The
value of variable capital is reduced for the reasons described
already. Firstly, workers costs for travelling, of heating their
homes and so on, are significantly reduced, if the cost of fuel falls
in half. Secondly, that same reduction in fuel costs, cuts the
transport costs for all other commodities, including all those that
constitute wage goods. It also reduces the transport costs for all
those commodities that constitute constant capital, which in turn is
used in the production of wage goods. Finally, it directly reduces
the value of the constant capital used in the production of wage
goods, for all those commodities in which oil enters as either raw or
auxiliary material, and again in the production of the constant
capital, itself used in the production of wage goods. For example oil
used in the production of plastics, which in turn, are used in the
production of wage goods, or used for the packaging of such goods.
A
fall in the value of variable capital, does not cause a fall in
commodity prices – as orthodox economics believes – just as a
rise in wages does not cause a rise in inflation. The value of
commodities is determined by the value of the constant capital used
in their production plus the added value created by labour. A rise
or fall in wages merely brings about a different distribution of this
new value created by labour between labour and capital, i.e. it
causes surplus value to rise or fall, depending upon whether wages
fall or rise.
But,
a fall in the value of labour-power, does not immediately translate
into a fall in wages. Wages will tend to fall, because money wages
will not rise in line with changes in commodity prices, and because
firms in taking on new labour will gradually reduce the wages
offered. If nominal money wages remain constant, therefore, but the
value of labour-power falls, because the cost of its reproduction
falls, i.e. the wage goods workers need to buy fall in value, real
wages will rise. Workers will be able to buy more commodities, with
the same amount of nominal money wages.
Under
current conditions, this may have unforeseen consequences. Its
estimated that the effect of the fall in oil prices will have put an
additional $1 trillion into the hands of US consumers alone, because
this is money, which previously they had to pay for commodities, part
of the revenue from which went to oil producers, many of which would
have been outside the US. Of this additional $1 trillion that US
consumers then had to spend, we have seen that this resulted in an
approximate 8% rise in the demand for oil in the US, considerably
less than the 60% drop in oil prices.
That
means that US consumers had a considerable portion of that $1
trillion to spend on buying additional commodities, other than just
driving their car more, or heating their homes more. But, it also
means that those consumers, many of whom have high levels of debt,
built up over the last 30 years, of falling real wages, may decide
instead to use their lower outgoings to pay off some of that debt
hangover.
To
the extent that they choose to do the latter, there is no current
noticeable increase in consumer spending, because paying off your
credit card debt does not show up as retail spending, whereas your
original purchase of commodities with that card does. However,
paying off credit card debt, or any other form of debt, in this way,
does have further ramifications. If the average rate of interest on
credit cards is 20%, and the average amount of debt is $5,000 (US
credit card debt stands at $1 trillion), then consumers are handing
over $1,000 a year, not for the purchase of commodities, but simply
to service this debt. This again is spending by consumers that does
not appear in the Retail Sales data.
There
are approximately 200 million adults in the US, though not all these
will have credit cards, or credit card debt. With an additional $1
trillion, therefore, on average, each of these individuals would have
$5,000 to spend. If they used it to clear their average credit card
debt, this would have no immediate effect on the retail sales figure,
but it would save them a further $1,000 a year, which they currently
spend simply to service their debt. Put another way, they might
spend $5,000 from the oil windfall now, as a once for all addition to
their consumption, or by paying off their debt, they would have
$1,000 a year extra to spend every year on such additional
consumption.
The
$5,000 a year for each consumer, resulting from the fall in oil
prices, amounts to just over $400 per month. Some of this may find
its way into the purchase of additional consumption goods, as well as
the paying down of debt, but it may also be saved in other ways, to
be used to finance larger purchases at some point down the road.
Only time will indicate how this plays out.
A
paying down of debt, will provide workers with released revenue to
spend on future consumption, but it may also act to reduce the demand
for loanable money-capital, thereby causing interest rates to fall.
On the other hand, to the extent this saving in interest payments by
workers, then acts to increase their consumption of commodities, this
will cause an expansion of productive-capital to meet this additional
demand, which in turn will cause the demand for loanable
money-capital to rise, thereby causing interest rates to rise.
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