Capital III, Chapter 21 - Part 11

Marx then turns to the question of the interest specifically. If all that is returned to the lender was the sum of value they had relinquished, it would not have been capital. It is only capital to the extent that its value self-expands. As was discussed earlier, this interest bearing capital may be either fixed capital or circulating capital. That is it may be loaned for long periods, with only the interest being paid periodically, with the capital sum only repaid after the end of this long period, or else it may be loaned for short periods, with the capital, plus the interest, being fully repaid at the same time.

For now, only the latter is considered.

In the process of commodity exchange, what is it that is alienated? It is not value but use value. The worker who sells their labour-power does not alienate its value, they simply retain that value in a different form, as wages. What they alienate is its use value, its ability to create value and surplus value.

When a commodity producer sells their commodity, they do not alienate its value, but its use value. The buyer buys the commodity because it is that use value they desire. The seller alienates the use value of the commodity, but all the time retains its value, because the instant they exchange this commodity for some other commodity, or money, the value simply metamorphoses into the form of the commodity they receive.

“It is only by this act of alienating that capital is loaned by the money-lender as a commodity, or that the commodity at his disposal is given to another as capital.” (p 350)

It is the use value of this capital, its ability to self-expand , that is alienated, and it is this which is paid for. Marx says,

“In the case of an ordinary commodity, a commodity as such, the same value remains in the hands of the buyer and seller, only in different forms; both have the same value which they had before the transaction, and which they had alienated — the one in the form of a commodity, the other in the form of money. The difference is that in a loan the money-capitalist is the only one in the transaction who gives away value; but he preserves it through the prospective return. In the loan transaction just one party receives value, since only one party relinquishes value. — In the second place, a real use-value is relinquished on the one side, and received and consumed on the other. But in contrast to ordinary commodities this use-value is value in itself, namely the excess over the original value realised through the use of money as capital. The profit is this use-value.” (p 351)

But, this does not seem to be a real difference. These other commodities are consumed and disappear, only so long as they are not capital. If they act as capital, then that capital-value reproduces itself and expands. Similarly, capital as a commodity, i.e. interest bearing capital, only remains intact and expands so long as it acts as capital. Money-capital, used to buy commodities, for unproductive consumption disappears, as capital-value, and fails to expand. It is reduced simply to money.

“It is this use-value of money as capital — this faculty of producing an average profit — which the money-capitalist relinquishes to the industrial capitalist for the period, during which he places the loaned capital at the latter's disposal.” (p 351)

Back To Part 10

Forward To Part 12

Bad Weather and Bad Politics

The recent storms in Britain are once again being described as “unprecedented” by a news media that must always sensationalise everything, by describing it as “the worst”, “the best” and so on. That is a consequence of 24 hour news channels for whom News must be entertainment. If the news is not sensational, after all, what other justification is there for repeating it, ad nauseum, every fifteen minutes, rather than spending time to present a wider range of news, or to deal with the background to the news in more detail? But, the further consequence of this is that whatever is the latest “sensational” news story, tends to create also the latest “moral panic”, and electoral politics are driven by the need to provide quick fixes to such “moral panics”. Politics becomes a question not of rationality, but of morality, of the need not to think and pursue what is a rational course of action, but any course of action that can be seen as immediate. The idea that “something must be done”, becomes an imperative upon politicians to “do something now!”

Some of the first blog posts I wrote were on this theme. For example, in this post, I argued that it was precisely this moralistic approach that was behind Al Glotzer's rejection of the Marxist analysis and solution, in respect of the Jews, and there persecution, and his adoption instead of the nationalistic solutions of Zionism. Trotsky long ago described the social roots of such politics based upon moralism rather than Marxism. It is the petit-bourgeois milieu of its advocates, which acts upon them to pressure them into some form of palliative action, even if that palliative action is, in the longer-term detrimental. For example, it could be reasonably argued that the continued conflict and division in the Middle-East today, the strength of reactionary, nationalist forces, is itself a consequence of the nationalistic solution presented by Zionism, which promoted a nationalistic rather than socialistic response, feeding into a reactionary spiral.

In reality, in a bourgeois democracy, this moralism that “something must be done” is not just about a particular petty-bourgeois milieu acting as pressure to demand action. For parties for whom getting elected is the raison d'etre, this is an even more effective form of pressure, pushing down on elected politicians. It is a mistake to think of politics simply as some kind of organised conspiracy, whereby the elected government are merely dupes and cyphers, who mechanically do the bidding of the ruling class. For one thing, the ruling class does not constitute some homogeneous bloc, but comprises a range of different material interests. For another, the interests of the ruling class are more cogently pursued by the state, not the government. Finally, and the reason for the previous condition, is that governments have to get elected, and so respond to the wishes of electors, whereas the state does not.

It is precisely for this reason that politicians for whom the be all and end all is to be elected, the need to respond to each moral panic, whenever it arises, becomes a driving force, not to do the right thing (although they always claim that this is what motivates them) or the rational thing, but to do what they think is the most politically expedient thing. Yet, it makes no more sense, in the longer-term, to develop policy upon this basis that “something must be done”, when it comes to bombing Syria, as it does when it comes to dealing with the consequences of the latest piece of bad weather to hit the UK.

Although, the news channels keep telling us that the latest floods are unprecedented, it is only a matter of months since the last lot of “unprecedented” floods, and more or less every year for the last nine years that I have now been writing this blog has seen similarly “unprecedented” floods! Each time, the response is the same that the government must do more, to stop the flooding, just as his advisors told King Canute. The obvious political response from Labour politicians is to take short-term political advantage by attacking the government for failing to spend enough on flood defences, as a consequence of its austerity policies.

Yet, the reality is that a lot of the current flooding will have been itself caused by the flood defences that have previously been set up. Anyone who has studied even basic geography knows that rivers go through various stages. The river at its source is small and narrow. It flows rapidly, because it is falling steeply from high levels. The pace of the river causes it to cut more deeply into the ground. As it becomes more mature, falling less rapidly, as it reaches lower, less steep terrain, it not only slows down, but spreads out. It cuts less deeply into the ground. It is in these areas that flood plains develop.

What flood defences do is to keep the river in its more youthful state for longer, because they channel it more deeply, by building up artificially high river banks. But, at these lower levels, where the river would naturally flood, far more water is being transported than at its higher reaches, because it has, by this stage, been fed into by various other tributaries, and by water run off from surrounding land. What the flood defence does, by preventing this much larger volume of water from naturally flooding, is to force it to travel much faster than it otherwise would, and with much greater force than it otherwise would. It is like putting your thumb over part of the end of a hosepipe. The result is inevitable, areas lower down the river get large volumes of water thrown at them at high pressure, so that the flooding in these areas either occurs, where previously it would not have occurred, or else it is more devastating than it otherwise would have been.

Responding by introducing flood defences on those section of the river, only intensifies the problem for those areas even further down river. This is the reason that in the United States, where this problem was identified, existing flood defences were scrapped, in a number of places, allowing rivers to flood naturally, and thereby reducing the pressure of water that was dumped on to lower lying areas. But, what this requires is a recognition that either building on natural flood plains will result in frequent disruption, or else a recognition that its not a good idea to develop in such areas!

But, government policy has been to develop on these flood plains and other high risk areas. The reason for that is that land in these areas tends to be cheaper, because of these risks. That means that builders make bigger profits, and it also means that the government gets more houses built at lower costs. But, there is another reason, associated with the earlier discussion. Many people have been sold the idea of living cheek by jowl with rivers, because it appears to be a picturesque and desirable location. If you have been given to believe that the consequences of living in such a risky location will be borne by someone else – i.e. the taxpayer who will erect expensive flood defences, provide guaranteed, subsidised insurance, or pay out to cover any losses – why would you not only see the advantages of living in a picturesque location, and not bother setting against it the potential costs, when your property is inevitably flooded?

In addition, the policy of building on brown field sites, and encouragement of building in city locations makes the situation worse. Many cities, were originally developed alongside rivers. But, that was at a time when those cities contained a few hundred houses, and only a few thousand people. Moreover, large scale agricultural use of the land, meant that these rivers, frequently flooded on to flood planes, taking the volume of water and its pace down considerably, before it reached these cities. Today, thousands of additional properties have been built in the cities – some of them as the news coverage shows, literally metres from the river itself – and the surrounding development, means that not only is water not absorbed into the land, because its covered in concrete, but it runs off at pace, into the river.

The situation in Britain is not the same as the situation in say the Netherlands. The Netherlands are renowned for their flat nature, and lack of mountains. Water does not run down from mountains, as it does in Britain, and so it does not have the same kind of river profile. The main problem for the Netherlands is coastal flooding as a result of its low lying nature. Building substantial coastal flood defences, which have, in fact, reclaimed large amounts of land from the sea, can be rational there, because it can be focussed along its coast. Stopping the water ingressing from the sea, does not cause it to flood somewhere else, as happens with river defences.

The rational response in Britain, is actually to forget about flood defences on rivers, which are a waste of money, and ultimately counter-productive. The billions of pounds spent on flood defences would be better used, to develop replacement housing in areas that are not at risk of flooding, for people currently living in areas of flooding. That would mean a deliberate policy change to a long-term housing strategy that rejects the current straight jacket imposed by the Green Belt, and so on. But, it would also mean that the government would have to reject its current austerity policies, in order to pursue such a significant amount of investment in housing.

But, policy makers are not likely to adopt such a solution, because although it is a more rational solution, and a solution that is more sustainable in the longer-term, it is not an immediate solution; it is not a solution that deals with the current moral panic. Britain, has actually been bedevilled by such short-termism, for a long time. In a few weeks time, I will be dealing, in my series on Marx's Capital, with his analysis of rent. There it will be seen how the form of rent deterred capital investment on the land, because the more capitalist farmers invested capital in the land, the more rent they ended up paying, because at the end of leases that became increasingly shorter in duration, the landlord took possession of any such investment, without compensation, and on the basis of the higher productivity of the land, levied a higher rental upon it.

What is true of the mentality and actions of the lander oligarchy, is also true of the financial oligarchy, who as Andy Haldane has described recently, are interested in screwing as much in dividends out of companies, but not in companies making the required investment in productive-capital, that are required to increase the mass of profits, in the longer-term, out of which those dividends are paid. That same mentality lies behind the actions of governments too. The policy of austerity seeks to minimise government borrowing, so as to keep interest rates low, which keeps the prices of bonds, shares and land high, and thereby to keep the fictitious wealth of the financial and landed oligarchy inflated.

However, that same policy means that investment on necessary infrastructure is skimped. Britain is considering high speed rail, decades after other countries introduced it, and at a time when it should instead be investing in a 21^st century communications infrastructure based on the Internet. Its proposals for high-speed broad band are laughable. Even when fully implemented it will mean that the UK will have broad band speeds less than a tenth of what already exists uniformly across Singapore. The same is true in a range of other areas of state investment, for example in education and training. The end result is that the economy grows more slowly, and so the basis of reducing government borrowing, and of paying the interest to government bondholders is reduced.

But, on all these areas of policy, politicians whose entire world revolves around the need to get elected, can only ever have a short-term vision, based upon dealing with the current fad, the current moral panic, in order to be seen to be doing something, because “something must be done”. If Corbyn's election has any longer term advantage, it should be to shift the emphasis for Labour members away from this short termism, based upon the need to get elected, and on to a longer-term perspective of developing sustainable rational solutions.

Capital III, Chapter 21 - Part 10

The fact that for the money-capitalist the return of his capital appears as completely external to the actual circuit of capital, the process of its self-expansion creates a delusion as to the cause of that self-expansion. The money-capital seems to have expanded simply as a consequence of its being loaned, which creates delusions that the self-expansion arises as a consequence of “abstinence” or “risk” etc, rather than these simply being “grounds for compensating”, i.e. justifications for receiving a greater sum back than was loaned, as opposed to an explanation of where this greater sum actually came from.

“A gives away his money not as money, but as capital. No transformation occurs in the capital. It merely changes hands. Its real transformation into capital does not take place until it is in the hands of B. But for A it becomes capital as soon as he gives it to B. The actual reflux of capital from the processes of production and circulation takes place only for B. But for A the reflux assumes the same form as the alienation. The capital returns from B to A. Giving away, i.e., loaning money for a certain time and receiving it back with interest (surplus-value) is the complete form of the movement peculiar to interest-bearing capital as such.” (p 348)

For productive-capital, the period of the return of capital, to its starting point, the turnover time, is determined by material constraints – the production time required for the specific type of commodity, the minimum quantity of production required for a working period, the circulation time required to sell the commodities, and convert money-capital once more into productive-capital.

But, for interest bearing capital, this is not the case. Its time of return depends solely upon the legal agreements entered into between lender and borrower. The expansion of the capital is solely a function of this agreed time-scale. This expansion appears to be completely separated from the actual process of the expansion of the capital, in production, without which the payment of this interest would be impossible.

“Loaning money as capital — its alienation on the condition of it being returned after a certain time-presupposes, therefore, that it will be actually employed as capital, and that it actually flows back to its starting-point. The real cycle made by money as capital is, therefore, the premise for the legal transaction by which the borrower must return the money to the lender. If the borrower does not use the money as capital, that is his own business. The lender loans it as capital, and as such it is supposed to perform the functions of capital, which include the circuit of money-capital until it returns to its starting-point in the form of money.” (p 349)

In that case, the borrower must find other ways of acquiring the additional value that must be paid as interest, as well as the return of the original capital-value. Either way, the only way that the interest can be paid is if the borrower acquires a larger sum of value than the sum of value they borrowed. Taken from the viewpoint of the total social capital, the only way that interest can be repaid is if this total social capital expands, i.e. if additional value is created within the economy. Otherwise, the interest must be paid by actually destroying a portion of the total social capital. Instead of this capital value being reproduced, as constant or variable capital, it would simply go as revenue, as money that leaves the circuit of capital, and simply forms revenue, circulating in the realm of money and commodities.

That was the situation that faced the emerging productive capital in the Mediterranean states in the Middle Ages, which was ultimately destroyed, at birth, by the rapaciousness of merchant and interest bearing capital. Whenever interest-bearing capital is in a position to impose itself in this way, it acts as a constraint on the development of productive capital.

“This lending, therefore, is the appropriate form of alienating value as capital, instead of alienating it as money or commodities. It does not follow, however, that lending cannot also take the form of transactions which have nothing to do with the capitalist process of reproduction.” (p 350)

Back To Part 9

Forward To Part 11

Capital III, Chapter 21 - Part 9

Proudhon seems to believe that there is something specific to interest bearing capital that enables it to keep describing this circle. He says,

“"Since money-capital returns to its source from exchange through the accumulation of interest, it follows that reinvestment always made by the same individual continually brings profit to the same person," p. 154.” (p 347)

But, as Marx points out,

“The return of capital to its point of departure is generally the characteristic movement of capital in its total circuit. This is by no means a feature of interest-bearing capital alone. What singles it out is rather the external form of its return without the intervention of any circuit. The loaning capitalist gives away his capital, transfers it to the industrial capitalist, without receiving any equivalent. His transfer is not an act belonging to the real circulation process of capital at all. It serves merely to introduce this circuit, which is effected by the industrial capitalist.” (p 347)

But, the capital loaned to the industrial capitalist at the start of that circuit did not belong to him. The money-capitalist had not sold this capital to him in exchange for an equal amount of value, but had only sold to him the use value of the capital for a particular period of time, just as the worker does not sell himself to a capitalist, but only sells his labour-power for a given period of time. What did not belong to the industrial capitalist at the start of the circuit cannot belong to him at the end of it.

At the end of the circuit, the worker belongs to himself. He is not a slave. He can sell his labour-power once more. Similarly, the capital belongs to the money-capitalist that lent it, and can be loaned once more. What belongs to the industrial capitalist is what they have paid for – the use value of the workers' labour-power, now in the shape of the value created, and the use value of the capital, now in the shape of the profit contained in the end product.

“Passing through the process of reproduction cannot by any means turn the capital into his property. He must therefore restore it to the lender. The first expenditure, which transfers the capital from the lender to the borrower, is a legal transaction which has nothing to do with the actual process of reproduction. It is merely a prelude to this process. The return payment, which again transfers the capital that has flowed back from the borrower to the lender is another legal transaction, a supplement of the first. One introduces the actual process, the other is an act supplementary to this process. Point of departure and point of return, the giving away and the recovery of the loaned capital, thus appear as arbitrary movements promoted by legal transactions, which take place before and after the actual movement of capital and have nothing to do with it as such. It would have been all the same as concerns this actual movement if the capital had from the first belonged to the industrial capitalist and had returned to him, therefore, as his own.” (p 347-8)

Back To Part 8

Forward To Part 10

Predictions For 2016

Last year I set out ten predictions for 2015. Before setting out any predictions for the year ahead, therefore, it is perhaps necessary to see how last year's turned out.

The first prediction was that Syriza would win the Greek elections, and would refuse to compromise. A more than partial hit, I would say. They did win the election, and for some time did refuse to compromise, before being forced to back down faced by the mass of conservative forces ranged against them across Europe. I would say this story is not yet over, and the success of Podemos, and of the left in Portugal are just the opening chapters, rather than the conclusion.

The second prediction was that Labour would win the election in the UK, as part of the same process that led to the rise of Syriza et al. On the face of it, a big miss. However, looking beneath the surface, the reality is that a right-wing Liberal-Tory majority of around 80, was slashed to a Tory majority of just 12. You would not know it from all of the Tory media, and other pundits, but the reality is that, in England and Wales, Labour increased its number of seats by the same amount as the Tories, and increased its share of the vote by twice as much as the Tories. The real story was the collapse of the Liberals, and the rise of the SNP. In other words, the total size of the right got smaller, but within it, it became more right-wing, and more nationalistic.

The other part of the prediction was a rise of the left inside the Labour Party. At the time, and given the potential for Labour to lose, very few people, this time last year, believed that such a change was likely. Indeed, even by the middle of last year, few people would have believed that Jeremy Corbyn would become Labour Leader, on the back of such a huge increase in party membership, driven from the left. So, although the headline prediction was a miss, again, I think that the prediction, taken as a whole, was substantially correct.

The third prediction, that UKIP would fail to win any seats, is again substantially correct. All of the pundits were suggesting that they would win up to 20 seats. In fact, as suggested, the higher turnout of a General Election meant that, even whilst they increased their number of votes, they were unable to turn that into seats. They actually lost the seat of Mark Reckless, which had been gifted to them by his defection from the Tories. Farage failed to win again, and they have only held on to the seat of Douglas Carswell, due to his personal following. Even that is causing UKIP problems, as a party with just one MP looks set to suffer a split!

The fourth prediction, that the Liberals would win only six seats, was the most successful prediction. In fact, they won eight, but, even on election night, Paddy Ashdown was saying that he would eat his hat if they only won the 26 seats that the exit poll was suggesting. As with Prediction 1, it is a confirmation of the general thesis of a collapse of the political centre, and of the conservative ideas that have been dominant for the last thirty years. Ashdown failed to eat any hats, once again demonstrating that Liberal promises are worthless.

Prediction five looked to a split in the Tory Party between these conservative and essentially social democratic forces, around the question of Europe. The fault lines of that split are clear already to see. The prediction has not yet been confirmed, but the months ahead are likely to do so.

The same is true with prediction six. The actual problems facing Europe can only be solved by more Europe rather than less Europe. The decision to beef up the European Border Agency – Frontex – is an indication of that. The ECB has started outright QE to buy up the bonds of various European States, and this is the basis for issuing Eurobonds at some point. Draghi, and other bureaucrats, have indicated that monetary policy can effectively do no more, and that it will be up to fiscal policy to now take the strain in promoting growth. With the French government nominally committed to fiscal stimulus, with the rise of Syriza in Greece, Podemos in Spain, and the left government in Portugal, this prediction is yet to be confirmed, rather than having been falsified.

Prediction 7 has again been partly confirmed. There was a financial markets crash, global interest rates are rising, and even the Federal Reserve has now raised official interest rates, with more to come. The Chinese Stock Market crashed by 30%, and other stock markets fell by more than 20%, taking them into bear market territory, though they recovered some of those losses later. Stock markets are finishing the year down on where they began, due to these earlier crashes. However, the crashes that have happened are not yet even close to the actual crash predicted. That is yet to come, and as global interest rates rise, the closer that crash becomes.

The same is true with Prediction 8. There has not yet been the property market crash in Britain. It appears that house prices in London are falling, but that does not constitute a crash. House prices elsewhere also appear to be falling or stagnant, despite the actions of the Bank of England, and the government in manipulating the market. But, household indebtedness is now back to the kinds of level that preceded the 2008 crash, and with interest rates rising, it is again only a matter of time before this prediction is verified.

Prediction 9 is also on the way to being confirmed. The US has set up the various trade deals, which tie it closer to its main trading partners. The fall in the value of the Rouble, despite massively falling oil prices, did not bring the Russian economy to its knees, but has brought inward investment and further co-operation with China and other regional partners. In fact, Russia has seen its position strengthened strategically.

Prediction ten has also been confirmed, but has further to run. Twenty years ago, the Marxist economist Michel Aglietta, predicted that the processes of post-Fordism, seen in manufacturing, would spread to service industries. That is what is being seen. The potential now exists to tailor medical treatment to the specific requirements of the individual, and thereby to prevent illnesses rather than have to cure them, which makes the old Fordist healthcare solutions, which treated all individuals as being homogeneous, so as to offer mass production healthcare, increasingly outmoded and redundant. The last year, has indeed seen a significant increase in the number of such healthcare solutions, based upon the individual genetic make up of the individual. These now offer the best hopes for prevention and cure of cancer, and a range of other diseases.

So now on to the predictions for the year ahead.

1. In line with the underlying thesis that the material conditions are changing, and are now favouring socialised productive-capital, at the expense of interest-bearing, fictitious capital, and that this favours social-democracy, I see a further move in that direction, in the year ahead. It is likely that we will see the growth of similar social democratic forces, both within the existing social-democratic parties, and also pressurising them from without, where those parties do not shift their position. The likely manifestation of that will be in France, Italy and Germany, it is also being manifest already in the US.
   
   
2. Global growth will be higher than currently predicted. The basis of that is that a new three year cycle began at the end of 2015. That means a tendency to higher growth than in the previous year, and this upward phase will last for two years. Secondly, that the rate of productivity growth achieved in the last 25 years, has started to slow down. That means that investment will tend to be increasingly extensive rather than intensive. The consequence of that is that relatively more labour-power is employed. Higher levels of employment, is already pushing wages higher, and these higher wages begin to support higher levels of workers' consumption, stimulating a need for additional investment in those industries that produce wage goods.
   
   
3. Interest rates will rise more sharply than currently predicted. All of the financial pundits, and representatives of fictitious capital, are in a process of grief. They have been shocked that the Federal Reserve did actually raise official interest rates. Now they want to disbelieve that it is happening, and come out with predictions that it will be forced to reverse those hikes next year. That is because the prices of fictitious capital depend upon low interest rates. The price of any revenue bearing asset is the capitalised value of the revenue, and as interest rates rise, so that capitalised value falls. With very low absolute levels of interest rates, even very small absolute rises of those rates, represent a large percentage rise in the rate, and correspondingly large fall in the capitalised value. Relatively small absolute rises in interest rates, will therefore cause the prices of shares, bonds, and property to fall massively.
   
   
4. The fourth prediction is then that the prices of this fictitious capital will fall dramatically. Interest rates will rise not because the central banks raise official rates, but because the material conditions mean that the demand for capital will rise relative to the supply, whatever the central banks do. The potential for that is exacerbated by the astronomical levels of household debt, and of high risk debt that is likely to default. The rise of official interest rates by central banks is actually a reflection of the rise in market rates, as they try to catch up, not a cause of higher market rates.
   
   
5. Inflation will be much higher than predicted. Over the last few decades, huge amounts of liquidity have manifested themselves as a hyper inflation of asset prices. That has sucked potential money-capital out of the real economy, causing growth to be much lower than it otherwise would have been. At the same time, it has soaked up excess liquidity, and more, so that the hyper inflation of asset prices was combined with stagnant or falling commodity prices. The latter tendency was initially caused by, and has since been exacerbated by the massive rise in productivity from the early 1980's onwards, which was also the basis of the huge moral depreciation of constant capital, rise in the rate of surplus value, and in the rate of turnover of capital, which brought about a massive rise in the annual rate of profit from the late 1980's, through to around 2012.
   
   That continued so long as speculators believed that they were more than compensated for near zero yields, by huge guaranteed capital gains, as the prices of fictitious capital zoomed. But, rising interest rates, now mean that asset prices will fall significantly, whilst yields remain low, by historical standards. This is the process Marx describes in Capital III, whereby some of the owners of this fictitious capital, unable to obtain sufficient interest on it, convert themselves into productive-capitalists, putting their own money-capital to work directly in production, where they can obtain the average rate of profit. That average rate of profit is much higher than the rate of interest.
   
   However, this process means that the demand for money-capital rises, relative to its supply, pushing interest rates higher, which acts to crash asset prices further. At the same time, the additional investment in productive-capital causes the demand for labour-power to rise, which pushes wages higher, reducing the rate of surplus value. That reduces the supply of money-capital further, pushing interest rates higher, and so on. Because, money-capital takes the form of money, all of the excess liquidity that fuelled hyper inflation of asset prices, then begins to flow into the real economy, which reverses the process. Asset prices suffer a severe depreciation, whilst commodity prices rise. A similar process to this was seen in the previous Summer phase of the long wave cycle, in 1966, when inflation spiked much higher, within a matter of months, than the authorities, and most economists, had foreseen.
   
   
6. Part of this process will again be manifest in a growth of a range of new technological industries. I predict that the growth of industries based upon genetics, bio-technology and so on will continue and increase in tempo. A recent Channel 4 documentary asked the question “How Do The Rich Live Longer?”, and looked at the ability to purchase tailored solutions for the individual. We already have a growth of not just routine screening, using the latest technologies, but also of constant body monitoring and so on. We know from Marx's concept of “The Civilising Mission of Capital”, that what is first only available to the rich, rapidly becomes available to the rest of society, as increases in productivity reduce values, and increase living standards. Many people already purchase significant elements of healthcare privately, and as the same processes of flexible specialisation that have occurred in manufacturing are applied to service production, this is likely to grow, as the value of these commodities falls significantly.
   
   In addition to a continuation of the growth of those industries, we already see a similar growth of other new technology industries. It is notable that the new space technology is now being developed by Spacex and other private sector companies. The ability to land a rocket back on the launch pad, was once the dream of science fiction, but has now been turned into reality by these companies. It would not have been possible without the growth of computing power that has occurred, just as the developments in medical technology would have been impossible without that development. The fact that these companies have been created by individuals such as Elon Musk, Richard Branson, and the creators of Google, is an indication of the process referred to previously that, at a certain point, a reliance on non-existent yields on financial assets, only offset by speculative capital gains, gives way to an incentive to invest in real productive-capital.
   
   
7. The start of the end of the car showroom. The majority of new cars sold today are not actually sold, but are leased or bought as part of a car plan. In other words, the buyer leases the car for a monthly payment. The lease runs for three years, during which time the seller covers all maintenance and repairs, as well as the insurance. At the end of the lease, the buyer can take out a lease on another new car, or may have the option of buying the car, as a used car. This has obvious advantages both for the buyer, and for the car companies who, by such means, can ensure a more or less stable level of demand over future years.
   
   One consequence is that the price of new cars, bought conventionally tends to rise, whilst a constant flood of previously leased, used cars into the market, reduces used car prices. This means the cost of buying, by conventional means, is raised again, because what you get for your own used car falls, increasing the depreciation cost.
   
   What new technology, flexible specialisation and the Internet means is that the role of the car showroom starts to become redundant. It is now already possible to order your own car directly from the manufacturer, over the Internet, by-passing the dealer. It is possible to customise the car, to suit your individual requirements. That is the revolutionising role of the Internet, both in terms of making such purchases possible, and via Internet payments systems, making the payment for such purchases possible. The ability of the manufacturer to produce a car specific to your individual requirements, is a consequence of production methods based upon flexible specialisation rather than mass production. Both are the consequence of the development of computer and communications technology.
   
   The only function of car dealers then becomes the selling of used cars.
   
   
8. Labour will do much better in the local elections than currently foreseen, but this will reflect the collapse of the political centre. In other words, Labour will begin to recapture chunks of its core vote that had previously gone to the Liberals, Greens and others, or simply become apathetic. Labour majorities in Labour areas will rise, and in Labour marginals, Labour will gain seats. But, in Tory marginals, Labour's performance may suffer, as the Tories and their support pushes further right. Labour should not worry about the latter, as the Blair-rights will claim they should. A good general understands that it is necessary first to strengthen your own territory, and bridgeheads before thinking of launching an assault on the enemy's territory.
   
   
9. The bloom will start to come off the SNP rose. The SNP faces a contradiction. It is first and foremost a nationalist party, whose roots were in Scottish Conservatism – much as is the case with UKIP in relation to Britain. The SNP was able to portray itself not only as anti-establishment, but also as a radical social-democratic party, because of the collapse of Labour as a social democratic party, and the ability of the SNP to blame all deficiencies on Westminster. But, the SNP in Scotland, is the Establishment; it is, and has been for some time, the governing party. Especially as the warm blanket of North Sea oil is taken away, the limited nature of nationalism is exposed.
   
   
10. Isis will be defeated in Syria, and will shift its base and operations to Libya, and surrounding states. A large part will be played by the Kurds, who will begin to demand their own state more effectively. That will cause fractures within NATO, because of open opposition, and attacks by Turkey on the Kurds. The process of the break-up of Iraq will continue. The Kurds will secure de facto control over Northern Iraq, and Syria. Iran will bolster the Shia areas of Iraq, whilst the West and the gulf states will bolster Sunnis, within the Sunni Triangle, as part of the process of undermining ISIS. This will be a temporary modus vivendi, as Russia secures the existing Syrian regime in power, and the West has to accept it.

Capital III, Chapter 21 - Part 8

A certain amount of value is continually thrown into circulation, as money-capital, which goes through these various purchases of commodities, and at the end of the process, throws commodities into circulation, whilst drawing out the original value plus the surplus value.

“The actual acts of exchange do not, at any rate, reveal how this process is promoted. And it is precisely this process of M as capital, on which the interest of the money-lending capitalist rests, and from which it is derived.” (p 346)

Proudhon did not understand the basis of surplus value, and so, contrasting the position of a hatter with a money lending capitalist, he says that the former receives in return for their hats only their value, whereas the latter as well as receiving back their capital also receives the interest. But, of course, the former, although they do only obtain the value of the hats, in exchange for the hats, do also thereby receive back both the capital they originally advanced plus the profit.

If the price of production of the hats, is £115, which includes £15 profit, then the capital advanced is £100, whilst the hatter receives back this capital plus £15 profit. Assuming all the capital advanced belonged to the capitalist, they would pocket all of this £15, but if they borrowed the £100 then they may pay £5 interest, as the price for using the use value of the capital, for the period, keeping the other £10 as industrial profit.

The interest does not, as Proudhon believed, constitute an additional cost, raising the value of the commodities. This is the ultimate problem that capital faces with the solution it adopted, in the 1980's and 90's, particularly in the US and UK, of developing low wage/high debt economies. On the one hand, real wages were stagnant, but in order to maintain aggregate demand, workers were encouraged to sustain and extend their consumption by taking on increasing levels of debt. But, that involves workers then having to pay increasing levels of interest on that debt. To the extent that they have to expend income to pay interest, they do not have income to buy commodities.

But, in the long run, as Marx sets out, wages must equal the value of labour-power, which amounts to a given quantum of means of consumption. Therefore, the sellers of those means of consumption must reduce their prices by an equal amount to the interest that workers have to pay, or else wages must rise so as to cover those interest payments, in which case the surplus value will fall by the same amount.

In short, the strategy of encouraging rising levels of private debt results ultimately in an increased share of surplus value going to money-lending capitalists, and a smaller share of surplus value going to industrial capital. That is not surprising given the historical, social and political links of the Conservatives in Britain, and the Republicans in the US with the financial oligarchy, as opposed to the similar links of social-democracy with big industrial capital.

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Capital III, Chapter 21 - Part 7

Looked at from the process of circulation, capital always appears in the form of money or commodities. If we break this process of circulation down it appears as simply a series of sales and purchases, exchanges of equal amounts of value, no different to the situation under previous forms of commodity production and exchange. But, if we examine the process of the reproduction of capital as a whole, it becomes apparent that this cannot be the case, because the sum of value thrown into this process, at the start, has turned into a larger sum of value at the end, which could not have been the case unless, somewhere along the line, a surplus value had been created, i.e. a sum of new value for which nothing has been given in exchange.

From the analysis in Capital I, we know that this surplus value is created in the stage of production, rather than circulation, and is a new value, created by labour, for which no equivalent payment has been received.

But, its different with capital that is loaned out. Here, the money loaned out does not obtain some commodity in exchange. There is no process by which additional value is created, and yet the money-capital returns enhanced.

“This relation to itself, in which capital presents itself when the capitalist production process is viewed as a whole and as a single unity, and in which capital appears as money that begets money, is here imparted to it as its character, its designation, without any intermediary movement.” (p 345)

It is precisely because of this designation of capital, of self-expanding value, that forms the basis of it as interest bearing capital, because without this capacity to return enhanced, there would be no reason to lend it. Proudhon failed to grasp this nature of interest-bearing capital as a commodity, Marx says. Proudhon did not grasp the basis of exchange in general. He did not see that in a process of exchange, one party gives up use value, but in doing so they do not give up its value, because that value is metamorphosed into the form of the use value they receive in exchange. If I exchange a coat for a pig, I give up ownership of the coat, but I do not give up the value of the coat, because I now still have that value, but in the shape of the pig.

Because he did not understand the basis of exchange, Proudhon thought that there was something “evil” about loaning for interest, because it appeared to him that, unlike a sale, the money being lent was always retained in the ownership of the lender, so it could be lent out over and over again. But, of course, this is true of all exchanges. If I obtain a pig for a coat, I can now exchange the pig for ten yards of linen, because the value of the coat remained in my possession, in the form of the pig, and now in the form of the linen. So, just as my ownership of a sum of money-capital enables me to keep lending it, so my ownership of this other commodity value enables me to exchange it over and over again, in the shape of different commodities.

But, when I loan out a sum of capital, what I am exchanging is not this capital. If I loan out £100, unlike a sale, I do not receive in exchange an equivalent of this £100, precisely because I am not exchanging the £100. What I am exchanging, what I am giving up, for the period of the loan, is the ability to use this capital, as capital. I am giving up its use value, to act as self-expanding value, and what I am being paid is for that use value, I have given up.

“Inasmuch as there is an exchange, i.e., an exchange of articles, there is no change in the value. The same capitalist always retains the same value. But so long as surplus-value is produced by the capitalist, there is no exchange. As soon as an exchange occurs, the surplus-value is already incorporated in the commodities.” (p 345)

In other words, all the exchanges conform with the laws of commodity exchange. The commodity labour-power is bought at its value. The surplus value arises not because someone has been short changed, in any of these exchanges, but because workers produce more new value in production, and this act of production of new value takes place outside the realm of exchange. The worker has been paid the value of the commodity they supply, the power to perform labour. The performance of the labour simply fulfils their side of the exchange. The product of that labour has nothing to do with the exchange itself. The product and its value belongs to the capitalist.

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Capital III, Chapter 21 - Part 6

What I pay for in interest, when I borrow a machine, as a piece of capital, is not the use of that particular machine, but the use of that particular quantity of capital, and its ability to generate a given quantity of profit. The same is true if I borrow a particular amount of money to use as capital, to buy labour-power and means of production etc.

This capital is then not only for the borrower, because its use results in an expansion of its value, but it is also capital for the lender, because in lending it – selling its use value for a specific period of time – it expands in value too. The value that returns is greater than the value advanced.

“Hence it leaves him only for a specified time, passes but temporarily out of the possession of its owner into the possession of a functioning capitalist, is therefore neither given up in payment nor sold, but merely loaned, merely relinquished with the understanding that, first, it shall return to its point of departure after a definite time interval, and, second, that it shall return as realised capital — a capital having realised its use-value, its power of creating surplus-value.” (p 343)

The capital that is loaned may be either fixed capital or circulating capital. I might loan out a machine, or I may loan out, for example, workers. Or I might loan out materials, to be processed, or food and other means of subsistence to be paid to workers as wages.  But, the money-capital loaned may also be either fixed or circulating. For example, I might loan out money for a short period, which I expect to be repaid, in full, at the end of the period, along with the interest. On the other, I might lend out a large sum for a long period, which is only repaid piecemeal, over the duration of the loan, for example, as with an annuity. The former is circulating capital, and the latter fixed capital.

“Certain commodities, such as houses, ships, machines, etc., can be loaned out only as fixed capital by the nature of their use-values. Yet all loaned capital, whatever its form, and no matter how the nature of its use-value may modify its return, is always only a specific form of money-capital. Because what is loaned out is always a definite sum of money, and it is this sum on which interest is calculated.” (p 344)

Circulating capital, whether it is comprised of commodities or money, is always returned in its original form, plus the interest. But, fixed capital in commodity form, cannot be returned in its original form, because it will have experienced wear and tear. The fixed capital is then returned, but, in addition to the interest, an additional payment of money is made to cover the wear and tear.

Whatever is said in respect of loaned money-capital, essentially applies to other forms of loaned capital.

“The loaned capital flows back in two ways. In the process of reproduction it returns to the functioning capitalist, and then its return repeats itself once more as transfer to the lender, the money-capitalist, as return payment to the real owner, its legal point of departure.” (p 344)

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Northern Soul Classics - On The Real Side - Larry Saunders

Top dancer from back in the day.

Friday Night Disco - Girls - Moments and Whatnauts

Capital III, Chapter 21 - Part 5

The nature of this process is determined by the peculiar nature of capital as a commodity, by the fact that what is sold is not the capital itself, but only its use value, its ability to self-expand, to produce profit. Consequently, the ownership of this capital never leaves A, which is why, at the end of the period of the loan, the period when B is allowed to use it as capital, B must return it to A, along with the interest, as the price of using the capital and obtaining that use value.

“The form of lending, which is peculiar to this commodity, to capital as commodity, and which also occurs in other transactions instead of that of sale, follows from the simple definition that capital obtains here as a commodity, or that money as capital becomes a commodity.” (p 341)

This is different from the situation as analysed in Capital II, in relation to the circulation of capital. There it was seen at no point does capital itself become a commodity, although at each point, it is comprised of commodities. Productive capital is comprised of commodities – means of production and labour-power – but the productive-capital itself is not a commodity. It is not produced to be sold. Its component parts are bought not as capital, but as commodities. Labour-power is never capital, but although means of production may comprise the commodity-capital of some other capital, they are sold, not as commodity-capital, but as commodities. And that is the case when this productive-capital has itself been expended and produced commodities. These commodities form the commodity-capital of this firm, but they are sold, in the market, only as commodities, the same as if they had been produced by some non-capitalist producer.

“It is also quite immaterial for this reason, whether this commodity is bought by a consumer as a necessity of life, or by a capitalist as means of production, i.e., as a component part of his capital. In the act of circulation commodity-capital acts only as a commodity, not as a capital. It is commodity-capital, as distinct from an ordinary commodity, 1) because it is weighted with surplus-value, the realisation of its value, therefore, being simultaneously the realisation of surplus-value; but this alters nothing about its simple existence as a commodity, as a product with a certain price; 2) because its function as a commodity is a phase in its process of reproduction as capital, and therefore its movement as a commodity being only a partial movement of its process, is simultaneously its movement as capital. Yet it does not become that through the sale as such, but only through the connection of the sale with the whole movement of this specific quantity of value in the capacity of capital.” (p 342)

The same is true with the money-capital. It is not the fact that this money-capital engages in the process of buying.  In that function, it only acts as money, not capital, nor even the nature of the commodities it buys that makes it money-capital. For example, a horse may be a means of production, but the fact that I buy a horse does not make the money I spend to do so, into money-capital. If I use the horse only to ride, it is then not means of production, it is not capital, and so the money spent to buy it was not money-capital either.

It is only because money is used to buy commodities that are used as capital, i.e. for the purpose of expanding their value that makes the money used to buy them money-capital.

“The fact that this money is simultaneously money-capital, a form of capital, does not emerge from the act of buying, the actual function which it here performs as money, but from the connection of this act with the total movement of capital, since this act, performed by capital as money, initiates the capitalist production process.” (p 342)

But, in both cases, in this circuit, the commodity-capital only acts as commodities, and the money-capital only as money.

“At no time during the metamorphosis, viewed by itself, does the capitalist sell his commodities as capital to the buyer, although to him they represent capital; nor does he give up money as capital to the seller. In both cases he gives up his commodities simply as commodities, and money simply as money, i.e., as a means of purchasing commodities.” (p 342)

But, it is specifically this that is different about interest bearing capital, because it is capital itself that is the commodity. Whether this commodity takes the form of a sum of money, a machine, a horse or whatever, it is not this form that is being bought but only the use value of acting as capital, of providing the use value of self-expanding value.

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Capital III, Chapter 21 - Part 4

Although it is B who advances the £100 of capital, either as productive-capital or as merchant's capital, they can only do so because that capital is provided to them by A, for that purpose.

“Therefore, it is really A who originally expends the £100 as capital, albeit his function as capitalist is limited to this outlay of £100 as capital. In respect to these £100, B acts as capitalist only because A lends him the £100, thus expending them as capital.” (p 340)

The actual circuit of this money-capital is then M-M-C-M'-M'. A lends the money to B, M-M; B uses this money as capital, either as merchant capital or productive-capital, M-C; the value of the capital having expanded, C-M', B then repays the capital sum, plus interest to A, M'-M'.

The only issue here is the extent to which M has expanded, so that when A is repaid M', B is left with some profit of their own, as a result of this process. We should remember the point, made at the beginning, that in speaking of “money-capital” here, what is really meant is a sum of value expressed in money terms. A could just as easily have lent a machine with a value of £100 to B, rather than £100 in money. In that case, at the end of this process, A would require back the machine (plus compensation for any wear and tear) plus the £5 of interest.

For merchant's capital, the same commodity changes hands twice. First it moves from the hands of the seller to those of the merchant. Second, it moves from the hands of the merchant to those of the buyer. If the buyer is another merchant, then the process is repeated.

“But in interest-bearing capital the first time M changes hands is by no means a phase either of the commodity metamorphosis, or of reproduction of capital. It first becomes one when it is expended a second time, in the hands of the active capitalist who carries on trade with it, or transforms it into productive capital. M's first change of hands does not express anything here, beyond its transfer from A to B — a transfer which usually takes place under certain legal forms and stipulations.

This double outlay of money as capital, of which the first is merely a transfer from A to B, is matched by its double reflux.” (p 341)

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Capital III, Chapter 21 - Part 3

The ability to charge this interest depends on the profit in two ways. If the capital could not be employed to produce a profit, there would be no demand for the capital. Equally, unless the capital produces a profit, it is impossible to pay interest, because the interest is only a fraction of the surplus value produced.

“It is plain that the possession of £100 gives their owner the power to pocket the interest — that certain portion of profit produced by means of his capital. If he had not given the £100 to the other person, the latter could not have produced any profit, and could not at all have acted as a capitalist with reference to these £100.” (p 339)

Marx quotes the banker Gilbart.

“"That a man who borrows money with a view of making a profit by it, should give some portion of his profit to the lender, is a self-evident principle of natural justice." (Gilbart, The History and Principles of Banking, London, 1834, p.163.) (Note 55, p 339)

But, as Marx says, the interest here has nothing to do with natural justice or any concept such as morality or fairness.

“The justice of the transactions between agents of production rests on the fact that these arise as natural consequences out of the production relationships.” (p 339)

This applies equally today to attempts by the capitalist state, via central banks, to determine interest rates, either by diktat, i.e. the setting of “legal” or official interest rates, or else by manipulation of the money-supply. The former cannot work because ultimately market interest rates will be determined by the demand and supply of money-capital. The latter cannot work because printing additional money tokens simply depreciates the money tokens, leaving both sides of the supply demand equation unchanged.  Marx describes this, at more length in "Theories of Surplus Value".

Marx writes there,

“Hume attacks Locke, Massie attacks both Petty and Locke, both of whom still held the view that the level of interest depends on the quantity of money, and that in fact the real object of the loan is money (not capital).

Massie laid down more categorically than did Hume, that interest is merely a part of profit. Hume is mainly concerned to show that the value of money makes no difference to the rate of interest, since, given the proportion between interest and money-capital—6 per cent for example, that is, £6, rises or falls in value at the same time as the value of the £100 (and. therefore, of one pound sterling) rises or falls, but the proportion 6 is not affected by this.”

It is only if this £100 is used as capital, i.e. used so as to self-expand its value, that any interest can be paid. If A lends £100 to B, who simply uses it to buy commodities, with a value of £100, then, at the end of this process, B has no means of paying any interest on the £100. If they sell these commodities, at their value, they will only obtain enough money in return to repay the initial capital sum, but not the interest.

If they are a worker, and consume the commodities, they bought with this £100, so as to reproduce their labour-power, then, when they sell their labour-power, they will only get back for it what it cost to produce, i.e. £100, or again only sufficient to repay the capital sum, and not the interest.

A merchant capital that borrows this £100 will be able to repay this capital sum, plus the interest, because, as capital, it shares in the total surplus value, and obtains the average rate of profit. It pays the interest out of the profit it receives, which in turn it derives out of the surplus value produced by industrial capital. Ultimately then, interest, as with the merchant's profit is simply a fraction of the total surplus value produced but, the rate of interest is determined by quite different rules, than those which determine the rate of profit.

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Capital III, Chapter 21 - Part 2

It is this use value of capital that is the basis of its being a commodity. Yet, it is a use value that is not the product of labour. So, it has no value. In this respect, its like land. It is a commodity which is bought and sold, and which, therefore, has a market price, but which has not been produced by labour, and so has no value.

It is the fact that capital has the use value of being self-expanding value that creates a demand for it. This appears to be a contradiction.  Capital as capital has no value, because this use value of being self-expanding value is not the product of labour, and yet the use value of capital that turns it into a commodity is that it is self-expanding value.  But, this is no different than the situation with labour. Labour has no value.  Labour is value, it is its essence and its measure.  The use value of abstract labour is that it creates value and thereby surplus value.  It is not labour, however, which is sold as a commodity, nor which has a price, but labour-power, the capacity, possessed by the labourer to undertake this labour.  And labour-power does have a value, it is the product of labour, i.e. that required to produce the commodities required to reproduce the worker, and thereby their capacity to perform labour.

Marx expands on this idea in Theories of Surplus Value, in discussing productive and unproductive labour.  If we take those cases where what appears to be bought directly is labour, for example where someone buys the service of a prostitute, a cook, a chauffeur and so on to provide them directly with a labour service, what they have bought is not the labour, but the service, i.e. the commodity they buy is not labour-power, but the actual product of the individual labour service.  It is indeed, this difference that enables a capitalist brothel keeper, restaurant owner, or limousine service owner, to sell these services as commodities at their value, but to extract a surplus value from the workers they employ, because the value of the labour-power they buy from them to perform these services is less than the new value those workers produce.

“Suppose the annual average rate of profit is 20%. In that case a machine valued at £100, employed as capital under average conditions and an average amount of intelligence and purposive effort, would yield a profit of £20. A man in possession of £100, therefore, possesses the power to make £120 out of £100, or to produce a profit of £20. He possesses a potential capital of £100.” (p 339)

And, because this £100 in the hands of A has the potential of being used as capital, and self expanding to a value of £120, this use value is not available solely to A, but to anyone else that A is prepared to sell this use value to.

“If he gives these £100 to another for one year, so the latter may use them as real capital, he gives him the power to produce a profit of £20 — a surplus-value which costs this other nothing, and for which he pays no equivalent. If this other should pay, say, £5 at the close of the year to the owner of the £100 out of the profit produced, he would thereby pay the use-value of the £100 — the use-value of its function as capital, the function of producing a profit of £20.” (p 339)

Interest is then simply the name given to the market price of capital sold as a commodity. What is being sold, and what is paid for is not the capital itself, but its use value, its ability to self-expand. If I borrow £100 and pay £5 interest, the £5 interest is not the price of £100 of capital. If it were, everyone would pay £5 to obtain £100 in exchange! It is only the price of the use value of the capital, its use value to turn £100 into £120, for example.

On the one hand, therefore, we have a commodity owner; the owner of the £100. They are prepared to sell their commodity, at its market price. There is supply. On the other hand, there may be potential demand for this commodity, from all those who wish to utilise the use value of this capital, its ability to transform itself from being £100 into £120.

The market price of all commodities is determined by this interaction of demand and supply. But, as we have seen, this interaction is always pivoted around a central locus, determined by the exchange value of the commodity, prior to capitalist production, and the price of production under capitalism. But, this use value of capital has no value, and so no exchange value or price of production either. So, there can be no central locus around which the market price can revolve, as with other commodities.

The consequence is that there is no natural price for this commodity, no natural rate of interest. The rate of interest is solely a function of the demand for and supply of money-capital. Although there is no central point around which the market price can revolve, there are bounds to the range of prices. On the one hand, the suppliers of money-capital will not supply it for free. On the other, those that demand it, will not, normally, pay a higher price for it than the maximum profit that might be obtained from its use.

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Spanish Elections - Life Reflecting Fiction

In the Spanish Elections, at the weekend, the conservative government, became the last in a line of governments that have imposed austerity to lose substantial support. The classic example of that has been Greece, where a series of governments imposed austerity, and lost. Resulting in the creation of a new term “depasokification”. In Britain, a right-wing majority of 80 seats, held by the Liberal-Tories, was slashed to a 12 seat majority in 2015, and the obliteration of the Liberals as a political force. Then there has been the defeat of conservatives in Portugal. In fact, this situation, including the success now of the Left in Spain, mirrors the scenario depicted in my new novel – 2017.

Commentators on both right and left, have been arguing for some time now that the fact of Syriza being forced into a compromise, in Greece, had undermined the movement to the left, and had thereby undermined Podemos. In fact, the Spanish elections, following on from the Portuguese elections show this not to be the case. It would undoubtedly have been better had Syriza been able to hold out for longer, in Greece, but the fact remains that the potential is growing for a social-democratic alternative to austerity to be built across the EU. But, it should be understood that what Syriza, Podemos and others offer is, indeed just a social-democratic solution, rather than a revolutionary, socialist solution to these problems.

What, in fact we have, is merely appearance and reality being brought into alignment. Nominally social democratic politicians failed to act as social democrats, and so made themselves irrelevant.  It is a process I discuss in the novel. A central theme to the political scenario depicted in the book is that of a collapse of the political centre, and an explanation of this collapse based upon the underlying economic realities.

If we look at that political centre, it has been based, for the last thirty years, on a set of economic conditions, whose existence is now at an end. Those economic conditions can basically be summed up in one word – debt. Wages were low, profits were high and rising, the supply of loanable money-capital way exceeded the demand for it, so interest rates continually fell, and this facilitated both a build up of private household debt, to compensate for stagnant wage growth, and also acted to stoke asset price bubbles in stock, bond and property markets. In turn, these bubbles, and the possibility of huge, rapid capital gains, from such speculation, far outweighed the potential returns that could be obtained from productive investment of additional capital. That was especially the case when central banks back-stopped those asset price bubbles, and when the governments intervened to inflate property bubbles, whenever they were in the process of bursting.

The combination of these factors, increased the power of the owners of fictitious capital, which in turn influenced the policies adopted by governments. In essence, we have had parties that are nominally social-democratic, and which historically have been social-democratic, but whose elected politicians have failed to act as social-democrats. Instead they have operated as conservatives, serving the interests of the owners of fictitious capital rather than the interests of large-scale, socialised productive-capital.

As Marx and Engels point out, from around the end of the 19^th century, in the older, developed capitalist economies, capitalists in large part removed themselves from their social function in production. They became merely money-capitalists, who loaned money-capital to socialised capital. They became mere coupon clippers, living off the interest paid to them as dividends, interest, and rent. But, as Marx sets out, there are objective limits in which this can operate. As he points out, the more capital simply takes this form of money lending capital, relative to productive-capital, the lower the rate of interest becomes, until it reaches a level, whereby the income received from it, is no longer sufficient to provide the required income for at least some of the coupon clippers.

Take someone with £1 million of money-capital available to lend. At 5% interest, they obtain £50,000 per annum in interest, which may be enough to live on. If the rate of interest falls to 1%, however, their income falls to £10,000, which is not enough to live on. They may then have to look to use this capital in a different way. For example, if they believe that they could start a small business with this capital, they may expect to obtain an average rate of profit of 10%. It then becomes worthwhile using their capital actively in production.

So, Marx points out that at a certain point, some of these smaller money-capitalists will convert themselves back into productive-capitalists. It will only be the very large money-capitalists who will obtain sufficient income, at very low yields. What has distorted this situation over the last two decades or so, has been that the potential capital gain to be obtained from speculation has taken the place of a reliance upon yield for income, and this has been guaranteed by the policy of quantitative easing undertaken by central banks.

The political centre, for the last three decades has been able to pursue the polices it has, because, during that time, it was possible to sustain economies upon the basis of inflating these asset price bubbles, and thereby to sustain consumption levels on the basis of extending private household debt. That possibility has now ended. It is signified by the ending of QE in the US, at the end of last year, and by the raising of official interest rates this month.

The buyers of shares, bonds and so on have been referred to as investors, but in reality, they are only speculators. The majority of the bonds and shares that they have bought, have not been new shares and bonds, issued to finance additional investment in productive-capital. What they have bought have largely been existing bonds and shares, so that all that happens is that the prices of these bonds and shares rises, which gives the appearance of rapidly rising amounts of wealth. The fall in the yield on these paper assets is the other side of this, because with no additional productive investment undertaken, no additional profit is generated out of which the interest is paid.

The same is true in relation to property. All of the speculation in property has gone into buying existing property, rather than the building of additional property. The consequence is that property and land prices rise, but no additional income is generated, so the rental yield falls.

There is another consequence of this. The money printing has caused a hyper inflation of these paper assets. But, in doing so it has also caused the value of labour-power to rise, whilst this has not been reflected in higher wages. The consequence of the hyper inflation of the property market – which has risen by 2000% between 1980 and 2000 – is that increasing numbers of people cannot afford to buy a house, or to move up from their existing house to a better one. So the proportion of people in home ownership has fallen. Even for those who can afford to buy, the massive rise in house prices represents a huge increase in their cost of living, a fact that will be even more apparent as interest rates rise.

The recent increase in the Fed Funds rate, for example, is being presented as only a quarter percentage rise. But, this is false. It is a rise of a quarter of a percentage point, but the actual increase is from 0.25% to 0.50%, which is a doubling of the rate, or a 100% increase. Imagine that the interest rate on your £200,000 mortgage is 5%. That is £10,000 p.a. in interest. If the rate goes from 5% to 10%, then the amount of interest you pay does not rise by 5%, but by 100%! It goes from £10,000 p.a. to £20,000 p.a. This is also a feature of the very low rates of interest that currently exist. Even a tiny absolute rise in the rate represents a large proportional rise in the rate of interest, and consequent large rise in the repayments of borrowers.

That has a corresponding effect on the rents that people are being forced to pay, which is why there has been such a significant rise in Housing Benefit, because wages have not risen to cover these massively increased costs of workers' shelter.

The same is true with pensions. The massive rise in the prices of shares and bonds has undermined workers' pension provision. Suppose you pay £100 per month into a pension plan. It buys 100 shares per month, that go into your pension pot. If each share produces £0.10 in dividends, this income is then available to pay out your future pension. However, if the price of shares rises 20 fold, as it has done in the last 30 years, your £100 a month contribution will only buy 5 sharers per month to go into your pension pot. Because, nothing here has actually increased the volume of profits to be produced, there is no reason why each share will not still produce only £0.10 in dividends. So, now instead of your pension pot producing £10 per month of income, it now produces only £0.50!

In order to be buying 100 shares per month, so as to generate the same level of income in dividends, the worker would need to have been paying in £2000 per month into their pension, which would have required higher wages. But, over the preceding period, wages have not risen to compensate for the rise in the costs of shelter, or pension provision. This represents a huge distortion, which history, and Marx’s theory, tells us will be rectified at some point. Either wages must rise massively – which seems unlikely – or else these costs will have to be reduced significantly, which means that property prices, and the prices of bonds, and shares will have to fall massively. In other words, large amounts of existing debt will effectively have to be written off. That will represent a huge loss of wealth and power for the largest owners of this fictitious capital.

But, it is on that material reality, and on those social forces, that the political centre has rested, both within the conservative parties, and within the social-democratic parties, whose politicians have been pursuing conservative rather than social-democratic ideals. The option of bailing out fictitious capital by the state, to prop up these asset price bubbles, and for the state to cover the cost of that, by imposing austerity upon the rest of the economy, has run its course. Greece has been the most classic example of that. It is not just that voters get tired of the austerity, but that the policy itself can no longer work. The debt itself has to be written off, on a massive scale, rather like happened with all of the unsustainable Third World debt, in previous times.

Those governments that attempt to simply apply those policies, in the face of changed economic realities will fail, and in the process, as happened with New Democracy and Pasok, the parties that remain tied by them, will be destroyed too. If we look in Britain, the reality of this collapse of the political centre is seen, by the fact that the government majority of around 80, was slashed to a majority of just 12 in the 2015 election. It was further signified, by the fact that the physical representative of that political centre, the Liberal Democrats, were obliterated. It is an indication of the extent to which the political centre cannot comprehend its own demise that its advice to both the left of Labour, and the right of the Tories is to imitate the policies and perspective of those very same Liberal Democrats!