US Retail Sales And False Profits - Part 6

Marx describes how both these views about the determination of prices are correct, in their own way.

““Here a great confusion: (1) This identity of supply, so that it is a demand measured by its own amount, is true only to the extent that it is exchange value = to a certain amount of objectified labour. To that extent it is the measure of its own demand -- as far as value is concerned. But, as such a value, it first has to be realized through the exchange for money, and as object of exchange for money it depends (2) on its use value, but as use value it depends on the mass of needs present for it, the demand for it. But as use value it is absolutely not measured by the labour time objectified in it, but rather a measuring rod is applied to it which lies outside its nature as exchange value.”

(Grundrisse)

In other words, supply is determined by value, whereas demand is determined by use value. The former is objectively determinable, but the latter is not, because it is a function of the subjective preferences of consumers. It is then quite possible that, for any commodity, or for all, at any particular time, the producers of commodities may produce a quantity of commodities, which have an objectively determinable value of say £1 million, equal to say 1 million hours of abstract labour-time, but, if consumers decide that they do not wish to buy these commodities at that total cost, some will remain unsold, supply will exceed demand, and ultimately the prices of the commodities will fall. In reality, as Marx says, some of the labour-time expended upon their production was not socially necessary, and, therefore, did not actually create value.

If only 80% of these commodities find a demand at this price, then its clear that 200,000 hours of abstract labour-time, equal to £200,000 was not socially necessary labour-time, and therefore, the real value of these commodities, despite the 1 million hours of abstract labour spent on their production, was not socially necessary. These commodities have a value of only 800,000 hours, or £800,000.

“Just as it is a condition for the sale of commodities at their value, that they contain only the socially necessary labour-time, so it is for an entire sphere of production of capital, that only the necessary part of the total labour-time of society is used in the particular sphere, only the labour-time which is required for the satisfaction of social need (demand). If more is used, then, even if each individual commodity only contains the necessary labour-time, the total contains more than the socially necessary labour-time; in the same way, although the individual commodity has use-value, the total sum of commodities loses some of its use-value under the conditions assumed.”

(TOSV2 p 521)

To this extent, its clear that, in the short term, it is demand that dictates the market price. In this case, consumers were not prepared to buy all these commodities at their price of production, and so the market price fell. At other times, they may be prepared to pay more than the price of production to obtain the commodities, so that, if supply does not rise to meet this increased demand, then the market price will rise. This, in fact, is what happened with oil prices etc. causing their market prices to rise sharply, before increased investment caused supply to rise, and prices to crash. Its for this reason that Marx and Engels say that capitalists get to know from experience how to take into account these variations in market prices, above and below the price of production.

But, what is also clear is that these short term fluctuations in demand can only explain the determination of the movements of market prices above and below that price of production – what in orthodox economics would be called the equilibrium price – they cannot explain the determination of the price of production itself. Only the determination of value on the basis of the objective measure of labour-time, which finds its expression in a capitalist economy in the cost of production, and average rate of profit can do that.

Yet, as Marx points out, even this is not so simple, because the price of production itself is only a price of production at a given level of output. In Capital III, Chapter 39, for example, Marx examines the price of production of wheat, under a series of conditions, where demand is rising, so that additional supply can only be provided by bringing additional land into cultivation. If the additional land that must be brought into cultivation is less fertile than the land currently being cultivated, then the cost of production of wheat will rise, because proportionately less wheat will be produced in total, for the amount of capital laid out for its production.

If, on the other hand, the increase in demand for wheat is sufficient to bring into cultivation some other more fertile land, that may not have previously been used, because of its distance from markets, because it required a large investment of capital for drainage etc., then the output of wheat will rise by proportionately more than the increase in the capital laid out to produce it, so the cost of production will fall, and the price of production of wheat will also fall. So, even the objectively determined value of the commodity is itself also a function of the subjectively determined preferences of consumers, which determines the level of demand, just as that level of demand, is also a function not just of the subjective preferences of consumers, but also of the objectively determined value of the commodity!

“Supply and demand determine the market-price, and so does the market-price, and the market-value in the further analysis, determine supply and demand. This is obvious in the case of demand, since it moves in a direction opposite to prices, swelling when prices fall, and vice versa. But this is also true of supply. Because the prices of means of production incorporated in the offered commodities determine the demand for these means of production, and thus the supply of commodities whose supply embraces the demand for these means of production. The prices of cotton are determinants in the supply of cotton goods. 

To this confusion — determining prices through demand and supply, and, at the same time, determining supply and demand through prices — must be added that demand determines supply, just as supply determines demand, and production determines the market, as well as the market determines production.”

(Capital III, Chapter 10) 

Having examined the inadequacies of the bourgeois theory of prices, in relation to the US Retail Sales data, I now want to examine the inadequacy of the bourgeois understanding of profits, and why that means that it views falling prices as causing falling profits, which in relation to falling oil prices, copper prices and so on led to a sharp sell off on stock markets. I will turn to that in Part 7.

Back To Part 5

Forward To Part 7

Northern Soul Classics - That's What I Want To Know - James Carr

In a similar vein as last week's classic from Al Green, this is another early classic from James Carr, who also brought us Freedom Train.

Friday Night Disco - Bring Back The Love of Yesterday - The Dells

A bit of crossover Northern/Discofunk from the Dells.

Capital II, Chapter 21 - Part 4

1) Accumulation in Department I 

1)The Formation of a Hoard 

Marx examines first the process of accumulation in Department 1. As stated previously, the situation is essentially the same as that encountered in relation to the replacement of fixed capital. Some capitals are buying without selling, and others are selling without buying.

“One part of the capitalists is continually converting its potential money-capital, grown to an appropriate size, into productive capital, i.e., with the money hoarded by the conversion of surplus-value into money they buy means of production, additional elements of constant capital. Another part of the capitalists is meanwhile still engaged in hoarding its potential money-capital. Capitalists belonging to these two categories confront each other: some as buyers, the others as sellers, and each one of the two exclusively in one of these roles.” (p 496)

In other words, some businesses are just starting up. They buy large amounts of fixed capital, and circulating capital thereby throwing large amounts of money-capital into circulation, but taking only a small amount out by comparison. They are buyers but not sellers, at least for a large proportion of what they have bought. There are other capitals, who have stored up sufficient money hoards that they now have sufficient money capital to expand their business, buying additional machines, constructing a new factory or branching out into some new type of business. They too now throw this large amount of new additional money-capital into circulation, buying all of these additional commodities as well as labour-power.

But, the commodities they throw into circulation themselves in no way are equal to the value of all these commodities they have bought. They too are buyers without being sellers. In both cases, the difference between what is bought and what is sold, the commodities withdrawn from circulation and the commodities thrown into circulation is made up by the additional money-capital thrown into circulation. But, for everything to balance out here, so that there is not a surplus or a deficit of commodities available to be bought or sold to match all of these capitals that are buyers but not sellers, there must be sellers who are not buyers. There must be capitals that throw more commodities into circulation than they take out of it, and who thereby take more money out of circulation than they throw into it, just as the former throw more money into circulation than they took out of it.

This is the key to understanding the actual process of accumulation, and given that under capitalism, this proceeds according to no plan, and not even from year to year, but via billions of individual acts of saving and spending, over different periods of time, the true complexity of the process can be grasped. As Marx comments later,

“...all these necessary premises demand one another, but they are brought about by a very complicated process, including three processes of circulation which occur independently of one another but intermingle. This process is so complicated that it offers ever so many occasions for running abnormally.” (p 500)

Back To Part 3

Forward To Part 5

Low Wage Chickens Coming Home To Roost

For the last thirty years, in the US and UK particularly, economic policy has been based upon a conservative agenda of low wages, and a corresponding high level of private debt. That together with the relaxation of financial regulations in the late 1980's, and the corresponding financial architecture required to sustain such a model, was the cause of the financial crisis of 2008. That was just one expression of the contradictions that this particular economic model created. Those contradictions were not resolved but only postponed and intensified by the measures taken to bring that financial crisis to a halt. They will break out once more, even more violently, in the not too distant future. However, its also clear that the low wage agenda has also created a series of other contradictions some of which are now becoming apparent.

Last week, my attention was drawn to two particular news stories in this context. A story on the BBC Midlands News, commented on the severe shortage that exists for lorry drivers. The shortage has also been noted by MP's. According to the BBC report, there is currently a shortage of around 45,000 drivers, and one haulage contractor reported that where they normally have a steady flow of people making enquiries about driving jobs, for the last few months they have had none. In fact, with the number of older drivers due to retire, its expected this figure could rise shortly to 75,000.  One major problem cited, is the fact that the cost of obtaining an HGV licence has now risen sharply to around £4,000. The hauliers are to ask the government to provide £150 million to fund additional driver training.

But, the point surely is that the real answer to this problem resides with the hauliers themselves. We are told that bankers and the chief executives of companies must be paid millions of pounds per year to recruit and retain them, or else they will all go abroad. In fact, there seems little problem recruiting enough people to such lucrative posts, where the salary tends to be in inverse proportion to the actual amount of work done, and where even severe failure is no impediment to being paid huge bonuses, or given enormous golden hand shakes, before moving on to the next similar post.

But, when it comes to a very real, and significant shortage of a vital job like being a lorry driver, to ferry all the commodities around the country that other workers have produced, the capitalists and their media seem to forget all about this logic! Rather they seem puzzled as to why they cannot recruit sufficient workers to do the job. As with so many other aspects of life, and the contradictions caused by the economic model, developed over the last thirty years, they instead look to the state – i.e. workers taxes – to bail them out, just as the bankers did before them, just as capital based in London does, as it seeks to obtain rail subsidies to cover the travel costs of its workers, and Housing Benefits to cover the rent of its workers.

It never seems to have occurred to the haulage companies that if they cannot recruit enough workers, the cause might just be that they are paying wages that are too low, and that have been screwed down for the last thirty years. If wages were higher, not only would this attract more workers, but it would make it more worthwhile potential workers paying out the £4,000 to obtain an HGV licence. Alternatively, the haulage companies might want to consider the radical notion that if the cost of obtaining the licence is an obstacle, then instead of expecting the state to pick up the tab, they might themselves take workers on as trainees, and provide them with the necessary training, so as to get the HGV licence.

The other story that caught my attention was in relation to childcare. The cost of childcare had risen considerably we were told, up by over £1500 p.a. to £6,000 p.a. per child. The cost was so high, we were told that some parents could no longer now take up employment, because the cost of childcare outweighed any income they might obtain from working. Once again, the solution was to be found by the state riding to the rescue, and subsidising this cost. No one seems to consider that, once again, its not that the cost of childcare that is too high – though if it were provided more universally by worker owned co-operatives, the unit cost could probably be reduced considerably – but that wages are too low! If workers can barely cover just one aspect of the costs of reproducing their labour-power, and a pretty important one, when it comes to the rearing of the future generation of workers, then that is a sure sign that wages have fallen below the value of thatlabour-power and need to rise substantially.

The answer to that problem, just like the answer to the fact that workers cannot afford to pay their rents, their rail and other travel costs, and so on, does not lie in subsidies provided by the capitalist state, but lies in the need for their wages to be increased substantially so that they can afford these things. If various businesses cannot operate profitably once they have paid those higher wages, it is again an indication of just how distorted and mangled the economy has become, as a result of this policy of low wages, high private debts and state subsidies. It means that many companies currently getting high profits, will have to see them shrink; it means other companies will need to introduce far more efficient means of carrying out their business so that they can pay the necessary higher wages, and it means that many of the zombie companies that have only managed to exist for the last two or three decades on the back of of these low wages, poor conditions, low interest rates, and state subsidies, should go bust so that their capital can be used more effectively elsewhere, and then be able to employ workers on adequate wages and conditions.

The idea that the solution to these problems comes from a continuation of these policies of state subsidies is insane. Take the example of child care. In order to achieve this requires that the state take money off one group of workers and give it to another. In reality, it will in part be taking that money off the same group of workers it then hands it back to, as some form of child care subsidy. But, either way, rather than achieving the real solution to the problem, of bringing about a rise in wages, it compounds the problem, because by taking money off workers it reduces their wages! Some of the other workers it takes money off, will be those that are to be subsidised for their train fare, or their rent, and by taking money from them to cover these child care costs, it will thereby make them even less capable of paying their train fare or their rent!  In actual fact, its not the workers that are being subsidised by these means, but their employers who thereby get away with paying them inadequate wages.

The extent of that can be seen by looking at the extent of Housing Benefit obtained by landlords. According to Generation Rent these landlords alone obtain around £27 billion in such subsidies every year.  Not all recipients of Housing Benefit will be in work, and so this does not represent a direct subsidy to the employers of £27 billion.  But, the majority of Housing Benefit recipients are in employment, and so a large proportion of this £27 billion does represent a subsidy to those employers, who thereby get away with paying lower wages.  Compare it with the fact that according to the TUC, in 2013 Britain's total wage bill amounted to just £52 billion!  In other words, the subsidy to employers from Housing Benefit alone amounted to almost 50% of the total wage bill!  Add in all of the other subsidies to low paying employers, fed to them via the welfare state, which covers a large part of the costs they should be covering themselves in wages to their workers, and it can be seen just how contorted the economy has become, and just how much better paid workers are handing over in taxes to boost the profits of these inefficient small capitals.

But, the whole procedure has one greater flaw, it is that in order to achieve it, requires that thousands of government bureaucrats be employed for no other purpose than to collect the tax that is then to be distributed as a subsidy. It also requires several thousands more government bureaucrats to take responsibility for paying out the subsidy. It will require office buildings, computer systems and other vast expense to bring about. So, millions of pounds will be collected from workers in taxes, but instead of this tax then going to some other workers to assist them with their childcare costs, the taxes collected will simply disappear down a huge black hole at the centre of the capitalist state machine.

The Long Wave - Part 13

In Part 12, it was indicated how the fall in the rate of profit during the Summer phase, and which intensifies in the Autumn phase, is due to tightening labour markets pushing up wages, alongside increased price elasticity of demand, which make it more difficult to pass on rising production costs, especially as productivity gains, to mitigate rising unit costs, wane. However, two other factors are also at work during this phase.

Firstly, as indicated previously, the sharp rise in demand for primary products, which caused their prices to rise, in the Spring phase, brings forth a sharp increase in investment in this sphere, which takes time before it bears fruit. But, once this investment does begin to cause large increases in primary products to flood into the market, the previous famine turns to feast, and previous high prices turn into rapidly falling prices, for these products, until such time as the excess supply is used up, and the less efficient producers are flushed out. That is being seen currently in relation to oil, copper, milk and other primary products.

“It is, in the nature of things that vegetable and animal substances whose growth and production are subject to certain organic laws and bound up with definite natural time periods, cannot be suddenly augmented in the same degree as, for instance, machines and other fixed capital, or coal, ore, etc., whose reproduction can, provided the natural conditions do not change, be rapidly accomplished in an industrially developed country. It is therefore quite possible, and under a developed system of capitalist production even inevitable, that the production and increase of the portion of constant capital consisting of fixed capital, machinery, etc., should considerably outstrip the portion consisting of organic raw materials, so that demand for the latter grows more rapidly than their supply, causing their price to rise. Rising prices actually cause 1) these raw materials to be shipped from greater distances, since the mounting prices suffice to cover greater freight rates; 2) an increase in their production, which circumstance, however, will probably not, for natural reasons, multiply the quantity of products until the following year; 3) the use of various previously unused substitutes and greater utilisation of waste. When this rise of prices begins to exert a marked influence on production and supply it indicates in most cases that the turning point has been reached at which demand drops on account of the protracted rise in the price of the raw material and of all commodities of which it is an element, causing a reaction in the price of raw material.”

(Capital III, Chapter 6)

In fact, since Marx's time, the scale of production has risen so much that primary products such as oil, copper and other minerals have to be considered in the same way as food production. Production from existing mines and quarries can be increased, but today the expansion of production, during the Spring phase, is so great that the demand can only be met by the opening up of new mines and so on. As described earlier, it takes around 7 years to develop a new copper mine, and several more to bring it to optimal production, so that a period of around 12-13 years, equal to the length of the Spring phase of the cycle is required, before this flood of new supply hits the market. Its on that basis that its now that such gluts of oil, milk and copper etc. are being seen on world markets, not due to falling demand, but due to hugely increased supply.

“The sudden collapse of the price of raw materials checks their reproduction, and the monopoly of the original producing countries, which enjoy the most favourable conditions of production, is thereby restored — possibly with certain limitations, but restored nevertheless. True, due to the impetus it has had, reproduction of raw material proceeds on an extended scale, especially in those countries which more or less possess a monopoly of this production. But the basis on which production carries on after the extension of machinery, etc., and which, after some fluctuations, is to serve as the new normal basis, the new point of departure, is very much extended by the developments in the preceding cycle of turnover.”

(ibid)

That is a good description of the situation we see today with oil and so on. At the point the current overproduction is cleared from the market, and the less efficient producers flushed out, prices will stabilise at a lower level than at their highest point, but higher than the lows required to clear the market. But, these lower prices will go along with an overall higher level of demand and supply of oil in the global market. That applies to all other such primary products.

But, these changes have further consequences, which I will examine in Part 14.

Back To Part 12

Forward To Part 14

Capital II, Chapter 21 - Part 3

Marx then gives an explanation that even he describes as based on “absurd” assumptions, but whose purpose is to “do nothing more than explain the possibility of a universal simultaneous formation of a hoard” (p 495). He assumes that instead of exchanges taking place in the way they do, A-B, C-D, E-F, F-B, D-A, and so on, in other words numerous bilateral simultaneous exchanges, instead exchanges take place only in a linear fashion, with all other capitals exchanging only with a gold producer.

As a gold producer, i.e. producer of money, the gold producer always here only buys without selling. This is the converse of the situation above where the surplus value is hoarded in money because, in respect of the surplus value, the capitalist sells without buying. They sell the surplus product, and then hoard its money equivalent rather than buying anything with it.

Here, the gold producer produces money-gold and simply buys commodities with it.

“In that case the entire yearly social surplus-product (the bearer of the entire surplus-value) would pass into his hands, and all the other capitalists would distribute among themselves pro rata his surplus-product, which naturally exists in the form of money, the natural embodiment in gold of his surplus-value. For that portion of the product of the gold producer which has to make good his active capital is already tied up and disposed of. The surplus-value of the gold producer, created in the form of gold, would then be the sole fund from which all other capitalists would draw the material for the conversion of their annual surplus-product into money. The magnitude of its value would then have to be equal to the entire annual surplus-value of society, which must first assume the guise of a hoard.” (p 495)

To put this another way, we can think about the process we have analysed several times before. Under simple reproduction, the capitalists advance money-capital to buy labour-power. The workers so employed use the wages paid to them to buy commodities, and thereby the capitalists who have paid their wages, by advancing variable capital, see that capital return to them. By the same token, the capitalists advance capital to buy means of production, and that money goes into circulation, and finds its way back to them via the sale of the corresponding proportion of their output. Finally, the capitalists spend a part of their money hoard, to buy the commodities required for their own consumption, equal to their surplus value, and thereby they put into circulation themselves the money required to realise their own surplus value.

In this process, it was assumed that the commodities the capitalists bought – equal to their surplus value – with the money equivalent they threw into circulation, were the things they required for their own reproduction – food, shelter, clothing etc. But, we can just as easily assume that what they buy with this money-capital, equal to surplus value, is instead gold. In that case, as Marx describes, the whole of the societies surplus product would be held in the form of gold. But here, gold is also money, and so we have arrived at the position that demonstrates the logical possibility of such a universal money hoard, of capital selling its surplus product, and realising its value without the need also to buy an equivalent of that surplus product. The whole surplus product now exists solely as a money hoard, as gold, waiting to be mobilised.

Back To Part 2

Forward To Part 4

Oil Price. Good For The Economy, Terrible For Financial Markets - Part 11

A number of points need to be drawn from the analysis set out in Part 10. The fall in prices of fixed capital, resulting from a fall in oil prices, and consequently of other commodity prices, may enable surplus value to be realised that previously was not, because tight market conditions meant that not all input costs could be passed on. In other words, existing levels of supply may be maintained at existing market prices, but with lower costs of production, so that realised profits rise. On the other hand, a lower price for fixed capital, given appropriate market conditions, may spark an increased demand for fixed capital, as part of an accelerated accumulation of capital.

The fall in the value of fixed capital, directly leads to a rise in the rate of profit, as even with s remaining constant, a lower value of C, causes s/C to rise. But, a fall in the value of fixed capital, may have a disproportionate effect on the annual rate of profit, precisely because rising social productivity, which leads to a rise in the rate of turnover of capital, increases the proportion of fixed capital to advanced circulating capital.

Suppose, we have fixed capital of £5,000, circulating constant capital of £5,000, variable capital of £2,500 and surplus value of £2,500. The annual rate of profit is then 20%. Suppose then that as a result of introducing new machines, which cost £10,000, productivity rises five fold, so that what took a year to produce is now produced in a fifth that time. In that case, the advanced capital is £10,000 for fixed capital, £5,000 for circulating constant capital, and £2,500 for variable capital. The total surplus value produced during the year is 5 x £2,500 = £12,500, and the annual rate of profit is then 12500/17500 = 71.43%.

In terms of the laid out capital, the fixed capital has gone from being 5000/7500 = 66.66%, to 10000/37500 = 26.66%, as a consequence of the rise in productivity it brought about.

Consider, therefore, the effect of a fall in the value of the fixed capital compared to a fall in the value of the circulating constant capital, on the annual rate of profit. Suppose, the price of the fixed capital drops by 50%. The annual rate of profit is then 12500/12500 = 100%. If the same cause results in the value of the circulating constant capital falling by 50%, whilst the value of fixed capital remains unchanged, the annual rate of profit, is then 12500/15000 = 83.33%.

As Marx points out, as production expands, and productivity rises, as a function of the enhancement of fixed capital, and extensive accumulation, the rate of turnover of capital rises, and consequently the value of wear and tear of fixed capital, as a proportion of the commodity value, continually falls. Reductions in the price of fixed capital, therefore, have a proportionately smaller effect on the price of commodities than does falls in the price of raw materials.

“Further, the quantity and value of the employed machinery grows with the development of labour productivity but not in the same proportion as this productivity, i. e., not in the proportion in which this machinery increases its output. In those branches of industry, therefore, which do consume raw materials, i. e., in which the subject of labour is itself a product of previous labour, the growing productivity of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite quantity of labour, hence in the increasing amount of raw material converted in, say, one hour into products, or processed into commodities.  The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.”

(Capital III, Chapter 6)

However, as indicated above, the effect of a fall in the value of fixed capital on the annual rate of profit, is proportionately greater than a fall in the value of circulating capital, precisely because although the fixed capital forms an ever smaller proportion of the laid-out capital, for the same reason it forms a greater proportion of the advanced capital, as the rate of turnover of capital rises.

The fall in the price of oil, therefore, may not noticeably affect the prices of other commodities, as a consequence of a fall in the value of fixed capital, but in reducing the value of fixed capital itself, it will have a proportionately greater effect on increasing the annual rate of profit. By reducing the value of fixed capital, it will also result in a release of capital that can be used to either expand production in the given sphere, or else for use in some other sphere. For example, a fall in the price of fertiliser, may mean that farmers are able to buy more of it, for the same outlay of capital, and thereby to bring additional land into cultivation. This may not result in any rise in the rate of profit on the capital advanced, but it means that more capital is advanced in total, more profits are made in total, and economic activity increases as a consequence.

Back To Part 10

Forward To Part 12

Germany Is Promoting Fascism in Greece and A Breakup of the EU

Germany's hard line stance, over Greece's debt renegotiations, is reminiscent of the mistakes made by France, in 1918, in relation to its impositions, via the Versailles Treaty, on Germany. Germany's position is undermining Greek social democracy, and thereby forcing the country down the only other road open to it, which is the adoption of an ever more nationalistic response, in the form of the fascists of Golden Dawn. Not only will that be a disaster for Greece, but, by fanning the flames of ultra-nationalism, that are already licking at the heels of a number of European countries – UKIP in Britain, FN in France, Five Star in Italy, not to mention all of the similar parties that have sprung up in the Nordic countries, in the Netherlands, as well as across Central and Eastern Europe, and the Baltic states, some of which openly proclaim, rather than deny, their Nazi heritage, and even the rise of the AfD in Germany itself – Germany's actions are creating the conditions for the break up of the EU itself.

In September 1938, Trotsky wrote, in “Phrases and Reality”

"Fascism is a form of despair in the petit-bourgeois masses, who carry away with them over the precipice a part of the proletariat as well. Despair as is known, takes hold when all roads of salvation are cut off. The triple bankruptcy of democracy, Social Democracy and the Comintern was the prerequisite for fascism. All three have tied their fate to the fate of imperialism. All three bring nothing to the masses but despair and by this assure the triumph of fascism." (Writings 1938-9, p 19)

He continues,

"The democracies of the Versailles Entente helped the victory of Hitler by their vile oppression of defeated Germany. Now the lackeys of democratic imperialism of the Second and Third Internationals are helping with all their might the further strengthening of Hitler’s regime. Really, what would a military bloc of imperialist democracies against Hitler mean? A new edition of the Versailles chains, even more heavy, bloody and intolerable. Naturally, not a single German worker wants this. To throw off Hitler by revolution is one thing; to strangle Germany by an imperialist war is quite another. The howling of the “pacifist” jackals of democratic imperialism is therefore the best accompaniment to Hitler’s speeches. “You see,” he says to the German people, “even socialists and Communists of all enemy countries support their army and their diplomacy; if you will not rally around me, your leader, you are threatened with doom!” Stalin, the lackey of democratic imperialism, and all the lackeys of Stalin – Jouhaux, Toledano, and Company – are the best aides in deceiving, lulling, and intimidating the German workers." (p 21) 

In 1918, the representatives of social-democracy, of big industrial capital, in the shape of the US, and of Keynes, opposed the draconian conditions that France was imposing on Germany, with the support of Britain. They noted, as Trotsky did later, that imposing such austerity on Germany, would prevent its economic development, and build up nationalistic sentiments. They were right, it did, and led to the victory of fascism. The notion that all ills are the fault of some “other” is one that is easily adopted, even when that is not the case. When that “other” actually is acting, from the outside, to prevent the adoption of perceived solutions, or to impose what are seen to be irrational and punitive measures, it is no wonder that this breeds nationalistic sentiment and hostility.

But, Germany's actions, which seem to have even provoked some opposition from other EU leaders, threaten a much wider reactionary response than just a rise of fascism in Greece. This same sentiment, about kicking back against external controls, is what also stands behind the reactionary nationalism of Tory euroseptics, as well as behind UKIP, and the other ultra nationalist parties. The Tories seek renegotiations to undermine the very basis of the EU, by breaking up any kind of uniform rules and regulations, across Europe, in favour of clawing back powers from Europe, which will lead to an increasing nationalistic race to the bottom, in relation to conditions and rights. The logical conclusion of that approach is given by UKIP, which points out that, in relation to many measures, that a nation state would want to control, such as immigration controls, that would only be possible outside the EU. This same nationalistic argument is being made by conservative and reactionary parties across Europe, and Germany's position is providing huge amounts of fuel to it.

The question here is, what should Syriza's response be, and what should be the response of the left, across Europe? Before the election, in Greece, I argued that Syriza should refuse to take office unless it had a majority - Why Syriza Cannot Buckle. As with Labour in Britain - The SNP's Cleft Stick - Syriza has to refuse to take part in any coalition - Syriza Should Govern Alone. If other parties wish to provide support, by some form of “confidence and supply”, that is up to them, but no deals should be done with such parties; no concessions whatsoever should be given to them. If they bring down the government, and thereby force new elections, which bring to power conservative or reactionary parties, like the Tories, that is a consequence these small parties, like the SNP or the Greens, must account for to their supporters.

Having won a large plurality of seats, in the election – just one short of an outright majority – I believe it was right for Syriza to form a government, though wrong to have formed a coalition with the Independent Greeks. It was right, because this was not a matter of a revolutionary socialist party attempting to take state power. Syriza is nothing more than a bourgeois social-democratic party, much the same as the US Democrats, or the Labour Party in Britain, and before it the British Liberal Party. Its ideas remain firmly within that mould, of making capitalism work more efficiently, rather than any serious concept of replacing capitalism with socialism. To suggest that having won an election by such a large majority, Syriza should not then have formed the government, is like suggesting that the US Democrats should not take office, or that Labour should not have taken office in 1945, 1964, 1974 and so on. To do so, would not have been understood by the millions of workers that voted for them, and who have not yet themselves gone beyond this bourgeois, reformist, social-democratic consciousness. It would have been to disorient them, and demoralise them, opening the door to reaction.

But, having taken office, such a government has to make clear that, in taking office, it has not taken power! Certainly Marxists, within that party, have to make clear that that is the case. They have to make clear that what they can do, is thereby heavily circumscribed. In fact, this is no different to the position a left-wing shop steward is in, having been elected. That is it is necessary to ensure that you make clear to your members that anything that you can achieve is dependent upon their strength, solidarity, and the general conditions of class struggle. The more intense the struggle, the more the outcome depends not just upon those factors, but also upon the extent to which wider, more powerful forces can be brought in to provide support.

Syriza has found itself in a “Brest-Litovsk” moment, and it must be careful not to be blown off course, by those same ultra-left voices, against which Lenin had to argue, in that case, and which he deals with in “Left-Wing Communism”.

In 1918, Germany sought to take advantage of Russia's desire to get out of the War, after the Revolution, by seizing land from Russia. Russia conceded the land to Germany at the Treaty of Brest-Litovsk. In fact, as Lenin points outs, the treaty itself was a bit of a sham, because had Russia not signed, Germany was powerful enough to have simply seized land, and possibly rolled over much of Russia anyway, and despite the treaty, Germany, in any case helped itself to additional land, by military seizure later.

The point was that the treaty bought time for the Bolsheviks, and it was a compromise that was forced upon them due to their weakness, rather like the compromises that shop stewards have to make all the time, due to similar weakness. In fact, Lenin frames his argument against the ultra-left demand for “no compromises” in precisely these terms.

“However, proletarians schooled in numerous strikes (to take only this manifestation of the class struggle) usually assimilate in admirable fashion the very profound truth (philosophical, historical, political and psychological) expounded by Engels. Every proletarian has been through strikes and has experienced “compromises” with the hated oppressors and exploiters, when the workers have had to return to work either without having achieved anything or else agreeing to only a partial satisfaction of their demands. Every proletarian—as a result of the conditions of the mass struggle and the acute intensification of class antagonisms he lives among—sees the difference between a compromise enforced by objective conditions (such as lack of strike funds, no outside support, starvation and exhaustion)—a compromise which in no way minimises the revolutionary devotion and readiness to carry on the struggle on the part of the workers who have agreed to such a compromise—and, on the other hand, a compromise by traitors who try to ascribe to objective causes their self-interest (strike-breakers also enter into “compromises”!), their cowardice, desire to toady to the capitalists, and readiness to yield to intimidation, sometimes to persuasion, sometimes to sops, and sometimes to flattery from the capitalists. (The history of the British labour movement provides a very large number of instances of such treacherous compromises by British trade union leaders, but, in one form or another, almost all workers in all countries have witnessed the same sort of thing.)” 

(Left-wing Communism, Chapter 8) 

Last Friday's Eurozone negotiations represent a similar Brest-Litovsk moment for Syriza, because they had been backed into a corner. One of the arguments of the ultra left's over Brest-Litovsk was that the Bolshevik's should have refused to compromise with Germany, and thereby encouraged workers in Germany, and the rest of Europe, to flock to their support. In short, they should have placed the fate of the revolution in a hope that European workers would have an overnight epiphany and become revolutionaries. The Left often makes this mistake, as Lenin sets out, that firstly it takes its own level of consciousness, and transplants it on to the working-class, which is still at a much lower level of political development, and also it fails to take account of different historical tempos.

So, for example, it might have been the case that all of the events, occurring at the time, would have their impact on changing the consciousness of European workers, but such a process would have required years, or at least many months, to complete. Meanwhile, the German armies were about to over run them in a matter of only days!

The question here, for Syriza, is what do they do with the four months of breathing space that has been granted to them? They have the potential during that time to do what I suggested last week, that is they could use this time to try to mobilise workers across Europe against the German government, and other conservative forces. They should, with Podemos, act as an organising centre for a European convention of workers organisations to oppose austerity, and to draw up a programme of co-ordinated investment across Europe. They should use the time, to bring about changes inside Greece, which strengthen the position of Greek workers, and act as an example, for workers across the rest of Europe. They should encourage workers, wherever firms go bust, to occupy them and to establish worker owned co-operatives. They should seek to replace the function of notes and coins, within the Greek economy, with electronic transfer of funds, so that, as suggested, if the ECB cuts off support, Greece can operate on the basis of the circulation of electronic Euros, through its financial system, created on the basis of the needs of the Greek economy for currency, not on the needs of financial capital to defend fictitious capital at the expense of the destruction of productive-capital.

The reality is that the measures, required by Germany, cannot possibly be complied with by Greece. Even former Tory Chancellor, Norman Lamont recognised that, on Newsnight on Friday. 

But, Lamont, who also noted that not only could the debt not be repaid, and that the austerity measures were making the situation, in Greece, worse not better, and that the beneficiaries of the failure of Syriza would be Golden Dawn, uses this to argue that Greece should not have been in the Euro, and that they should leave. In other words, this is exactly the narrative that the nationalists will adopt, and which will lead first to a dismantling of the Eurozone, and then of the EU itself, because, ultimately there can be no single market, without single rules for all, without a single currency and so on. The problem with the EU, and with the Eurozone, is not too much Europe, but not enough.

On that basis, the requirement, for Syriza's policy measures to be ratified by Eurozone chiefs, is not of itself objectionable. If the EU were to have a single fiscal regime, and budget, such oversight would be a necessary requirement. However, it is then a necessary requirement for all member states, not just for some, and the process then requires the concept that this oversight be undertaken by democratically elected politicians via the European Parliament, not by the ministers of individual nation states, or by the bureaucrats of the Commission. It also requires the idea that, within the process of drawing up such a budget, there be adequate fiscal transfers, to compensate for the effects that a single monetary policy has on different regions of Europe. In short, it requires that the EU move to the establishment of a single European state, a United States of Europe.

Unfortunately, Germany's actions are driving Europe in exactly the opposite direction. They are promoting division, and increasing pressures for the EU to split apart. The pundits are claiming that there is opposition to Greece's position from other European states, such as Spain, Portugal and Ireland, that have had to impose austerity measures. But, this is not true. There is opposition from the conservative governments of those countries. In the main, the workers in those countries are sympathetic to the plight of the Greek workers, and their demands. What the governments in those countries are afraid of is not that their populations will object to support for Greece, but a response from their own people based upon opposing austerity in the rest of Europe, as well as Greece!

Already, even the German trades unions have put out a statement in support of Greece, and calling for a reassessment of the policy of austerity. As I have written in the past, many bourgeois economists have pointed out that Syriza's economic policy is not at all radical, but only a form of traditional Keynesian stance, similar to that adopted by Obama in the US.  The latest example of that was in the FT last week.

On 15 February, Wolfgang Münchau wrote:

“My advice, to Yanis Varoufakis, would be to ignore the exasperated looks and veiled threats and stand firm. He is a member of the first government in the eurozone with a democratic mandate to stand up to an utterly dysfunctional policy regime that has proved economically illiterate and politically unsustainable. For the eurozone to survive with the current geographic remit, this regime needs to go.”

Munchau argued for the Greek government to basically make an immediate break that would itself free it from the constraints of austerity imposed upon it.  The Greek government, he wrote,

“... should stick with their position not to accept a continuation of the existing financial support programme.” which imposes on them “self-defeating policy targets such as the contractual requirement to run a primary budget surplus of 3 per cent of gross domestic product. For a country with mass unemployment, such a target is insane. It would, of course, be better for this nonsense to stop while Greece remains in the euro zone. But the most important thing is that it has to stop.”

Munchau also proposed a version of the policy of creating electronic money that I have previously put forward.  He proposed that they adopt a kind of parallel currency consisting of government-backed IOUs, which could be physical notes, or maybe just electronic credits, circulating in parallel to the Euro. 

“Once this system is in place, you can default on the official European creditors. What can they do? They cannot eject you from the eurozone. They have no legal means to do so. They cannot kick you out of the EU either”.

Münchau also concludes that Greece should seek to avoid leaving the Eurozone, but he goes on to confirm the point I have made previously that if they fail, or are caused to fail by German intransigence, the consequence is likely to be the coming to power of Golden Dawn.

“The worse-case scenario would be for the Greek government to blink first, and accept defeat... If Syriza were to be co-opted into the policy consensus, the only political party left to oppose these policies would be Golden Dawn, a neo-Nazi party”.

One German economist, however, Holger Schmieding, of Berenberg Bank, in a recent TV interview, talked about the “loony” policies that Syriza had been elected on, forgetting that a plurality of Greek people had voted for those policies!

He put forward the same argument that the Tea Party put forward, in relation to Obama's policy of bailing out US homebuyers, who were in danger of being thrown out of their homes. That approach, put forward by the Tea Party and Schmeiding, is a policy born out of a seeming desire to punish, rather than to deal with the actual situation. In the US, people were simply walking away from their homes, and it made sense to write off some of the debt. In Greece, it is not the people of the country, or even Syriza, that ran up the debt, but past governments. If the creditors want to chase the politicians who were responsible for that, and to whom they recklessly lent, good luck to them, but there is every reason for Syriza and the people of Greece to simply walk away from it.

Germany's current course, is making that kind of resolution all the more likely.

Capital II, Chapter 21 - Part 2

Marx has demonstrated how the money society requires to circulate commodities already exists. It has built up over long periods of history. In being sufficient to circulate all of these commodities, it is automatically able to circulate the surplus value, which is embodied within those commodities. But, the other side of this, which requires the assumption of expanded reproduction, is precisely that, in order that the money form of this surplus value can be realised in additional productive capacity – means of production and labour-power – that money must be able to buy them i.e. the additional means of production and labour-power must be available to be bought.

“It makes no difference if they are not bought as finished products but made to order. They are not paid for until they are in existence and at any rate not until actual reproduction on an extended scale, an expansion of hitherto normal production, has taken place so far as they are concerned. They had to exist potentially, i.e., in their elements, as it requires only the impulse of an order, that is, the purchase of commodities before they actually exist and their anticipated sale, for their production really to take place. The money on the one side then calls forth extended reproduction on the other, because the possibility of it exists without money. For money in itself is not an element of real reproduction.” (p 494)

This is a point I have made recently, in relation to the current situation in Greece, that what it requires to resolve its problems is not more money, but more capital. It is not the money that arises from the realisation of surplus value that constitutes new wealth. The new wealth existed as soon as a surplus product came into existence. If 100 kilos of wheat seed are required to produce wheat, and a worker requires 10 kilos for their own subsistence, then having grown 200 kilos of wheat, the additional wealth resides in the 90 kilos of wheat, that exists at the end of this process over and above what existed prior to it.  This is true whether money exists in an economy or not.  What societies require in order to produce, prosper and grow is not money, but means of production and labour-power.

Moreover, if this additional 90 kilos is left locked up in a store, and used neither to enable additional planting, nor additional consumption, it does not even then function as additional wealth, but only as a sterile hoard. The same is true if the product is realised in the money form. The additional wealth arises with the production of the surplus product. A capitalist may sell that product, and thereby obtain an amount of money over and above what they require to simply reproduce their constant and variable capital. It is not the money equivalent of the surplus product that constitutes additional wealth, however, but the surplus product itself.

If the capitalist is not able to utilise this surplus value, but has to store it up until it can be used, it simply forms a sterile hoard.

“This hoard of A, which is potentially new money-capital, is not additional social wealth, any more than it would be if it were spent in articles of consumption. But money withdrawn from circulation, which therefore previously existed in circulation, may have been stored up at some prior time as a component part of a hoard, may have been the money-form of wages, may have converted means of production or other commodities into money or may have circulated portions of constant capital or the revenue of some capitalist....Only in the production of gold – inasmuch as the gold product contains a surplus-product, a depository of surplus-value – is new wealth (potential money) created, and it increases the money material of new potential money-capitals only so far as the entire money-product enters into circulation.” (p 494-5)

In the latter case, the gold constitutes new wealth not because gold is money, but quite the opposite, because it is a commodity! The hoarded money is potential money-capital because it is being hoarded for the purpose of buying productive-capital, at some point. In this respect, it is like the depreciation fund, analysed in the previous chapter, whose purpose is to store up the money equivalent of the value of the wear and tear of fixed capital so as to be able to purchase its replacement at some future time, when the fixed capital has become worn out.

The apparent problem there was that an amount of value equivalent to wear and tear was being taken out of circulation without an equivalent amount of value appearing to be thrown back in. Department II appeared to be selling to Department I without buying back to an equivalent extent. The answer was that though Department II was selling to Department I without buying, in respect of this wear and tear, a section of Department II was buying from Department I without selling, because that section of Department II was handing over its depreciation fund to buy new fixed capital, without selling an equivalent amount of commodities to Department I, to bring about a reflux of that money.

Here we have a comparable situation. Each year, every individual capital produces surplus value. Every capitalist realises the surplus value in money form with the selling of the commodities that comprise their commodity-capital. They then hoard the money form of the surplus value.

“Money is withdrawn from circulation and stored up as a hoard by selling commodities without subsequent buying. If this operation is therefore conceived as a general process, it seems inexplicable where the buyers are to come from, since in that process everybody would want to sell in order to hoard, and none would want to buy. And it must be conceived generally, since every individual capital may be in the process of accumulation.” (p 495)

Back To Part 1

Forward To Part 3

Labour's Immigration Policy Is A Mess - Part 9

The Tories have responded to the challenge they face from UKIP, by swinging to the right. The problem faced by the Tories has been discussed before. All parties have to garner a coalition of interests to win sufficient votes to win elections. Those coalitions are always centred around the core vote for the particular party. For conservative parties the core resides around the interests of the small capitalists and backward sections of the middle and working-class. The trick is then to be able to retain the vote of this core, whilst securing enough votes from outside it to obtain an electoral majority. Swing too far to the right, to retain the core, and a larger number of votes are lost from the centre, and vice versa.

The success of UKIP, has shifted the Tories to the right, in order to retain those core votes. But, as that has happened, Labour has also found itself in a quandary. During most periods, the large reservoir of racist and bigoted views has little impact, because voters are influenced more by other factors. In general, voters are more concerned with general economic issues – do they feel better off than they were – than with questions about immigration, or questions about whether we are in or out of the EU. But, if voters feel that they are worse off, and likely to get even more worse off in the future, whichever party is elected, and the more they associate part of the problem for that as being due to immigration, or due to membership of the EU, that prevents controls over immigration, the more that becomes a significant factor. Hence the rise of UKIP, and before it the BNP – and a similar thing can be seen in France and elsewhere.

If there were a greater distance between Labour and the Tories, just as was the case before the last French Presidential election between Hollande and Sarkozy, or as is the case currently between Syriza and New Democracy in Greece, the issue of immigration or EU membership would sink back into a minor consideration. But, the FN has grown in France, because Hollande, having talked left before the elections, turned right almost immediately after his election, and in Britain, having destroyed the BNP, Labour then opened the door to UKIP, by adopting the same perspective in relation to austerity as the Tories.

Immigration from Europe in the first years of this century, was far greater than it is today, as a severe shortage of skilled workers such as plumbers and other craftsmen pushed up wages sharply, encouraging an influx of the eponymous Polish plumbers. Yet, it did not stop Blair winning large majorities in the elections of 2001 and 2005, the latter being even despite the loss of votes stemming from the disastrous Iraq War. The reason was that living standards were seen to be rising sharply – in 2007, a manifestation of that was the fact that Alistair Darling appeared on Sunday TV to warn against workers demanding too high wage rises, as oil tanker drivers won a 15% pay rise. And, whatever might be said about PFI, the fact is that, at the same time, huge investments in hospitals, schools and other pieces of infrastructure were made during the period.

The main failing, in this respect, of the Blair government was that it did not bring about a similar increase in house building. There is again a good reason for that. Blair's government, like the Tory government's before it, going back into the 1970's, had relied on monetary policy as its main tool for intervention in the economy. When the Tories claim that the Blair/Brown governments caused the crisis by their profligacy, that is a lie. In fact, the average deficit to GDP ratio under Blair/Brown between 1997-2007, was about half the average under the Thatcher/Major governments between 1979-1997. It is only with the onset of the credit crunch in 2007, and specifically the financial crisis of 2008, that Labour was forced to increase the deficit considerably. In fact, between 1999-2002, Labour ran budget surpluses. 

Labour was able to increase spending without increasing the deficit, precisely because the economy was growing rapidly as a consequence of the onset of the new long wave boom in 1999. But, for the reasons I have set out elsewhere, this coincided with the large rise in the rate of profit, in the previous period, so that the mass of profit globally rose sharply, causing interest rates to fall. In the UK, as in the US, conservative policies in the previous 20 years had resulted in the creation of a low wage/high debt economy, and the high private debt was only sustainable so long as interest rates remained low, and borrowers were able to provide collateral in the form of rapidly appreciating assets – usually in the form of property. It is in, fact, this strategy adopted by these conservative governments since the 1980's, and the scrapping in the late 1980's by those governments, of financial regulations, that led to the 2008, financial crisis.

In the early 2000's, Labour was happy to continue with that side of the strategy. On the one hand, it appeared that a growing economy was already raising wages for those with skills, whilst the introduction of the Minimum Wage, put a floor underneath the wages of the unskilled, and a variety of social-democratic, welfarist measures in relation to benefits was intended to cover the rest. On the other hand, any move to provide councils with the resources they required to embark on a council house building programme of the same kind of proportion as was seen in relation to new hospital and school provision, would be counter-productive for several reasons.

Just as PFI was the preferred means of financing hospital construction, so Councils were encouraged to finance the repairs to housing stock they required, by selling them off, at knock-down prices to Arms Length Management Organisations, and similarly, new building was encouraged from Housing Associations. But, there would always be a problem with generating sufficient new housing provision on this basis. But, governments cannot take the measures required to address that problem without destroying the foundation upon, which their economic policy has been based.

Had Labour compulsorily purchased large amounts of land and set about a large scale housing programme, so as to provide large amounts of cheap rented property, house prices would necessarily have fallen, as large numbers of people chose this cheap rental property, over increasingly unaffordable owner occupied housing, and the expensive private rental property it leads to. As house prices fell sharply, land prices would follow, so that the cost of new build housing would itself fall.   The alternative would have been to have scrapped large areas of the Green Belt, and brought into use under utilised agricultural land, for residential development.

Agricultural land sells at around £10,000 per acre, in the UK, whereas development land sells at around £930,000 per acre in England, and £2.6 m per acre in London, which reflects the much higher profits obtainable from using land for development rather than agriculture. In fact, agricultural land prices would undoubtedly fall much lower, if the restrictions such as the Green Belt, which introduces a further land owners monopoly, did not exist.

But, either way, that would have meant a major political battle with those powerful forces, upon which conservatism had rested for the previous 30 years, and which had powerful entrenched political positions themselves.

It would have meant, a political confrontation with the owners of landed property, who not only would have faced having their property compulsorily purchased, at prices way below the existing inflated market prices, but who would have faced a more general collapse of those high land prices, whose only foundation came from high property prices. But, it would also have meant a confrontation with financial capital, which would have seen a collapse in the similarly inflated prices of financial assets. The private borrowing that had occurred during the previous 30 years, had been based on the collateral of continually and rapidly rising house prices. A collapse in house prices would have decimated that collateral held by the banks, and thereby sent the banks themselves into bankruptcy.

When that, in fact, happened in the US, the consequence was the 2008 financial crisis, which then affected the British banks, also, and its notable that when that began to affect UK property prices, which fell 20%, more or less overnight, in 2008/9, one of the first acts of the government was to cut it short by slashing interest rates, and providing liquidity to the banks so that they could reduce mortgage rates, and allow borrowers to go into effective default, rather than foreclose on loans.

Labour was not going to take on those political interests, and nor was it going to create the conditions that would have led to a collapse of the banks and financial institutions, which it had itself relied upon as a basis for large amounts of growth in the economy.

Back To Part 8

Forward To Part 10

Northern Soul Classics - Get Yourself Together - Al Green

Very early Al Green Northern hit for Al Green.

Friday Night Disco - Hang On In There Baby - Johnny Bristol

Capital II, Chapter 21 - Part 1

Accumulation and Reproduction on an Extended Scale

 Part I

“It has been shown in Book I how accumulation works in the case of the individual capitalist. By the conversion of the commodity-capital into money the surplus-product, in which the surplus-value is represented, is also turned into money. The capitalist reconverts the so metamorphosed surplus-value into additional natural elements of his productive capital. In the next cycle of production the increased capital furnishes an increased product. But what happens in the case of the individual capital must also show in the annual reproduction as a whole, just as we have seen it happen on analysing simple reproduction, namely, that the successive precipitation – in the case of individual capital – of its used-up fixed component parts in money which is being hoarded, also finds expression in the annual reproduction of society.” (p 493)

Suppose we have an additional capital made up:-

C 400 + V 100 + S 100 = 600.

The capital sells the output for £600, and can thereby reproduce itself by buying again £400 of constant capital (more correctly means of production), and £100 of labour-power. But, given certain assumptions, it can also use the £100 of surplus-value to expand itself, to buy additional means of production, and labour-power, and thereby to produce an even larger amount of value and surplus value. The assumptions are that this £100 of surplus-value is enough to purchase the additional means of production and labour-power required. In Volume I, it was seen that capital can only expand in accordance with certain technical limits determined by the Technical Composition of Capital. For example, a glass manufacturer might have a furnace with six openings. To run it efficiently, they need enough capital to employ teams of workers for each opening, and materials for them to work with.

But, the surplus value does not have to expand an existing business. It could be used to start some new business. However, the same assumption applies. It must be sufficient to enable the required amount of capital to be set in motion. If not, the surplus value may not be consumed unproductively. It could be hoarded in money form, waiting for the time when a sufficient hoard exists to set in motion the required capital. We will see later that the development of credit, as well as the development of socialised capital in the form of joint stock companies and co-operatives, are a means of mobilising these individual capitals and putting them to work, rather than them lying fallow.

The second assumption made is that production on an extended scale has been in process previously. This might seem to involve a circular argument – explaining the existence of expanded reproduction on the basis of an assumption of expanded reproduction. It isn't, for the simple reason that the whole of Man's history has been characterised by expanded reproduction. From the first primitive humans, mankind has learned how to utilise social surpluses for the production of means of production so as to extend its productive potential further still. All this assumption does is to accept that reality, and demonstrate how this operates under capitalist production.

Back To Chapter 20

Forward To Part 2

US Retail Sales And False Profits - Part 5

In contrast to the orthodox bourgeois view that prices are subjectively determined, on the basis of the utility each consumer derives individually from the acquisition of an additional unit, Marxists argue that prices are merely the monetary expression of the value of the commodity, a value which is not determined on the basis of subjective valuation, but on the basis of the labour-time required for its production. In the former case, the value of each individual commodity unit, is different for each consumer, because each consumer obtains varying degrees of utility from each commodity unit, compared to some other consumer, and even compared to themselves under different conditions.

For example, I may like Mars Bars, and you may hate them. I would be prepared to pay more money to acquire one than you, and indeed, you may not be prepared to buy one at any price. Similarly, I may obtain a great deal of utility from the first Mars Bar I eat during the day, but by the time I am on to my tenth bar, I might feel sick at the sight of another. I have dealt with this argument about Marginal Utility theory elsewhere. The orthodox theory essentially comes down to a theory that prices are determined by demand, by what consumers are prepared to pay, because they will not buy a commodity if it does not provide them with the required utility at that price, whereas, by contrast, the Marxist theory is that prices are actually determined by supply, by what it costs to produce any commodity, because producers will not continue to produce commodities for exchange unless they are able to obtain an equal amount of value to that which they are giving up.

If I have expended 10 hours of labour producing a commodity, and my labour and yours are comparable, then I will expect to obtain commodities in exchange that also require 10 hours of labour to produce. Although the labour one worker provides will always be different to that of some other worker, and even different today from yesterday even for the same worker, as Marx says, quoting Edmund Burke, if the labour of groups of workers is compared, even as few as five in a group, in Burke's example, these individual differences are evened out. Even if my labour, and your labour are not comparable, or in the aggregate the labour say of tailors with the labour of carpenters, this still applies, all that is required is that an appropriate adjustment to the value produced in a given time by my labour to yours be made. If my labour is seen to produce twice as much value as yours, then commodities I produce in 5 hours, will exchange for commodities that your labour produces in 10 hours.

If we put this in the terms a capitalist understands, if a firm makes widgets that cost £1,000 to produce, and on average the rate of profit is 10%, then the firm will expect to sell them at £1,100. If it produces 1100 widgets, the individual price will be £1. But, if consumers are only prepared to pay £0.90 per widget, and its uneconomical for any firm to produce less than 1100 widgets, none will be produced, because it would involve the producer not just making no profit, but making a loss of £0.10 per widget. Capitalist firms do not engage in business to meet consumers needs, but to make profits, so the firm would stop producing widgets, and use the capital to make some other commodity instead, on which it would hope to make at least average profits.

In Part 6, I will examine why both views about the determination of prices are correct.

Back To Part 4

Forward To Part 6

UK Employment Data

The latest figures from the ONS indicate that for the three months to December 2014, UK employment rose, to 73.2% of the available workforce, whilst unemployment fell to 5.7%. Meanwhile wages including bonuses rose by 2.1%, and by 1.7% excluding bonuses.  Meanwhile, CPI inflation has fallen to 0.3%, with RPI at 1.1%.  However, this data cannot be taken at face value.

The fact that a great deal of the employment is comprised of workers forced on to zero hours contracts, trapped in low paid, low status part-time, and temporary work, and that many of the people counted as "employed", who are in self-employment, are people who could not find decent full-time employment, and have become trapped in low status, low paid self-employment, has been discussed extensively.

What all of these factors demonstrate, and explain, is the fact that UK productivity is very low, and getting worse.  Productivity in Britain is only about 80% of what it is in France.   This is a problem for Britain, and a problem for the Bank of England.  Employment has been rising, and unemployment falling, because even with relatively small amounts of growth in the economy, the number of workers required to perform this work increases proportionately more than in economies where productivity is higher.  But, the consequence is that the workers then employed can only be paid lower wages.  It is the economic model of low wages, low productivity, and high levels of private debt that was put in palace by Thatcher in the 1980's, and out of which the UK economy has been unable to escape ever since.  It means that the UK will continue to suffer relative economic decline.

The reason it poses a problem for the Bank of England, is that as unemployment falls, firms will begin to need to bid up wages for workers, and with low levels of productivity that will squeeze profits.  To restrict the rise in wages, the Bank of England will need to raise interest rates, at a time when global interest rates are in any case rising.  But, low levels of productivity, and squeezed profits are not an environment, in which the UK economy is likely to respond well to those higher interest rates.  The only immediate respite may be that the rise in interest rates will burst the various asset price bubbles.

If the bubble in house prices bursts, that will be a further boon to workers, similar to the fall in oil prices, as it will make the cost of buying shelter much cheaper.  It will also make the cost of buying pension provision cheaper, as the price of shares and bonds falls, whilst increasing the yield on those bonds and shares, so causing pension revenues to rise.

The ONS data, should also be treated with caution for a further reason.  It covers the three month period of October to december 2014.  The ONS's own monthly data, indicates that economic inactivity rates during 2014 were rising.  It also shows that for December, the employment rate was down by 0.2%.

As set out in previous posts, the UK economy was set to turn down sharply in the last quarter of 2014, as the three year cyclical slow down kicked in, and that has indeed been seen in the GDP, and other survey data for the last few months.  That slow down is unlikely to have yet been reflected in employment and wage data, which are lagging indicators.

Capital II, Chapter 20 - Part 55

Returning to Destutt's argument, the final group from which he sees profit being extracted is the 'idle capitalists'.  Destutt argues that the industrial capitalists cover their own consumption out of a portion of their profits. But, the industrial capitalists also have to pay the 'idle capitalists'.  If the industrial capitalist makes a profit of £200, and uses £100 to cover their consumption, they may pay over the other £100 as rent to the landlord, and interest to the money capitalist. These idle capitalists may in turn require £80 for their own consumption, and pay £20 to servants etc.

The servants with the £20 in wages, buy commodities worth £20, and thereby £20 flows back to the industrial capitalists who produced those commodities. Similarly, the idle capitalists spend their £80 on buying commodities from the industrial capitalists. But, its clear that no profit can arise for the industrial capitalists from this process.

Firstly, if this £100 (80 + 20) simply flows back to the industrial capitalists in return for £100 of commodities, the industrial capitalist only gets back in money what they have handed over in commodities. They now just have back £100 in money in place of the £100 in commodities they have sold. But, even if the industrial capitalist gets back £100 in money, whilst cheating the idle capitalists by selling them commodities only worth £80, they have not gained thereby. They have only reduced their loss by £20. The industrial capitalist gave the landlord, money-capitalist etc. the £100 in the first place. They have simply been handed part of it back.

“Of course the land and capital borrowed by the industrial capitalists from the idle capitalists and for which they have to pay a portion of their surplus-value in the form of ground-rent, interest, etc., are profitable for them, for this constitutes one of the conditions of production of commodities in general and of that portion of the product which constitutes surplus-product or in which surplus-value is represented. This profit accrues from the use of the borrowed land and capital, not from the price paid for them. This price rather constitutes a deduction from it. Otherwise one would have to contend that the industrial capitalists would not get richer but poorer, if they were able to keep the other half of their surplus-value for themselves instead of having to give it away. This is the confusion which results from mixing up such phenomena of circulation as a reflux of money with the distribution of the product, which is merely promoted by these phenomena of circulation.” (p 490)

But, even Destutt, who began by claiming that a part of the industrial capitalists profit came from selling commodities to the idle capitalists above their value, is forced to recognise this.

“'Whence come the revenues of these idle gentry? Do the revenues not come out of the rent paid to them out of their profits by those who put the capitals of the former to work, i.e., by those who pay with the funds of the former a labour which produces more than it costs, in a word, the industrial capitalists? It is always necessary to hark back to them to find the source of all wealth. It is they who in reality feed the wage-labourers employed by the former.' (p. 246.)” (p 490) 

If the industrial capitalist sells £80 of commodities to the idle capitalists for £100, they thereby reduce the reduction of their own profit from £100 to £80. If they sell £100 of commodities to them for £120 they still only reduce the reduction of their own profit by £20. But, now this also presumes that the idle capitalists have some other form of wealth to make up the difference. If they get £100 from the industrial capitalists, but each year pay them back £120, then each year the amount of that wealth decreases, and must ultimately be exhausted.

Moreover, by the same token, that the industrial capitalists simply put a higher price tag on their commodities, they were selling, to achieve Destutt's profit, there would be no reason for the landlords and the money capitalists not to increase their own price tags for rent and interest to the industrial capitalists.

“This brilliant analysis is quite worthy of that deep thinker who copies on the one hand from Adam Smith that 

'labour is the source of all wealth' (p. 242) 

that the industrial capitalists 

'employ their capital to pay for labour that reproduces it with a profit' (p. 246) 

and who concludes on the other hand that these industrial capitalists 

'feed all the other people, are the only ones who increase the public wealth, and create all our means of enjoyment' (p. 242)

that it is not the capitalists who are fed by the labourers, but the labourers who are fed by the capitalists, for the brilliant reason that the money with which the labourers are paid does not remain in their hands, but continually returns to the capitalists in payment of the commodities produced by the labourers. 

'All they do is receive with one hand and return with the other. Their consumption must therefore be regarded as engendered by those who hire them.' (p. 235.)” (p 491-2)

Back To Part 54

Forward To Chapter 21

Back To Index