumption. Similarly, all of this capital, composing the two departments, in aggregate, comprises one single department, which is the total social capital.

The capital employed, by either department, breaks down into the same two components – variable capital and constant capital. The variable capital, considered solely from the standpoint of value, is equal to the sum of the wages paid within that department. Considered from the material point of view, it comprises all the concrete labour employed within the department.

The constant capital comprises all of the materials and instruments of labour, including buildings etc. used in production. However, although the fixed capital component of this is employed, i.e. it has to be present in its entirety, for production to occur, as seen previously, it only transfers part of its value to the end product, or here to the value of the commodity-capital of the department. Only that part of the constant capital that replaces the circulating capital, and that reproduces the fixed capital value, transferred as wear and tear, is included in the value of the commodity-capital.

“The value of the total annual product created with the aid of this capital in each of the two departments consists of one portion which represents the constant capital c consumed in the process of production and only transferred to the product in accordance with its value, and of another portion added by the entire labour of the year. This latter portion is divided in turn into the replacement of the advanced variable capital v and the excess over and above it, which forms the surplus-value s. And just as the value of every individual commodity, that of the entire annual product of each department consists of c + v + s.” (p 400)

For now, for ease of elaboration, Marx excludes fixed capital, assuming that the constant capital employed is all consumed in the production of the commodity-capital.

Marx sets out a basic model comprising these two departments and the mutual exchange between them. These models, whether they are of simple reproduction, as here, or of expanded reproduction, which will be discussed later, show that the output of both departments CAN be exchanged so that it is fully consumed. In other words, these models are based on a concept of a general equilibrium theory.

But, of course, Marx did not believe that any such equilibrium exists. His theory is, in fact, a theory of dynamic disequilibrium. That is not just because he recognises that capitalism proceeds on the basis of repeated crises, which are violent means of resolving the contradictions inherent in the very functioning of the system, but also because, even without such crises, the continual revolution of production, which is a fundamental part of the functioning of the system, necessitates continual changes in the way capital and social labour-time is allocated.

So, whether it is in setting out these models here, or in setting out the resolution of the Transformation Problem, in Volume III, the fact that Marx has all of the output being unproblematically demanded/consumed does not at all mean that he believed it would be.

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The Law of The Tendency For The Rate of Profit To Fall - Part 43

The Rise In The Rate of Turnover (8)

“The modification of selling prices by the average period of turnover of capitals in different branches of commerce amounts to this: The same mass of profits, determined for any given magnitude of merchant's capital by the general annual rate of profit, hence determined independently of the specific character of the commercial operations of this capital, is differently distributed — proportionately to the rate of turnover — over masses of commodities of equal value, so that, for instance, if a merchant's capital is turned over five times a year, 15/5 = 3% if once a year, 15%, is added to the price of the commodities. 

The same percentage of commercial profit in different branches of commerce, therefore, increases the selling prices of commodities by quite different percentages of their values, all depending on their periods of turnover.”

(Capital III, Chapter 18)

This explains, therefore, Marx says, why it is that in those areas, where the prices of commodities are low per unit, and they are sold in large quantities, on a frequent basis, the profit margin per unit is low, whereas for more expensive commodities, that are sold more infrequently, the profit margin per unit is higher. This doesn't mean that merchant capitalists, engaged in the former line of business, obtain less mass of profit, nor a lower rate of profit, than those engaged in the latter. The mass of profit is a function not just of the profit margin, but also of the mass of commodities sold. A huge mass of commodities sold at a low profit margin could produce a greater mass of profit than a small mass of commodities sold with a high profit margin. The general annual rate of profit, meanwhile is not a function of the amount of capital laid out, but only of the capital advanced. Precisely, because the former buys commodities that are cheap, and which sell rapidly in volume, the amount of capital they have to advance, as opposed to lay out is much smaller than is the case for the latter.

But, as Marx says, this is also not irrelevant from the perspective of the industrial capital, capital in general, or the general annual rate of profit. Precisely, because the general annual rate of profit, as now defined by Marx is the total ADVANCED capital of both the productive-capital, and the merchant capital, the lower the profit margin levied by the merchant capital, as a result of turning over their capital more frequently, the lower the selling prices of commodities on the market, which in itself acts to stimulate demand. The more demand is stimulated, and the market expands, the greater the potential for productive-capital to expand production.

Moreover, the faster merchant capital turns over its capital, the less capital it must advance to circulate any given quantity of commodities in a year. But, if the amount of merchant capital advanced declines, then this means that the total of capital advanced itself declines, which means that the general annual rate of profit rises. This, in fact, is one reason for merchant capital developing as an independent form of capital. There has to be a reason that productive-capital would sell its commodities to merchant capital, and allow it to obtain a share of the surplus value, rather than sell its own commodities, and retain all of the surplus value itself. The reason is that just in terms of the capital advanced for the purchase of the commodity-capital, that is before we consider the capital that must be advanced for all of the costs of circulation, merchant capital offers the potential for the advance of a smaller quantity of capital to effect the circulation of commodities, and thereby to increase the general annual rate of profit. It does that, precisely by being able to increase the rate of turnover of capital.

I will examine how that occurs in Part 44.

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Forward To Part 44

Reckless Abandon

Mark Reckless MP, has abandoned an increasingly unseaworthy Tory ship. His journey towards UKIP shows the dangers of a reckless accommodation to nationalism. Its a lesson politicians should have learned many times by now.

In the 1930's, as the Nazis pushed their nationalistic agenda, based on the extent to which the German nation was suffering from the imposition of the Versailles Treaty, the German Stalinists responded by trying to be better nationalists than the Nazis. It was a strategy that was bound to fail, and only acted to strengthen the Nazis.

In the 1950's,60's, and 70's, not only were the social democrats of the Labour Party in government for more than ten years, but the social-democratic wing of the Tory Party was dominant, and in government for the rest of the time. Under Ted Heath it pursued a social-democratic agenda that turned outwards towards Europe.

As the post-war long wave boom started to falter in the late 1960's, and was felt first by the less profitable smaller capitals, the effect of that was apparent within the Tory Party, which moved to reflect the interests of the party base of small capitalists, putting the social-democratic wing of the party on the defensive. Not only was that reflected in the role of Enoch Powell, but it was also reflected in the ditching of Heath, and the rise of Thatcher, though this palace coup was for many years until around 1982, not consolidated.

The fact that Powell had been able to garner considerable support for his nationalistic, racist rhetoric not only encouraged those of like mind within the Tory Party. It also stimulated a growth of those political forces outside the Tory Party, that for forty years had been nothing more than a political freak show. All those cranks whose political activity for years had been more or less restricted to dressing up at weekends in Nazi regalia, and goose stepping around country mansions, like an episode of Jeeves and Wooster, now crawled out into the sunlight, reflected in the growth of the National Front, in the 1970's.

As had been the case in the 1930's, the response of the political establishment was first to ignore the fascists, in the hope they would just go away, and then when they didn't, to accommodate to their politics, in order to try to undermine their vote. One of the first aspects of Thatcherism, therefore, was not the adoption of the policies of privatisation etc., which only appeared in the mid 1980's, but an accommodation to that nationalism.

The Tories were quite clear that they had undermined the NF, by stealing many of their clothes on immigration policy etc. Its true, that the NF vote did decline, but only because the NF had themselves succeeded in pushing the Tories on to their ground, and opening up the Tory Party to an entrist tactic from the right. Large numbers of fascists simply transferred their activities into the Tory Party at a grass roots level, lots of them turning up as Tory Party councillors, for example. In a mirror image of the Militant within the LP, the Tories were even led to close down the Federation of Conservative Students organisation, after it was taken over. Many of the leaders of the BNP today, and members of UKIP grew up within these fascist groups, both outside and inside the Tory Party.

The steady move to the right of the Tory Party during the period has to be seen in that context, that its economic policies were designed to appeal to that base of small capitalists, and its adoption of increasingly inward looking nationalism, had the same roots. Thatcher demarcated herself in relation to Heath by an increasing rejection of Heath's embrace of the EEC, but that trajectory down the nationalist road, also led to further attempts to gather in populist right-wing electoral support, by wrapping herself in the flag, such as the adventure of the Falklands War. Prior to that reckless adventure, not only were the Tories looking set for a big electoral defeat , with Michael Foot's Labour Party scoring more than 50% support in opinion polls, prior to the sabotage of the SDP, and tens of thousands marching behind him in London, Liverpool, Birmingham and other cities to oppose rising unemployment. That fact, is one that the media and political historians conveniently have forgotten.

That period, determined political trajectories in many ways. It set up the division within the Tory Party between its increasingly diminished social-democratic wing that looked to big industrial capital, and its interests, and the conservative wing that looked to the Tory Party base of small capitalists, and those of like mind, and the reflection of that division in the repeated feuds over Europe. Each time Tory Party leaders have responded to flagging popularity by appealing to that same nationalism, as Cameron has done in recent years, the consequence has always been the same; it is to strengthen the right-wing elements even further, and to encourage a widening of those divisions.

But, the Tories are not the only ones to have made the mistake of this accommodation to Nationalism. Labour too sought to win votes by appealing to Scottish nationalism in particular, with the offer of devolution. And, having offered it to Scotland, was thereby obliged to make a similar offer to Welsh nationalists, though in a much watered down form, given the smaller political gains to be made there from such pandering. Once again, rather than slaying the nationalist dragon, as on every other occasion in history, it only acted to feed it, to make it stronger, and encourage it to make further attacks.

Labour's pandering to that same kind of nationalistic populism was also reflected in its adoption of ever tighter immigration rules, and measures against asylum seekers, which made it then impossible to deal with the arguments of bigots when large numbers of Eastern Europeans entered the country on their accession to the EU. As with social democracy, in general, across Europe, rather than framing the argument in terms of the fact that the interests of European workers as a whole can only be furthered by their united action across the continent in solidarity with each other, pushing forward to a United States of Europe, with common rules throughout, the argument has continually be framed in terms of what would be good for British workers, French workers, German workers etc. It reflects a failure of the two elements of social democracy – big capital, and the organised working class – to take on the ideology of conservatism, and its nationalistic reflection.

That is what prevents the necessary political solution for the Eurozone Debt Crisis. The US has just seen its economy grow by 4.6% in the last quarter, and the growth appears to be gathering pace. The reason for US growth, compared to the lack of it in Europe, has nothing to do with QE. Monetarist policies to expand the money supply, like QE, have repeatedly shown that under current conditions, they can do no such thing. Loose money will not cause businesses or consumers to spend, if they think the economy is going to contract due to measures of austerity. By contrast, the US has been growing because it has adopted policies of Keynesian fiscal expansion.

The same policies could have prevented the lacklustre recovery in Europe, and avoided the collapse of the economies of peripheral Europe. But, the continuation of conservative politics, that put the interests of individual states ahead of the whole prevented that. A United States of Europe, would have introduced a similar policy of fiscal expansion to that used in the US. It would have focussed on a policy of large scale investment in the peripheral economies to modernise them, and facilitate the development of globally competitive industries, so that these economies could pay their way. It would have financed this expansion by selling Eurobonds, backed by the whole of the EU, i.e. by its most powerful and wealthy states, such as Germany, France and Britain, and would thereby have borrowed cheaply.

On the back of a rapid economic recovery the current growth of support for conservative, nationalist forces such as UKIP, the FN in France, Five Star in Italy, and so on would have been undermined.

The lesson of history is that nationalism is never defeated by pandering to it. It is only defeated by vigorously countering its reactionary, divisive ideology, and providing a modernist, internationalist vision of the future in its place, based upon solidarity. The reason that a Conservative Party can never do that is clear. Its base is rooted in those backward looking elements of society that make up its grassroots membership, and its electoral support. That is why the future looks bleak for Cameron's Tories, as they face continued fragmentation. Only Labour and the Labour Movement can provide a progressive vision of a future based on solidarity with our fellow workers across Europe. The time has come to present it.

The Working Period

Marx defines the working period in Capital II, Chapter 12.   Basically, the Working Period is the amount of time required to produce some particular commodity in sufficient quantity that it can be sent to market. This quantity is different for each type of commodity, but also varies over time, and even from one firm to another within the same industry.

A manufacturer of linen, for example, may be able to produce ten yards of cloth in an hour, but aside from a hand loom weaver, it is unlikely that a capitalist producer of linen, using power looms, would be producing just ten yards as part of the production process. The machines may then run all day for ten hours, producing a hundred yards of cloth. But, even this quantity may not be a sufficient amount to justify the cost of transport in sending it to market. It may only be economical to send shipments to market in batches of five hundred yards. As a result, the working period is five days.

If we stick with this industry, it can be seen why the working period varies even for the same commodity. The hand loom weaver, for example, may only be able to produce ten yards of cloth per day. But, their cost of sending cloth to market, and so there minimum shipment, is no different than that of the power loom weaver. They must be able to produce five hundred yards, as part of their working period, which thereby extends to fifty days.

By, the same token it can be seen why the average working period for any type of commodity is reduced over time. When weaving was dominated by hand loom weavers, the average working period was determined by the length of time they required to produce this minimum quantity. Once the hand loom weavers are replaced by power looms, it is the much shorter time they require to produce this minimum quantity that determines the working period. Moreover, as the productivity of the power looms themselves increases, and as each firm employs more power looms, so that more cloth is produced per day, so the working period is reduced further. A firm that employs two power looms will reduce its working period in half, compared to another that only employs one.

But, its also clear that different commodities require different amounts of time for their completion, and different commodities will be required to be produced in different quantities before they can be sent to market. Marx gives the example of linen and locomotives. A single yard of linen can be produced in a fraction of the time required to produce a single locomotive, but a single locomotive can be sold when completed, whilst it may require the completion of five hundred yards of linen, before it is possible to send it to market. Even so, the five hundred yards of linen may be completed in five days, and sent to market, whereas the single locomotive may require six months before it is completed, and can be sent to market. The working period for the linen producer is then five days, whereas for the locomotive producer it is six months.

Similarly, a small builder who builds houses to order may require six months to build a house. On its completion, because it has been built to order, it is immediately sold. The working period for the builder would be then six months, as for the locomotive producer. But, Marx points out that for the producers of such commodities with long working periods, it is not uncommon for stage payments to be made. That is the completion of the house might be divided into six stages – the completion of the land preparation and foundations, erection of first floor, second floor, roof, plumbing and electrical installation, internal decoration – for example. On this basis, each stage becomes a working period, and payment for the completed work is then made for it, as though it was itself a commodity that had been sent to market.

The working period is an important concept because it is a major determinant of the rate of turnover of capital, which in turn is a major determinant of the annual rate of profit. For example, as Marx sets out, the linen manufacturer who has a working period of five days has to advance much less capital, proportionately, compared to the locomotive manufacturer. At the end of five days, the capital advanced by the former begins the process of its return, as the linen is sent to market and sold, so that the proceeds, including the profit arrive back in the capitalists pocket. He can then advance this same capital once more for the following working period. However, the locomotive maker has to keep advancing additional capital week after week for six months, before the engine is sent to market and the proceeds returned.

There is also an important and useful characteristic of the working period described by Marx, which is that its duration determines the frequency of these payments, following the first turnover of capital. Suppose, we take the linen manufacturer. They require five days to produce the 500 yards of linen, which is the minimum efficient quantity to be shipped to market. On average, it takes a further five days for the linen to be transported to the markets where it is to be sold, and a further five days for it then to be actually sold to final consumers. So, although the working period is only five days, it requires fifteen days in total, for the advanced capital to return to the capitalist, because the turnover of the capital requires this additional ten days of circulation time.

Because capitalist production is a continuous process, the linen manufacturer must then advance additional circulating capital, during this ten day circulation period. Assume the circulating capital that must be advanced is £100 per week, and there is a 10% rate of profit. The linen manufacturer, will advance £100 in week 1, a further £100 in week 2, and a final £100 in week 3. But, at the end of week 3, the linen, produced in week 1, is sold, which returns along with 10% of profit - £110 in total. The manufacturer, therefore, need not advance any additional circulating capital for week 4, because that capital is now provided by the return of this £110.

Moreover, at the end of week 4, the commodities produced in the second working period – week 2 – have gone through their ten day circulation period, and been sold, bringing in a further £110, so this is again available to cover the circulating capital required in week 5. So, although the turnover period of this capital is three weeks – 1 week working period, 2 weeks circulation time – it is the length of the working period which determines the regularity of payments, after the first turnover period is completed.

This characteristic is an important analytical tool, because it means that, if we know the regularity of payments, we know the maximum duration of the working period. It only tells us the maximum duration, because, as Marx points out, for some commodities, the working period itself is not continuous. For example, labour may be expended for a week ploughing and planting wheat, but a period of several months may then elapse when no further labour is expended on it, but the wheat cannot be sold, because it is growing. Only at the end of this time will additional labour be expended for reaping and threshing, before the wheat is sent to market and sold. The working period may then be ten days in total, but is spread out over a period of six months. This total time required for the production process to be completed, Marx calls the Production Time.

In this case, then, the payment would only be made when the wheat is sold. Moreover, if wheat can only be planted once a year, and the capital involved only produces wheat, it may be another six months before the capital can be employed to plant wheat again. There would only be one payment per year, even though the production time for the wheat is only six months, and the working period is only ten days. Its for that reason that capital employed in agriculture sought other avenues for employment during those times of the year when it could not be employed in production of a particular crop.

But, the fact that the frequency of payments sets this maximum duration of the working period, is still a useful analytical tool for all those commodities where this prolonged production time, in excess of the working period, is not a significant feature. If we know the average frequency with which payments are made for particular commodities, we know the maximum duration of the working period for those commodities. That does not tell us the turnover time for those commodities, because that also includes the circulation period, but there are many commodities, today, where the circulation period itself is near to zero. That is true for services, for example, as well as commodities that can be downloaded instantaneously over the Internet.

We can take two different examples. Take a water company. It supplies 90 (million) customers. Following Marx's example, we will exclude fixed capital and surplus value from the calculation. In a year (360 days) it lays out 2400 (million) for constant capital and 1200 (million) for variable capital = 3600 (million) in total. Each day, therefore it lays out 10 (million) of capital. There is effectively no circulation time for this water, because it is supplied continuously via a network of pipes to consumers. The consumers pay their bill for water four times a year, i.e. each quarter. However, in each quarter (90 days), on average, 1 million customers will pay their bill, on each day of the quarter. On the assumptions made, the average bill, per customer, is 40 per year, and so 10 per quarter. That means that, each day of the year, the company receives payments of 10 (million), thereby turning over the 10 (million) of capital it advances per day. It would then have a rate of turnover of its capital of 360 per year, as it turns over its circulating capital, on average once per day.

This example, would apply also to electricity, phone, gas and other such utility companies. The actual rate of turnover would be less than this, because the payments would tend to be bunched at different points of the quarter rather than evenly spread, and because deducting weekends and bank holidays, the number of payment dates would be more like 250 than 360.

The second example is that of a fast food restaurant. During a day it might receive 500 payments from customers. If there are five tills in the restaurant, all taking receipts more or less simultaneously, this can then be viewed as 100 payments during say a 10 hour day, or an average of 10 payments per hour, or one every 6 minutes. So, here the working period is no longer in duration than six minutes. As the completed commodities are handed more or less instantaneously to customers, and paid for in the same way, there is no circulation time for the commodities here, so that the rate of turnover is 100 per day, or around 36,000 times per year. Its on this basis that large profits can be made with low profit margins.

The West Lothian Question Is A Mirage

The West Lothian Question is a mirage. It assumes that the defining division between Scotland, Wales and England is nationality. In so far as the issue at hand, in relation to the devolution of powers that is not the case.

Its true that devolution, as it exists is based upon a devolution of powers to Scotland and Wales, and both of these are nations. But, powers are also devolved to Northern Ireland, which is not a nation, as well as to London, which is not a nation. The basis of the devolution, here is not some form of national autonomy, but merely the establishment of administrative arrangements on a regional basis. Even the Scottish referendum demonstrated that point. Those entitled to vote in the referendum were those who currently lived in Scotland. In terms of nationality, many of those would not conform to any notion of “Scottishness”, but reflect the fact that Scotland, like the rest of the United Kingdom, is composed of people from a variety of ethnicities, cultures, and nationalities. Similarly, many people who do conform to some notion of "Scottishness", whose culture, language and so on, derives from their roots in Scotland, did not get to vote, because they do not live in Scotland.

In that case, the West Lothian question disappears. It is not a matter of why should Scottish MP's get to vote on all issues, discussed in a United Kingdom Parliament, whilst English MP's do not get to vote on issues, discussed in a Scottish Parliament, but that all MP's get to vote, in a United Kingdom Parliament, whilst some powers are also devolved to a range of regional governments. The only question then becomes what powers should be devolved, and to which regional governments should they be devolved.

As we already have powers devolved to London, and we also already have a range of economic powers devolved to unelected Local Enterprise Partnerships, the question then seems to become a trivial one of only deciding on these administrative arrangements. What is clear is that this situation does not require as Cameron, UKIP and others have suggested, that there must be an English Parliament, in which only English MP's get to vote.

As a Marxist, I believe that it is, in any case, a mistake to fragment the unity of the state, by measures of devolution, where such a unified and centralised state has existed for centuries. If Cameron and UKIP insist on trying to play politics with the issue, by tying the promised additional powers for Scotland to the idea of an English Parliament, they must be opposed, but we should take the opportunity of demanding a completion of the British bourgeois revolution started nearly four hundred years ago, as I have suggested previously.

Finally, the issue of Scottish independence has now also become inextricably linked to the question of UK independence from the EU. The real solution to many of these problems, and the same is true for the situation in Ukraine, is the establishment of a United States of Europe, including Russia. On that basis, of a centralised European State, even one at first established on a federal basis, these administrative divisions could be settled within the context of this single state, and could be done so on the basis of a united working-class struggle for consistent democracy within it.

The potential for the United Kingdom to have been broken apart, and the fact that sections of the Left, as has happened in the past, allowed themselves to be drawn along by the reactionary bandwagon of nationalism, shows the danger when the Tories seek to mobilise populist support for an anti EU referendum. Its shows the need for real Marxists and internationalists to take this issue seriously now, and to begin the struggle to move forward to a United State of Europe, and not be dragged backwards by Little Englanderism.

Northern Soul Classics - I Got What You Need - Kim Weston

Another 100 mph stormer from the brilliant Kim Weston.

Capital II, Chapter 20 - Part 4

Up until now, Marx's analysis has been from the perspective of “many capitals” i.e. of the individual firm, and could simply assume that its output could be sold, and that having done so, it could find productive-capital available to buy. But now, starting to look at the process from the perspective of the total social capital, “Capital in General”, this is not possible.

I hope the above diagram will assist in understanding these processes and models of reproduction that Marx now moves on to develop. Of course, demonstrating that alongside the creation of value, money flows are also generated, that make the exchange of capital and commodities possible, does not mean they occur automatically.

In order to understand those processes would also require an investigation of the laws of supply and demand, of demand elasticity, competition and so on, that Marx could only have developed much later, and never completed. But, he did need to touch upon some of these issues in explaining the basis of various forms of capitalist crisis.

“For our present purpose this process of reproduction must be studied from the point of view of the replacement of the value as well as the substance of the individual component parts of C'.” (p 397)

All of the materials used in production, as well as the machines and buildings etc., are just as much a part of the national output as the end products they produce. That end product, when sold by its producers, provides the money-capital used to buy these commodities from the producers of means of production. So, there is a constant interaction and intermingling of these capitals. But, as seen previously, it is an exchange of capital with capital, not capital with revenue. Within the context of simple reproduction, it is simply a maintenance of existing capital, not the creation of some new revenue that can be consumed. 

But, as shown in the diagram, it is not just the reproduction of the means of production that results in this intermingling. The workers and capitalists also use their revenues to buy commodities for consumption, and those commodities are necessarily a part of society's commodity-capital.

“The question that confronts us directly is this: How is the capital consumed in production replaced in value out of the annual product and how does the movement of this replacement intertwine with the consumption of the surplus-value by the capitalists and of the wages by the labourers?” (p 397)

Marx uses the usual simplifying assumptions that this is simple reproduction, commodities exchange at their values, no changes in values, and so on, though he does describe why none of these things make any fundamental difference to the analysis.

“So long as we looked upon the production of value and the value of the product of capital individually, the bodily form of the commodities produced was wholly immaterial for the analysis, whether it was machines, for instance, corn, or looking glasses. It was always but a matter of illustration, and any branch of production could have served that purpose equally well. What we dealt with was the immediate process of production itself, which presents itself at every point as the process of some individual capital...This merely formal manner of presentation is no longer adequate in the study of the total social capital and of the value of its products. The reconversion of one portion of the value of the product into capital and the passing of another portion into the individual consumption of the capitalist as well as the working-class form a movement within the value of the product itself in which the result of the aggregate capital finds expression; and this movement is not only a replacement of value, but also a replacement in material and is therefore as much bound up with the relative proportions of the value-components of the total social product as with their use-value, their material shape.” (p 398)

In other words, you can't just assume that the production of value over here can be automatically exchanged for an equal amount of value over there. The owners of the use values in which this value resides will only exchange if they obtain the use value they require as a result. There is no point producing lots of machines, if what is really required is lots of grain. Moreover, there will be necessary proportions that some commodities will need to be produced in, in order to meet the requirements of producing other commodities. If you want to produce a certain quantity of bread, you have to produce a certain quantity of wheat, for example.

At its most fundamental level, this question of proportion comes down to that already highlighted, that between the production of means of production and means of consumption. The most basic requirement of any society, is to devote enough social labour-time to producing means of consumption, without which its people cannot live, and so cannot produce. But, even the most primitive society also has to produce means of production, as tools, and weapons for hunting. The more a society develops, and expands its range of needs, the more it has to expand its production of means of production, in order thereby to expand its means of consumption.

Marx then divides social production into these two great departments. Department 1 produces means of production, and Department 2 produces means of consumption.

Back To Part 3

Forward To Part 5

The Law of The Tendency For The Rate of Profit To Fall - Part 42

The Rise In The Rate of Turnover (7)

“The greater the number of turnovers of the total industrial capital, the greater the mass of profits, the mass of annually produced surplus-value, and, therefore, other circumstances remaining unchanged, the rate of profit. It is different with merchant's capital. The rate of profit is a given magnitude with respect to it, determined on the one hand by the mass of profit produced by industrial capital, and on the other by the relative magnitude of the total merchant's capital, by its quantitative relation to the sum of capital advanced in the processes of production and circulation. The number of its turnovers does, indeed, decisively affect its relation to the total capital, or the relative magnitude of merchant's capital required for the circulation, for it is evident that the absolute magnitude of the required merchant's capital and the velocity of its turnovers stand in inverse proportion.”

(Capital III, Chapter 18)

Merchants' Capital is the commodity-capital of industrial capital, that has taken on an independent existence. But, because of what it is, merchant capital (understood here as merely the capital laid out by the merchant for purchase of commodities) must always stand in a certain proportion to the productive-capital. Productive-capital has produced a certain value of commodity-capital. It sells the commodities, which comprise it, to the merchant capital, at their price of production. The size of the merchant capital must always be determined by the value of this commodity-capital, which in turn is determined by the value of the productive-capital used to produce it.

Whether the merchant lays out their capital once or several times during the year does not change the amount of surplus value they can realise, because that is determined in production not distribution. If the merchant has a capital of £100, which they advance to buy commodities, which they can only sell once during a year, i.e. they can only turn over this capital once, they will sell these commodities for £110, thereby making the average rate of profit as described previously. But, if the merchant advances their £100 of capital to buy commodities, which can be sold in a matter of weeks, thereby returning their capital, and enabling them to advance it again, their profit margin on these commodities will be lower. If they are able to turn over this capital five times during the year, they will sell the commodities they bought for £100, not at £110, but at £102. In that way, although they will have laid-out £500 of capital during the year, they will still have only obtained £10 of profit. Their profit margin will have fallen from 10% to 2%. But, the £10 profit received will still constitute 10% of the capital they have advanced as opposed to laid out.

“If this were not so, merchant's capital would yield a much higher profit, proportionate to the number of its turnovers, than industrial capital, which would be in conflict with the law of the general rate of profit.”

(ibid)

But, it is clearly the case that a 10% profit margin has a different effect on prices than a 2% profit margin. This is a modification of the law in respect of productive-capital whereby the process which causes a falling rate of profit, simultaneously causes a growing mass of profit. The growing mass of profit is spread over an even greater mass of commodity units so that the profit per unit falls. But, here, because the merchant capital cannot increase the mass of profit available to it, any increase in the mass of commodities it sells, results in that given mass of profit being divided over this greater number of units so that the profit margin falls.

As Marx points out, this is why, particularly, larger merchant capitals seek to turn over their capital more frequently, because this means that the individual capital can apply a lower profit margin to the commodities it sells, and thereby undercut its smaller rivals who cannot turn over their capital so frequently. In fact, not only can they reduce their profit margin, but for the reasons set out above, they must reduce their profit margins. They may be able to avoid reducing them as much as would otherwise be necessary, but only because by increasing their rate of turnover, and undercutting their rivals, they increase their market share at the expense of others.

As Marx points out, in a way that explains the low profit margin of today's supermarkets, the low profit margins are not a strategy to reduce prices, and thereby obtain larger markets, and greater profits. The low profit margins are a consequence of selling very high volumes, and having high rates of turnover of capital. As with many other phenomena, it is competition which makes the real relations appear upside down.

I will continue the analysis of the role of merchant capital and the rate of turnover in respect of the Law in the next part.

Back To Part 41

Forward To Part 43

Tesc – O – Shit

Tesco, has managed to misplace £250 million. The company, which for years looked like it was buying up everything, has seen its profits and share price fall, for some time. With this latest problem, its valuation is now down to levels where it has itself become a potential takeover target.

The rise and fall of Tesco is symptomatic of what was happening in the global economy during that same period. Tesco is not the only merchant capitalist that has done well, from the mid to late 1980's until recently. During that period, there was a massive growth of merchant capital, in general. If, like Marx, we include money-dealing capital, as opposed to interest-bearing capital, in the category of merchant capital, its growth has been even larger. That was indeed the period of the massive rise of shopping centres, across the country, and of the financial services industry, based largely in London.

As Marx describes, in Capital III, this growth in merchant capital is made both possible and necessary by the growth in productivity, and the rate and mass of profit, created in production. Merchant capital is the commodity-capital, and money-capital, of industrial capital that takes on an independent life of its own. Even as part of industrial capital, it grows as industrial capital grows. It takes on an independent life, as part of that process, as specific merchants, and money-dealers, are able to undertake these functions more efficiently than the productive-capitalists themselves.

Because surplus value is only created in production, the capital, tied up in the circulation process, which does not create surplus value, but must be advanced, so as to realise it, appears as a cost to capital. The more that cost can be reduced, relatively, by it being performed by specialist forms of capital, the more surplus value is realised, and so the higher the rate of profit. The fact that merchant capital grew so massively, from the late 1980's onwards – not just in Britain, but the same phenomenon has been seen in the US, Europe and elsewhere – is an indication of just how much the rate and mass of profit grew, during that period.

As Marx points out, this cannot be a case of this merchant capital growing at the expense of the productive-capital. If too much capital flowed into the former, its rate of profit would fall, and so capital would leave that sphere, and be invested in production. He says, quite rightly, that, if the rate of profit for merchant capital was too high, more capital would flow into that sphere, until the rate of profit there fell. More capital did flow into that sphere, but its profits did not fall. They kept rising, which could only be because the surplus value, being pumped out by productive-capital, was rising even faster. But, as I set out in my book,  Marx and Engels Theories of Crisis: Understanding The Coming Storm this productive-capital was increasingly based in China. UK based merchants, like Tesco, and US based merchants, like Walmart, were obtaining a share of the huge increase in surplus value that was being pumped out by Chinese workers.

That was convenient, because it meant that many of those British and US workers, who had lost their jobs, as productive-workers, could now be employed, by that merchant capital, to sell those goods now produced in China, and from the wages they were paid, by those merchant capitalists, they were able to buy some of those imported goods, especially when they supplemented their wages with credit, collateralised on increasingly outrageous valuations of assets, such as property. Provided the bubble in asset prices, particularly houses, continued, supported by money printing, by central banks, and so long as a rising rate and mass of profits meant that the supply of money-capital grew so rapidly as to exceed its demand, so that interest rates continued to fall, credit could continue to be extended to keep this fantasy alive.

So long, as the same rises in productivity that brought about this revolution in profitability, also kept reducing the value of the commodities being produced, the easier it was for this to continue, because the lower values of commodities prevented consumer price inflation from rocketing, whilst the money printing could fuel massive asset price inflation, which, in turn, attracted foreign money in, to speculate on these rising share and bond prices, as well as over priced property, in places like London. That meant that, despite the money printing, the value of sterling and the dollar did not collapse.

In Capital III, Chapter 17, Marx describes how this merchant capital obtains its share of the total surplus value. Suppose a national capital is made up of £80 billion of productive-capital and £20 billion of merchant capital. The productive-capital creates surplus value of £10 billion. That is, for the productive-capital, considered on its own, a rate of profit of 12.5%. However, to realise these profits the commodity-capital must be sold, and this is done by the merchant capital that seeks to also obtain this average profit. If we include the value of merchant capital, we have then a total advanced capital of £100 billion, and so the surplus value of £10 billion constitutes a rate of profit of 10%.

So, if the productive-capitalists sell their output to the merchants, at the price of production, £80 billion plus 10%, that is £88 billion. The merchants now sell these commodities, but also make the 10% on their £20 billion of advanced capital = £2 billion. The commodities now sell for £90 billion, which is their total value. But, Marx points out that, because the merchant capitalists do not create additional surplus value, their profit margins are dependent upon the rate at which they turn over their advanced capital. On the one hand, they need to turn over their capital faster, in order to reduce costs, and for each individual merchant, this is also a means of gaining larger market share. On the other, the more times their capital is turned over, the lower the profit margin they can make.

The total profit the merchants can make, in the above example, is £2 billion, or 10% on their advanced capital of £20 billion. But, if this capital only turned over once in a year, the profit margin, on average, would be 10%, whereas, if it turns over 5 times, during the year, the profit margin will be only 2%. In other words, the merchant capital advances £20 billion to buy commodities, which it sells in 10 weeks. It makes 2% profit margin, or £400 million of profit. It then advances the £20 billion of capital again, which has been returned to it. After another 10 weeks, it returns again, with another £400 million of profit, and so on, so that, over the year, the full £2 billion of profit has been made, equal to 10% of the advanced capital. If merchant capital increases the rate of turnover, therefore, its profit margins fall.

The importance of that, in respect of Tesco, can now be seen. The processes, of rising productivity, which, over the last thirty years, have been reducing the value of commodities, and pushing up the rate of profit, have started to go into reverse. Merchant capitalists, like Tesco, have started to see their costs start to rise, and with the process above meaning that profit margins – though not the mass of profit – were being squeezed, that had to mean one of two things had to happen. Either prices had to rise, or profits had to fall. With falling real wages, as the mad policies of austerity squeeze incomes, whilst prices rise, and with the majority of the population already maxed out on credit, and a large proportion of the population, even then, reliant on pay day loan sharks, and the providers of “posh pawn”, for the middle class, shops like Tesco found themselves unable to raise prices, because that would have reduced their rate of turnover, reduced their market share further, in the face of competition from Aldi and Lidl etc., and left them with vast amounts of fixed capital hanging around their necks as dead costs. That is a reflection of the fact that far too much capital was invested in creating way too many shops, and shopping centres, during that previous period, which could only be sustained so long as global profit rates were rising sharply.

But, Tesco also had to satisfy its shareholders, in order to keep its share price up. If prices could not be increased, but costs were rising, and profit margins being squeezed, then its obvious that, at some point, this has to be reflected not just in reduced margins, but also in reduced profits. That means a falling share price. It seems that the manipulation of the data was a means of squaring this circle.

There seems no evidence, at the moment, that Tesco's auditors, Price Waterhouse Coopers, are implicated in this manipulation of the accounts, but it is somewhat ironic that, at the same time that this has arisen, Arthur Anderson, who went bust because of their role as accountants, during the Enron scandal, have had their name resurrected. But, it does seem to raise questions as to why businesses spend huge sums of money, to pay for the services of auditors, if those auditors are able to miss a £250 million hole in a company's accounts!

We are likely to see similar cases, over following months. It is a reflection of the turn in the long wave conjuncture. The general average rate of profit has started to fall, following a thirty year period during which it was rising. Productivity is slowing down, which means the fall in the value of commodities is slowing, and prices are rising, as the effects of massive money printing, over a prolonged period, begins to feed through. Central banks face a conundrum that they must reverse the money printing or face rising inflation, and a sharp sell-off in bond markets, causing a financial panic, credit crunch, and sharp rise in interest rates, which will crater stock markets and property markets, exposing the bankrupt nature of global banks – thereby obliterating the whole purpose of QE, which was to hide that fact and provide the banks with breathing space.

However, if central banks reverse the QE too fast, asset prices will fall, as the bubbles are burst, and the banks will be exposed anyway. It looks like this is the end of the line.

Capital II, Chapter 20 - Part 3

To facilitate an understanding of these circuits, and exchanges, I have produced the diagram of the Circuits of Capital and Money (which are free to use, provided the source is accredited), which describes this. 

The circuit of commodity-capital commences at C'^, where the end product exists, and already embodies surplus value. In other words, it assumes capitalist production is already being undertaken. As we have seen in previous chapters, we can then make several assumptions. Money already exists, and is here depicted as sitting in Bank Deposits. We can also assume that capitalists not only have sufficient money-capital to advance for the purchase of productive-capital, but they also have sufficient money to cover their own consumption needs, to buy commodities, for personal consumption, during the period until they receive payment for the commodities they sell. We can also assume that workers have not simply arisen from nowhere, but are the result of the long historical process discussed in Volume I, and so are able to offer their labour-power for sale as an advance to capital, prior to being paid for it at the end of the day, week or whatever period.

Similarly, capitalist producers have not simply arisen from nowhere, but are also the result of the same historical process, and so both means of production and consumption have evolved from being produced and provided by peasant and artisan producers, to now being produced and sold as commodities, capitalistically. That means that means of production and consumption already exist, and may already be in the hands of capitalists ready to be advanced. Indeed, that is one reason Marx refers to the Tableau Economique, whose starting point is last year's harvest, i.e. it assumes the existence of these stocks available to be advanced.

The consequence of these entirely reasonable assumptions is that the total value of commodity-capital at C', can be bought with money resources held by workers and capitalists, i.e. with existing money funds, or from wages or surplus value. In reality, as was seen earlier, those money funds are really primarily in the hands of capitalists, who advance it as capital and revenue, and in doing so, also put a part of those money funds in the hands of workers, in the form of wages. These money funds flow from and through Bank Deposits, and as a money flow are indicated by the green line. The flow of capital-value is indicated by the red lines.

The result of the realisation of this commodity-capital (total national output) is M', which also includes the surplus value. That surplus value, as described in previous chapters, is equal to the additional money that capitalists threw into circulation, to cover their own unproductive consumption, in the period while they were waiting to sell their commodities. In the conditions of simple reproduction, we are discussing, the surplus value, now reproduces that money, enabling the capitalists to once more throw it into circulation, to cover their personal consumption, in the next cycle.

At M', for the reasons Marx described earlier, the circuit of money-capital ends. Its circuit always starts with M never with M'. M – C – M, is always the circuit of newly invested money capital, not the circuit of industrial capital in the process of reproduction, whether it is simple reproduction or expanded reproduction. Under expanded reproduction, as Marx showed earlier, what we really have for money-capital is two circuits. The first circuit M – C – M, ensures that the productive capital consumed in the first circuit is physically reproduced. So, if the value of that productive-capital has changed, this is reflected in the values retrospectively. But, the surplus value accumulated forms a new circuit of money capital m – c – m, where this is not the case. This money capital buys productive capital at its current value. So, this m will buy a greater or lesser physical quantity of productive-capital, c, dependent upon whether its price has fallen or risen.

So, if £1,000 was paid for 1000 kilos of cotton, and £1000 for labour-power, with a 100% rate of surplus value, we would have – C 1000 + V 1000 + S 1000 = E 3,000. But, if the price of cotton doubled after it was bought, but before the completed yarn was sold, this would be retrospectively reflected in these values. So, C 2000 + V 1000 + S 1000 = E 4000. The yarn would now sell for £4,000, and thereby enable the same quantity of cotton and labour-power to be bought, as in this cycle. However, if all of S is accumulated, it is clear that this is not the case, for this new additional capital value. Previously, (M)£1,000 bought 1000 kilos of cotton, and now M still buys 1000 kilos of cotton, but the £1,000 of surplus value becomes m – c – m, and here in this new circuit of money capital, m only buys 500 kilos of cotton.

So, the circuit of money-capital ends at M'. It is deposited in the bank, awaiting its future destiny. Here, Bank Deposits are a sort of Black Box. That is, the true nature of what is inside is not determined. It is the equivalent of the Uncertainty Principle. Like Schrodinger's Cat, the condition of the money inside remains undetermined, until it is observed. It exists in limbo, as a money hoard, that might be money-capital, or else might be simply money to be used as revenue.

But, we are examining the circuit of commodity-capital, not money-capital, and that proceeds from C' to C'. In the simple reproduction model we have assumed, the same value of money-capital comes out of Bank Deposits, as was originally used, as Money-capital, at the start of the previous circuit of Money Capital, that started at M. By definition, this means that because M' = M + m, an amount of money equal to m, remains in Bank Deposits, and can once again be used by Capitalists to purchase their own personal consumption needs.

M now purchases the same quantity of means of production and labour-power as in the original circuit – C. This is indicated by the red lines M – C (MoP and LP). These are red lines, because although the payment is necessarily in money, it is money-capital i.e. capital-value in money form. The Capital-value, previously inhabiting the money-capital, now abandons it, and is metamorphosed into Productive-Capital. But, as seen previously, there is a difference here between the exchange between this capital, and the workers, and between the capital, and the producers of means of production.

The exchange between this capital and labour is an exchange between capital and revenue. The workers sell a commodity, labour-power, that is not capital. It produces no surplus value for the worker when they sell it. In exchange for this commodity, they obtain not money-capital, but money, as revenue. What was money-capital, for the capitalist, in the same exchange, is metamorphosed into productive-capital, in the shape of labour-power. This labour-power, in the hands of the capitalist, is capital, even though it was not for the worker. For the capitalist, it is the means of expanding value, via the creation of surplus value.

However, the producer of means of production is not merely exchanging a commodity for money. For them, the commodities they are selling constitute a part of their capital – the commodity-capital. When they sell them, they metamorphose their capital value from that of commodity-capital into money-capital, or at least potential money-capital. In the same way, the capitalist buying these means of production, metamorphoses their money-capital into productive-capital, via this exchange. The exchange between these two capitals, therefore, is an exchange of capital with capital, not of capital with revenue.

The buyer of the means of production, however, does not buy productive-capital. They buy merely commodities, albeit commodities that already contain surplus value, and form the commodity-capital of some other capitalist. These commodities, like the labour-power, only become productive-capital in the hands of the buyer, to the extent that they are employed productively. In the same way, the seller of means of production does not obtain money-capital, from the buyer, but only money. It only becomes money-capital in their hands, if it is again used to buy productive-capital.

The money now begins its own new independence and circuit. This is indicated by the green money flow line from Productive Capital, K, to Bank Deposits. In other words, this represents the myriad of separate circuits of money and commodities that result from these payments. Workers deposit their wages in the bank, and from there make numerous purchases of commodities, to meet their needs. In fact, those purchases are themselves represented by the green line from Bank Deposits to C', the commodity-capital.

But, also the capitalists selling means of production, put their money receipts into the Bank and, from there, pay for their purchases, be they for labour-power or for their own means of production, or for their own personal consumption. Given that C' is equal to K, plus the surplus value produced in the production process, we can now see that both an equivalent amount of value is created to be exchanged with it, and a sufficient amount of money, equal to this value, exists with which to purchase it. The wages paid to workers, and the receipts of capitalists that come out of K, are equal to the capital-value they transfer to the end product. The money equivalent of that exists in Bank Deposits, available to purchase commodities equal to that value. That leaves those commodities that are equal to the surplus value produced, but an amount of value, and of money equal to that amount was deposited in the Bank at the start i.e. m, which was the residual from M'.

Returning to the flow of capital, the productive-capital, engages in the production process, and as a result, surplus value is created by labour. The capital-value now exits the productive-capital, and enters the newly produced commodity-capital. So, now the circuit is complete. All output can be exchanged, and fully accounted for. That, of course does not mean to say that it is. We only have here a potential for these exchanges to occur. Similarly, the purchases undertaken from C' might be accomplished using either commercial or consumer credit. That opens a series of further complications. For example, potential deficiencies in demand resulting from some consumers (productive or unproductive) choosing not to buy, might be balanced by others choosing to buy, using credit, rather than their own revenue. It also opens the potential for higher monetary demand than the amount of value thrown into circulation as supply. The consequences of that, which might be inflation or else the stimulation of increased output, cannot be discussed here.

“In the circuits M — C ... P... C'— M' and P ... C'— M'— C ... P, the movement of the capital is the starting and finishing point. And of course this includes consumption, for the commodity, the product, must be sold. When this has assumedly been done it is immaterial for the movement of the individual capital what becomes of the commodities subsequently. On the other hand in the movement of C' ... C' the conditions of social reproduction are discernible precisely from the fact that it must be shown what becomes of every portion of value of this total product, C'. In this case the total process of reproduction includes the process of consumption brought about by the circulation quite as much as the process of reproduction of the capital itself.” (p 396-7)

Back To Part 2

Forward To Part 4

Kevin McCloud Says Rent Don't Buy

Its an indication that the UK property market has reached the limit of the bubble that has been blow up over thirty to forty years, when a TV property guru like Kevin McCloud advises people to rent rather than buy. However, although McCloud is correct that people should rent rather than buy because property has become unaffordable, and because, as he says, “prices have peaks and then drop”, he is wrong to believe that the reason for this is because there is not enough housing, as I illustrated a while ago.

The current massive property bubble has been blown up over the last 30 years. The origin of it was the start of the long secular fall in interest rates. The stagnation of the late 70's and early 80's, created a situation where the demand for money-capital fell relative to the supply. From the mid-1980's onwards, the rise in the global rate of profit meant that the supply of money-capital, as these profits were realised, grew relative to the demand for that money-capital, pushing interest rates ever lower. These ever lower interest rates, combined with the scrapping of credit controls by Thatcher in the 1980's, that deregulated the banks, and encouraged people to borrow and speculate to compensate for their falling wages, acted to push up asset prices, be they property, shares or bonds.

When, as always happens, that speculation resulted in the bursting of a bubble, as happened in 1987, the monetary authorities responded by printing money to reflate the bubble, and inflate it to even higher levels. The bursting of such bubbles has happened periodically ever since then, for example, with the housing bubble in 1990, and in stock markets in 1994, 2000, 2008, and on each occasion the state has responded by printing money to reflate it.

But, today, the thirty year process of falling interest rates has come to an end. Instead we face a similar thirty year period of global interest rates rising, as the demand for money-capital exceeds the supply, as the annual rate of profit begins to fall. The fundamental factor, which was the engine of rising asset prices for thirty years has been put into reverse, and all those who believe that the direction of travel for house prices was a one way bet, will be badly burned. At the same time, each time the state has printed more money, to reflate a burst bubble, it has been less and less effective. More and more money has had to be printed to achieve the result.

Today, we have literally trillions of excess dollars, pounds, euros, yen etc. that has been flung into circulation. It has had no effect on stimulating economic activity, but it has protected the banks and the very rich by preventing the collapse of the prices of the assets they own. The same process has made it more and more difficult for the rest of us to own a house, or to build a decent pension fund, because, like property, the price of shares and bonds has been inflated, so our contributions buy fewer of them. We have had official interest rates, for the last five years, at effectively zero, so that workers are cajoled into spending rather than saving. But, its clear that this process has come to a close.

More money printing does not seem capable of inflating asset prices any longer. Interest rates are headed higher. Meanwhile, the three year cycle has kicked in, and economic activity is once more slowing down. Property prices face a perfect storm of rising interest rates, tightening monetary policy, continued squeezes on workers real incomes, as prices rise faster than wages, and rising unemployment, as the three year cycle brings economic slow down for the next year or so.

Even London property prices seem to be reflecting the new reality. The share price of estate agents Foxtons, has mirrored the ups and downs of the property market in London. In the 1990's, when property prices fell by 40%, in 1990, Foxton's did badly, reportedly almost going bust. Having been sold to another company, it went public in August 2013. Its share price rose sharply, reaching almost £4, after listing at £2.30. Its share price has been falling since March of this year, the chart resembling the path of a falling knife. Its now down to around £2.20, and falling steeply.

In parts of London, completed sales are down 50% from last year. According to Rightmove, agents in London are reporting that they have double the amount of stock on their hands to try to shift than they had only months ago, and its taking much longer to sell, because sellers have been brought into the market, on the false promise of high selling prices, touted by the media, and property programmes, whilst buyers find it increasingly difficult to afford current prices. Meanwhile, the number of foreign buyers has started to decline, and the actions of Britain, in imposing arbitrary sanctions on Russian oligarchs, is only likely to intensify that, as the super rich from a range of countries will not want to risk having their assets seized or frozen.

Agents are reporting that even asking prices are falling by between 6-10%, and it has always been the case outside London, that selling prices were much lower than asking prices. The smart money seems to be getting out of property. That was also indicated by the decision of some of the biggest buy to let landlords selling up, because they believed the top of the market had been reached. 

No wonder, even some of the property gurus are advising people to rent rather than lose their shirt buying property at massively inflated prices.

The Law Of The Tendency For The Rate of Profit To Fall - Part 41

The Rise In The Rate of Turnover (6)

The rise in the rate of turnover of industrial capital, increases the annual rate of profit. It does so, because for two capitals of equal size, the one that turns over more frequently produces more surplus value, as Marx describes in Capital II, Chapters 15 and 16. In Chapter 16, Marx demonstrates that an advanced capital of £500, which turns over ten times a year, produces as much surplus value in a year, as a capital of £5,000, which turns over just once a year, if they both have the same rate of surplus value. In each turnover period, the advanced capital of £500 produces £500 of surplus value, which equals £5,000. But, the capital of £5,000 also only produces £5,000 in a year. The smaller capital produces as much surplus value, in a year, as a capital ten times its size.

On this basis, the rate of profit of the smaller capital is ten times that of the larger capital, because it has produced the same quantity of surplus-value, with a tenth of the quantity of capital. However, if we look at the value of the commodities produced, the rate of turnover has no effect on it. If £100 equals 100 hours of labour, so that each week 200 hours of labour is expended (100 paid and 100 unpaid), then in a year, both capitals have expended the same amount of labour. Both capitals laid-out £5,000 as variable capital, both bought labour-power, which performed 10,000 hours of labour, and which created 10,000 hours of new value.

If we calculate the average rate of profit, taking into consideration the merchant capital, then proceeding as Marx did by assuming a single turnover of capital in the year, the basis becomes the amount of surplus value produced in the year, divided by the sum of productive-capital and merchant capital. If the quantity of productive capital amounts to £80 and the commercial capital £20 (we can think of figures in billions for greater realism) and the amount of surplus value is £10, then, for the productive-capitalists alone, the rate of profit is 12.5%. If they sold the goods at their price of production, the price would be £90. However, although the merchant capital adds no value, nor surplus value, it does get to share in the surplus value. Adding in the merchant capital, the rate of profit then falls to 10%.

The productive-capitalists sell their commodities at their price of production to the merchant capitalists, i.e. £80 costs plus 10% profit, £88. But, the value of these commodities is £90. The merchants then add the average profit to their own capital, and so add £2, as their own profit margin, thereby selling the commodities at the value of £90.

If the productive-capitalist turns over their capital more often, then the mass of surplus value produced, and their annual rate of profit rises, but, Marx demonstrates this is not the case, for the merchant capitalist, but it does affect his profit margin per unit. 

“If the price of production of 1 lb. of sugar were £1, the merchant could buy 100 lbs. of sugar with £100. If he buys and sells this quantity in the course of the year, and if the average annual rate of profit is 15%, he would add £15 to the £100, and 3s. to £1, the price of production of 1 lb. of sugar. That is, he would sell 1 lb. of sugar at £1.3s. But if the price of production of 1 lb. of sugar should fall to 1s., the merchant could buy 2,000 lbs. of sugar with £100, and sell the sugar at 1s. 1 4/5d. per lb. The annual profit on capital invested in the sugar business would still be £15 on each £100. But the merchant has to sell 100 lbs. in the first case, and 2,000 lbs. in the second. The high or low level of the price of production has nothing to do with the rate of profit. But it would greatly and decisively affect that aliquot part of the selling price of each lb. of sugar, which resolves itself in mercantile profit, i.e., the addition to the price which the merchant makes on a certain quantity of commodities or products. If the price of production of a commodity is small, so, too, the amount the merchant advances in its purchase price, i.e., for a certain quantity of it. Hence, with a given rate of profit, the amount of profit he makes on this quantity of cheap commodities is small as well. Or, what amounts to the same, he can then buy with a certain amount of capital, say, 100, a larger quantity of these cheap commodities, and the total profit of 15, which he makes per 100, breaks up into small fractions over each individual piece or portion belonging to this mass of commodities.”

Capital III, Chapter 18

I will examine this further in the next part.

Back To Part 40

Forward To Part 42

Scotland Has Spoken. Now Its rUK's Turn.

Scotland has voted to remain part of the UK. That is a progressive result, compared to the alternative, which was the establishment of a separate, Scottish capitalist state, and the division of the British working-class that would have flowed from it. However, the debate and the rash offer to provide Scotland with additional powers, that look very much like the creation of a Scottish state, in all but name, has opened the door to debate, over the constitutional arrangements, for the rest of the UK. That is good, because Britain has long needed a thorough discussion of its lack of a proper constitution, and the fact that its own bourgeois revolution, begun in the 17th. Century, and strung out over the following three centuries, has never been completed. A debate, in the whole of Britain, of a similar nature to that which has just happened in Scotland, is badly needed. It should not be simply a matter, as currently suggested, of cobbling together a set of proposals, over the next couple of months.

The basic thrust of such a constitutional reform, for a Marxist, must be the advocacy, as Engels described it, of the one and indivisible Republic. All talk of federalism, for Britain, is reactionary. Marxists only support fragmentation, in the shape of various forms of autonomy and federalism, where, in exceptional conditions, it represents a more centralised, unified form of state than what otherwise would be possible. So, for example, when the United States was being created, it would have been difficult to have established one single unified state. Yet, Engels commented that, even in his time, the federal system was acting to hamper the development of the more advanced areas of the US. The US Civil War was a war fought, in the interests of big industrial capital, to establish a strong centralised state, and limit the powers of the individual states.

Similarly, given the creation of the EU, as an amalgamation of existing nation states, the establishment of a federal United States of Europe, would be a progressive development, in place of the existing multiplicity of competing nation states. But, for three hundred years, Scotland was a fully integrated part of the centralised UK state. The process of devolution was, therefore, a reactionary, opportunist manoeuvre to try to win votes in Scotland, at the expense of weakening the integrity of the existing state. It created the basis upon which the SNP could develop its power base, in a proto Scottish state, and use it as a bridgehead to spread its nationalist poison, and division, into the working-class. Feeding that source, will not remove the poison, it will only make it more potent.

The proposals, for giving a Scottish proto state, and, by implication, all of the other mini proto states, that would demand equal treatment (there are already idiots demanding independence for Yorkshire), tax raising and other such powers, are insane, from the standpoint of the working-class. If Scotland were to attempt to cover higher spending on welfarism, for instance, by raising income tax, within its borders, it would simply result in the same process that has happened in the US, and elsewhere. Businesses and the rich, simply move to the next best lower tax area. In the US, businesses, and the more affluent, left New York in droves, for example, and moved to lower taxed New Jersey. That meant that New York's attempts to solve its debt problems, by higher taxes, rather than being solved, were made much worse.

That is one reason that such problems can only be solved in larger unified states, where a common tax rate can be applied, over such a large area, that businesses and the super rich cannot so easily avoid payment.

But, equally, the opposite applies. The splitting up into these smaller areas, is rather like the creation of Enterprise Zones. It means that each area will try to attract business to its area, by having the lowest taxes it can get away with, and by trying to impose the worst pay and conditions on workers. Ireland already tries to do that with its low corporation tax rates, and the SNP proposed to do the same.  It necessarily leads, therefore, to a race to the bottom. That was always likely to be the case, had Scotland established a new Scottish capitalist state, but the proposals for additional powers for Scotland leave that potential in place.

Instead of these proposals, for trying to perfect the capitalist state, by tinkering with such constitutional arrangements, which continue to sow division, Marxists should argue for a more unified state, but one whose role is more limited, and over which there is greater democratic control, to the extent that such control can ever be exercised over a state which belongs to, and is the instrument of, a ruling class.

Such a programme would involve:

• Abolition of the Monarchy
• Abolition of the House of Lords 
• Creation of a Unicameral Parliament 
• Right of Recall Over All MP's, on the basis of a request by 10% of the electorate, for any reason. 
• Election of All Top Civil Servants, Judges, Military Top Brass and Police Chiefs. 
• Creation of a Citizen's Militia in Place of The Standing Army, and for Universal Military Conscription. 
• The Duty of Each Citizen to Engage In Community Policing. 
• Open All The Books On Links Between the State, Media, and Business Interests. 

But, for a Marxist, these are simply the demands that are the minimum required for consistent bourgeois democracy. Our ambition is not the perfection of bourgeois democracy, but its destruction and replacement with workers' democracy. Marxists only advocate consistent bourgeois democracy in so far as it limits the power of the capitalist state, and creates better conditions for workers to fight for their interests.

Alongside the above, therefore, Marxists would advocate all measures that strengthen the economic, social and political power of the working-class, and their own self-government. Rather than encouraging a growth of the capitalist state, therefore, as the social democrats and welfarists seek, it requires a limitation of its powers, and where possible a transfer of those powers to workers themselves. The idea, fermented by the social democrats and welfarists, that the answer to workers problems, of poverty and uncertainty, is to be found by a reliance on the capitalist state, is pernicious. It limits workers to a view that the answer to those problems is only to seek an amelioration of their condition by alms provided by that state; it suggests that they limit themselves merely to seeking additional crumbs from the table, by obtaining a share of the wealth created by others, rather than empowering them with the ability to own and control, and create wealth and power of their own.

Marxists, therefore, would argue that a fundamental constitutional and democratic reform involves facilitating workers in collectively developing that wealth and power of their own. As Engels put it,

“The German workers' party strives to abolish wage labour and hence class distinctions by introducing co-operative production into industry and agriculture, and on a national scale; it is in favour of any measure calculated to attain that end!”

(Engels letter to Bebel)

And, Engels writes,

“...as demanded by the Paris Commune, the workers should operate the factories shut down by the factory-owners on a cooperative basis."

Within working-class communities, like many of those suffering deprivation, in Glasgow, the answer lies, not in crumbs from the capitalist table of welfare, but in the transfer of council and other social housing into the hands of its tenants, to operate as housing co-ops. That should form the material base for the workers living within such communities, to form their own co-operative and democratic structures, for day to day control over all aspects of their community, not simply by sticking a cross on a ballot paper, every few years, but via their own direct democratic structures, in which they participate themselves, in the same way that ordinary working class people have participated in Scotland, over the last few months. These democratic bodies should be able to not just discuss issues, but, on the basis of that discussion, to arrive at decisions, and to immediately act upon those decisions. Like the organs of power developed by the workers and small producers, during the days of the Paris Commune, they should be executive as well as legislative bodies.

The answer to poverty and uncertain employment is not handouts, from the capitalist state, or even vain hopes of redistribution, through the tax system, but the ability for workers to increasingly have control over the wealth they create. For example, the above co-operative organisations should work with the trades unions to establish construction co-operatives that can carry out the necessary maintenance work on houses and facilities within those communities, and to build, in a democratically planned way, additional properties and facilities. A model for such co-operation, between the trades unions and co-operatives, has been developed by the United Steelworkers of America, and the Mondragon Co-operatives. 

By organising such activity, in a democratically planned manner, workers could begin the process of removing uncertainty, providing jobs and training, with decent wages and conditions, and preventing the surplus value they create being siphoned off by the bosses in the first place, rather than the futile attempt to reclaim part of it in tax. By such democratic planning they can begin to replace the anarchy of the market that creates that uncertainty, and which makes their repeated guerilla actions, to defend wages and jobs, a necessity. As Marx put it,

“Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labour power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically. If the material conditions of production are the co-operative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one. Vulgar socialism (and from it in turn a section of the democrats) has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation has long been made clear, why retrogress again?” 

(Critique of the Gotha Programme)

and

“At the same time, and quite apart from the general servitude involved in the wages system, the working class ought not to exaggerate to themselves the ultimate working of these everyday struggles. They ought not to forget that they are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady. They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the never ceasing encroachments of capital or changes of the market. They ought to understand that, with all the miseries it imposes upon them, the present system simultaneously engenders the material conditions and the social form necessary for an economical reconstruction of society. Instead of the conservative motto: “A fair day's wage for a fair day's work!” they ought to inscribe on their banner the revolutionary watchword: “Abolition of the wages system!"”

(Value, Price and Profit)

This is part of the process by which, Marx argues, in Capital, that capital is dissolved within the framework of the capitalist system itself.  It is part of the process of the "expropriation of the expropriators".  The more workers reclaim these functions for their own ownership and control, the more they then develop their own self-government, in opposition to that of the capitalist state, and they are able to do that irrespective of existing national or regional boundaries. They can unite across those artificial borders, by creating their own co-operative structures, based on the shared interests of workers as workers, not workers of a particular trade, industry, firm, region or nation. The more they reclaim this control, and establish that self-government, the more they diminish the economic and social power of the capitalist state over them. That is why Marx argued for direct taxes so that workers would act to limit the expansion of the capitalist state. He wrote,

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

But advocated direct taxation,

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

(Instructions for Delegates to the First International Executive Committee)

One aspect of that control should be for such communities to be able to police themselves. It should be not only the right, but also the duty, of every able bodied citizen, to participate, on a regular basis, in such community policing, of their communities, in the same way that all citizens are required to participate in jury service. It should be, similarly, a legal requirement, of all employers, to provide employees with paid leave, to undertake such duty.

Such bodies can also form the basis of establishing a workers militia, which can ultimately replace the standing army. Such a body, combined with the implementation of universal military conscription, is the necessary logical extension of universal suffrage, as Engels described. If the whole people are to vote, to make decisions, then the whole people must also be armed, so as to be able to enforce those decisions, against any attempt by forces, internally or externally, to subvert them.

“Universal conscription — incidentally the sole democratic institution existing in Prussia, albeit only on paper — marks such an enormous advance on all previous forms of military organisation that, having once existed, even if its implementation left much to be desired, it cannot again be permanently reversed...

“Whether reorganisation means some slight increase to the military burden or not, will make little difference to the working class as a class. On the other hand it certainly cannot remain indifferent to the question of whether or not universal conscription is fully implemented. The more workers who are trained in the use of weapons the better. Universal conscription is the necessary and natural corollary of universal suffrage; it puts the voters in the position of being able to enforce their decisions gun in hand against any attempt at a coup d'état.

The only aspect of army reorganisation in Prussia which is of interest to the German working class is the increasingly thorough Implementation of universal conscription.”

(Engels - The Prussian Military Question and the German Workers' Party)

By the same token, the more the means of production, and the communities, are brought under the direct, co-operative ownership and control of the workers, that live and work in them, the more the workers establish their own direct, democratic self-government, as the necessary corollary to these new material conditions, the more these democratic bodies will form the organs and structure of the new workers semi-state that will replace the existing capitalist state, the more this universal conscription will, therefore, become the means by which the workers prevent such a coup d'etat being launched against them, by that existing capitalist state, the more it will become the means of ensuring the liquidation of the latter.

These are the kinds of constitutional changes that Marxists should be organising around, not merely attempts to make the existing capitalist state work more efficiently. Our task is not to perfect that machine but to smash it. As Marx put it,

"If you look up the last chapter of my Eighteenth Brumaire, you will find that I declare that the next attempt of the French Revolution will be no longer, as before, to transfer the bureaucratic-military machine from one hand to another, but to smash it, and this is the precondition for every real people's revolution on the Continent. And this is what our heroic Party comrades in Paris are attempting."

(Marx – Letter to Kugelmann April 12th, 1871.