Capital II, Chapter 21 - Part 19

Marx then sets out how extended reproduction can occur under three different scenarios.

1) First Illustration 

Department 1) c 4000 + v 1000 + s 1000 = 6000

Department 2) c 1500 + v 750 + s 750 = 3000

Total 9000

Half of Department 1(s) is accumulated = £500. Of this, on the basis of the organic composition of capital (4:1), £400 becomes additional constant capital, and £100 additional variable capital.

So, Department 1 now stands as

c 4400 + v 1100 = 5500

Its total output is £6,000, but now £4,400 of this goes just to replace and increase its own constant capital. That leaves it with £1,600 of output to exchange with Department 2.

So, Department 1 workers buy £1100 of consumer goods from Department 2, whilst Department 1 capitalists buy £500 of consumer goods from Department 2. With the £1,600 received from these sales, Department 2 buy £1,600 of constant capital to replace that it has used up.

But, Department 2 only had £1,500 of constant capital, so this assumes that it has to also accumulate, so as to expand its constant capital, and its own output. But, in accordance with its organic composition of capital (2:1), if its constant capital rises by £100, its variable capital must rise by 50, i.e. it needs more labour-power to process this greater quantity of material.

So, Department 2 has increased its capital advanced by £150 - £100 for constant capital, and £50 for variable capital. It advances this capital from its surplus value. £150 of Department 2 commodities, previously consumed by its capitalists are now consumed by workers (£100 Department 1 - £50 Department 2).

So, the situation now is:-

Department 1 c 4400 + v 1100. Capitalists now have £500 to spend buying consumption goods.

Department 2 c 1600 + v 800. Capitalists have £600 to spend.

So, if the capital was accumulated on this basis, with the previous 100% rate of surplus value, the larger amount of labour-power would now process the larger quantity of constant capital resulting in a higher level of output. It is now.

Department 1) c 4400 + v 1100 + s 1100 = 6600

Department 2) c 1600 + v 800 + s 800 = 3200.

Total = £9,800.

Output in Department 1 has risen by 600/6000 = 10%, and in Department 2 by 200/3000 = 6.66%.

The process of accumulation then continues. Half of Department 1's surplus value of £1,100 is accumulated. That is £550, allocated £440 to constant capital, and £110 for variable capital.

Now we have:

c 4840 + v 1210 (+s 550 after £550 has been accumulated) = £6,600.

Now, v+s (£1210 + £550 = £1,760) becomes the new demand for Department 2 consumer goods. But, again Department 2 only has £1,600 of goods available to exchange with Department 1 i.e. the proportion of its output equal to c. So, £160 of goods currently consumed by Department 2 capitalists must instead be sold to Department 1, in exchange for the additional constant capital.

So, Department 2 then has £1,760 of constant capital, but must then increase its variable capital to £880 (half of £1760) in line with its organic composition of capital.

We will then have in the next cycle.

Department 1 c 4840 + v 1210 + s 1210 = 7260

Department 2 c 1760 + v 880 + s 880 = 3520

That gives a rise of 660/6600 = 10% for Department 1, and 320/3200 = 10% for Department 2.

“If things are to proceed normally, accumulation in II must take place more rapidly than in I, because otherwise the portion I(v + s) which must be converted into commodities II will grow more rapidly than II c, for which alone it can be exchanged.” (p 516)

This was one problem in the USSR, where the plan continually gave priority to increasing accumulation in Department 1.

Continuing on this basis we get after five years. 

Department 1 C 6442 + V 1610 + S 1610 = 9662

Department 2 C 2342 + V 1172 + S 1172 = 4686

That represents an increase of 3662/6000 = 61% for Department 1, and 1686/3000 = 56% for Department 2. Department 1 capital has risen from 4000 + 1000 = £5000 to 6442 + 1610 = 8052. That is an increase of 3052/5000 = 61% . Department 2 capital has risen from 1500 + 750 = £2250 to 2342 + 1172 = £3514 = 56%.

Back To Part 18

Forward To Part 20

The Long Wave - Part 20

The other feature of the Long Wave, besides its effect in generating a cycle of exploration and development, as well as of innovation, which in turn create new material conditions that impact productivity, and the value of the elements of capital, is that it also affects the social conditions under which people live, and through which their ideas are formulated. Reference has been made to this in relation to the Autumn or Crisis period of the cycle previously. It is a period during which distributional struggles reach a peak, because during this period the constraints of extensive accumulation reach their most acute point.

It has traditionally been during this phase of the cycle that wars and revolutions have broken out. It is not just that the material conditions arising from the acuteness of the aforementioned constraints reaches a peak during this period, but also the effect of the preceding periods on determining other subjective factors. For example, during the Spring phase of the cycle, the demand for labour-power rises sharply, but with ample supplies, and high levels of productivity, wages do not rise as fast as if labour-power was in short supply, other than in particular spheres. But, it does begin to create confidence amongst workers, because the fear of the previous period of stagnation tends to disappear from their minds. 

As Trotsky puts it,

Trotsky illustrates this curve of capitalist
development, and the corresponding social
and political events.

“This circumstance reinforces our conviction that the effects of a crisis upon the course of the labour movement are not all so unilateral in character as some simplifiers imagine. The political effects of a crisis (not only the extent of its influence but also its direction) are determined by the entire existing political situation and by those events which precede and accompany the crisis, especially the battles, successes or failures of the working class itself prior to the crisis. Under one set of conditions the crisis may give a mighty impulse to the revolutionary activity of the working masses; under a different set of circumstances it may completely paralyse the offensive of the proletariat and, should the crisis endure too long and the workers suffer too many losses, it might weaken extremely not only the offensive but also the defensive potential of the working class...

In contrast, the industrial revival is bound, first of all, to raise the self-confidence of the working class, undermined by failures and by the disunity in its own ranks; it is bound to fuse the working class together in the factories and plants and heighten the desire for unanimity in militant actions.

We are already observing the beginnings of this process. The working masses feel firmer ground under their feet. They are seeking to fuse their ranks. They keenly sense the split to be an obstacle to action. They are striving not only toward a more unanimous resistance to the offensive of capital resulting from the crisis but also toward preparing a counter-offensive, based on the conditions of industrial revival. The crisis was a period of frustrated hopes and of embitterment, not infrequently impotent embitterment. The boom as it unfolds will provide an outlet in action for these feelings.”

(Flood Tide) 

Particularly, where the demand for labour-power rises sharply, this creates the conditions for workers to begin to rebuild their organisations, or to build them from new, where these are completely new workforces. That has been seen in Asia, during the previous period, as well as in Latin America, and in the Middle East.

This creates a basis, for the further and more rapid development of these workers' organisations as the cycle moves into the Summer phase, where the reserves of labour-power begin to be used up, and where the previous productivity gains begin to wane. The Spring phase of the Long Wave that began around 1890, for example coincided with the development of the New Unionism in Britain, which began to organise the rapidly growing number of unskilled and semi-skilled workers. It also coincided with the creation of the Second International in 1889. But, it is not until the start of the Summer phase of that cycle, around 1903, that this begins to manifest itself in more powerful organisations. The German SPD, for example, went from a membership of around 400,000 in 1903, to more than 1 million by 1913. By 1912, it was polling the largest number of votes.

A similar pattern could be seen in Britain. Although, there had been Labour candidates standing as Lib-Labs, or under the banner of the ILP and SDF previously, it is from 1905 that the most rapid advance takes place with the formation of the Labour Party. Something similar occurs with the start of the new cycle after 1949. Workers' organisations begin to be rebuilt, wages rise, despite the recruiting of new labour reserves in the shape of married women, and commonwealth immigration, as the economy grows rapidly. But, it is in the 1960's, as the cycle enters its Summer phase, that this becomes reflected in the growth of the shop stewards movement, and other rank and file organisation that undertakes sharp, successful wildcat strikes, and also begins to be reflected in the development of political organisation, both in the shape of the Labour Party, and its left-wing, as well as in the development of more militant, syndicalist organisations such as the International Socialists, whose politics for “building the party” revolves around the idea of “more militancy”, i.e. the encouragement of strikes.

Back To Part 19

Forward To Part 21

Capital II, Chapter 21 - Part 18

“We know that the actual, and therefore also the additional, variable capital consists of labour-power. It is not capitalist I who buys from II a supply of necessities of life or accumulates them for the additional labour-power to be employed by him, as the slaveholder had to do. It is the labourers themselves who trade with II. But this does not prevent the articles of consumption of his additional labour-power from being viewed by the capitalist as only so many means of production and maintenance of his eventual additional labour-power, hence as the bodily form of his variable capital.” (p 519)

Is this true? I don't think so. Other than where the capitalist operates some form of Truck System, I don't think any individual capitalist has any thought or consideration of where or how their workers obtain the commodities required for their subsistence. The capitalist pays the wages and leaves it to the workers to spend them as best they might to obtain those necessities. The capitalist assumes that others of their ilk will seize an opportunity to realise their profits by supplying the workers' needs. 

The only sense in which capital has some concern in that regard is two-fold. Firstly, in the sense that Marx describes, i.e. of a concern that workers might use their wages on consumption that does not enhance or even reproduce their labour-power, i.e. a concern for temperance, and secondly, the other side of that coin, that workers do spend their wages on those commodities necessary to reproduce and enhance their labour-power. So, for example, Marx says,

“By the by. The capitalist, as well as his press, is often dissatisfied with the way in which the labour-power spends its money and with the commodities II in which it realises this money. On such occasions he philosophises, babbles of culture, and dabbles in philanthropical talk, for instance after the manner of Mr. Drummond, the Secretary of the British Embassy in Washington. According to him, The Nation (a journal) carried last October 1879, an interesting article, which contained among other things the following passages: 

'The working-people have not kept up in culture with the growth of invention, and they have had things showered on them which they do not know how to use, and thus make no market for.” [Every capitalist naturally wants the labourer to buy his commodities.] “There is no reason why the working man should not desire as many comforts as the minister, lawyer, and doctor, who is earning the same amount as himself.” [This class of lawyers, ministers and doctors have indeed to be satisfied with the mere desire of many comforts!] “He does not do so, however. The problem remains, how to raise him as a consumer by rational and healthful processes, not an easy one, as his ambition does not go beyond a diminution of his hours of labour, the demagogues rather inciting him to this than to raising his condition by the improvement of his mental and moral powers.' (Reports of H. M.’s Secretaries of Embassy and Legation on the Manufactures, Commerce, etc., of the Countries in which they reside. London, 1879, p. 404.)” (p 519-20) 

This is one reason that capital establishes the welfare state. It thereby ensures that a necessary minimum portion of workers' wages are set aside, to ensure that workers are reproduced to a minimum standard, to meet its increasing requirement for an educated and skilled labour-power, and that those workers are maintained, so as to be able to work consistently, and for a long period of years, without losses due to sickness. In this respect, capital treats its labour-power like any of its other machines, requiring it to be of the highest quality and the greatest reliability, whilst produced by the most efficient means. It develops the welfare state as the most efficient means of achieving that on a mass scale, and under its direct control and regulation.

Back To Part 17

Forward To Part 19

Liberal-Tory Lies – Labour Wrecked Growth and We Restored It

In the previous post, Liberal-Tory Lies - The Deficit and Labour Profligacy, I demonstrated that, at the heart of the Liberal-Tory narrative, was the lie that the coalition government had been necessary because of the dire state of the economy.

Indeed, the Liberals always justify their merger with the Tories on the basis that the country was facing some kind of almost wartime national crisis that had to be dealt with, rather than the truth, which is that they got the whiff of Ministerial leather, and their natural ideological affinity with the Tories led them to snap up the chance of government posts, they thought they would never achieve.

I set out that the narrative, they present, is based on the idea that the financial crisis was the result of Labour profligacy, in running up huge government debts, and this led to the seriousness of the economic crisis they had to deal with. But, I illustrated that this central argument, about Labour profligacy and debt, was a lie. The average deficit to GDP ratio under Labour had been half what it had been under Thatcher and Major, and significantly less than it has been under the Liberal-Tories. In fact, the debt to GDP ratio under the Liberal-Tories has soared, as they failed to get rid of the deficit as they promised, and in the meantime they have cratered the economy.

In this second post, I want to look at the second lie the Liberal-Tories tell, as part of this narrative, therefore, that Labour had somehow wrecked the economy, that it was on its knees, and that the Liberal-Tories have rescued it.

A look at the period of Labour Government, from 1997 up to the financial crisis of 2008, shows that the economy was far from being wrecked, or on its knees. Not even the Liberal-Tories try to pretend otherwise. Rather, they claim that this growth was based upon Labour profligacy, an encouragement of private debt, and that it was this that led to the financial meltdown, and the subsequent economic crisis. Like every good lie, there are elements of truth within it.

Labour could not claim any great credit for the growth in the UK economy for the period after it came in to office, and prior to the crash of 2008. In fact, as Marx points out in relation to bank legislation, although governments can certainly adopt policies that can cause economic crises, they cannot pursue policies that actually create economic growth out of thin air. The upturn that arose after 1999, was a consequence of the onset of the new global long wave boom. 

The weakness of its effect in the US and UK, was a consequence of the government economic policies that had been pursued in those economies since the late 1980's, which boosted profits by depressing wages, and which borrowed from future demand, by promoting an explosion of private debt, to compensate for the lower wages. Those same policies, by promoting a low wage/high debt economy, also thereby kept capital locked up in low value, inefficient, low productivity employment that relied on the continuation of those low wages, and increasing levels of state support, in the form of various in-work benefits.

In a sense, Labour also could not be blamed for a continuation of those policies, because what had been built up over the previous decade, could not be easily reversed overnight, and as the onset of the long wave boom brought the prospect of a period of more sustained growth, the large profits and success of the UK Financial Services industry, which was itself also a consequence of those policies, appeared to be a cash cow that could be used to finance a repair of the nation's infrastructure, which had been largely left to rot under the Tories. In fact, the Liberal-Tory claims, about Labour not fixing the roof whilst the sun was shining, are rather laughable, because in 18 years of Tory government after 1979, it was they that sold off the family silver, that not only left the schools and hospitals to suffer from leaking roofs, but also who allowed the roads, the railways and everything else to fall into disrepair. One reason Labour, after 1997, had to spend more, was to make up for this blatant neglect by the Tories, who had acted like Rachmanite landlords in their curating of the economy.

It was, therefore, true that the economy had high levels of debt, but this debt was private debt, which had mostly been created as a consequence of the policies of Thatcher during the 1980's, which saw the real explosion in property prices, and in the prices of fictitious capital such as shares and bonds, and other financial assets derived from them. A similar thing happened in the US under Thatcher's co-thinker Reagan, as both brought about a deregulation of credit and finance, in the late 1980's, that stoked these bubbles.

In both the UK and US, those policies adopted under Thatcher and Reagan from the late 1980's, locked the economy into a straitjacket that required a continuation of these policies, because any attempt to tighten monetary policy led to financial crashes, a bursting of the property and other bubbles, and consequently of the basis of the private debt, which underlay both the financial stability of the banks, and a large part of the consumer demand element of aggregate demand. At the same time, these very policies raised the value of labour-power.

The property bubble, meant that workers needed higher wages to be able to buy houses, or to be able to afford ever rising rents. That again was another reason that government spending on in-work benefits like Housing Benefit had to rise inexorably, as the growing proportion of workers employed by low paying employers, would otherwise have found it impossible to survive.

At the same time, the astronomic rise in the prices of shares and bonds, meant that workers' pension contributions bought fewer and fewer of them, whilst the same process caused the yields on these financial assets to drop to near zero, so they found it increasingly difficult to finance pension payments from the funds. That is the real basis of the pension black holes that have developed.

In fact, if the hyper inflation of property prices, and of the cost of financing pensions was taken into account, it would be seen that the real drop in worker's real wages since the late 1980's has been far greater than the official data suggests. But, as I've set out  elsewhere, another consequence of this is that, potential money-capital that could be used for productive investment itself, tends to get drawn instead into speculation in property, and into fictitious capital, because so long as these asset classes appear to be underpinned by the state, they are a one way bet, whereby the capital gains to be obtained, far outweigh the potential rate of profit that might be made from investment in real capital.

The problem that both the UK and US have with growth – besides the fact that both are relatively declining economies as new more dynamic economies in Asia, Latin America and Africa come to challenge them – is that the legacy of the policies of Thatcher and Reagan has been this development of a casino economy, based on short term speculative gains. Its no wonder so many people consider that their main hope of improving their position depends on winning the lottery, becoming a celebrity, or getting a big compensation payment. In fact, a large part of the growth in the economy over the last couple of years has come from an increase in consumption due to the payment of several billion pounds of compensation payments for PPI misselling.

Far from the Liberal-Tories having rescued the economy, and turned it round, the fact is that the growth in the economy that has only now arisen, in the last year or so, after they had been in office for three years, is largely down to these kinds of factors. The growth in the economy has been due to the underlying influence of the Long Wave global boom, but whereas Labour's fiscally stimulative stance worked with that trend, the Liberal-Tory stance of austerity, has worked against it! The reality is that, the UK economy, like all others suffered a severe shock as a result of the financial meltdown of 2008, but as a result of the implementation of additional fiscal stimulus, most of those economies enjoyed the typical sharp “V” shaped recovery, as the graph illustrates.

What characterises the difference between those economies like the UK, and parts of Europe that inflicted austerity on themselves, and the US, and other economies such as China, is that the US continued to rebound from the shock – and would have rebounded even faster had it not been for the attempts of conservatives there to frustrate the fiscal stimulus and impose austerity – whereas, the UK and Europe, stopped rebounding and went into a period of self-inflicted stagnation.

The Liberal-Tory claims that the economy was wrecked before they came to office, and that they have repaired it, are as much a lie as their claim that Labour had been profligate, and thereby caused the economic crisis. A simple look at the figures for growth demonstrate the extent of the lie.

The graph for 2000-2015 demonstrates the effect of the financial meltdown in causing the economic crisis, but it also shows the sharp rebound from it, during 2009. By the end of 2009, the economy was already once again experiencing positive growth; by the beginning of 2010 the economy was growing again at around 1%, or about its average rate over the previous 20 years. Far from the economy being wrecked at the time the Liberal-Tories came to office, it had returned to growth, and the graph shows that it was, in fact, the Liberal-Tories themselves who drove it back into recession.

Having peaked at 1% growth in the second quarter of 2010, the Liberal-Tory narrative, of disaster and austerity, already sent the economy into sharp reverse, even before their first budget in June 2010. The growth rate dropped by 40% in the third quarter to just 0.6%, and by the final quarter of 2010, they had sent the economy into such a nosedive that growth disappeared altogether!

In the following year, they did little better. Its only on the basis of the revised calculation of GDP that includes the earnings from prostitution and drug dealing that any growth whatsoever is now indicated. At the time, on the basis of the previous calculation of GDP, the economy flat lined, and even entered a double and then a triple dip recession. Yet even on the basis of the current method of calculation, the Liberal-Tories failed to achieve the level of growth they inherited from Labour.

As opposed to that 1% growth rate, they returned figures of just 0.5%, in the first quarter of 2011, followed by 0.2%, then 0.7%, which then collapsed again to zero at the end of 2011, as the new three year cycle set in. In 2012, they did no better. In the first quarter, growth came in at a microscopic 0.1%, followed by a 0.2% drop in the second quarter, a 0.8% surge in the third quarter, that was probably a result of increased consumer spending, from the effects of PPI compensation payments, and other temporary factors, was followed by a collapse again to record a 0.3% drop in GDP in the fourth quarter of 2012.

Far from having rescued the British economy from economic stagnation and collapse under Labour, therefore, they collapsed the growing economy they inherited from Labour. The Liberal-Tory policy of austerity brought the growth created under Labour to a halt, and sent it into a period of decline and stagnation. At the end of 2012, the economy benefited from the onset of the upswing in the next three year cycle. Yet, despite that, the Liberal-Tories have failed to achieve a level of growth equal to that they inherited, in any subsequent quarter.

Compared to the 1% growth rate they inherited from Labour in the second quarter of 2010, the best they have been able to achieve in any subsequent quarter has been 0.8%. The average rate under the Liberal-Tories has been just 0.41%.

But, as I pointed out, some time ago, despite all of the financial manipulation that the Liberal-Tories have implemented, with their bribes through the Help To Buy Scheme, which tries to keep the property bubble from bursting, despite all of the temporary boost provided by billions of pounds of PPI compensation payments, even this anaemic growth was set to slow down sharply, because the three year cycle was set to bring a slow down at the end of 2014, and many of those temporary factors were due to run out. Sure enough, the latest data indicates that having peaked at 0.8% in the second quarter, it dropped to 0.7% in the third quarter and to 0.5% in the final quarter, i.e. even the rather low level of growth had more or less halved by the final quarter of 2014.

The economy was growing when the Liberal-Tories took office. They undermined and reversed that growth. At no time since have they been able to achieve an equivalent level of growth, despite their frantic attempts to keep financial and property bubbles inflated. They have failed to shift the economy away from a reliance on private debt, and speculation and towards productive investment and production. Rather they have encouraged the former at the expense of the latter, and that is illustrated by the continued low levels of productivity.

The Liberal-Tories in their last Budget Speech placed great store in the fact of UK growth being higher than that of France. Yet, even the sclerotic French economy has much higher levels of productivity than the UK. The average French worker produces as much in four days as a British worker produces in five days. The Liberal-Tories contrasted the current UK growth with that of France, but failed to contrast the rather poor performance of the UK economy with that of the US, which has continued to grow since 2009, on the basis of a rejection of austerity, and an implementation of fiscal stimulus. That policy in the US has not only enabled it to grow, and to begin to create large numbers of jobs, but also to begin to cut its budget deficit, on the back of rising tax revenues.

The fact is that the US success reflects a continuation of the policies that Labour was following in 2010. The Liberal-Tories not only sent the economy into an unnecessary period of recession and stagnation, but even now the growth in the UK economy compares badly with what might have been expected had Labour continued in office after 2010.

Northern Soul Classics - The Laws Of Love - The Volcanos

Monster dancer from The Volcanos, who latterly were known as The Trammps..

Friday Night Disco - Who Is He and What Is He To You - Creative Source

A monster bit of disco originally penned by Bill Withers.

The Tom Brown Conundrum

Tom Brown or Flashman?

Yesterday, I heard a Daily Telegraph journalist, on TV, describe Ed Miliband's problem as follows:  "He looks like the kid who at school we all wanted to bully.  He's the kid who's lunch box we wanted to steal."   I'd like to say that this comment tells us more about the nature of Torygraph journalists than it does about Ed Miliband, but unfortunately, there is an element of truth in his comment, and it was not immediately challenged by any of the other journalists at the time.  The reason is that, this is precisely the way the media have presented Ed Miliband, and his problem, as they see it, in becoming Prime Minister.

I for one, never saw any kids at school, I wanted to bully, or whose lunch boxes I wanted to steal. Quite the contrary.  Perhaps that is what differentiates a socialist from a conservative.  Whenever I have read Tom Brown's Schooldays, or watched the film, I have always associated with the bravery and the values represented by the self-effacing Tom Brown, rather than the rich, arrogant, bullying Flashman.  Perhaps, that is why Jeremy Paxman's question to Cameron, last night, about his natural affinity with Jeremy Clarkson, and a string of other establishment figures, who have been found to have broken or bent the law, in one way or another, was particularly relevant.

As a society, Britain continually tells itself this story about being a peaceful, tolerant and sympathetic country.  Yet, the reality is that it has always been a country that has thrown its weight around across the globe; it is a country that spread racist and supremacist views, right out of its Public School system, across its Empire, partly to justify its enslavement of millions of people; it is a country where despite all of the anti-discrimination laws, bigotry abounds.  Whether you are black, Jewish, Muslim, a woman, gay, or disabled, or, just like Ed Miliband, portrayed as a geek, you are likely to find yourself under attack - both physical and verbal - as a result of that bigotry.

So, its no wonder that a comment from a journalist, that presents us all as a nation of Flashmans, who could never relate to Ed Miliband as a Tom Brown, as the kid who had to simply put up with such bullying, provoked no response.  Its the same establishment mindset that has no problem with the idea that any ordinary worker, who assaulted someone, should be sacked on the spot, but which rallied around their own posh boy, Jeremy Clarkson, to demand that he be let off, and instead blamed the BBC, with apparently no concern whatsoever for the poor bloke who was assaulted, and who still had to go into work with the bully who had attacked him.

This is the hypocrisy of the British establishment and its media.  It runs news stories about kids who have committed suicide because of bullying at school or on social media, and opines at what a sad state of affairs that is.  Yet, it then has spent the last few years doing exactly the same thing to Ed Miliband, and, by extension, every other person in the country who is a bit of a geek, who is the kid who reads books, and so on.  The reason Miliband shows so badly in polls, as against Cameron, is not just because incumbent Prime Ministers always have an advantage over challengers, in that respect, its because the media have continually told us that Miliband is the kid at school who always gets bullied, and Cameron is the posh, popular kid, whose friend we all want to be.  Its politics, reduced by the media to the level of Beverley Hills 90210.

Unfortunately, the TV Leaders debates only emphasise that idea that politics is all about presentation, which is why I've always thought that they are a bad idea for democracy.  In the end, Miliband did well in the programme, and it was obvious why Cameron did not want to debate with him directly, because for the last five years, he has not been able to give a straight answer to any question put to him at Prime Minister's Question Time.  The only time he has come up with anything approaching a straight answer, is in the last week, as part of an obvious political game over VAT.  But, given the Tories' record on VAT, Miliband was quite right to say nobody could believe Cameron's answer.  The Tories would be likely to get round the issue, for example, by just extending the scope of VAT to food - as they tried with the pasty tax - or to children's clothing, books and so on.

The decision Britain faces in the Election then, as presented by the media, over the Leaders' Debates, is do its people see themselves reflected in the mirror of a self-effacing Tom Brown, with basic decent values, and a commitment to fairness and principles, or do they see themselves reflected in the mirror of a rich, Public School, Posh Boy and arrogant bully like Flashman?

The Long Wave - Part 19

The slump of 1974-5, despite expansionary monetary and fiscal policies, dragged on into the recession of the early 80’s, which itself dragged on into the recession of the early 90’s. The upturn in the 90’s witnessed in the West was based actually on the cut in real wages of US workers, and the attacks on wages and conditions by Thatcher in Britain. Moreover, the upturn in those countries, during the 90’s, was based, largely, not on real economic growth, founded on increasing wealth and rising real incomes, but on the very shaky (and ultimately wealth destroying foundation) of massive amounts of debt, which led to the financial crisis of 2008, debt which was the other side of that reduction in wages.

Copper is often referred to as Dr. Copper, because of its ability
to reflect economic conditions.  Nearly all economic expansions
require an increased consumption of copper, and vice versa.  The
movement of its price tends to reflect changes in the long wave,
because it takes a long period, before the rise in demand, and price
leads to a sufficient rise in investment and production to satisfy it,
and stabilise prices.

The period between 1974-1999, was quite clearly a period of Long Wave downturn, whereas, despite the consequences, for the real economy, of the worst financial crisis in history, after 2008, the period since 1999, has followed the traditional pattern of a period of long wave boom. According to the ILO, the world labour force grew by around a third in the first decade of the century alone. The number of workers employed in industry has risen by around 30% or about 150 million workers, the number employed in services has risen by 35%. This incessant demand for labour-power pushed up nominal and real wages significantly. That was manifest in a sharp rise in global food demand, as the higher living standards of these workers was first translated into a better diet.

In 2005, Chinese consumption of Meat was 2.4 times what it was in 1990, Milk 3 times, Fruit 3.5 times, Vegetables 2.9 times, Fish 2.3 times, whilst its consumption of cereals, mostly rice, fell by 20%. The large rise in demand from China and other developing economies, was part of the reason for the spike in global food prices at the end of 2007 and beginning of 2008. Demand for food rose so sharply that shortages began to appear, which, along with the price spikes, caused riots in a number of countries in 2008. Although global food demand is higher, today, no such shortages are likely, as the higher prices have led to an expansion of supply, including the development of large scale, industrialised farming, in a number of parts of Africa, such as Angola. In fact, just as with the increased investment in oil production, a similar process has led to a global milk glut, pushing the price of a litre of milk down below the price of a litre of water!

The increasing production of China, and other rapidly growing economies, also sucked in larger and larger quantities of raw materials as well as food. Global GDP rose from around $41 trillion in 2000, to nearly $72 trillion in 2012, despite the dramatic effects, on the global economy, of the worst ever financial crisis, in 2008. Between 2002 and 2010, Global fixed capital formation rose from $7 trillion to $14 trillion. Of all the goods and services produced in Man's entire history, almost 25% have been produced in the first decade of this century alone! From 1999 on, commodity markets turned sharply upwards, as demand for all raw materials, and foodstuff increased sharply as the new Long Wave Boom began. It saw steady increases in the prices of Copper, Oil, Corn and almost every other commodity, as global demand fuelled by rising economic activity in China, and other BRIC economies, as well as the rising demand of millions of new consumers in those economies rose sharply.

The extent of the new Boom starting from 1999 can be seen in the change in the figures for world trade. Between 1980 and 1990 global trade rose from around $4,000 billion to around $6,000 billion, remaining flat until around 1994 (i.e. 50% rise in 14 years). Between 1994 and 2000 it rose from around $6,000 billion to $12,000 billion (i.e. 100% rise in 6 years). But, the sharpest rise has most notably been since 2002 where it rose from around $12,000 billion to around $28,000 billion by 2007 (133% rise in just 5 years!). (Source: WTO Thomson Datastream). The average annual rise in this last period is about 15 times what it was between 1980-1990.

In 2007, Bridgewater Associates, in its comprehensive survey found that, for the first time since 1969, not one single economy in the world was in recession.

It was not just the BRIC economies that were experiencing rapid growth, like China's growth of around 10-12%. On the back of its demand for food and raw materials, economies in Latin America were growing rapidly, and for the first time economies in Africa and Central Asia were beginning to grow rapidly too. Azerbaijan grew at around 26% as did Angola, whereas Mauritania grew at around 18%. Today, it is newly industrialising economies in Sub-Saharan Africa that are the fastest growing on the planet, with seven of the ten fastest growing economies being based there, and growth rates of around 10% p.a.

However you look at it, this means that the growth, in the rate and mass of surplus value, during this period, is undeniable, because, despite huge amounts of potential money-capital flooding into money markets, to fund speculation, the extent of new capital formation has been huge. For a Marxist, capital is congealed surplus value. In other words, we have here an almost identical situation to that described by Marx and Engels in relation to the Long Wave boom that began around 1843, and led to a similar massive growth of productive capital, and also of speculation in railway shares.

Back To Part 18

Forward To Part 20

Capital II, Chapter 21 - Part 17

The scenario, presented by Marx, appears the wrong way around. It proceeds from accumulation in Department 1 rather than Department 2. Why would Department 1 capital accumulate unless it saw the potential to meet increased demand from Department 2? It's clear why Department 2 capitalists should seek to accumulate to satisfy consumer demand, but why would a machine maker, for instance, seek to increase supply unless they saw the potential for selling their additional machines. For Department 1 to take the lead in expanding seems to be a recipe for overproduction, leading to falling prices, and business failure.

Things do not normally proceed in that manner. Usually, Department 2 demand rises, leading first to the run down of inventories, as Department 2 capitalists wait to see if the upturn is real. Then they place orders for additional material, utilising existing capacity and workers; then they take on additional workers, working shifts etc. Then they invest in additional production capacity, more machines, factories etc.

A look at what happens with materials is an illustration. The development of new mines etc. only occurs some time after demand for iron ore etc. has risen. In the meantime, existing mines are worked more intensively. That is why at the start of new periods of growth, prices for materials rise sharply as the bringing on stream of new productive capacity seriously lags consumer demand. 

During a period of boom, its quite possible accumulation in Department 1 could get ahead of Department 2, especially given long development time for new mines etc. The kind of investment currently being seen in things such as shale gas, as well as the opening up of vast new mines in Central Asia, Africa and Latin America are part of that process. That does then lead to overproduction in Department 1, or at least to stagnant or falling primary product prices, followed by long periods of under investment. The sharp fall in oil prices that began in 2014, and the fall in the prices of a range of other primary products, including food, around the same time, are an illustration of that point.

There seems no reason, why, if Department 1 capitalists have produced additional means of production, Department 2 capitalists will oblige them by buying them, unless they also experience rising demand for their products, which in itself is unlikely, other things being equal, if Department 1 capitalists have reduced their consumption of consumer goods in order to invest more in production. Its far more likely that Department 2 capitalists will take advantage of the relative over production in Department 1, to force down prices of inputs, increase their profits and realise them in a shift towards 2(b) production.

If demand for necessities in Department 2 is rising so that 2(a) prices and profits rise, then there is a reason why Department 2 capitalists shift resources to 2(a) from 2(b), but its hard to see why they would also accumulate, but without that impetus. I'll come back to this later. 

There is a simple answer, which Marx gives in his analysis of rent, in Capital III. Ricardo, made the argument set out above, to suggest that additional land can only be brought into use (so additional capital advanced, and production expanded), if prices were rising, caused by rising demand, thereby increasing the rate of profit. But, Marx points out that, every year, the population is expanding, and with the increase in population comes a natural rise in the demand for all commodities. The producers of all commodities, therefore, do not need to see some specific rise in demand that causes higher prices, which then leads them to invest in additional supply. Each capitalist expects demand for their commodities to rise every year, therefore, and as each capitalist seeks to capture their share of this increased demand, and thereby increase their profits, each builds in a natural increase in their production, and the size of their capital.

This is the basis of expanded reproduction. It does not require higher prices of commodities, or higher rates of profit to bring it about, only a steadily rising level of demand, as a result of population growth, or a natural expansion in the standard of living of the existing population. That is what Marx is describing here, as opposed the mechanism by which the business cycle operates.  Having said that, it should be fairly clear that these periods of expansion in demand are not uniform. That is the nature of the long wave cycle, and of the shorter run business cycle. During certain periods, demand may rise sharply, causing sharp rises in prices and profits, which in turn leads to noticeably increased levels of investment in those forms of production, and production of the inputs required.

Back To Part 16

Forward To Part 18

The Long Wave - Part 18

In Part 17, I examined how the constraints on further capital accumulation, imposed by the drying up of labour supplies, following a period of extensive accumulation, create the incentive for a period of technological innovation, which is the basis of a period of intensive accumulation, which lies behind the Law of The Tendency For The Rate of Profit To Fall. But, this is the basis by which those previous constraints are removed, and which in turn creates the conditions for the rate of profit to once more rise. Wages fall, and surplus value rises, the value of constant capital is reduced, and the rate of turnover of capital rises. The new industries, with lower organic compositions of capital, and high rates of profit, which initially form only a small part of the total social capital, during the Winter phase of the cycle, grow, and become a larger part of the total social capital, as the Winter phase progresses, and turns into the Spring phase.

George Ray, writing in 1980, noted the role that microprocessors could play in the next Innovation Cycle, comparable to that played in previous cycles by the steam engine, electricity, the internal combustion engine, and the chemical industries.

“There are many who believe that the next great innovation, following in significance the motors of earlier Kondratiev cycles and comparable to them in width and depth of impact on the economy, will be the microprocessor. The importance of micro-electronics can be seen already in many areas and it is not surprising that the ‘microprocessor revolution’ has begun to merit serious discussion. It has been emphasized that the microprocessor is a chameleon and that it takes on the character of whatever program has been fed into it; it can detect a guided missile, operate a coffee dispenser, regulate the use of petrol in a car or control an industrial process. If properly programmed it can be used almost anywhere, in communications, in metal machining, and in widely varying applications, from libraries’ bibliographies to medical diagnosis. It is conceivable that it could be a candidate to lead a technological upheaval, giving the necessary push for a swing up out of Mensch’s ‘technological stalemate’.”

Mensch had detected an Innovation Peak in 1935, and with a 50 year cycle, Ray argues this should mean a similar peak in 1985. But, Ray seems to get himself a bit mixed up here. He writes,

“Mensch’s innovation peaks followed each other with a lag of 50-60 years; the most recent one was in 1935 – the next on that basis, should follow some time after 1985. Kondratiev’s cycles required about 25 years from trough to peak; if we consider 1975 as the trough, the peak will only be reached by 2000, but in the meantime should come the upswing. On past experience, if the indications in Table 1 are accepted, this is too soon after the innovation peak in 1985, since earlier there used to be 40 years between the peaks of the two series – but then the time lag between the innovation peak (1935 and the economic trough (1975) was also shorter than the 50 years observed earlier.”

Ray seems to have got his dates mixed up. I would argue that the Kondratiev upswing began after the war around 1949 – Ray himself talks about this upswing reaching a peak in the 1960’s, so the trough could not conceivably arrive in 1975 less than ten years later. In fact, if the upswing began in 1949, with a 25 year duration, it culminates in 1974, with a new downswing, not the trough of that downswing, starting from that point, and itself culminating in 1999, with a new upswing beginning from that point. On this basis too, Mensch's Innovation Cycle ties in almost exactly with this. If the Innovation Cycle peaked in 1935, that gives a 14 year gap to the start of the new Long Wave Boom in 1949. If the next Innovation Cycle peaked in 1985, that gives an identical 14 year gap to the start of the new Long Wave Boom from 1999.

The reason for this 14 year gap, is similar to the 13-14 year gap between high raw material prices causing a new round of exploration and development of primary products, and those products flooding on to the market, and causing prices to drop. Firstly, new technologies are not simply created to order overnight. Secondly, although a new technology such as the microprocessor might develop as a new base technology, it takes several years, before this new base technology is implemented in a range of new products, and longer still, before the industries based on these new technologies grow sufficiently to have a decisive effect as part of the total social capital.

Back To Part 17

Forward To Part 19

Vote Cameron Get Bojo Or Some Other Bozo

So, David Cameron is not to stand for a third term.  Well that at least is good news, but we rather hope that he doesn't even get a second term, and maybe he thinks he's not going to get one either, which could be the reason for his announcement now.  Its perhaps a surprise he's lasted this long, given that the Tory Party continues to be riven by divisions over Europe.  A long time ago, I pointed out that those forces, within the Tory Party and within its wider periphery, were already forming up behind a future challenger, in the shape of Boris Johnson.  Now Cameron has put the curse on him, by naming him as a potential successor.

However much Cameron and the Tory spokesmen now swivel, and squirm, its clear the cat is out of the bag.  In the upcoming election, if you vote for Cameron you get Boris Johnson, or possibly even worse.  No matter who wins the General Election, the division in the Tory Party, between its conservative, nationalistic, Eurosceptic wing, and what remains of its social-democratic, Europhile wing (a division which reflects the contradictory interests of different sections of capital) will again tear it apart, especially under pressure from UKIP, and a Euro Referendum.  Even if a referendum were held, just as with the Scottish referendum, it will not assuage the conservative nationalists when they lose.  It will just become a neverendum in the Tory Party.

Under those conditions, and with a failure of UKIP to make any significant headway in the election, in terms of seats, many will turn their attention to an entry tactic into the Tory Party, from whence they came, in order to line up behind even more extreme, conservative, nationalist pretenders than even Bojo.  Given that the BNP already adopted a similar tactic of entry into UKIP after their own electoral demise, the reality will be, vote Tory, and get something really nasty!

According to Tory spokesmen in the last 24 hours, the reason for Cameron's statement that he intends to serve a full second term, and no more, is that he was simply giving an honest answer to a question. But, that simply prompts the question - "So why has he started giving honest answers now!"

The Liberal-Tories came to office on the basis of lies, and their entire narrative, for the last five years, and now, in the election campaign, is based on lies.  For the last five years, Cameron has made a profession of standing up, every Wednesday, in Parliament, at Prime Ministers Questions, and going on ad nauseum about anything other than providing an answer to any of the questions that have been put to him!  So, why has he decided to answer questions openly and truthfully now?

Perhaps, the reality is that the Tories have nothing positive to actually say, and wanted to keep other news stories about their candidates dealings with members of the English Defence League out of the headlines.  Whatever the real reason for Cameron's comment, the fact is that he will not be serving even a second term, let alone a third term.  The Tories have little chance of securing a majority, and that will make Cameron a second time loser, having failed in 2010.  He is on his way, and the only question is when.

That could have also been the reason for his comment.  But, the fact is that the Tory hares are now running.  The Tory Party, for the foreseeable future, will be concentrated as much on its internal elections, as on Parliamentary elections.  The idea that Cameron could serve a full second term, but not stand in a 2020 General Election is also not credible, because, the Tories would need to have a candidate in place well ahead of the 2020 elections.  The idea that they would elect a replacement leader  say in June 2019, who would then simply twiddle their thumbs for six months waiting to lead the Party into the 2020 elections is simply not credible, in a parliamentary system, as opposed to the Presidential system in the US.

Even in the US, it means that incumbent Presidents become lame ducks, in the back end of their Presidency.  The in fighting in the Tory Party will now make the squabbles between Brown and Blair look like a children's tea party, by comparison.  In fact, what Cameron has shown, is something I pointed out when they first came into office, above anything else, they are totally inept.

Capital II, Chapter 21 - Part 16

In short, what this means is that capitalists, in Department 1, have spent less on consumer goods out of their surplus value, and instead advanced that money as capital to buy more machines, material etc., as well as to employ more workers to process it. Another way of thinking about it is a farmer who, rather than consuming all of the food he produces, sets some of it aside to sow more seeds, increase his herd etc, as well as to feed the additional workers they need to work on the farm.

In Department 2, £188 is to be accumulated. Marx makes a mathematical error here. He says a quarter of this - £47 – is to be allocated as wages. In fact, if the £188 is allocated 4:1,in accordance with the organic composition of capital, a fifth goes to variable capital, £37.60 or rounded to £38, and £150 allocated to constant capital.

So, Department 1's output is £6,000, and of this it has to allocate £4,000 to replace its own constant capital. It also now adds another £400 to it. It also has to reproduce its workers, paying them £1,000 in wages. It raises this by selling £1,000 of means of production to Department 2. Department 1 workers return this money to Department 2, by using their wages to buy £1,000 of consumer goods. But, Department 1 also increases its workforce, and pays out another £100 in wages, again raising this by selling means of production to Department 2. These additional workers spend their £100 of wages with Department 2.

So, Department 1 now has,

C 4400 + V 1100,

and it has £500 of surplus value in cash, which its capitalists use to buy consumer goods from Department 2. Department 2 has sold £500 of consumer goods to Department 1 capitalists, and £1100 of consumer goods to Department 1 workers. This figure of £1,600 is equal to the amount of Department 1 goods available, out of its total output of £6,000, to exchange with Department 2.

However, we have seen that Department 2 also wants to accumulate 50% of its surplus value, which means increasing its constant capital from £1,500 to £1,650, and its variable capital from £376 to £414. That means there is still an imbalance. Department 2 requires £1,650 of constant capital, but only £1,600 of means of production are available from Department 1.

Marx comments,

“Therefore II must buy 140 (should be 150, AB) Is for cash without recovering this money by a subsequent sale of its commodities to I. And this is a process which is continually repeating itself in every new annual production, so far as it is reproduction on an extended scale. Where in II is the source of the money for this?” (p 512)

That is possible, if as stated earlier, this 50 units of output exist as Department 1 commodity-capital. But, if not, and Marx does not specifically say they do so exist, the problem is not where the money is to come from, to buy them, but where the Department 1 physical product itself is to come from!. If we consider the output of Department 1 not in terms of £'s value, but in terms of homogeneous physical units, 4400 units have to be used, to replace the Department 1 constant capital consumed; 1100 units have been exchanged with Department 2 for wage goods; the remaining 500 units have been exchanged, with Department 2, for consumer goods for Department 1 capitalists.

So, whether Department 2 can raise additional money-capital, to advance, for a one sided trade, with Department 1, to buy the additional 50 units it requires – it requires 1650, and has obtained 1100 + 500 = 1600 – is then irrelevant, because, unless Department 1 has at least 50 units still in stock, it has no more physical product to sell to them.

Rather than investigating where this additional product might come from, at this point, Marx investigates where Department 2 can find the money needed to buy it. Firstly, one source of this required money-capital is that Department 2 capitalists could depress the wages of their workers, below the value of labour-power. Now, we know that employers do this, when the opportunity arises, and the necessary conditions exist, e.g. when there is a large reserve army of labour, when the opportunities for extracting relative surplus value are limited, and they have to fall back on absolute surplus value. 

They utilise methods such as the Truck System, of the 19th century, whereby workers were paid in tokens, which could only be used in the company stores. The modern equivalent of the Truck System is the Welfare State, which allows the capitalist state to forcibly deduct payments from workers' wages, in return for commodities, such as healthcare, education and social insurance for old age, and unemployment. The capitalist state then exercises a monopoly of provision of these commodities to workers, thereby determining the quantity and quality of them, to be provided to meet the needs of capital. It can then reduce the supply or quality of these commodities, when required, whilst maintaining or increasing the deductions for them from the workers' wages.

Another method of achieving this is that referred to previously, of “money-illusion”. In other words, of maintaining nominal wages, but reducing real wages via inflation.

“Every industrial country (for instance Britain and the U.S.A.) furnishes the most tangible proofs of the way in which this advantage may be exploited — by paying nominally the normal wages but grabbing, alias stealing, back part of them without an equivalent in commodities; by accomplishing the same thing either through the truck system or through a falsification of the medium of circulation (perhaps in a way too elusive for the law).” (p 513)

But, as seen previously, these methods for extracting additional surplus value are limited, and tend to be counter-productive for capital in the longer-term. For example, the capitalist state can reduce the quality of healthcare, provided by the NHS, but this simply raises the real value of labour-power, as workers become poorer in quality, and less reliable. Moreover, the analysis has been based on the assumption that labour-power, as with all other commodities, is exchanged at its value, so this is an unsatisfactory solution to the problem faced within the theory.

There are two other possibilities. Either some capitalists, in Department 2, rob other capitalists in Department 2, which again, in practice, we know does occur, but infringes the requirement set out that commodities exchange at their value, or alternatively, Department 2 capitalists allocate a smaller proportion of their surplus value to the consumption of luxuries (which also means less resources are devoted to that production), and devote more to the purchase of labour-power (which also means a greater proportion of Department 2 resources are devoted to the production of wage goods.)

Back To Part 15

Forward To Part 17

The Long Wave - Part 17

It is not then the Law of The Tendency For the Rate of Profit To Fall, which lies behind the crises of overproduction, typical of the Autumn or crisis phase of the cycle, but those crises, which provide the impetus for a new Innovation Cycle, to overcome the constraints of inadequate exploitable labour supplies. It is this new Innovation Cycle, which then produces the labour saving technologies that overcome that constraint, and so raise social productivity, which then creates the conditions for the Law Of The Tendency for the Rate of Profit To Fall to operate, as this higher productivity causes relatively lower quantities of fixed capital and variable capital, to process larger quantities of materials, thereby causing the organic composition of capital to rise. 

But, this is then not the cause of crises of overproduction, it is both a consequence of them, and the means by which they are overcome! Firstly, new labour saving technologies, introduced in older industries cause an absolute reduction in employment in those industries, for the reasons described in Part 10. This releases capital and labour to be employed in new spheres of production, where the rate of profit is higher. But, the introduction of the new labour-saving technologies has other effects. It means that what were formerly more skilled jobs, can now be undertaken by semi-skilled or unskilled workers. 

The monopoly of the print unions was broken, in the 1980's, for example, because new computer technology meant that the old methods of typesetting disappeared, and anyone could do typesetting who was able to use a computer keyboard. As a result, not only did a series of “Instant Print” workshops spring up in town centres across the country, often started by people who had been made redundant from other industries, using their redundancy money, which challenged the old print workshops, but it became possible to recruit entire new workforces, in parts of the country with no history of printing, as for example, Eddie Shah did in Runcorn.

This same process can be seen in the shifting of old mature industries to low wage economies in Asia, once the minimal infrastructure requirements are in place. But, similarly, the same Innovation Cycle creates not only new technologies that replace existing skilled labour, it also creates entirely new industries. In the 1930's, for example, the development of the motor car industry, and consumer electronics industries, did not develop in the old industrial areas of the North and North-East, where traditional engineering skills existed, but in the Midlands and South-East. Similarly, the development of the computer industry in the 1980's and 1990's, arose in the United States, on what was more or less completely virgin territory in Silicon Valley, in California, with lots of cheap housing for workers, as well as available industrial land, and a background in technology provided by Stanford University.

It is on this basis that the Innovation Cycle itself is a function of the Long Wave cycle, and not, as Schumpeter seemed to believe the explanation of it. This is why the Innovation Cycle itself repeats on a regular basis, not immediately prior to the development of a new boom period, but as a response to the previous crisis period. 

George Ray, in the article referred to previously, quotes the work of Mensch (G. Mensch “Das technologische Patt” Frankfurt 1975 and also in “Stalemate in technology”, Ballinger, Cambridge, Mass. 1979) who, in suggesting the need for a “new push of basic innovations”, to lift the world out of its depressed state, of the time, also identified clusters of such basic innovations during the last 200 years, which correlated with Kondratieff’s cycle. These were in or around 1770, 1825, 1885, and 1935 with not much since – remember this was written in 1975. Ray compares these two sets of data and concludes,

“Kondratiev’s three troughs followed the innovation-poor periods with an even more uniform lag of about 50 years. Given the difficulties of measurement, this apparent regularity provides food for thought since, if the high ‘technological content’ of each of the long wave theories – most explicitly Schumpeter’s – is considered, this surely must be the most important macro-economic aspect of innovation.”

Back To Part 16

Forward To Part 18

Capital II, Chapter 21 - Part 15

It is the switch of resources from producing consumer goods to an increased production of producer goods that is the basis of expanded reproduction.

If we assume that capitalists in both Department 1 and 2 accumulate half of their surplus value, as capital , rather than spend it, as revenue, we can see how this happens. We have previously seen how capitals can simultaneously realise their surplus value, as money hoards, rather than in consumer goods,, i.e. the example Marx gave of all capitals exchanging their output with a gold producer. Marx further emphasises this point in supplementary remarks at the end of the chapter.

It is sufficient to say, at this point that, just as all of the surplus value can be simultaneously realised as a money hoard, so can half of the surplus value, whilst the other half is realised through the purchase of consumer goods. The important point here is that the gold is not just money, but is also a commodity produced by Department 1. logically then, if the surplus value can be simultaneously realised as a money hoard, it can be realised in the form of other Department 1 commodities. It is, of course, necessary to bear in mind here the special nature of gold as money-commodity. It is one thing to realise surplus value in the form of a gold hoard, and quite a different thing to realise it as a hoard of lathes, wheat etc. Consequently, the problem of balances still has to be addressed.

We now have:

Department 1 C 4000 + V 1000 + S 1000

Department 2 C 1500 + V 376 + S 376

and out of the surplus value in both Departments, 50% is to be accumulated, £500 in Department 1, and £188 in Department 2. It can be seen that in both departments, the organic composition of capital is 4:1, i.e. there is £4 of constant capital to £1 of variable capital. If the £500 of surplus value in Department 1 is to be accumulated in the same proportion, that means £400 is invested in additional constant capital, and £100 in additional variable capital.

Back To Part 14

Forward To Part 16

Liberal-Tory Lies – The Deficit and Labour Profligacy

Source: Daily Telegraph.  The line graph shows net debt
as % of GDP, and bar charts shows Budget Deficit in
£billions.  I have provided a further graph below, which
shows the ratio of the deficit to GDP, for the same period.

The Liberal-Tories came into office on the basis of lies. One of the biggest lies at the time was that the British economy was in as bad a state as Greece. It was, of course, nonsense. Britain is an immensely rich country compared to Greece, with a corresponding ability to be able to cope with high volumes of debt, just as very rich people are able to deal with large amounts of debt, much better than are poor people for whom much lower levels of debt are crippling. In fact, having created this narrative, as the grounds for justifying their policy of austerity, only adopted after they saw it work for the Tea Party in the US, as an electoral means of differentiating themselves from Labour, and appealing to their core, it became an Albatross not just around their neck, but a dead weight around the neck of the British economy.

Consumers took them at their word, of the need for austerity, and drew in their horns in relation to their spending, reducing consumption, which is an important aspect of aggregate demand for the economy. Businesses, for the same reason, and seeing this contraction in consumption, began to scale back their plans for investment. That meant the second element of aggregate demand fell too. The three main elements of aggregate demand in the economy are Consumption, Investment and Government Spending.

The Liberal-Tories had cratered the first two, as a result of their politically motivated narrative, and in their June Budget, they also then announced a reduction in the third element, government spending, which both took money directly out of the pockets of consumers by reducing benefits and increasing taxes, and directly decimated some firms who went bust, as government contracts for construction, I.T. and so on were cancelled. Who could expect any other result than that aggregate demand in the economy would, thereby be slashed, and that the growth that had been created by Labour after 2008, would be brought to a halt? Sure enough, by the end of 2010, the economy had stalled. Whatever the technicalities about whether the economy went into a double or treble dip, the fact is that as a result of the Liberal-Tory policies the recovery that was underway was stopped in its tracks, and it was thrown into an unnecessary recession, or at least a period of stagnation.

But, the Liberal-Tories struck lucky in that the underlying long wave boom that began in 1999 provides a basis for growth, even despite the lunatic economic policy of austerity they, and similar political forces in Europe have inflicted. When the three year cycle of growth within this long wave cycle asserted itself, towards the end of 2012, this brought growth to the UK.

They also struck lucky, again as a consequence of the long wave cycle, as the huge investment in primary production after 1999, began to take effect, bringing huge drops in the prices of copper, oil, and foodstuffs, that has had a dramatic effect on inflation. The Liberal-Tories have then been able to take credit for things that have nothing to do with their policies. It has enabled them to again falsify history, claiming that the economy was in dire straits when they came to office, as a consequence of Labour's policies, and that they have turned it round. Over a series of posts, I will examine this falsification.

Here, I look at the main lie the Liberal-Tories tell. That the 2008 financial crisis, and subsequent economic crisis was a consequence of a huge budget deficit caused by overspending by profligate Labour Governments, after 1997.

I have taken the annual budget deficit from 1975 through to the end of 2012, and compared it with the GDP for each year during that period. On this basis, I have calculated the ratio of deficit to GDP, for each of these years. The graph of these ratios is given below. As can be seen, despite the fact of the second slump that began in 1974, and to which every government in the advanced economies responded with fiscal stimulus, the trend of the deficit to GDP was more or less falling between 1975-79. A period of Labour Government. In fact, in 1981, two years into Maggie Thatcher's government, when she, like the Liberal-Tories today, was embarking on a programme of slashing public spending, the ratio rose to 5.63%, a higher figure than any year during the previous government other than for 1975 and 1976, when the global slump was still at its height.

Taking the average ratio for the 1975-79 period of Labour Government, it comes to 5.41%. Bear in mind this is a relatively short period, and a period almost entirely affected by the global slump that began in 1974. By contrast, the average ratio for the period of Tory Governments from 1979-1997 is 3.48%. That is indeed, significantly less on a percentage basis, but reflects a longer period, and the different economic conditions that existed throughout it.

Even so, it hides a wide variety of ratios in different years. As the graph shows, in the years 1992-1995, the ratio rises to at least the levels seen under the previous Labour government, at the height of the 1970's global slump. In fact, in 1993, the ratio rises to 7.7%, way beyond the ratio of any year during the previous Labour government.

So, how does this record, of the uber austere Thatcher, compare with the record of profligacy of Blair and Brown?

Once again, the graph shows the answer. Far from exhibiting the kind of profligacy the Liberal-Tory lies portray, for several years Labour actually ran a budget surplus! But, even after 2001, when Gordon Brown is supposed to have opened the spigots of public spending, in a mad frenzy of profligacy, the ratio does not rise above that during the period of Thatcher's austerity! The reason is not that Brown did not actually spend, but that the spending on various forms of investment in infrastructure, facilitated enhanced economic growth, at a time when the new Long Wave Boom was getting under way. The low ratio of deficit to GDP, was a consequence of higher growth, rather than lower spending, and the two were not unrelated.

On the contrary, the reason that the Liberal-Tories have not been able to eradicate the deficit, as they promised, is not because they have failed to cut, but because they have cut, and in doing so have choked off the economic recovery that was underway under Labour after 2008! The same thing can be seen in Greece, where although spending has been slashed, the debt to GDP ratio has risen, because the economy has been shrunk by around 25%.  In fact, the picture is clear.  The US, which adopted a policy of fiscal expansion, has seen its economy continue to grow, and that growth has also now acted to reduce its budget deficit.  The UK, and other economies in Europe, choked off growth after 2010 with austerity, and have been unable to significantly reduce their deficit to GDP ratios, whilst seeing their debt to GDP ratio rise!

That can be seen in the first graph, at the top, which shows that not only have the Liberal-Tories failed to get the actual amount of budget deficit down to anything like the average under Labour prior to the financial meltdown, but the debt to gdp ratio under them has soared, from around 40% when they came into government to around 70% now.  That is because they have both failed to reduce the deficit, as the US has done by growing its economy, putting people back to work and thereby increasing its tax revenues, and because, although the economy has now started to grow in the UK, that is after three years in which the Liberal-Tories sent it into recession and slow down, so that the ratio of debt to GDP rose, as happened in Greece.  In fact, the policies of the Liberal-Tories have made the UK more like Greece today, than it ever was in 2010!  The main difference is that whereas the Liberal-Tories have only knocked 30% off the deficit here, Greece is now running a current budget surplus!

Taking the period up to 2008, when the financial meltdown occurred, and when, therefore, Labour, like all other governments, responded to bail out the banks, the average ratio of the deficit to GDP was just 1.57%, or less than half the average ratio under Thatcher and Major. Even if this figure is extended to take into consideration the whole period up to 2010, the average only amounts to 2.85%, still well below the average of the Thatcher/Major years.

The notion that the financial crisis, and subsequent economic crisis was due to Labour profligacy is a Liberal-Tory lie. The only years in which the deficit to GDP ratio was higher under Labour than the average under the previous Thatcher/Major government, was between 2008-2010, due to severe and unusual circumstances caused by external events. If anything, those external events could themselves be put down to the policies of monetary expansion, financial speculation, and deregulation of financial markets, introduced by Thatcher and Reagan at the end of the 1980's.