Wednesday, 11 February 2015

US Retail Sales and False Profits - Part 4

In what meaningful sense can it be said that the disparity between supply and demand is a result of under consumption, rather than overproduction, if in fact, consumption is rising? And that is the case, in relation to oil, copper and so on. The fall in the price of these commodities, is not a consequence of under consumption, or falling demand, but of over production. Marx gives another example of this.

“(When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.)”

(TOSV 2)

This is exactly what has been seen with oil, copper and so on. After the start of the long wave boom in 1999, demand outstripped supply of primary products driving their prices much higher. It was the high rate and mass of profit that resulted from this, which then caused large scale investment in additional oil production, and other forms of primary products, which then leads to this overproduction. As Marx once again puts it, the high rate and mass of profit causes a crisis of overproduction, and financial speculation, of the kind seen over the last decade or so,

“The same phenomenon (and this usually precedes crises) can appear when additional capital is produced at a very rapid rate and its reconversion into productive capital increases the demand for all the elements of the latter to such an extent that actual production cannot keep pace with it; this brings about a rise in the prices of all commodities, which enter into the formation of capital. In this case the rate of interest falls sharply, however much the profit may rise and this fall in the rate of interest then leads to the most risky speculative ventures.” 

(TOSV2 p 495)

The fall in oil prices, as with copper prices, milk prices and so on is not the result of falling demand, and reduced economic activity, but of large scale overproduction of those commodities, brought about by large scale capital formation in these industries, caused by high rates and masses of profit, in the preceding period.

Similarly, the fall in these prices feeds through into the prices of manufactured commodities, causing them to fall, not because they have been overproduced, or because of a fall in demand, but simply because their cost of production has fallen along with the fall in primary product prices. The fall in US Retail Sales in December, may be simply a reflection of these lower commodity prices in general. Its quite possible that the amount of total spending could have fallen by 0.9%, as the figures indicate, whilst the quantity of commodities purchased has increased, if prices have fallen by more than 0.9%. 

Other commentators have pointed out that this retail sales figure, which is at odds with other positive economic data, as well as with the data provided by individual firms on their sales, may simply be a reflection that the current data does not take into account changes in consumption patterns. For example, a lot of online expenditure is not captured by the data. The data tends to be based on the purchase of things, but in an economy where increasingly what people buy are services, this increase in actual spending by consumers is not reflected.

In addition, this figure is just for one month, and can hardly, therefore, be taken as representative, because higher spending in one month can be compensated by lower spending in the next, and so on. Moreover, in the US, as in the UK, there is still a huge overhang of private debt. The extent of student debt alone is beginning to give cause for concern, as it continues to soar, now above $1 trillion. One use of any savings from lower commodity prices, is for consumers to pay off some of that debt. Indeed, the large amounts of interest payments that consumers pay to cover, for example, credit card purchases, are expenditure by consumers, but do not appear as retail sales.

In Part 5, I will examine the orthodox view that prices are the consequence of the subjective valuation of commodities by consumers, and the opposing view put by Marxists that they are objectively determined by the labour-time required for the production of commodities.

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