Labour Leader's Panic Turns To Farce

The Labour leadership seem, having panicked into Ed Miliband resigning just because Labour lost the election, to be completely losing the plot.  On the one hand they say that its necessary to have an in depth analysis of why Labour lost the election.  In the meantime, before getting the results of that analysis, they have jumped into an acceptance that Labour lost because they were too left-wing, that need a charismatic Blair like leader, whatever policies they might support, and that Labour needs to listen to the electorate to determine what those policies might be that would attract support.  On that basis you might as well scrap all political parties, as Tory strategist Steve Hilton has proposed, and just allow the media to determine the way the country is run, on the back of regular Mussolini style plebiscites!

The idea that a political party of the working-class should actually listen to the concerns of workers ought to be not something that has to be considered an innovation.  It is considered such, because a large part of the LP machine, and of the PLP is itself distanced from that working-class.  The closest most of them get to it, is in their MP's surgeries, but then only in a restricted context, and a lot of that work is already done by constituency staff, as well as by local councillors.  If Labour MP's were actually from, or connected to local working-class communities, they would not need to treat talking to workers to ascertain their concerns as though it was some sociological survey, or focus group exercise.

But, the whole basis upon which this exercise is being proposed, of having the hustings for Labour leader in public, according to Harriet Harman, in front of the public to see who best connects with them, is totally wrong.  It is based upon this idea that Labour needs to "listen more".  Actually no, Labour needs to convince more.  If the object is only to listen so as to draw up popular policies to get a select group of career politicians elected, then there is no reason for thousands of activists to have any concern with such a process.  Socialists, and even social democrats join a workers party like the Labour Party, not because we want to enable a few members of the elite to have comfortable careers in Parliament, but because we have a vision of a better society.  The only reason to get anyone elected is to bring that better society about.  If we can't convince enough people about voting for us to bring that better society about, we have to consider how we are putting that message across, and try harder. We should not simply abandon the vision itself.

What if as a consequence of this "listening" process we find that the majority of the people we listen to are attracted to Nigel Farage, or Nick Griffin?  Should we then simply adopt the policies of the BNP or UKIP, because they are popular with the public, and a means of winning votes?  The Labour Leaders think no such thing is likely, but already the Tories have ssifted sharply rightwards under pressure from UKIP, and their right flank, and Labour has followed along with them, as witnessed by its policies on immigration.  Its not long ago that the BNP had large numbers of councillors in cities across Britain, and nearly had members elected to the position of Mayor in Stoke.

If they think its not possible, they should perhaps look across the channel, at the way their "colleagues" in the French Socialist Party have been eclipsed by the Front National.  What would the Labour leaders advocate there, that the French Socialist Part should "listen" to all those who have now swung behind Marine Le Pen, and adopt policies more akin to the fascists in order to win back their votes?  If Greece is pushed over the brink in the next few weeks, they may see a similar thing there, as Syriza is either destroyed or split, leaving Greek voters only the option of swinging behind the fascists of Golden Dawn to get them out of their desperate situation.

You do not deal with these forces by pandering to their prejudices, as socialists discovered in Germany in the 1930's, where the bourgeois politicians there too thought that it was inconceivable that a majority or even large plurality could swing their support behind such views.

But, this collapse into panic and opportunism is now taking on farcical proportions.  In the aftermath of the election defeat, 30,000 people applied to join Labour.  One of them was Derek Hatton.  He described the proceedings following his application, last week on The Daily Politics.  First he gets an e-mail, welcoming him to the party, then he gets another communication from the General Secretary saying his membership had been blocked, because it was considered he could be detrimental to the party, then he gets another e-mail welcoming him to the party.

Now, I have no time for Hatton, no more now than 30 years ago, but as he pointed out, its 29 years since he was expelled from the Party.  Neil Kinnock's attack on Liverpool City Council at the 1985 Party Conference was a disgrace.  Whatever, the idiocy of Militant in using the tactic of issuing redundancy notices, it was clear that it was just that a tactic.  By contrast, within a matter of weeks, Kinnock himself along with the party bureaucracy were handing out actual redundancy notices to Labour Party staff, and right-wing Labour Councils up and down the country have handed out similar actual redundancy notices to their workers, as they simply accepted, and acted as good managers for the Tory cuts of Thatcher and her successors.

Hatton is no longer a member of Militant, which has itself morphed into the Socialist Party.  On what reasonable basis then can the Labour Party deny him membership, at a time when it could do with everyone it can get to fight the Tories?  After all, as he says, in the last 29 years, he has neither stood as a candidate against Labour, nor given any support for any other candidates standing against Labour.  The same cannot be said for many of those in the Labour Leadership.  John Hutton, for example, has spent the last few years supplementing his income working for various large companies, by acting as an advisor for the Tory Party!

Similarly, in the last few years, Labour has welcomed with open arms lots of former Liberal Party members, who have stood against Labour candidates or supported those standing against Labour. That is not just the case in relation to ordinary rank and file members.  Digby Jones sits in the lords as a cross-bencher, but its obvious from every word he utters that by ideology he is a right-wing Tory, yet Gordon Brown made him a government Minister!  Sean Woodward went straight from being a Tory MP, to being a Labour MP, and a Minister shortly afterwards!  How is it that the Labour leadership has no problem allowing in every Tory Tom Dick or Digby, and yet has a problem with allowing socialists to join the workers party?

How is it that the Labour leadership are so keen to allow the views of anyone influenced by the Tory media, and the generations of bigotry that it has engendered to have a say in determining Labour policy, and selecting its leaders, but does everything it can to prevent socialists taking part in that process?  Yet, even here, it turns into farce.  On the one hand, it seems that Hatton may be prevented from joining the party, and thereby helping the party to get elected.  On the other, there seems nothing to prevent him from registering himself as a "Labour supporter", and thereby taking part in the election process for the next Labour Leader, without any requirement, thereafter to do anything to get labour elected!  Labour's leadership seem to be concerned that UNITE might sign up a lot of their members as such supporters, it will no doubt give them more concern than if the CBI and IOD use their much superior finances to do exactly the same.

Capital III, Chapter 6 - Part 4

The tie-up or release of capital is a different but related phenomenon. It has been encountered previously in Volume II, in relation to the period of turnover. There it was seen that for production to be continuous, on the same scale, capital has to be advanced not just for the working period, when the commodity is being produced, but also for the circulation period, when it is in the process of being sold, and the value components of it realised as money-capital, so as to be once more transformed into productive-capital. If the circulation period is shortened, that money-capital is realised sooner, and converted into productive-capital. As a consequence, the capital that previously had to be advanced to cover that period is released. If the circulation period is extended, additional capital is tied up.

The principal here is the same, except that the reason for additional capital being tied up is an increase in prices, and vice versa. We have previously seen that the effect of a rise in raw material prices is to reduce the rate of profit and vice versa.

“This is absolutely true for capital newly invested in a business enterprise, in which the investment, i. e., the conversion of money into productive capital, is only just taking place.” (p 111)

In fact, as was seen in Volume II, in examining the way M' divides into M and m, it is also absolutely true of m in so far as it is accumulated. What was seen there was that M is only the money equivalent of P the productive-capital value. If the value of P rises or falls then M rises or falls with it, so that when the M buys P once more, it is able to buy the same physical quantity, so reproduction continues. 

However, that is not the case with m, which enters the circuit of capital for the first time here as newly invested money-capital. Its ability to purchase P is wholly determined by the values of P that now confront it. If the prices of the commodities that comprise the productive-capital have risen, it will buy less and vice versa. But, in practice, because of the simultaneous and continuous nature of capitalist production, things are more complicated than this. A portion of capital is employed in each of its three circuits.

“... a large portion of the already functioning capital is in the sphere of circulation, while another portion is in the sphere of production. One portion is in the market in the shape of commodities waiting to be converted into money; another is on hand as money, in whatever form, waiting to be reconverted into elements of production; finally, a third portion is in the sphere of production, partly in its original form of means of production such as raw and auxiliary materials, semi-finished products purchased in the market, machinery and other fixed capital, and partly in the form of products which are in the process of manufacture.” (p 111-2)

How appreciation and depreciation affect the value of this capital depends on where it is. In short, all of the capital that is in the form of productive-capital through to commodity-capital, waiting to be sold, will be revalued accordingly. The realised money-capital, including all that in the process of being paid, i.e. invoiced and awaiting payment in cash or credit, will not.

In practice, and in terms of prices rather than values, again things are more complicated. Competition may cause market prices to diverge from the values depending upon the quantity of commodities pressing on the market. Moreover, the assumption here is that demand does not change in the face of changed prices. These complications will be considered later. At the same time, even when goods have been invoiced and payment is awaited, it may be the case that prices may be adjusted post facto. The law of contract allows a party to void an agreement due to force majeure. If conditions facing a supplier have changed so significantly and unforeseeably as to make it unreasonable for them to fulfil their obligations they can avoid doing so. In the same way, in an era of large, regular oil price rises, it was common for airlines to impose fuel price surcharges between the time flights were booked, and the flight being taken.

However, all these represent obstacles in the way of understanding the real value relations, and should be considered separately for that reason. Considered from the perspective of value, then, if the labour-time required rises for the production of any of these commodities, that make up the productive-capital or commodity-capital, then its value rises irrespective of what was paid for it, “because it comes to represent more labour-time in retrospect and thus adds more than its original value to the product which it enters, and more than the capitalist paid for it.” (p 112) 

The consequence of this, depending upon the particular conditions for different capitalists, is that some may obtain a capital gain or loss, depending upon whether these prices rise or fall, and depending on whether the particular capitalist has a lot of capital tied up as money-capital or commodity-capital. A capitalist with a large amount of capital in the form of productive-capital or commodity-capital will receive a capital gain if the prices of their raw materials rise, because this rise will be reflected in the selling price of their own commodity. If they were to sell the business, they could realise this gain. But, in general, the assumption is of the reproduction of the capital. In that case, this apparent capital gain is ephemeral, because it disappears as soon as they come to replace their raw materials at the now higher price. Moreover, to the extent that they come to accumulate their surplus value, it will now be able to buy less productive-capital.

They will, however, for that same reason, be in a better position than the capitalist entering this business for the first time, or the capitalist who had already sold a large proportion of their commodity-capital at the old price. For, both of these will, in reality, have suffered a capital loss because the value of their money-capital has fallen relative to the value of the productive-capital they need to buy. 

Moreover, as Marx points out elsewhere, if they sell their business as a business, then their capital gain is negated by the capital loss suffered by the buyer of the business.  The buyer of the business now finds that the money-capital they owned, has been devalued to the equal extent of the increase in the value of the commodities that comprise the capital of the business they are buying.

Back To Part 3

Forward To Part 5

What Next? - Part 10

For Britain (2)

In order to understand the material conditions that affect Britain's future its necessary to start at the top. The global economy entered the Spring Phase of the long wave in 1999. As I wrote some years ago, however, the global economy is characterised by combined and uneven development.  Some parts of the global economy, such as Britain, having been formerly dominant, have been in relative decline for some time. Britain has been in relative decline since the latter part of the 19th century, as new economies like Germany, the US and Japan developed; some of those economies, like the US and Japan, that were dominant after WWII, have themselves gone into relative decline, as new economies like China have arisen. Other economies like Germany have managed to reinvent themselves. Germany is essentially transforming itself into a new economy, as the industrial heart beating at the centre of a new EU state.

This process of combined and uneven development has other effects. It causes a growth of demand for labour-power; the working class expands and its conditions improve; workers find it easier to organise and advance their interests. Its hard to know exactly how this has affected workers in China, other than we know that wages have risen there considerably, and the state has recognised the need to respond to their demands. There are indications of widespread unofficial action by workers, but as yet it has not broken out into the establishment of large scale, independent workers organisations or demands for wider democracy, as has happened with, the Arab Spring. Again, I suggested some time ago, that it would be in these newer dynamic economies that such action would be seen, whereas, in the older economies, like the UK, any action would at first continue to be more defensive. 

During such Spring periods, the growth of capital tends to be based upon intensive accumulation, so that new technologies are introduced that replace existing technologies. But, what gives the Spring phase its vibrancy is that a high rate of profit, caused by the increase in productivity, which raises the rate of surplus value, increases the rate of turnover of capital, releases capital, and creates a relative surplus population, provides the basis for the creation of many new capitals. Examining this phase in the 19th century, Marx refers to the fact that many former workers and overseers took the opportunity to set up their own businesses, and it is in the new types of production that many of the new small businesses are established. In many ways, this is replicated within the world economy, as new more vibrant national economies arise to challenge the older, more sclerotic economies.

But, the further development of this process leads to first a concentration of this capital, as it increases in size organically, and then to its centralisation, as the more dominant capitals swallow up the smaller capitals. That process tends to develop during the Summer phase of the cycle, which began around 2012, as also the growth of productivity slows down, and each capital seeks to consolidate its position, by bulking up, and removing the competition. The economic laws, which drive in that direction for individual capitals apply also to national capitals. It is why the natural drive for capital has been to create larger markets within which to operate. But, contrary to the utopian ideas of the Eurosceptics, it is impossible to develop such single markets, without also creating a single economy, and a single state which determines the rules and creates the level playing field within which each individual capital is to operate.

That includes the establishment of a single currency, so that capitals in one part of the market cannot obtain unfair advantage over others, by utilising leverage over the state to manipulate the value of the currency against their competitors; it involves having a single fiscal policy so that capitals operating in one part of the market do not obtain tax advantages over capitals operating in other parts of the market; in a welfare state, it means that there are common benefits, pensions, retirement ages and so on, so that capitals operating in one part of the economy do not obtain subsidies from the state, in the shape of a social wage paid to their workers.

That is why nation states themselves were created by the bourgeoisie as part of their revolution. As Marx points out, what the bourgeoisie require above all else is that each capital operates on a level playing field, of the same rules and conditions applied to each. That was manifest in Britain, in the 19th century, when it came to the laws under which individual capitals had to operate. In its youth, capital, faced with a vast reservoir of labour to exploit, used up labour supplies at a phenomenal rate, driving workers living standards down sharply, and causing mortality rates to rise to a degree that threatened capital itself. Three generations of workers were killed off by overwork and poor conditions, in the time that would previously have only accounted for one.

For its own sake, capital required a limitation of its actions, in the shape of the Factory Acts, and the limitation of the working day. Yet, the capitalists themselves recognised that left to their own devices they would not do so. Competition would drive each of them to try to work their employees to the utmost, to pay them as little as possible, and to fail to provide the necessary safe working conditions.

“We, therefore, find, e.g., that in the beginning of 1863, 26 firms owning extensive potteries in Staffordshire, amongst others, Josiah Wedgwood, & Sons, petition in a memorial for “some legislative enactment.” Competition with other capitalists permits them no voluntary limitation of working-time for children, &c. “Much as we deplore the evils before mentioned, it would not be possible to prevent them by any scheme of agreement between the manufacturers. ... Taking all these points into consideration, we have come to the conviction that some legislative enactment is wanted.” (“Children’s Employment Comm.” Rep. I, 1863, p. 322.) 

(Capital I, Note 2, Chapter 10)

“Some of the masters themselves murmured: 

“On account of the contradictory decisions of the magistrates, a condition of things altogether abnormal and anarchical obtains. One law holds in Yorkshire, another in Lancashire, one law in one parish of Lancashire, another in its immediate neighbourhood. The manufacturer in large towns could evade the law, the manufacturer in country districts could not find the people necessary for the relay system, still less for the shifting of hands from one factory to another,” &c. 

And the first birthright of capital is equal exploitation of labour-power by all capitalists.” 

(Capital I, Chapter 10)

Whatever, the conservative nationalists of the Tory Party or UKIP say about only wanting a single market, without all of the political trappings of the EU and a single state, the two things necessarily go together. As Frederick Hayek put it, all such regulations over the length of working day, working conditions and so on, are compatible with liberal principles and competition,

“so long as these restrictions affect all potential producers equally”.

(The Road To Serfdom, Chapter 3, p 28)

But, it is impossible for such regulations to apply to all potential producers within a single market unless there is a single state to establish such regulations and to enforce them. Capital needs ever larger single markets within which to operate, and it necessarily requires larger states to set the regulations under which the capitals within it operate. That is why, the US underwent its Civil War to create a single centralised state. It is why Europe first went through the process of establishing nation states in the 18th and 19th centuries, and in the same process began almost immediately to seek to unify those states into a single European state, via the wars of the 19th century, and the two world wars of the twentieth century. It is why, the EU was established, and why the US has established NAFTA. It is why Africa is creating its own economic unions, and has set itself the goal of creating a single African Economic Union. It is why similar economic blocs are being created across Asia, Latin America and elsewhere. It is why over and above these economic blocs, supra national state bodies to establish controls and regulations, such as the IMF, WTO and so on were established. These are simply political reflections of the underlying material conditions. Set against this reality and the tide of history, the bleatings of Cameron, let alone of the eurosceptics appear truly bizarre, and out of time.

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Tories Open Pandora's Box

The Tories believed they were going to lose the last election. They were not alone. Despite all the spin, in many ways they did lose. The Liberal-Tory government from 2010 to 2015 had a majority of around 80, but that majority has now fallen to just 12. They only need to lose six seats before they are in a minority, and already the narrowness of the majority has caused them to drop the flagship of their manifesto, scrapping the Human Rights Act. In order to scrape together even the votes they did get at the election, the Tories were forced to open Pandora's Box.

Inside the box, they found a range of parcels labelled Greed, Envy, Fear and so on, and inside these parcels they found policies for tax cuts, for benefit cuts, for attacks on trades unions and human rights, and on immigration controls, withdrawal from Europe and national division. The passions let loose from the box threaten chaos, and strife, but one parcel remained in the box that the Tories did not take out, and which has been left for Labour. It is a parcel labelled Hope.

In fact, the policies of Hope that can be picked up by Labour, themselves in many ways are made possible by the policies that the Tories have themselves announced. For example, the Tories have now committed the country to an EU referendum. Labour is right – and the media simply look carping to be suggesting that Labour has made a U-Turn on the issue – to say that now it is to happen, they will not waste time opposing it, but will concentrate on making the case for staying in Europe. They should do so, but they should make a clear distinction between a socialist case for Europe, and the kind of reforms that we seek, in the interests of all Europe's workers, and the narrow national interests of British capital that the Tories seek to promote. Rather than the dismal backward looking, and defensive case that the Tories seek to promote, based on greed, fear and envy, Labour should promote a positive case for taking Europe forward, based on Hope, and a confidence in the ability of workers across the continent to create a better future for themselves together.

But, the biggest gift the Tories have given is in relation to their policy on the Right to Buy. The Tories announced in the election campaign that they would extend the Right to Buy from Council Houses to the private property of the Housing Associations. In other words, they would tell private owners of property that they must sell it to other stakeholders – their tenants. For more than a century, Liberals and Tories have raised the spectre against socialism, that it would confiscate private property. It was a powerful ideological threat in their hands. Now the Tories have thrown it away, by themselves announcing that private property is no longer sacrosanct in their eyes, and is open for confiscation.

Its now quite clear that if the Tories support the confiscation of the private property of the Housing Associations, forcing them to sell at huge discounts to tenants, then this same right must also be extended to all private tenants, or else the fundamental requirement of natural justice is infringed that all should be treated equally. There are far more tenants of individual private landlords than there are tenants of Housing Associations, and in general, the former are in a better position to be able to buy their properties than the latter, whilst in general facing higher rents, and, therefore, a greater need to own.

Labour had proposed introducing rent caps to address this problem, but its now clear that the solution that has to be promoted, is the extension of the Right To Buy to all private tenants, at the same 70% discounts that the Tories have introduced for Housing Association property. Labour should commit itself to supporting Tenants and Residents Associations along with the Co-operative Housing Federation to a campaign for the Right to Buy to be extended to all private tenants, and they should work towards such a right to buy for private tenants to be organised by the TRA's and Co-operative Housing Federation, which could provide tenants with access to all the legal and financial support they require.

The basis upon which the Tories have argued for the Right to Buy being extended to Housing Association property makes this immediately possible. The Tories have ignored the fact that these properties are owned by private organisations rather than the state, and said that the goal of individuals owning the property they live in overrides it. That must then apply equally to tenants living in other privately rented property, who must be given the same right. Labour does not have to just promise such a right from a future Labour government; it should begin immediately to actively campaign for such a right now, and should commit itself to amending the Tories Right to Buy proposals, to provide all private tenants with the same right.

But, the Tories argument does not just apply to the home you live in. Their desire for people to own the home they live in, and to be able to buy it on the cheap should also apply to the business you work in. Labour, in its commitment to promote the aspiration of workers that the Blairites have been so keen to base themselves upon, must apply that aspiration to your place of work, at least as much as your place of abode. After all, without a secure job, over which you feel you have some control of your future, it is difficult to feel that you have the required security of income to even consider the risk of home ownership.

Labour should use the Tories own arguments in this respect to argue for a Workers Right to Buy the companies they work in, and to do so with the same kind of discounts that the Tories are proposing for the Right to Buy Housing Association properties. After all, just as tenants have paid rents to landlords for many years, thereby compensating them for their costs, so workers have produced profits in the companies they work for, for decades, that have been appropriated by the company owners, which have more than compensated them for any capital they advanced to start those companies.

Labour should promote the idea of legislation for a Workers Right to Buy their company. This would mean that workers in every company would have a right to ballot, as to whether they wished to buy it. If sufficient workers in the company were able to raise the funds required to buy, they should then have a legal right to do so, whether the current owners wished to sell or not. As with the Right to Buy houses, workers should be able to buy these companies at a significant discount. Labour should suggest that workers could buy these companies at a 70% discount to their current asset value.

This would avoid the problem experienced with nationalisation, and with the Lassallean forms of state aided co-operatives, because it would require first and foremost that the workers in the firm wanted to take it over, and were prepared to run it themselves. But, it has the advantage over current co-operative arrangements in that often workers only get to take over businesses that are already bust, and usually then lack the capital required to run them efficiently. This way, workers would have an incentive to vote to take over the most efficient, most profitable companies first, and by obtaining them under a Right to Buy discount, would thereby provide themselves with a greater level of capital with which to run the business.

Of course, these limitation only apply so long as a Tory government is in office. The choice of a 70% discount for the right to buy houses or businesses, is a purely arbitrary figure chosen by the Tories. Labour should commit itself to going way beyond those limitations, in order to enable ordinary working people to fulfil their aspirations. Labour should commit itself to introducing a Right to Buy for private tenants to buy their homes, and for workers to buy their businesses with a 99% discount. That would enable them to fulfil their aspirations to have secure employment over which they have control, and security in their home.

But, the Tories have introduced other measures that would facilitate workers in achieving this right to buy. They introduced the right of workers to cash in their pension funds, rather than have to take an annuity. This right should also be extended to the state pension.

The current state pension is £6000 p.a. If we take a current interest rate of 2%, that means the capitalised value of this pension is £300,000. In other words, this is the notional capital sum that the state must hold in your pension pot, so as to be able to pay a pension of £6,000, i.e. 2% interest on £300,000 is £6,000. Put another way, if the average worker is employed for 50 years, for each year they have contributed, their pension pot will have increased by £6,000. If workers had a right to cash in their state pension pot, therefore, they should have the right to £6,000 for each year they have contributed.

For many workers that would amount to a considerable sum, which could then be used as the capital required to buy their companies, especially at a 99% discount to current asset values. That would be even more possible if workers had the right to control the £800 billion of funds in their company pension funds.

The Tories in search of policies to cadge quick electoral support, have opened a Pandora's Box, that provides Labour and Socialists with the means to argue for a real transfer of wealth and power in favour of working people. The Tories, of course, have no such intention, but that is no reason for workers to limit themselves to the Tories narrow aspirations.

Capital III, Chapter 6 - Part 3

Unlike the fixed capital, which only has to gradually replace its wear and tear, via accumulation in a reserve fund, the cost of the raw material must be continually reproduced in the sale of the commodity. However, as indicated previously, if the price of the raw material rises sharply, then depending on the price elasticity of demand for the particular commodity, this cost increase may not be recoverable. Passing on the full price rise may cause demand to fall sharply, reducing overall income.

However, unless a sufficient proportion of the price rise can be passed on, the revenue may not be sufficient to cover the reproduction cost of the raw material. A firm may decide to ensure that cost is covered and reduce its level of output, to meet the new reduced level of demand. That is something today's oligopolies can do more easily than in an era of many competing small capitals. But, this may not be possible either.

“This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.” (p 109)

Finally, the effects of the level of raw material prices mean that the issue of waste takes on added significance when prices rise sharply. Marx cites the example of Surat and American cotton. There was a difference of about 12.5% in waste between the US cotton and the cheaper Surat cotton. At lower prices the higher level of waste could more easily be borne, but at higher prices, considerably more money was simply thrown away as waste. That provided an incentive to move to the higher quality cotton that produced less waste.

2. APPRECIATION, DEPRECIATION, RELEASE AND TIE-UP OF CAPITAL

These issues are discussed here “because they create the impression that not only the rate, but also the amount of profit — which is actually identical with the amount of surplus-value — could increase or decrease independently of the movements of the quantity or rate of surplus-value.” (p 110)

That impression is false because the amount of surplus value can only be increased by either a higher rate of surplus value or the exploitation of a greater quantity of labour-power.The false impression arises due to capital gains or losses, arising from the divergence of current reproduction cost from historic price, being confused with profits or losses, arising from the actual self-expansion or contraction of capital.

Appreciation and depreciation can occur for both fixed and circulating capital, and for constant and variable capital. An appreciation of capital simply means that its value has risen, and is, therefore, to be distinguished from the self-expansion of capital that occurs in the production process, via the creation of surplus value. A machine's value might rise because the steel required for its production has risen in price. The value of cotton held in stock, or going through the production process, might appreciate in value because a poor cotton harvest has caused the price of cotton to rise. Similarly, the value of a firm's commodity-capital, in the shape of yarn waiting to be sold, might rise because the value of cotton used in its production , or the wear and tear of the machine used for its production, have themselves risen in value. In short, the value of all these types of capital appreciates because the labour-time currently required for their reproduction has risen.

A depreciation of capital-value similarly arises if the labour-time currently required for its reproduction falls.

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Forward To Part 4

Embodied Labour

Throughout Marx's economic analysis, he uses the term “embodied labour”, or alternatively “materialised labour”, as well as phrases such as “the labour embodied in”, or “materialised in the commodity”. So, did Marx have a theory of embodied value? That would mean a contradiction at the heart of the “Labour Theory of Value”, because, if value is, in fact, embodied within the commodity, this requires that this value be something tangible and fixed within the commodity itself, even if this something tangible and fixed is only the actual labour that was used for its production. This conception of value, as something specific to, and inherent within, the commodity is totally alien to Marx's concept of value, as something that is socially determined and continually changing. The idea of value as something embodied within the commodity is an aspect of what Marx calls “commodity fetishism”, a failure to recognise that what is actually being exchanged in the market is not things, but equal amounts of labour-time.

The reason that Marx uses these terms is two-fold. Firstly, there is a sense in which labour is embodied within the commodity, just as it is in any product. That is in the sense of concrete labour. Secondly, Marx uses the terms simply as shorthand. In other words, if he had to write in full detail, to express his ideas, in precise language, every time he uses a concept, not only would it be tedious, but it would make his writing almost unreadable. Moreover, as Engels points out, when Marx uses concepts and definitions he does so in accordance with his scientific method. Those who seek fixed frozen definitions, that are cut and dried, from Marx, Engels says, simply have not understood that method.

“They rest upon the false assumption that Marx wishes to define where he only investigates, and that in general one might expect fixed, cut-to-measure, once and for all applicable definitions in Marx’s works. It is self-evident that where things and their interrelations are conceived, not as fixed, but as changing, their mental images, the ideas, are likewise subject to change and transformation; and they are not encapsulated in rigid definitions, but are developed in their historical or logical process of formation.” (Capital III, Preface, p 13-14)

For example, in Capital II, Marx makes clear that capital, as capital, has no value. This concept is central to his analysis in Capital III, of the rate of interest, as the price of loanable money-capital, in other words, of capital itself as a commodity. Capital as capital, i.e. as self expanding value, has no value, like land, because it is not the product of labour. Capital, as capital, has a market price – the rate of interest – despite the fact that it has no value, for the same reason that land has a market price – rent – despite the fact that it has no value. Both land and capital are use values. Land has a use value, because of its role in production, whilst capital has the use value of being self-expanding value. Both have become commodities that are bought and sold in the market, and like every other commodity that is bought and sold, they, therefore, acquire a market price, because the owners of these use values will not relinquish them for free.

Yet, despite the fact that capital, as capital, has no value, Marx repeatedly talks about capital value, or the value of capital, or the value of constant capital, and so on. This appears to be then a complete contradiction in what Marx is saying, but that is so only if you read every word or phrase that Marx utters as though it stands alone as a literal representation of his ideas, rather than taking such phrases within the overall context of his ideas. In that case, the use of such phrases poses no problem whatsoever, and the intelligent reader can then see that no such contradiction exists, and that Marx is simply using such terms as a shorthand.

When Marx talks about “the value of constant capital”, for example, he is actually referring not to the value of the constant capital, as capital, of which it has none, but to the value of the commodities that comprise the constant capital, i.e. the value of the buildings, machines and so on that comprise the fixed capital, and of the materials that comprise the circulating constant capital. Capital value, in this context, simply refers to a quantity of value that exists in one or other form of capital – money-capital, productive-capital, or commodity-capital, and the fact that within the circuit of industrial capital, this capital value continually metamorphoses from one of these forms into another.

The same is true when Marx talks about “embodied labour”. 

There are several ways in which labour is embodied within a product. The concrete labour of a carpenter is embodied in the chair he produces, for example, just as is the concrete labour of the spinner in the yarn they produce. Not only is the nature of the chair determined by the fact that it is the product of the labour of a carpenter rather than a spinner, but even the nature of a particular chair is determined by the fact that it was produced by this carpenter rather than some other, or even by the fact that it was produced by this carpenter today rather than by the same carpenter a year ago.

In other words, this concrete labour is defined by its particular use value, and it is this use value that is embodied within the product, and thereby determines the specific use value of that product. Carpenter A and carpenter B, may both produce chairs, and they may be technically of equal quality in their construction and so on, but they will not be the same chair, because each will reflect the particular style and so on of the carpenters that built them, and which is embodied within the chair. Similarly, the chair will reflect other concrete labour embodied within it.

The chair is constructed of wood, whose use value itself will reflect the concrete labour that went into its own production; it may comprise leather and other materials, each of which reflect the concrete labour that went into their own production, and each of these will be embodied within the chair whose construction they participate in. For that reason, each individual product will be different from every other, in terms of its use value, even if by relatively negligible amounts. Even aside from these differences, in the use value of the materials that the carpenter uses, his own concrete labour will vary from one chair to another, and even one day or hour to another. If the carpenter is feeling ill, or tired, then its likely that this will be reflected in the labour he performs during that period. This can be seen in relation to the labour of the collective worker too, for example, the phenomenon of the Friday afternoon car, which rolls off the production line, notoriously being of poorer quality than cars produced during the rest of the week.

"In the automatic workshop, one worker’s labour is scarcely distinguishable in any way from another worker’s labour: workers can only be distinguished one from another by the length of time they take for their work. Nevertheless, this quantitative difference becomes, from a certain point of view, qualitative, in that the time they take for their work depends partly on purely material causes, such as physical constitution, age and sex; partly on purely negative moral causes, such as patience, imperturbability, diligence. In short, if there is a difference of quality in the labour of different workers, it is at most a quality of the last kind, which is far from being a distinctive speciality."

(The Poverty of Philosophy)

But, it was this fact, which, Marx says, also led Adam Smith to view productive labour as only that which produced material products, in which this embodied labour was visible. This view of embodied labour is specifically rejected by Marx, because concrete labour may be embodied in a product, which is not itself a material object.

“It may be that the concrete labour whose result it is leaves no trace in it. In manufactured commodities this trace remains in the outward form given to the raw material. In agriculture, etc., although the form given to the commodity, for example wheat or oxen and so on, is also the product of human labour, and indeed of labour transmitted and added to from generation to generation, yet this is not evident in the product. In other forms of industrial labour, the purpose of the labour is not at all to alter the form of the thing, but only its position. For example, when a commodity is brought from China to England, etc., no trace of the labour involved in the thing itself (except for those who call to mind that it is not an English product).

(Theories of Surplus Value, Part 1, Chapter IV, p 171-2)

But, concrete labour is also thereby embodied within products not just as a use value. Concrete labour is the source itself of value, although it is not the essence or measure of value. A lamp, a candle or the sun are the source of light, but they are not the essence of light, which is the photon. In the same way, the concrete labour of the carpenter or the spinner is the source of value, but it is abstract labour, labour stripped of all the characteristics of any specific concrete labour, which is the essence of value. But, just as photons come from some source, such as a lamp, candle or the sun, so abstract labour itself must have a source, and its source is the performance of some specific concrete labour. Value only exists, in the form of a quantity of abstract labour, because a quantity of real concrete labour has been performed.

If we examine any particular product, say a chair, it will contain a certain quantity of concrete labour. Even leaving aside the concrete labour required for the production of the wood, leather and so on, the concrete labour performed by the carpenter, in producing this chair, will vary from the quantity of concrete labour they perform in producing the next chair, just as this one will differ from the one he produced before it. In other words, each chair will have a quantity of concrete labour embodied within it, in both these senses. It will have a quantity of concrete labour embodied within it as use value, and whose measure is, therefore, its quality, and it will have a quantity of concrete labour embodied in it as value whose measure is time. But, because this is concrete labour this measure in time cannot be simply its own duration, but can only be measured as a quantity of abstract labour-time.

Each form of concrete labour, say the labour of a spinner, can only be treated as a form of complex labour. The value of the product of an hour of each type of concrete labour is, in fact, some multiple or fraction of an hour of abstract labour, dependent upon how much consumers are prepared to pay, in the market, for the product of this labour.

If we take the situation, Marx refers to of Robinson Crusoe, and the same applies to a peasant producing use values, purely for their own consumption, this distinction itself does not arise. The value of an hour of Robinson's concrete labour in producing chairs is the same as an hour of his labour producing yarn, and consequently, each are for him an hour of abstract labour.

“In spite of the variety of his work, he knows that his labour, whatever its form, is but the activity of one and the same Robinson, and consequently, that it consists of nothing but different modes of human labour.”

An hour for him spent in one form of labour is an hour lost to some other form of activity. His only concern then is whether the utility (use value) he obtains from an hour of his labour spent in one activity is greater than the utility obtained spent in some other activity. In terms of value, as opposed to use value, the quantity is the same, i.e. one hour.

For Robinson, or for the self-sufficient peasant, the concrete labour they expend on the production of each individual product is indeed embodied both as use value and value. Yet, even here neither Robinson nor the peasant is really concerned with the labour they embody within each individual product. Both are concerned with the average labour-time required for any particular type of production. They may find that it takes two hours to catch the first fish of the day, but after that, they catch one every fifteen minutes. Its the average time to catch a fish that determines how they will allocate their labour-time between production of fish or some other activity.

Similarly, a metre of cloth may take a week to produce, because the particular batch of cotton is problematic, and requires longer to spin into yarn, and then the yarn repeatedly breaks when being woven. But, the next metre may be produced in three days, because those problems are not present. It is, again, the average time required to produce the cloth that is considered, not the labour-time embodied in any particular metre of cloth.

But, when we come to examine the concept of value within the context of commodity production and exchange, as existed as Engels states from around 10,000 years ago to around the 15th century, even this concept of average value is superseded. It is then no longer just the average value of the products produced by the individual producer – their individual value as Marx calls it – that is relevant, but their social value, the average proportion of total available social labour-time, which they represent.

"Let us suppose for a moment that a jeweller’s day is equivalent to three days of a weaver; the fact remains that any change in the value of jewels relative to that of woven materials, unless it be the transitory result of the fluctuations of supply and demand, must have as its cause a reduction or an increase in the labour time expended in the production of one or the other. If three working days of different workers be related to one another in the ratio of 1:2:3, then every change in the relative value of their products will be a change in this same proportion of 1:2:3. Thus values can be measured by labour time, in spite of the inequality of value of different working days; but to apply such a measure we must have a comparative scale of the different working days: it is competition that sets up this scale.

Is your hour’s labour worth mine? That is a question which is decided by competition."

(The Poverty of Philosophy)

Marx makes clear that, in this context, the concept of the materialisation or embodiment of labour in the commodity is false.

“The materialisation, etc., of labour is however not to be taken in such a Scottish sense as Adam Smith conceives it. When we speak of the commodity as a materialisation of labour – in the sense of its exchange value – this itself is only an imaginary, that is to say a purely social mode of existence of the commodity which has nothing to do with its corporeal reality; it is conceived as a definite quantity of social labour or money...Therefore, the materialisation of labour in the commodity must not be understood in that way. (The mystification here arises from the fact that a social relation appears in the form of a thing).” 

(Theories of Surplus Value, Part 1, Chapter IV, p 171-2)

In other words, the labour is not embodied or materialised as value in the commodity. The phrase is simply intended to reflect the fact that, at any one time, each commodity represents a certain quantity of social labour-time, irrespective of the actual labour that was embodied within that particular commodity unit, and indeed irrespective of the individual value of the commodities produced by that particular producer.

The value of each commodity unit is determined not by the labour embodied within it, but by the socially necessary labour-time required to produce that type of commodity, of which each individual unit is merely a representative. This exchange of things – commodities – creates the illusion that it is these things that have value, rather than being merely the representatives of value. As Marx puts it, every commodity is money, it is a claim to a certain quantity of labour-time, and that quantity of labour-time is equal to the socially necessary labour-time required for its own production.

The commodity does not embody labour within it as value, thereby making that value some intrinsic quality of the commodity. The commodity is rather merely a vessel within which value is contained, and the quantity of that value can be greater or smaller, within the same individual commodity, in accordance with the proportion of social labour time it represents, a proportion which is constantly changing, as social productivity changes.

Capital III, Chapter 6 - Part 2

It was an inadequate understanding of the rate of profit, and the difference with the rate of surplus value, that led economists, like Torrens, to misunderstand the role of these prices in raising profits. On the basis of their practical experience, they saw reductions in these prices as leading to higher profits, and vice versa, whereas what they actually brought about was a rise in the rate of profit, which facilitated accumulation, and vice versa.

On the other hand, “economists like Ricardo [D. Ricardo, On the Principles of Political Economy, and Taxation, Third edition, London, 1821, pp. 131-138. — Ed.], who cling to general principles, do not recognise the influence of, say, world trade on the rate of profit.” (p 107) 

That influence was the powerful impetus to lower prices that global trade could bring. That is why the industrialists sought free trade, and repeal of the Corn Laws. It was not just a reduction in the value of labour-power via a reduction in food prices that was sought. The textile industry itself used large quantities of flour as size.

“As far back as 1837, R. H. Greg calculated that the 100,000 power-looms and 250,000 hand-looms then operating in the cotton-mills of Great Britain annually consumed 41 million lbs of flour to smooth the warp. He added a third of this quantity for bleaching and other processes, and estimated the total annual value of the flour so consumed at £342,000 for the preceding ten years. A comparison with flour prices on the continent showed that the higher flour price forced upon manufacturers by corn tariffs alone amounted to £170,000 per year. Greg estimated the sum at a minimum of £200,000 for 1837 and cited a firm for which the flour price difference amounted to £1,000 annually.” (p 107) 

The rate of profit, as determined previously, is calculated on the total capital advanced, i.e. on the whole of the fixed capital plus the circulating constant capital and variable capital. However, because the fixed capital only conveys the value of its wear and tear to the commodity, whilst the raw material conveys all its value at once, to the commodity, the latter has a far more significant effect on the price.

Marx demonstrates here that he understood the principle of price elasticity of demand. He writes,

“But it is evident — although we merely mention it in passing, since we here still assume that commodities are sold at their values, so that price fluctuations caused by competition do not as yet concern us — that the expansion or contraction of the market depends on the price of the individual commodity and is inversely proportional to the rise or fall of this price. It actually develops, therefore, that the price of the product does not rise in proportion to that of the raw material, and that it does not fall in proportion to that of raw material. Consequently, the rate of profit falls lower in one instance, and rises higher in the other than would have been the case if products were sold at their value.” (p 108)

In other words, when the price of the raw material rises, this raises the price of the commodity. But, a higher price causes demand to fall. When commodities exchanged at their values – which Engels cites in the Appendix to have been between 10,000 B.C. and the 15th century – this would have simply resulted in a contraction of supply. But, under capitalist competition, this may not be the case. In that event, suppliers may absorb some of the additional cost of the raw materials themselves. How much can be passed on depends on the price elasticity of demand for the particular commodity. This is a function of the transition to prices of production and market prices.

In addition, although the quantity and value of fixed capital, and particularly machinery, grows, as labour productivity grows, - and indeed in the case of machinery is a means of the growth of that productivity – it does not grow as rapidly as labour productivity. The higher labour productivity, as well as scientific development, ensures that better machines are produced that do the work of many older machines, that they last longer, and that their value, particularly measured against their output falls sharply.

Even where more fixed capital is employed, therefore, the value of that fixed capital can fall bringing with it a corresponding rise in the rate of profit. But, alongside that rise, in the productivity of labour, and of the machines comes a huge expansion of the raw material processed.

“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.” (p 108-9)

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What Next? - Part 9

For Britain (1)

Powerful conservative forces have grown over the last thirty years. Those forces have grown on the back of material changes in the economy, which particularly affected old industrial countries such as Britain, the US and Western Europe. In addition to the phase of the long wave, which undermined the strength of productive-capital, and benefited money-lending capital, those economies have faced relative decline as against new dynamic capitals in Asia, and more lately other emerging economies. It is those economies that a lot of the industrial capital migrated to, leading to a de-industrialisation of the older economies.

Those industries that did develop in the older economies were themselves based in the new dynamic industries, where the type of labour-power required was highly skilled and educated, or else it was in those areas of entertainment where those involved did not need to be skilled, in the sense that a brain surgeon or craftsmen is skilled, as a result of education or years of training, but because they have some real, perceived, or manufactured talent, which consumers are prepared to pay large amounts of money to enjoy. More or less by definition, the number of actual workers required to be engaged in such activity may be relatively small, and yet the abstract labour they represent may be significant. 

This creates the conditions for a two-tier labour market, in which a relatively small number of highly paid workers co-exist alongside a large group of low skilled, low paid workers. The latter are required for the economy to function, whether they are drawn from the domestic workforce, or from imported labour. The Tories came into office five years ago saying that they were going to address this situation, by bringing about a rebalancing of the economy towards manufacturing industry. 

But, of course, they have not, and nor is it likely that they could, despite all of their showcasing over the northern powerhouse and so on. Such a northern powerhouse, is just as likely to simply replicate this bifurcation but within a more concentrated metropolitan context. The Tories could not change these conditions, because they are the ones that created them back in the 1980's, and their world outlook, conditioned in no little part by the material interests they represent, and the core of their membership and support, leads them simply to replicate those conditions. 

In order to retain their members, and to secure the vote of their core voters, they must necessarily advocate a range of policies geared to the interests, and prejudices of those people. That is what led them into the advocacy of austerity in 2010, after years of saying they would at least match all of Labour's spending plans; it is what led them to pander to the nationalist and anti-EU sentiment, which led them into offering a damaging EU referendum; it is what led them, in 2015, to whip up English nationalism to win votes in England. But, each of those then lock it into a course of action it must follow in the ensuing period. 

Britain's future is a function of these different factors, and their interplay. On the one hand, Britain is affected by the material conditions of the world economy, and its divisions, e.g. the EU, of which it is a part. On the other hand, it is affected by the political decisions made by people in Britain, the EU and across the globe. Simultaneously, the material conditions that exist in Britain, are themselves a function of the political decisions made previously, e.g. the decisions of Thatcher in the 1980's.

In his summary of Marx’s theory of historical materialism, Engels wrote to Bloch, 

“We make our history ourselves, but, in the first place, under very definite assumptions and conditions. Among these the economic ones are ultimately decisive. But the political ones, etc., and indeed even the traditions which haunt human minds also play a part, although not the decisive one...Without making oneself ridiculous it would be a difficult thing to explain in terms of economics the existence of every small state in Germany, past and present, or the origin of the High German consonant permutations, which widened the geographic partition wall formed by the mountains from the Sudetic range to the Taunus to form a regular fissure across all Germany. 

In the second place, however, history is made in such a way that the final result always arises from conflicts between many individual wills, of which each in turn has been made what it is by a host of particular conditions of life. Thus there are innumerable intersecting forces, an infinite series of parallelograms of forces which give rise to one resultant — the historical event. This may again itself be viewed as the product of a power which works as a whole unconsciously and without volition. For what each individual wills is obstructed by everyone else, and what emerges is something that no one willed. Thus history has proceeded hitherto in the manner of a natural process and is essentially subject to the same laws of motion. But from the fact that the wills of individuals — each of whom desires what he is impelled to by his physical constitution and external, in the last resort economic, circumstances (either his own personal circumstances or those of society in general) — do not attain what they want, but are merged into an aggregate mean, a common resultant, it must not be concluded that they are equal to zero. On the contrary, each contributes to the resultant and is to this extent included in it.”

Capital III, Chapter 6 - Part 1

The Effect of Price Fluctuation 

1. Fluctuations in the Price of Raw Materials, and their Direct Effects on the Rate of Profit

Its assumed, in this analysis, that the rate of surplus value remains constant. That way, it is only the effect of changes in price of the constant capital, on the rate of profit, that are isolated. Changes in those prices may result in more or less labour-power being employed, and so more or less surplus value being produced, whilst the rate stays the same. But, to isolate the effect of the price change on the rate of profit, even those effects should be discounted.

If the rate and amount of surplus value is held constant, then its obvious that any change in c brings about also a change in C (c+v), and, therefore, a change in the rate of profit, because p' = s/c+v. These effects on the rate of profit affect capital in all spheres, be it the production of fixed or circulating capital, means of production or consumption, the production of necessities or luxuries.

Under the heading of materials is included the auxiliary materials such as the lubricating oil for machines, and the gas and electric used for heating and lighting, as well as the raw material to be processed in the production of the end product. Such materials are also used in the production of machines, and so changes in their price affect the value of those machines. The more abundant these materials are, that are required for the construction and operation of machinery, the more it “presents itself here as a natural fertility of capital and is a factor determining the rate of profit irrespective of the high or low level of wages.” (p 106)

Because raw materials form a large part of the constant capital, any change in their price leads to a significant change in the rate of profit, though not in the rate or quantity of surplus value. The rate of profit changes not because the change in the price of the raw material causes the amount of profit to change, but because it causes the value of the advanced capital to change.

“Should the price of raw material fall by an amount = d, then s/C, or s/(c + v) becomes s/(C - d), or s/((c - d) + v). Thus, the rate of profit rises. Conversely, if the price of raw material rises, then s/C, or s/(c + v), becomes s/(C + d), or s/((c + d) + v), and the rate of profit falls. Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material.” (p 106)

A number of important practical conclusions can be drawn. Firstly, low prices of materials are important for industrial countries. Lower costs lead to lower prices, which will encourage higher levels of demand, which in turn means a greater volume of surplus value. But, lower prices also lead to a lower value of labour-power through the cheapening of wage goods. That means that relative surplus value rises. But, even setting aside these effects and holding the rate and quantity of surplus value constant, the reduction in the value of the constant capital, brings with it an increase in the rate of profit.

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Capital III, Chapter 5 - Part 7

5) Economy Through Inventions 

These savings are only possible on the basis of large scale production, and are therefore attributable to co-operative, socialised labour. The use of machinery on a large scale, would make no sense unless production took place on a large scale, which would itself make no sense unless consumption occurs on a large scale, which can occur only under a system of large scale commodity production and consumption.

And,

“Finally, it is only the experience of the combined labourer which discovers and reveals the where and how of saving, the simplest methods of applying the discoveries, and the ways to overcome the practical frictions arising from carrying out the theory — in its application to the production process — etc.” (p 104)

Ultimately, this will only be qualitatively developed as a result of the workers owning and controlling the means of production through the development of their co-operative enterprises.

“Incidentally, a distinction should be made between universal labour and co-operative labour. Both kinds play their role in the process of production, both flow one into the other, but both are also differentiated. Universal labour is all scientific labour, all discovery and all invention. This labour depends partly on the co-operation of the living, and partly on the utilisation of the labours of those who have gone before. Co-operative labour, on the other hand, is the direct co-operation of individuals.” (p 104)

The evidence for this provided by Marx can also be witnessed today. That is that the cost of producing prototypes of machines is always greater than the cost of the subsequent models, and similarly industries that arise on the back of some new invention are always more expensive in their operation than those that follow.

“This is so very true that the trail-blazers generally go bankrupt, and only those who later buy the buildings, machinery, etc., at a cheaper price, make money out of it. It is, therefore, generally the most worthless and miserable sort of money-capitalists who draw the greatest profit out of all new developments of the universal labour of the human spirit and their social application through combined labour.” (p 104)

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Capital III, Chapter 5 - Part 6

3) Economy In The Generation And Transmission Of Power, And In Buildings

Marx quotes from Horner, a letter from James Nasmyth, inventor of the steam hammer, in which he sets out the huge advance in motive power that had been achieved. Some of that power already existed, but was unused, because of fear of using the machinery to its utmost capacity. Given the limitations of early boiler manufacture, that fear was understandable.

But, improvements in that technology meant that engines could be run at higher pressures and with increased operating speeds, there was also a saving on fuel consumption. This increase in speed caused some slight addition to wear and tear, but nothing like enough to offset these other savings.

Similar improvements were made in the transmission mechanisms, and in the machinery itself. Today, we see a similar revolution taking place as a result of the use of the microchip as the basis of industrial robots, of their synchronisation via the transmission mechanism of complicated but efficient computer aided design and manufacturing (CAD/CAM) systems, and the linking of production and distribution systems, on a global basis, co-ordinated via the Internet.

4) Utilisation Of Excretions

The larger the scale of production, the greater the natural wastage that arises. But, at the same time, the larger the volumes of that waste the more it becomes worthwhile collecting it for use or re-use. When I was 18, I worked for a company producing protective clothing. Every few months a man used to come from Manchester, to negotiate the purchase of our scrap material. To look at him, he seemed like he didn't have two pennies to rub together, but outside was parked his Rolls Royce, bought out of the fortune he'd made from the scrap business.

Religious exiles from Europe brought with them their expertise, used for hot-bedding, that is the use of human excrement as a foundation layer upon which soil is placed and plants grown, so that they benefit not just from the manure, but also from the heat created by the fermentation. It created the basis of the market gardening industry in London, without which the metropolis could not feed itself.

Waste cloth and rags from worn out clothing, was used for paper manufacture. The iron filings thrown off from machinery and other waste metals were smelted once more for re-use.

The more material prices rise, the more there is an incentive to utilise these different forms of waste, both to reduce the actual costs of the material used, and to utilise the waste material for other purposes.

“The general requirements for the re-employment of these excretions are: large quantities of such waste, such as are available only in large-scale production; improved machinery whereby materials, formerly useless in their prevailing form, are put into a state fit for new production; scientific progress, particularly of chemistry, which reveals the useful properties of such waste.” (p 101)

Wherever waste existed on a significant scale, there was an incentive for capital to find ways of reducing it or else of making use of the waste in some form. The woollen trade previously decried the use of “shoddy” but then increasingly found ways of utilising it.

“The English silk industry moved along the same downward path. The consumption of genuine raw silk decreased somewhat between 1839 and 1862, while that of silk waste doubled. Improved machinery helped to manufacture a silk useful for many purposes from this otherwise rather worthless stuff.” (p 102)

But, the classic example of the use of waste was the chemical industry.

“It utilises not only its own waste, for which it finds new uses, but also that of many other industries. For instance, it converts the formerly almost useless gas-tar into aniline dyes, alizarin, and, more recently, even into drugs.” (p 102)

The reduction of waste, and the use of waste are two separate phenomenon.

“Reduction of waste depends in part on the quality of the machinery in use. Economy in oil, soap, etc., depends on how well the mechanical parts are machined and polished. This refers to the auxiliary materials. In part, however, and this is most important, it depends on the quality of the employed machines and tools whether a larger or smaller portion of the raw material is turned into waste in the production process. Finally, this depends on the quality of the raw material itself. This, in turn, depends partly on the development of the extractive industry and agriculture which produce the raw material (strictly speaking on the progress of civilisation), and partly on the improvement of processes through which raw materials pass before they enter into manufacture.” (p 103)

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Greece Is The Word

The world's political leaders, along with financial markets, seem to have discounted the potential for a Greek default, and exit from the EU, causing significant problems. They are grossly underestimating the real effects of such an event.

The reason a default has been discounted is that, not only is Greece a very small economy, but over the last five years, a large part of its debts were transferred away from the private banks and individuals that held them, and into the hands of the ECB and other European central banks. In other words, the risk has been transferred, during that time, from private money capitalists, on to taxpayers, which means European workers. That is what happened with all those private banks like Northern Rock, and RBS etc. that went bust. They were nationalised by their nation state, recapitalised, stuffed with liquidity and then sold off cheap again to the private money-capitalists.

That is what happens with all nationalisations. Its what happened with the nationalisation of the coal, steel, shipbuilding, car and other industries in Britain. It is the standard means by which the money-capitalists, when they have drained the lifeblood out of productive-capital, then obtain a transfusion, from workers, via the capitalist state, so that they can begin their vampire like activity once more. The only difference with the banks, is that this process tends to happen much more quickly, because its much easier to provide the banks with bank capital than it is to provide, say a coal industry, with all of the new machines, technology and mines it requires to function profitably.

Moreover, the state in all these cases has itself rigged the market to enable the banks and finance houses to be able to make profits more easily, by keeping official interest rates exceedingly low, for exceedingly long. There is no reason banks have to bid up deposit rates to attract savers, when they can obtain the short term funds they require, from the central bank, at virtually no cost, and then lend out those funds to borrowers, at 5-6%. You would have to be pretty incompetent not to make profits under those conditions.

When that process occurred, in the US, the US state financed it, by not only printing money, but by itself continuing its policy of fiscal expansion, which grew the economy, and thereby enabled the state to draw in additional taxes, and reduce its spending on benefits, so as to cover its borrowing, via the traditional Keynesian means, used during a period of long wave, secular growth. In Britain, the Labour government was using the same approach, up until the election of 2010. Then the Liberal-Tories, having locked themselves into a vote seeking narrative, of the need for austerity, were prevented from using that approach. The capital they provided to save the banks was taken out of the economy via taxes, and government spending. Yet even Osborne, as the effect of that tanked the economy, covertly changed course in 2012, to increase capital spending.

In Ireland, the banks simply hoodwinked the state and the people over the extent to which they had acted irresponsibly, and bankrupted themselves, and the extent, therefore, to which any rescue would require massive amounts of capital to be transferred to them. The amounts were so great that, absent any overall EU state to bring about such capital transfers, the Irish state could only replace the capital it had given to the money-capitalists, by taking it out of the Irish economy. A similar thing has happened in Portugal and Spain.

But, the Greek economy, and resources of the Greek state, were too small to perform such a function. The same methods of trying to cover some of the capital transfer, by taxing the Greek workers, and robbing them of the services and assets they had paid for, was adopted, but to no avail. Not only was the cupboard bare, but the austerity policies implemented, even began to dismantle the cupboard itself. Rather than money-capitalists lose all their money, and a global financial panic ensue, as a default prompted an unknown number of credit default swaps to be activated, global capital began to transfer the risk out of private hands into the hands of the European proto state and its institutions.

Having done so, the risk of a Greek default has now largely been discounted. But, the fact is that, not only is there still a fairly sizeable amount of debt, held in Greece, both by Greek private banks, and by the Greek central bank, but the debt held by the ECB, and other European central banks, should not be simply discounted either. In the next week or so, Greece has a number of repayments to make, to the IMF and others, which currently, its clear, it will not be able to make. Syriza's Finance Minister, Yanis Varoufakis, has made it clear that if its a choice between paying Greece's creditors or paying its pensioners and public sector workers, it will choose the latter.

An outright default of that type would  immediately cause problems, not just for Greece, but for the global financial system, and for EU institutions. It would be termed a “credit event”, which triggers a series of actions. It would probably immediately mean that Greece was cut off by the ECB, but more significantly, it would mean that a range of credit default swaps, and other complex financial derivatives would be activated.

A credit default swap, was originally intended, to reduce risk and volatility, by providing insurance. The risk, taken by any individual lender, of lending to any individual borrower, that the borrower may default, was reduced by allowing the lender to take out a CDS. It was insurance. If the borrower defaulted, the lender would claim on the insurance. As with all such derivatives, the way this worked, was by allowing the wisdom of crowds to operate.

The basis of the wisdom of crowds, verified by mathematics is that, if a large number of people are asked to guess say the weight of a cow, or the distance from A to B, or what the price of oil may be next year, although there will be a very wide range of responses, the average response will always be more accurate than any individual estimate. So, by selling such derivatives, there will always be some who think the chance, of say Greece defaulting, is high, and some who think it is low. Some will, therefore, be prepared to provide insurance that it will not default, whilst others will want to gamble that it will.

By providing liquidity into this market, the cost of the insurance is thereby reduced. But, the other consequence is that anyone can buy such a CDS, whether they have lent money to Greece or not. In effect, like most other things in global financial markets today, it is simply a matter of operating within a casino, speculating with money, not to earn income, but with the hope of obtaining a huge capital gain, if a bet pays off. The reality is that no one actually knows how many of these CDS's and other financial derivatives are out there waiting to be triggered, by some credit event, such as a Greek default.

What we doknow is that Deutsche Bank alone, is reported to have debts hidden in its balance sheet, via such derivatives, to be equal to the value of the global GDP! Deutsche Bank is not the world's largest bank, and so it can be surmised that other, larger banks both in Europe, Asia and North America, have much larger exposure. Because anyone can bet on such a default, and can bet using huge sums of money, which is itself connected to borrowing via a range of further derivatives, so that, as happened in 2008, someone who thought they were just investing their savings in a safe bank in a village in Norway, finds that their money has gone to finance mortgage backed securities that went bust in the US, so a Greek default, could start a chain reaction that will bring down the entire global financial system.

Besides that, we have a situation where all of that debt that has already been turned over to the ECB and other central banks would be destroyed. The debt takes the form of bonds and other securities provided by the Greek state and banks to the ECB, as collateral for money-capital loaned to the Greek state. The truly fictitious nature of this capital is highlighted under such conditions, because these bits of paper, become just that, worthless bits of paper. But, for the ECB, as for any bank, these worthless bits of paper are part of the capital superstructure of the bank itself. Its on the back of this bank capital, that the bank both lends money to borrowers, and itself borrows money from others, using this bank capital, as its own collateral against which such borrowing is undertaken. If the bank capital gets reduced, as it would be if all of the Greek debt it holds on its books was written off, that would leave the ECB itself with a capital hole in its balance sheet, which means its own ability to lend to EU banks would be curtailed. Ultimately, the ECB itself, like all other central banks, has to recover that lost capital, from taxation. In other words, it has to increase the interest rate it charges the state for the money-capital it lends to it, and the state can only pay that higher interest by raising taxes.

At a time when the ECB is trying to engage in QE in Europe, and when EU states are facing slow growth, as a result of the austerity measures already introduced across Europe, in the last five years, that is not the direction they want to be going in. Already, the ECB is reportedly having difficulty with its QE programme. The reason that yields on European sovereign bonds, including those of countries like Spain, has fallen, over the last year or so, is two-fold. Firstly, the ECB had said it would “do whatever was necessary”, and had begun its LTRO programme of very cheap lending to European banks. The banks, rather than lending to the economy, bought the sovereign bonds of their own state, behind which they believed that the ECB and the new programmes, such as the ESM, were now standing.

The second reason was that, after the US started to taper its own QE programme, this caused the dollar to begin to rise, and the currencies of a range of emerging market countries to fall. Their inflation rates rose, as the cost of their imports increased, due to the falling currency. Sharply higher inflation rates sent their bonds down, as money left them in search of the safety, capital gain and currency gain to be obtained from buying US, UK and European sovereign bonds.

As the demand for European bonds rose, pushing yields down, sometimes into negative territory, this has made it increasingly difficult for the ECB to find such bonds to buy. QE works by the ECB buying bonds from the EU banks, and electronically printing money, by making a deposit in the banks' accounts, in return for the bonds it has bought from them. But, it can only buy those bonds if there are enough of them available.

But, there are a number of reasons why this process itself could go badly wrong. One of those countries that faced a falling currency and sharply rising interest rates, for example, was Russia. But, in the last few months, despite the global price of oil still being half what it was, at its peak, Russia's economy has withstood, not just that onslaught, but the trade boycott, which seems to have done far more damage to Germany's economy than it has done to Russia's. The Rouble has risen sharply against the dollar in recent weeks, and it has begun to reduce, rather than increase, its interest rates. But, they remain very high compared to those in the US, UK and Europe.

This is theprocess I outlined last year. At a certain point, the currencies of these economies, like Russia, begin to look cheap, especially as their interest rates look extremely attractive. What used to be called “hot money” in the 1960's, then swishes back into these economies, in search of the higher yields available, but also, in the short term, in search of the significant capital gains to be made by a rise in the price of the bonds, and the value of the currency.

With the US tightening monetary policy, and the yields on its bonds rising by around 30%, in the last few weeks, and a similar pattern in the UK, and with the yield on the German Bund having risen by 1000%, in the same period, the last thing the EU needs, at the moment, is any sign of instability and panic arising from Greece, because that will only further increase the surge of money-capital away from the EU, and into these emerging markets.

That comes at a time when, despite all of the media hype about deflation, at the moment, the conditions are ripe for a dose of very high inflation. Whether, the oil price has bottomed or is set for another major leg down, as supply does not yet seem to have been contracted enough to remove the excess in the market, the fact remains that, in the next few months, that over supply will have been removed, and global prices will stabilise at around $70-80 a barrel. Compared to the prices experienced in the last few months, that will manifest itself in the economy as a significant upward pressure on costs.

Its is not the only one. In the US, Wal-Mart and Target have raised their minimum wage levels, ahead of increased competition for labour-power, as capacity constraints already begin to be seen in various areas. Los Angeles has just introduced a $15 per hour Minimum Wage. At the same time, productivity levels are falling. Productivity in the UK is appalling, in large part due to the fact that the Thatcher government introduced a low pay/low skill/high debt economic model, in the 1980's, and that has set the mould for the economy in the period since, but global productivity is slowing down, just because of the phase of the long wave it is going through, when all of the base technologies developed in the 1980's have already been introduced into a range of devices, and their effects are now dwindling.

As Marx describes, it is not rising wages that cause inflation. Wages are the phenomenal form of the value of labour-power, which is determined by the cost of reproducing it. If the price of commodities required for the reproduction of labour-power rises, then the value of labour-power rises, and so ultimately do wages. That means that profits fall as a result. For the last thirty years, the process has been in the other direction, and capital has also been able to depress wages below the value of labour-power. That is why the share of profits in national income has been rising as against wages – the rate of surplus value.

But, the first response of capital, as wages rise, and as it faces rising costs of other inputs, will be to try to protect its profits by using the vast oceans of liquidity that have been pumped into the global economy, over the last thirty years, to increase prices, because capital, and its ideologists, do not understand the actual source of profits as stemming from surplus value. They think that profits are merely an additional percentage amount on top of their production costs. With such vast amounts of money having been printed, and yet so little of it having found its way into the real economy – in fact, because it pumped up the prices of fictitious capital, it may actually have acted to drain liquidity from the real economy, and thereby caused the deflation there – the tap could be quickly turned on, sending a flood of this liquidity into the economy, pushing up commodity prices, and then wages in a traditional inflationary spiral, in the same way it did previously in blowing up speculative bubbles.

But, the other side of that is that those speculative bubbles in shares, bonds, and property themselves then get burst. Greece could yet be the spark that ignites the gas in all these bubbles.