Friday Night Disco - Full Time Thing - Whirlwind

Marx and Machines - Part 4 of 7

In describing the effects of machines in relation to unemployment, the dichotomous attitude of Marx once more manifests itself. He wants to oppose the bourgeois apologists who can see no downside to the introduction of machines, for workers, and who argued, for example, that the workers “freed” from production, by the introduction of machines, would simply be employed by the capital that was released by this process, for example, in producing the machines themselves.

Ricardo, who had originally held that position, was later to recognise the devastating role that machines could have on workers. In his presentation of this case, however, Marx makes a number of errors, particularly in Theories of Surplus Value, Part 1, that are hard to explain. Moreover, both in Capital I, and in Theories of Surplus Value, Part I, having made this case, Marx goes on immediately to set out the extent to which, rather than contracting, employment expands significantly.

As I set out in my new book Marx, in Chapter 15, writes,

“If it be said that 100 millions of people would be required in England to spin with the old spinning-wheel the cotton that is now spun with mules by 500,000 people, this does not mean that the mules took the place of those millions who never existed. It means only this, that many millions of workpeople would be required to replace the spinning machinery. If, on the other hand, we say, that in England the power-loom threw 800,000 weavers on the streets, we do not refer to existing machinery, that would have to be replaced by a definite number of workpeople, but to a number of weavers in existence who were actually replaced or displaced by the looms.”

As he makes clear here, there are two aspects to the role of the machine. On the one hand, a machine may be introduced which actually replaces existing workers, who are thereby made redundant. On the other hand, a machine may be introduced, which does the work that x number of workers would have previously been required to undertake, but this does not at all mean that this number of workers are thereby made redundant, if they were not so employed in the first place.

Suppose, for example, it would take 500 workers, using hand tools and horses, to excavate a canal. The cost of employing these workers, for this task, might make it too costly to undertake. However, if a steam powered excavator is introduced, it may be able to undertake this work at a fraction of the cost. It then becomes possible to dig the canal, and in addition to the excavator driver, workers are now employed in other activities such as building locks, canal barges, and so on, who otherwise would not have been employed.

Although, therefore, the machine theoretically replaced labour, in practice, it led to more workers being employed. Marx gives a similar set of examples in Capital I, of the range of jobs that were created in the 19th century, as capital expanded rapidly, for example, in building railways, roads, canals, ports and so on. And, even where capital replaces existing labour, the additional profits it creates by higher productivity, enable such an expansion of capital that employment can increase above what it was previously.

“This first period, during which machinery conquers its field of action, is of decisive importance owing to the extraordinary profits that it helps to produce. These profits not only form a source of accelerated accumulation, but also attract into the favoured sphere of production a large part of the additional social capital that is being constantly created, and is ever on the look-out for new investments. The special advantages of this first period of fast and furious activity are felt in every branch of production that machinery invades. So soon, however, as the factory system has gained a certain breadth of footing and a definite degree of maturity, and, especially, so soon as its technical basis, machinery, is itself produced by machinery; so soon as coal mining and iron mining, the metal industries, and the means of transport have been revolutionised; so soon, in short, as the general conditions requisite for production by the modern industrial system have been established, this mode of production acquires an elasticity, a capacity for sudden extension by leaps and bounds that finds no hindrance except in the supply of raw material and in the disposal of the produce.”

(Capital I, Chapter 15, p 424)

Back To Part 3

Part 5 Will Appear Tomorrow

Capital III, Chapter 10 - Part 24

“The price of production includes the average profit. We call it price of production. It is really what Adam Smith calls natural price, Ricardo calls price of production, or cost of production, and the physiocrats call prix nécessaire, because in the long run it is a prerequisite of supply, of the reproduction of commodities in every individual sphere.” (p 198)

This is the important point that orthodox economics fails to grasp. Its starting point is the subjective valuation of the individual consumer. It says, the value of any commodity is only what someone is prepared to pay for it. The market value is then the aggregate of these individual valuations. But this is an inversion of reality. The reality is that the value of a commodity is what it costs to produce it including the surplus value, or average profit.

If no one, or not enough people, are prepared to pay this price it does not get produced. It never gets to the stage of being a commodity, because no capitalist will produce such a commodity at a loss, or at least not for long. The only role for the individual, subjective valuation of consumers is then to determine how much they will demand of this commodity at the market value.

It is no different than the situation facing Robinson Crusoe, or a peasant producer. No matter how much they might prefer potatoes to fish, or vice versa, it does not change the price of one measured in terms of how much of the other they have to give up to obtain it. If it takes 10 hours to produce 10 kg. of potatoes, and 20 hours to produce 10 fish, if I want to have 20 kg. of potatoes, I have to pay for it with 10 fish that I cannot produce. That remains true, however much I might prefer potatoes to fish, or vice versa. All my preferences can determine here is what my demand for each will be, how much of my time I devote to one rather than another.

But, the price of production is merely the phenomenal form of this underlying value relation, as it is manifest under capitalist production. As such, it is a superficial reflection of it, which obscures the underlying value relation.

“We can well understand why the same economists who oppose determining the value of commodities by labour-time, i.e., by the quantity of labour contained in them, why they always speak of prices of production as centres around which market-prices fluctuate. They can afford to do it because the price of production is an utterly external and prima facie meaningless form of the value of commodities, a form as it appears in competition, therefore in the mind of the vulgar capitalist, and consequently in that of the vulgar economist.” (p 198) 

The establishment of a general rate of profit across spheres of production, is the result of that competition as capitals continually seek to move out of those spheres where the rate of profit is low, and into those where it is high. Supply falls in the former and rises in the latter, reducing prices and profits. But, because this process also establishes a single market value for the commodities of any particular sphere, this means that within it, the actual profits made by different firms will vary, because each firm has different cost prices. Those firms with lower than average costs will make surplus profits above the average, whilst those with higher than average costs will make below average profits. Whenever there is overproduction or some other crisis, it will be the latter that will be the first to go under, allowing the former to take over their capital and market share, thereby facilitating the process of the concentration and centralisation of capital.

Surplus profits may also arise if a particular sphere can avoid the values of their commodities being converted into prices of production. This is particularly the case in agriculture where the monopoly ownership of land then gives rise to rent, as will be analysed later. But, wherever monopoly exists, this will be the case.

Back To Part 23

Forward To Chapter 11

The Attack on Fictitious Capital Continues

I wrote recently about the attack on fictitious capital – The Attack On Fictitious Capital Begins. Fictitious capital is things like shares, bonds and property. In other words, it is assets that appear to be like capital, as self-expanding value, but really are not. The dividends on a share, or the yield on a bond, or the rent on property, is only a share in the surplus value produced by real productive-capital. All of the pieces of paper which represent this fictitious capital, a share certificate, a bond, a mortgage or a rental agreement, are merely paper duplicates of the real capital, which make it appear that this capital exists twice or more. But, these bits of paper themselves get traded, and have a life of their own, with their prices move completely independently of the real capital. That is why we've seen the Shanghai Stock Market rise by 130%, and then collapse by 30%, for example. But, the money that gets sucked into speculation in the various forms of this fictitious capital, is also potential money-capital that could have been used to finance the accumulation of real capital. To the extent that it acts as a diversion from that, it undermines the real capitalist economy.

That is why, a conflict has broken out between the representatives of this fictitious capital, who want, at all costs, to maintain, and if possible further inflate, the prices of this fictitious capital, which is what the various acts of Quantitative Easing, by central banks, has done, and the representatives of the productive-capital, particularly of the big industrial capital, which takes the form of socialised capital, such as joint stock companies, as opposed to the remnants of private capital, in the shape of the smaller individual and family owned businesses. Fictitious capital, and this private capital is represented by conservatism, whereas the socialised capital is represented by social democracy.

In recent weeks, however, even some of the representatives of fictitious capital, including some of the big money lending capitalists, and their strategists, have recognised that there is a problem, because the more the prices of fictitious capital, in its various forms, rises, the lower the yield on those assets. That has been dismissed over the last 20 years or so, because, the owners of this fictitious capital have been able to console themselves with the fact that, the yield on their assets may have been shrinking to zero, but they have been making huge capital gains on the assets. You would not worry that you obtained little dividends on your Chinese shares, for example, if the value of your shares, themselves had more than doubled in a year!

The problem, is, as Andy Haldane and others have noted, is that if profits go into this speculation, or are used to pay out dividends, rather than to invest in real capital, then the potential for profits to continue to grow is diminished. At some point, appearance and reality will be brought forcibly into alignment, and that prices of the fictitious capital will crash. The representatives of that fictitious capital want to avoid that situation. From my own perspective, I think that such a crash is now inevitable, and will be beneficial, as I set out in my first book, because it will create the conditions for profits once more to be used for accumulation rather than speculation and other forms of unproductive consumption.

Another example of the situation described by Haldance and Clinton, of this shrinking yield, is property. Go back to the mid 1990's, after the house price crash of 1990, and ahead of the new bubble that started forming around 1997, and rental yields, for landlords were around 15%. On top of that, after 1997 landlords obtained more or less annual capital gains on their property. But, as property prices rose, whilst the potential for tenants to pay higher rents declined, because wages were stagnant or falling, and now even Housing Benefit is being cut, the ratio of the rent to the price that landlords had to pay for properties continually fell, in the same way that dividend yields fell on shares, and bond yields fell.

Today, rather than 15% yields on rental properties, landlords are lucky to make 5-6%, and then there are the risks of being able to rent the property, management costs, and the potential of damage caused to property by tenants. In London, where property prices have gone through the roof, rental yields are more like just 2%. But, just as with bonds and shares, the owners of this rental property have been more concerned that they were able to make large capital gains, as property prices rose, rather than that they made decent rental yields on their investment. That has been particularly notable with all of those Asian property syndicates from Singapore, Malaysia, Hong Kong and mainland China, that have bought into property developments in London and elsewhere that have no chance of ever being let out to tenants at current rents, but whose owners are only concerned with making these capital gains. Some of them may be learning the lesson of such speculation from what has happened to property prices in their own region, as well as with speculation on the Shanghai Stock Market.

But, as I also wrote recently, we have seen periods like this before in history, where large numbers of people are encouraged to take on board large amounts of debt, to purchase such fictitious capital, particularly property, only to find that it results in their ruination and expropriation. As I wrote there, George Osborne's Budget gives an indication of how this process could now be unfolding once more. On the one hand, in the next few weeks, official interest rates will be rising, which will both spark a series of rises in mortgage rates, but in any case will lead to falls in property prices. The Buy-To-Let landlords, who are different to many of the old style landlords, who owned the property they rented outright, have been encouraged, rather like the speculators on the Shanghai Stock market, who speculated on margin, to buy their rental properties with mortgages. In fact, the government gave them incentives to do so, by allowing them to write off their mortgage interest against their rent, for tax purposes.

There is a story going around at the moment, that Osborne went to his local tax office, and was shown the redacted details of one such landlord, who made £150,000 in rent during the year, but paid no tax, because they had been able to set off all of the mortgage interest on a number of properties, along with other costs. Whether that is true or not, in his Budget, Osborne withdrew part of the tax relief for such interest on buy to let mortgages, and has made clear the rest is going too. That is two ways the Buy-To-Let landlords will get hit. Firstly, their interest payments on their mortgages will rise, squeezing the yield on their properties further, and secondly the tax relief they currently enjoy will be removed, squeezing that yield even further.

I reported some time ago that some of the biggest buy-to-let landlords, with portfolios extending up to around £100 million had begun to sell out, as they saw the top of the market. With these further measures, it appears that more buy-to-let landlords are following suit. Its reported that 9% are already in the process of selling up, with another 23% considering doing so.

Yet, as a discussion at Housepricecrash.com indicates, the pain for the buy-to-letters may be only just beginning. As well as removing this tax relief, Osborne is looking at the need to raise a lot more money in capital gains. The BTL's are another obvious source for this. Currently, there is a disincentive for them to sell properties, because when they do, they are hit for CGT on the full capital gain on any property. But, with properties rising in price, the obvious thing for them to do, is to realise the capital gain, by re-mortgaging the property on the basis of its current price. But, they then use the realised sum to buy another rental property, again on a mortgage.

Whilst, property prices were rising, every year, by large amounts, and while mortgage rates remained low, and the government was providing tax incentives, this was a one way bet. However, as the discussion at Houseprice Crash indicates that same process could now cause the BTL's a very serious problem. The government is thought to be proposing to levy CGT not just when such a property is sold, but also if a landlord realises the capital gain by re-mortgaging. However, because they have used the proceeds to buy additional properties, they could now find that they do not have sufficient funds to cover the CGT.

The following indicates the problem. Suppose a landlord bought a £50,000 house, in 2000, with a 10% deposit. If the price of the house is now £211,000, there is £161,000 of capital gain on which to pay CGT. Taking the annual allowance into consideration, he has to pay CGT on roughly £150,000 of gains, which is £42,000.

If they re-mortgaged and used the proceeds to buy another property so that his loan to value remains 90%, he only has £20,000 of equity in the house. That’s not enough to cover the CGT bill. In fact, unless they kept the new mortgage to less than 80% of the property price, they would be unable to cover the CGT.  But, he can’t sell his other properties to cover the expense because the same problem exists. When they sell this other property, that becomes due to CGT on this gain too. Unless the BTL's have been storing up a money hoard to cover such eventualities they are screwed, and almost by definition they will not have been creating such hoards, because the whole basis of the model is to use any realised equity, to leverage up further to acquire additional property.

Any BTL's operating at the margin, and there must be many, as rental yields have been squeezed close to zero, will have a problem. The mindset created over the last 20 years of relying solely on capital appreciation, which has applied across all of the various classes of fictitious capital, will have drawn them in, believing that they were getting richer, only to find as with so many more people, that they have only mired themselves in a morass of debt, from which they cannot now escape. The more the capital gain on their properties, the greater the morass, from which they must try to become disentangled, because the more CGT they will be liable to pay, so the more properties they would need to sell to pay the tax, but the more properties they sell, the more their capital gain, and the more tax they become liable to pay.

That is like the situation I described recently, that in order to cover their debts on shares bought on margin, speculators in China have to sell anything and everything to raise the cash, so the prices of everything drops, creating a vicious downward spiral. Its the same thing that happened in 2008, and has happened in every other such situation. In China, the state has been trying to hold the line, by introducing all of the usual measures to ban short selling, to stop large shareholders from selling at all, and so on. But, its not working. In Britain, the government has done something similar in the past few years to try to keep property prices from collapsing. It introduced various scams of shared ownership, Help To Buy, and so on, but that isn't working either. It has only postponed the actual collapse of property prices, and thereby made the collapse when it comes all that more pronounced.

The problem is indicated in an article on Bloomberg. I have argued previously that we are in a long wave boom cycle, similar to that which began in 1949, and lasted until 1974. This boom began in 1999. The features of this cycle are almost identical to those of the previous one, including the fact that gold, measured against other commodities, peaked in 1961 (the nominal peak in 1980 was only a measure against a depreciated dollar) 12 years into the cycle, just as it peaked this time 12 years into the cycle in 2011. The price movements of other primary products, such as copper have followed the same pattern too, as has the pattern of productivity. I believe that profits will also follow a similar pattern, and we are seeing a similar pattern for wages too.

In the article, the example of 1966 is cited in respect of inflation. On a purely chronological basis, 2015 is the equivalent of 1965.  As it states, at the start of that year, core inflation stood at 1.3%, about the same as for the US today. Unemployment was falling below 5%, slightly lower than today. But, by the end of that year, core inflation had risen to 3.1%. It continued to rise, despite repeated interest rate rises. By 1971, the core rate was over 5%, and it only fell because of the depressive effect of the oil price shock and recession in 1971/2. Core inflation continued to rise to over 10% by 1975, and headline inflation rose much higher, and didn't get back to below 2% until 1995.

As I pointed out the other day, it takes two years for a tightening of monetary policy to begin to have an effect on prices. The Federal Reserve and other central banks are way behind the curve in terms of taking action to deal with the inflation that is in the pipeline. What is different today, compared to 1966, is that, we have an unprecedented amount of liquidity that has been pumped into global markets, as well as changes in the global financial system, that have created not only the power of private banks to create money, but the creation of a huge shadow banking system, with the same capacity. Alan Greenspan in an interview yesterday on CNBC himself commented that he believed that there was a huge bond bubble, and warned that liquidity in such markets could disappear in minutes, when panic causes large numbers of people to want to sell, when there are no buyers, so that in the midst of a sea of liquidity, there arises a credit crunch.

As productivity growth slows, and the long period of cheap commodities from China comes to an end, consumer price inflation is bound to rise. Already, even as labour markets only begin to tighten, the largest capitals are raising wages to retain and recruit labour, and because they know that this pressures other capitals to raise wages, a process which benefits the larger capitals, as consumption rises, and with it the mass of profit. As commodity prices rise, as Marx describes, the value of labour-power rises in consequence, so wages must rise. That is facilitated by the sea of liquidity swilling around markets. A price-wage spiral is then set in place, which is likely to increase faster than anyone currently envisages. Whether central banks tighten monetary policy or not, interest rates will rise, as money-lenders seek to protect themselves against inflation.

A September rise in US official rates looks inevitable, and indeed well overdue. If the Fed raises, the UK will have to follow. That will be the start of the collapse of property prices, and of the prices of all other forms of fictitious capital.

Capital III, Chapter 10 - Part 23

It may objectively be the case that each capitalist shares in the total surplus value, but at the phenomenal level of experiences, it does not appear that way to them. Their class identity, as capitalists, seems more to stem from their common social position and interests as against other classes, which that objective reality imposes upon them. In the same way, the objective interests of workers is for them to combine to defend their wages etc. At times, that objective reality imposes itself, and workers create trades unions and other collective organisations. But, more frequently, it is the appearance of reality at the phenomenal level that imposes itself on to the consciousness of workers, and that reality, under capitalism, is one in which each worker must compete with every other worker for available work etc. That is one reason only a minority of workers have ever belonged to trades unions, it is why even collectives of workers have frequently engaged in such competition via, sectionalism, nationalism etc.

“On the other hand, every particular sphere of capital, and every individual capitalist, have the same interest in the productivity of the social labour employed by the sum total of capital. For two things depend on this productivity: First, the mass of use-values in which the average profit is expressed; and this is doubly important, since this average profit serves as a fund for the accumulation of new capital and as a fund for revenue to be spent for consumption. Second, the value of the total capital invested (constant and variable), which, the amount of surplus-value, or profit, for the whole capitalist class being given, determines the rate of profit, or the profit on a certain quantity of capital. The special productivity of labour in any particular sphere, or in any individual enterprise of this sphere, is of interest only to those capitalists who are directly engaged in it, since it enables that particular sphere, vis-a-vis the total capital, or that individual capitalist, vis-a-vis his sphere, to make an extra profit.” (p 197-8)

It is easier to see why this objective reality is, however, apparent to the capitalist at a phenomenal level. Every capitalist can see that if the level of productivity increases in the economy, they benefit for the reasons Marx describes here. Each can see that higher productivity means lower unit prices for commodities. Lower prices for wage goods means at the least less upward pressure on wages. Each capitalist may not understand that they share in the pool of total surplus value, but they do understand that their own profits are higher if their wage bill is lower.

But, as Marx pointed out earlier, as surplus value assumes the phenomenal form of profit, and as the capital advanced assumes the phenomenal form of cost price, there is no reason why capital should consider a lower price for labour any differently than a lower price for any other input. In fact, for those businesses that employ large amounts of constant capital as opposed to variable capital, and who at a phenomenal level, see their profit rise as their cost price falls, it will appear far more important to obtain a reduction in the price of their constant capital than in their wage bill.

And, of course, a rise in the general level of productivity will bring that about too. As commodity prices fall, as a result of higher productivity, the costs of the materials, machinery etc. they need to buy, falls, and the same processes will reduce other costs of transport and distribution. At a personal level, the capitalist will also find that the price of things they buy for their own personal consumption will fall, thereby enabling them to enjoy an even more lavish lifestyle and to have more of their profit left over for accumulation.

Back To Part 22

Forward To Part 24

Marx and Machines - Part 3 of 7

As Marx sets out in Theories of Surplus Value, there are essentially four potential causes of crises arising from commodity production and exchange. The first is that there is a contradiction at the heart of the commodity itself. It is that the commodity is simultaneously a use value and exchange value, and these two aspects are antagonistic one to the other.

In order to increase social wealth, more use values must be produced and to do this with a limited amount of social labour requires an increase in social productivity. But, this rise in productivity, which raises social wealth by producing more use values, simultaneously reduces the value of each commodity unit. The problem here is one recognised by orthodox economic theory. As the mass of use values produced increases, so the demand for those use values is increasingly satisfied. The more the demand is satisfied the less consumers will demand of any commodity at any given price. In other words, there is diminishing marginal utility.

Marx describes this diminishing marginal utility like this.

“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one."

(TOSV 3 Chapter 20, p 119) 

He gives another example of this in relation to two producers whose productivity changes at different rates.

“It is quite incomprehensible, therefore, why industry A, because the value of its output has increased by 1 per cent while the mass of its products has grown by 20 per cent, must find a market in B where the value has likewise increased by 1 per cent, but the quantity of its output only by 5 per cent. Here, the author has failed to take into consideration the difference between use-value and exchange-value.”

(Theories of Surplus Value 3)

In other words, although the value of output of both industries remains exactly the same, as it was originally, when they fully exchanged their product one with the other, this relative variation in productivity destroys that possibility, precisely because demand is a function of use value not value.

The second potential cause of crises arising from commodity production is the separation of production and consumption. A direct producer will only expend their labour-time on producing those products they require for consumption. If they spend additional time to this, it will only be to obtain those few items they cannot produce themselves. But, not only will this production be limited, it will itself be geared to what the producer knows they can exchange. Indeed, much of it will be to meet already determined needs.

Capitalist production begins in the 15th century, but, even in respect of this production, it advances relatively slowly. For a long time, it is really just a continuation of handicraft production, but under one roof, and with the individual producer turned into a wage labourer.

It is only in 1825 that the first crisis of overproduction erupts, and it is quite clearly linked to the fact that capitalist production is transformed into machine production, and the steam engine provides the basis to bring into operation many more machines than could previously be set in motion by human, animal or water power. It means that, in addition to more machines, more powerful machines are set in motion. In Britain, Marx cites the average number of spindles per factory rising to 12,500 by the mid 1800's. Each machine still required only one minder, so that the quantity of material processed by each machine and each worker explodes, and it is this which results in the kind of disproportion and overproduction that Marx describes in the earlier examples.

It is then that the separation of production and consumption leads to crises because the quantity of use values thrown on to the market rises to such an extent that there is insufficient demand for them even at their now much lower market value. In order to raise demand to clear the market of the supply, the market price must fall much lower, and at this price, the value of the capital used in its production cannot be reproduced.

The capital must then contract, workers are thrown out of their jobs, and this in turn means that there is a reduced demand in the economy, which means that other commodities cannot be sold, and so on.

It appears then that it is the machines that have caused this crisis by replacing labour. But, as Marx describes in his criticism of the Luddites, this is not the case. The crisis here was not caused by machines massively expanding production. What kind of crisis is it that manifests in an abundance of wealth? It is not machines that turn such a fortuitous circumstance into a crisis, but a social system whose only concern is the production of profit. But, even within the realm of capitalism here, it is not the fact that machines enabled a vast increase in the level of output, which created the crisis, but the fact that the owners of these machines, in search of ever more profits, insisted that these machines churn out this vastly increased quantity without any regard for whether the market could absorb the level of supply.

As I set out in my first book, there is no reason that this should lead to a crisis, if the increased productive potential is used instead to produce a range of commodities in the correct proportions. To take Marx's earlier example, in respect of knives, I may have satisfied my demand for them, and have no demand for more, but, if the cutlery producer uses their increased capacity to produce cheaper, forks, spoons and other utensils, I may now be encouraged to buy these items.

The real problem here arises where the level of productivity for all existing production has risen to where this begins to be a problem, but where there is an insufficient range of new types of production into which the released productive capacity can be channelled, so as to develop new markets. This is a problem related to the long wave cycle, as I have set out elsewhere.

Back To Part 2

Part 4 will appear on Friday

Capital III, Chapter 10 - Part 22

Although socialised capital, in the form of limited liability companies and corporations dominate the economy, small-scale capitals, made up of sole traders, partnerships and private companies, not only persist, but remain numerically preponderant. In some economies, large numbers of peasant farmers continue to exist, and even in the most developed economies, large amounts of economic activity remains in the form of domestic production, i.e. household cooking, cleaning, childcare, social care and so on.

Marx repeats the argument.

“It follows from the foregoing that in each particular sphere of production the individual capitalist, as well as the capitalists as a whole, take direct part in the exploitation of the total working-class by the totality of capital and in the degree of that exploitation, not only out of general class sympathy, but also for direct economic reasons. For, assuming all other conditions — among them the value of the total advanced constant capital — to be given, the average rate of profit depends on the intensity of exploitation of the sum total of labour by the sum total of capital.” (p 196-7)

But again, its not clear that each capitalist does see this. In fact, for the reason he sets out in the Grundrisse, there is every reason why any individual capitalist should welcome the workers of other capitalists being well paid.

“To each capitalist, the total mass of all workers, with the exception of his own workers, appear not as workers, but as consumers, possessors of exchange values (wages), money, which they exchange for his commodity. They are so many centres of circulation with whom the act of exchange begins and by whom the exchange value of capital is maintained. They form a proportionally very great part -- although not quite so great as is generally imagined, if one focuses on the industrial worker proper -- of all consumers. The greater their number -- the number of the industrial population -- and the mass of money at their disposal, the greater the sphere of exchange for capital. We have seen that it is the tendency of capital to increase the industrial population as much as possible. 

Actually, the relation of one capitalist to the workers of another capitalist is none of our concern here. It only shows every capitalist's illusion, but alters nothing in the relation of capital in general to labour. Every capitalist knows this about his worker, that he does not relate to him as producer to consumer, and [he therefore] wishes to restrict his consumption, i.e. his ability to exchange, his wage, as much as possible. Of course he would like the workers of other capitalists to be the greatest consumers possible of his own commodity. But the relation of every capitalist to his own workers is the relation as such of capital and labour, the essential relation. But this is just how the illusion arises -- true for the individual capitalist as distinct from all the others – that apart from his workers the whole remaining working class confronts him as consumer and participant in exchange, as money-spender, and not as worker... 

Here again it is the competition among capitals, their indifference to and independence of one another, which brings it about that the individual capital relates to the workers of the entire remaining capital not as to workers: hence is driven beyond the right proportion.”

(Grundrisse, Chapter 8) 

Moreover, as Marx pointed out earlier, the capitalist does not see that what each of them extracts individually is surplus value. So, they cannot then perceive of there being a collective pool of such surplus value. Rather what each sees is that they have a cost-price which comprises all of their advanced capital, be it constant or variable. They see what they produce as being not surplus value but profit, and this they see as being produced by their whole capital not just the variable capital. That is why those capitalists that employ very little labour see no contradiction in their large capital producing a large profit for them. In fact, far from these capitalists recognising that they share in the total surplus value produced by all capitals they would undoubtedly be deeply affronted, if it was suggested to them that that was the case, rather than that their profits flowed from the application of their own capital, and their individual business acumen.

Back To Part 21

Forward To Part 23

China Crashes 8.5%

Over the last few months, there has been concern as to whether financial markets could write off the €350 billion of Greek debt. In one single night, on Monday, those same financial markets wiped off $500 billion of the same paper wealth from the Shanghai Stock Market alone! Despite the fact, that the Chinese state for the last few weeks has prevented large shareholders from being able to sell shares, has stopped the short selling of shares, and has itself intervened in the market to buy shares, as well as cutting official interests rates, relaxing credit conditions further and so on, the index fell by 8.5%. In the last few weeks it has dropped by around 30%.

It is, in fact, another indication of the fact that financial markets have no relation to the real economy. The Chinese economy is slowing, but still growing at around 7% a year, or more than double the rate in the US. Similarly, the Chinese economy has slowed compared to its previous growth, and yet in the last year, the Shanghai Composite Index had risen by 130%. These huge movements in financial markets have nothing to do with the underlying performance of economies. Stock prices should theoretically move up or down in accordance with the perception of the potential for future profits. A share is a piece of paper giving the owner an entitlement to interest on the money-capital they have loaned. That interest takes the form of dividends, paid out of the company's profits. If companies are likely to make higher profits, they can pay higher dividends, and so share prices should rise, and vice versa.

However, the consequence of money printing by central banks, and particularly since the late 1980's, when central banks have intervened to inflate asset prices, whenever they declined, created an environment in which speculators came to believe that the prices of bonds, shares, and property could only ever go one way – up. As a result, speculators began to disregard the interest they could obtain on their investment, especially as that interest got smaller and smaller. Instead, their focus came to be solely on the potential to make huge, rapid capital gains. Why would you bother about a few percent of interest, if you could buy a bond, a share, or a house, whose nominal value rose by 20%, in a few months, and whose price, if it ever dropped, was quickly boosted again by central bank action. This was a vicious circle, because the rate of interest, the yield, on all of these financial assets gets smaller as the price of the asset gets higher. So, the lower the yield became, the more speculators became concerned instead with making capital gains, and the more they became interested in making capital gains, the more they pushed up asset prices, and thereby reduced yields.

But, this can only go on for so long. At a certain point such bubbles burst, and whereas it takes a long time to inflate bubbles, they burst violently and suddenly. But, as 2008 and other such financial crises demonstrate, when these bubbles begin to burst they create a chain reaction. As speculators lose money in one place, they have to scramble for liquidity by selling assets in other markets, and other classes, even where those other asset classes may still be very lucrative. That is particularly the case where speculators have gambled in these markets with borrowed money. Reports say that many of the people who speculated in the Chinese markets over the last year, have been ordinary people, who saw the market soaring by 100%, and borrowed up to $1 million to finance their speculation, thinking they would become overnight millionaires. Instead they have lost $300,000, as the market crashed, with no possibility of paying it back.

Its not as though, this is a zero sum game, where one person's loss on such a gamble is another person's gain. If I have a £1 million house, and so do you, we can delude ourselves that we have somehow become wealthier, if I sell my house to you for a nominal price of £2 million, and you sell your house to me for £2 million, but, in reality, nothing has changed. I have not gained £1 million of wealth, and nor have you. Similarly, the nominal prices of all these financial assets can be reduced by 90%, but 90% of that wealth is not thereby transferred into the pocket of someone else, it has just disappeared in smoke. The real benefit is rather to anyone who has money. That money then becomes much more valuable by comparison. If I have £100,000 in the bank, and house prices drop by 90%, my money becomes worth 10 times as much. My £100,000 will now buy me a £1 million house, and the same thing applies as far as the prices of bonds, shares and so on. It is not that a crash in prices magically transfers wealth into someone else's hands, but that it super powers money. That is why in times like this, smart investors have always sought to keep a lot of their wealth in liquid form, ready to snap up property, bonds, and shares, when their prices seriously crash.

By contrast, the amateur investors, and Joe Public are always drawn into the markets at such points to buy these overpriced assets, because that is the means by which the smart investors are able to offload their overpriced assets, raise liquidity, and thereby wait for the crash, so as to pick up huge bargains. Its the process I discussed recently.

But, this crash in Chinese markets is also an indication of the other factor I discussed recently, that the massive growth of this fictitious capital – property, bonds, shares - is actually detrimental to the accumulation of real productive capital. It sucks realised profits away from accumulation of capital, required for the further expansion of surplus value, and drags it into a meaningless spiral of speculation that creates huge paper wealth in the hands of a tiny few money lenders, whilst undermining real productive wealth. Once again that situation cannot continue. It leads as Andy Haldane of the Bank of England commented, in capital “eating itself.”

I have been pointing out for some time, that there has been a shift in the conjuncture of the global long wave cycle, from the Spring to Summer phase. It means that interest rates globally are now in a rising phase, because the demand for money-capital will rise relative to its supply. The consequence of rising interest rates is that the prices of fictitious capital in its various forms fall, because the yield on these assets is inversely related to their price, as set out above. That is what we are seeing. It represents a shift in power away from the fictitious capital, whose value will drop, and towards productive-capital.

Conservatism is based upon the former and social democracy on the latter. It is why we are seeing the attack on fictitious capital referred to. The first skirmish in this battle has been Greece. Part of this shift in conjuncture, also means that labour supplies begin to be used up, so that wages tend to rise, a phenomenon seen markedly in China and other Asian economies, but also being seen in the US and UK, now. That again strengthens social democracy vis a vis conservatism. There are a range of other factors that play into this process that I have referred to previously.

For example, I discussed a few weeks ago the consequence of the sharp falls in the oil price, which is itself a normal consequence of the long wave cycle, as the huge rise in investment and technology in the production of primary products, over the last 15 years, creates a large rise in the supply of those products, and with lower costs of production. But, the consequence of that is that some parts of this production become unprofitable, for example, in the North Sea, and some of the frackers.   This has already led to huge sell-offs in the junk bond market.  I discussed in those earlier posts the fact that a large proportion of the junk bond market was now accounted for solely by the energy sector, and that around 30% of these bonds were now effectively bad.

The renewed falls in commodity prices over the last week or so has seen these junk bond prices fall to even lower levels than when the oil price dropped earlier in the year, and consequently the yields on these bonds to rocket.  The junk bond market is notoriously illiquid, like the property market.  Any sell-off causes pronounced falls in prices, because its impossible to quickly find buyers at any price.  Moreover, as legendary bond investors like Bill Gross have said, a crash in junk bonds could quickly spread into the rest of the bond market.  With the continued debt crisis in Europe, in Costa Rica, and a whole swathe of large US cities, and with global private debt levels at astronomical levels, this is a ticking time bomb waiting to explode.

To the extent that previously these primary product producers were large contributors to state budgets, in the provision of taxes, those states have to fund their activities by alternative means, i.e. borrowing in the capital markets. This is another reason that the demand for loanable money-capital rises relative to the supply, and so pushes interest rates higher. The effect in respect of Norway has been marked, but Saudi Arabia, recently tapped the capital markets for $4 billion, the first time it has borrowed for more than 8 years. It is just one of a range of economies that have enjoyed massive revenues, which were pumped back into capital markets, as a supply of money-capital, which has now reversed, and become a drain on those capital markets.

China is being encouraged by the IMF to withdraw its attempts to prop up the country's financial markets, because they are unsustainable. The Chinese Authorities are obviously reluctant to do so, because millions of Chinese citizens will lose everything, and that is likely to create significant social unrest, but they seem to have little alternative. The reality is that its the problem of this fictitious capital writ large. Quite significant numbers of Chinese citizens, who previously would have put their savings into some small business, or farm production, instead used their money to gamble on the stock exchange. Instead of creating real wealth, and a potential for future earnings, they created nothing but a blizzard of worthless paper flying around the financial markets, and now that blizzard is being blown away.

But, it is not just China and Chinese citizens affected by this. Just as the drop in oil prices means that the oil sheikhs and the Texas oil barons have to borrow money, rather than lend it, so too a collapse in Chinese share prices, especially financed by borrowing, sends those investors scurrying after funds to cover their margin calls. It means they have to sell the London property they bought purely for speculation, for example, which is one reason, we have seen the prices of expensive property in Kensington and Chelsea drop by 7.5%, just in the last month. But, these Asian property syndicates have been buying property across Britain, which, along with laundered money from international criminal gangs, is one of the reasons property prices have been pushed up in some places, and failed to drop as much as they should in others.

Economic activity has been relatively subdued since the third quarter of last year, because of the three year cycle, but a new up turn in that cycle is due in the next quarter. In fact, UK GDP for the second quarter of 2015, has come in at 0.7%.  Increased growth in the US, in the EU, and UK will cause the already apparent shortages in some sectors for labour and some inputs (despite the low level of construction in the UK there is already a shortage both of bricks and bricklayers, for example) to lend added impetus to the already rising level of wages. Increased consumption will lead firms to advance additional capital for materials and labour-power, if not initially in fixed capital spending. Not only does that thereby pressure the rate of profit, but it increases the demand for money-capital, relative to its supply, pushing interest rates higher once more. In addition, these shortages, at a time of oceans of liquidity swilling around economies, creates the conditions for a sharp rise in consumer price inflation that central banks are currently ill-prepared to cope with.

It takes two years for monetary policy to slow inflation, and they are well behind the curve to deal with it, if wages and prices begin to spiral higher in the coming weeks and months. That will mean that bond markets will sell off sharply, as bond investors demand much higher yields to compensate for losses due to inflation.

In my firstbook, I described this kind of situation, as the backdrop to the next financial crisis. China, as I set out, is very similar to Britain in the 19^th century. It is in periods like this that crises of overproduction are more likely, as production is rapidly increased ahead of the potential of markets to cope with it. It is in periods of stagnation (Winter Phase) when rather than crises of overproduction, production grows slowly, that prolonged periods of unemployment and under utilisation of capacity manifest themselves. As I set out in my book, China is a classic example of where such a crisis of overproduction could break out. The fact that its authorities have fuelled asset price bubbles, rather than using their levers of control to develop sufficiently their own domestic market, their own welfare state, and so on, could make that more likely.

But, the basis of the current crisis, for now, resides not in the economy, but in these financial markets. In fact, a new financial crisis to clear out this fictitious capital is a precondition for establishing economic growth on a more sustainable basis. That is another reason that the attack on that fictitious capital has begun.

Capital III, Chapter 10 - Part 21

At a level of abstraction, Marx is correct, when he says that capital is indifferent about what use values it produces, just as the labour it employs, increasingly reduced to homogeneous, unskilled labour, is indifferent to which industry it is employed in.

“Second, one sphere of production is, in fact, just as good or just as bad as another. Every one of them yields the same profit, and every one of them would be useless if the commodities it produced did not satisfy some social need.” (p 195)

But, only at a level of abstraction. If it were the case that each sphere yielded the same rate of profit, there would be no movement of capital between them. At another level, depending upon the stage of capitalism considered, there are other frictions, which restrict the movement both of capital and labour. Wedgwood was a potter. He wasn't going to establish his business making furniture. When capitalists essentially lose this social function, and become providers of money-capital, they can invest this capital wherever it produces the best return, but the way they do this is then not by purchasing productive-capital, which becomes the function of the professional managers, but through purchasing shares. The means by which an average return on this money-capital is then obtained is not immediately via the movement of productive-capital, from one sphere to another, but is via the movement of share prices towards an average price/earnings ratio modified by various risk and other factors. Moreover, the return on this money-capital, is not profit, but interest, in the form of dividends, which Marx later demonstrates is determined by wholly different laws to those which determine the rate of profit.

The productive-capital, itself accumulated in ever larger units, for that very reason becomes increasingly immobile in the short term. A large car plant, in which hundreds of millions of pounds has been invested, cannot simply be turned over to washing machine production, if the rate of profit on the latter becomes higher.

Similarly, although capitalism tends towards the creation of a large homogeneous workforce, it simultaneously becomes more technological and requires the creation of large numbers of technicians, engineers, scientists etc. all of whom are increasingly specialised. It requires large numbers of administrators, who are equally specialised as accountants, lawyers etc. This is why capital is led to establish large welfare states to mass produce the educated labour it requires.

But, the point here is to remain at that level of abstraction, in order to explain the general tendency towards an average rate of profit, as a result of competition and the movement of market prices.

“Now, if the commodities are sold at their values, then, as we have shown, very different rates of profit arise in the various spheres of production, depending on the different organic composition of the masses of capital invested in them. But capital withdraws from a sphere with a low rate of profit and invades others, which yield a higher profit. Through this incessant outflow and influx, or, briefly, through its distribution among the various spheres, which depends on how the rate of profit falls here and rises there, it creates such a ratio of supply to demand that the average profit in the various spheres of production becomes the same, and values are, therefore, converted into prices of production. Capital succeeds in this equalisation, to a greater or lesser degree, depending on the extent of capitalist development in the given nation; i.e., on the extent the conditions in the country in question are adapted for the capitalist mode of production. With the progress of capitalist production, it also develops its own conditions and subordinates to its specific character and its immanent laws all the social prerequisites on which the production process is based.” (p 195-6)

Recognising the role of the frictions referred to above, Marx writes,

“The incessant equilibration of constant divergences is accomplished so much more quickly, 1) the more mobile the capital, i.e., the more easily it can be shifted from one sphere and from one place to another; 2) the more quickly labour-power can be transferred from one sphere to another and from one production locality to another.” (p 196)

In order to achieve this requires complete freedom of trade and removal of all monopolies other than those that arise due to capitalist concentration and centralisation. It requires the development of the credit system so that all of the scattered sums of money-capital can be concentrated and allocated to those spheres where the rate of profit is highest. It requires that all production is capitalist production, sweeping away the last vestiges of previous modes of production.

In fact, none of these conditions are ever fully met. The capitalist state itself establishes various monopolies such as the Welfare State; numerous restrictions even within the nation state, let alone between states, prevents complete freedom of trade.

Back To Part 20

Forward To Part 22

Mann Or Marx

Over the last week, the Blairites have continued to embarrass themselves more and more. We knew they had no principle or scruples, and this week they have demonstrated that openly. But, they have also demonstrated that the previous claims of pragmatism, as the excuse for their lack of principle, was also a lie. They have also demonstrated that they have no commitment even to basic concepts of democracy, and they have demonstrated that they have no knowledge even of the history and foundations of the movement of which they are a part.

The Blairites have always excused their lack of principle, and willingness to chase any focus group further and further to the right, on the basis of the need for pragmatism. The only point of a political party, they told us, was to win elections, because only in that way can you actually change things. In fact, that was always nonsense. Magna Carta did not come about because a political party sought popularity so as to bring about changes. It came about because the barons were prepared to engage in a struggle with the King, to bring about such change in their own narrow interest. The great democratic changes of the 19th century did not come about because of political parties seeking the centre ground, to win office to bring about change. They came about as a result of huge social movements in the streets to bring about such change, much as Thatcher's Poll Tax was stopped, by such movements, not by parliamentary opposition by the Parliamentary Labour Party, or the way Women's Suffrage was won by the actions in the streets of the Suffragettes.

In fact, there is a strong democratic argument for saying that a parliamentary majority, for any political party, should really be only a reflection of the fact that it has truly won the support of the majority of the population for its ideas, outside Parliament, and is now in a position to legislate those ideas accordingly. The idea that a party should legislate policies for which it has no great belief, or for which it has not won widespread popular support, is in itself deeply undemocratic, and in part stems from the first past the post electoral system, in Britain, and partly from the elitist nature of bourgeois democracy in general. It is one reason that large numbers of people become deeply dissatisfied with bourgeois democracy and parliamentary parties.

The idea that a political party should treat politics as a commodity, that it merely seeks to sell itself to as many consumers as possible, just at election times, and that it achieves this by using the same kind of market research and marketing techniques as a soap powder manufacturer, is again deeply undemocratic. It leads to those parties, as Blair did over Iraq, considering that it can just ignore those voters after it has been elected. It is, of course, a concept of politics appropriate to politicians who see their role not as a principled one, of trying to convince a majority of a series of principles required to create a better world, but who only see their role as that of any other salesmen, who see their position as a career, which is why so many of them can move seamlessly from one party to another, in order to further that career.

But even the veneer of that argument was removed by Blair and Mary Creagh during the week. In the aftermath of the election, the Tory media and the Blairites tried to shape the debate in the same way they did in 2010. They tried to create the narrative that Labour lost because Miliband was too left-wing, and so on. But, it was clearly nonsense, and failed to resonate. Not only was there the experience of Scotland, of the reality of the annihilation of the Liberals, and of the fact that Labour outperformed the Tories in England (just not by enough), but the fact was that many of the more left-wing policies were themselves very popular.

The same has been true of Corbyn's campaign. It is not just with party members that he is popular. He is popular with wide swathes of the electorate too, who were fed up of austerity-lite Labourism. That has been shown in all of the hustings, including the first TV hustings open to the public. Faced with that reality, the Blairites had a serious problem. If its left-wing politics that are popular, and required to get Labour elected, what do you do, when you're whole strategy and practice has been built on the need to carry out Tory-lite policies? 

Blair and Creagh gave the answer. In a TV interview, Creagh, in the same breath as giving the usual mantra about not supporting Corbyn because of the need to put forward popular policies, then said, in response to the fact that Corbyn's ideas were proving popular with electors, “we shouldn't just advocate policies that are popular, but policies we believe to be right.” That was said without any sense of irony, or recognition of how this left her standing both ways at the same time. Blair was more forthright. Having told people to get a heart transplant, if their heart told them to support socialist policies, he said openly, “If left-wing policies were what was required to get elected, I still wouldn't support them.”

Of course not, because, all along, the truth is that the Blairites are not interested in putting forward policies that are required for Labour to get elected, only in getting parties elected that will implement Tory-lite policies. In order to try to achieve that, the Blairites are also happy to abandon any concept of democracy. John Mann's intervention at the weekend, illustrated that. The idea that the Leadership election process could be stopped, had been floated earlier. It had nothing to do with entrism or other irregularities. As with the idea that, immediately after Corbyn was elected leader, the Blairites, in the PLP, could launch a coup, to depose him, forcing another election, in which he would be denied the required 35 MP's backing, this is just such another undemocratic manoeuvre by the Blairites, whose support has vanished into thin air.

Whether Corbyn wins the leadership election or not, his campaign has already shown that his ideas have considerable resonance both within the party and within the electorate. Yet, the Blairites would be quite happy to just prevent those ideas even being discussed or presented to the public! All of the manoeuvres are intended not to defeat Corbyn on the basis of a democratic debate and contest, but on the basis of bureaucratic, anti-democratic censorship. For a long time, right-wingers and Blairites argued for the idea of one member one vote, as an opposition to decision making, by small cliques of activists.

Now it is a small clique of Blairites who want to close down debate. If there is to be one member one vote within the Party, then that should apply consistently. Why should MP's have a privileged position in nominating leadership candidates. One member one vote, here, is for election of Leader of the whole party, and, on that basis, every party member should have an equal right to nominate as any other. The constitution should be changed to that effect, which would stop the machinations of the Blairites to undemocratically prevent party members from selecting the candidate they want. But, in the absence of that, it was absolutely correct for MP's to have put Corbyn on the ballot, and we should absolutely oppose any manoeuvres, by the Blairites and Tory media to frustrate that process.

John Mann and others have talked about “entryism” by the hard left, yet even other Blairites have dismissed this as nonsense, and called on Mann and others to put the evidence in front of the party if they have it. The fact is, as Phil as set out, Mann was one of those proposing that the Labour Leadership election be let open to every Tom, Dick and Harry, as with the US Primary Elections. Its only because Corbyn is winning that he now wants to limit who can vote. Moreover, where was he and other Blairites, in the past, when Tories, like Sean Woodward, simply crossed the floor to join the Labour Party, and become Labour Ministers. Where was this concern for “Entrism” when Digby Jones was made a Labour Minister without even joining the Labour Party, where was this concern about trying to attract members of the Liberal Democrats who only days before had been standing against Labour candidates, and standing side by side with Tories?

What people like Mann mean is that socialists are joining the Labour Party, god forbid! That message has reached hysterical proportions over last weekend in The Times, and in the rantings of some of the Blairites. One TV report I heard talked about 150,000 communists and Trotskyists flooding into the party! If only!!!! At the height of their strength in the 1980's, the various revolutionary sects had a total membership of no more than about 10,000, and many of them were really just petit-bourgeois students going through their rebellious stage, before getting themselves a well-paid job. In fact, not a small number of them are today to be found themselves in the ranks of the Blairites, or as journalists putting out the Tory/Blairite message.

If there were 150,000 Trotskyists/communists in Britain – and anyone who does a cursory search of their journals will find that most of the sects continue to be extremely hostile to the idea of joining or supporting the Labour Party under any circumstance – then rather than entering the Labour Party, they would be in a position to pose as an alternative to it!

But, Mann and others really mean that socialists are joining the Labour Party, even some with “Marxist” ideas. Considering such views to be in some way alien to the Labour Party just shows how ignorant of the Labour Party's history they are, and the extent to which it is they who are the real interlopers.

The founder of the Co-operative Movement in Britain, was Robert Owen. He is featured on the Co-op Bank's credit card. The Co-op, is of course, one of the affiliated organisations of the Labour Party, and the Co-op Party stands its own candidates in elections in conjunction with the Labour Party. But, Owen called himself communist, along with those like Fourier and St Simon who shared similar ideas about a future society in which the means of production were owned collectively by the workers. It was that vision of future society that Marx adopted.

The other pillar of the Labour Movement in Britain in the 19th century was the Chartist Movement. Marx and Engels worked closely with the Chartists. One of its leaders, Ernest Jones, was seen by Marx and Engels as the future leader of the British workers. He was one of their closest thinkers and allies. When Marx created the First International, it brought together, not just socialists like Jones and other Chartists, but also a range of socialist sects, and the British Trades Unions.

These were the foundations of the British Labour Movement that ultimately made the Labour Party itself possible. It was the “Marxist” Social Democratic Federation, along with the ILP and the Trades Unions that created the Labour Party. It was Eleanor Marx who worked with trades unionists like Tom Mann, to create Trades Councils and Labour and Trades Councils, that provided the material from which the Labour Party was constructed.

Moreover, the Labour Party was a member of the Second International, which itself was created on avowedly Marxist principles. Marx himself wrote much of the French Socialist Party's first programme, Marx and Engels were both members of the German SPD, which traces its lineage through to today. Marx wrote his criticism of the Gotha Programme of that party, whilst Engels contributed to the development of the later Erfurt Programme. The Second International itself was under the guidance of its titular head, Karl Kautsky, the so called Pope of Marxism.

It is not Marxists who are in some way alien to the real traditions of the Labour Party, and its sister parties across Europe, but people like John Mann and Tony Blair. In fact, just as the Co-op Party is affiliated to the Labour Party today, for a long-time, members of the British Communist Party, who comprised around 25% of its membership, held dual membership of both parties. That is not surprising, because the Communist Party was, in the shape of its predecessor organisation, the Social Democratic Federation, one of the founding organisations of the Labour Party! It was only the sectarian, attitude of the Communist Party leaders, in the 1920's, which led to that situation ending, by them giving an opportunity for the right-wing leaders of the Labour Party to expel them. Instead of simply writing to the Labour Party saying that they had changed their name from the British Socialist Party (which is what the SDF had become) to the British Communist Party, the CP instead wrote applying for affiliation (an affiliation that the BSP already had), and did so in such terms as to almost guarantee that it would be rejected.

The right-wing leaders had been trying to oppose the left-wing of the party through the early 1920's, especially as, today, they were gaining increasing popular support, as against the policies of Ramsey MacDonald, Arthur Henderson and Phillip Snowden. The left gained strength in the trades unions, at rank and file level, via the Minority Movement, and thereby were able to play an important role in the transport strikes of 1920, and in the General Strike of 1926. The 1925 Liverpool Conference of the Labour Party confirmed the decision of the previous year to proscribe Communist Party members from membership, but they continued to be individual members for a long time, and more than 100 divisional and borough Labour Parties refused to abide by a decision to exclude members they had worked with for years, many of whom had been instrumental in creating the Labour Party in the first place.

We have a similar situation today. On the one hand, a Tory-lite, Blairite leadership of the party, which like other such groupings across Europe has badly failed, and is failing to recognise a change in material conditions, and political climate. On the other hand, as in the 1920's, a sectarian left that refuses to engage with the Labour Party, as the Workers' Party, and which, in the same kind of Third Period ultraleftist stance as the Communist Party of the 1920's, is more concerned to “distance” itself from such a party, for fear of dirtying its hands, than to get involved in such a struggle.

Capital III, Chapter 10 - Part 20

Under simple commodity exchange, the purpose of each producer is to exchange their commodity for some other commodity of equal value, whether that is some other use value or money. But, under capitalism this is not the purpose of production or exchange. The purpose is to obtain at least the average rate of profit for the capital advanced. As such, the capital is not concerned about what it produces, so long as it produces this average profit, and if it doesn't, it looks to some other avenue for investment.

Marx says,

“In this form capital becomes conscious of itself as a social power in which every capitalist participates proportionally to his share in the total social capital.” (p 195) 

But, as I said before, I'm not sure this is correct. Its not clear that every capitalist does see there being some general pool of surplus value out of which each is ladled their proportionate share. Rather, competition between capitals, and the individualist ideology, engendered by that competition surely suggests to each capitalist that their particular profit is a consequence of their individual endeavour. The capitalists do not get together and share out the surplus value consciously on the basis of the capital each contributes. On the contrary, the share of each is snatched from their fellow capitalists via competition. And that very competition, which creates a tendency towards an average rate of profit, at the same time, is an indication of the fact that this average does not exist, as a general rate, enjoyed by all capitals, but that, in fact, a wide variation of profit rates continues to exist both between and within the various spheres of production.

Back To Part 19

Forward To Part 21

Ukraine Becomes Libya

The Nazis of the Ukrainian Right Sector, are now focussing their attention on overthrowing the already right-wing Ukrainian government. Watching the Newsnight report from Gabriel Gatehouse, on Wednesday, it reminded me just how much the situation resembles that in Libya, and how the consequence of liberal intervention has been the same in both cases. In fact, the role of the EU in the Middle East, in Eastern Europe, and now in Greece, seems to reflect a sort of death wish.

What is the commonality of all these cases? It is actually that the EU is currently dominated by conservative politicians, alongside conservative regimes in many of the member states, whose world view almost necessarily results in such a situation. Their view of bourgeois democracy is a conservative one, which is closer to the kind of liberal democracy that was dominant in the 18th and early 19th century, as opposed to the social democracy that became dominant in the latter part of the 19th century, and is the basis of all modern industrial societies.

If we look at many of the states that industrialised in the 19th century, the state played a significant role. In Germany, it was the Bonapartist regime of Bismark that modernised and industrialised the economy, and in the process created a large working-class and bourgeoisie; in France the same thing was carried through most clearly by the Bonapartist regime of Louis Bonaparte. Even in the US, its Presidential system is a sort of Bonapartism, and the industrialisation was driven forward by that State, one aspect of which was the Civil War, which established both the dominance of the central state, and of the industrial bourgeoisie.

It was this process of industrialisation, and the creation simultaneously of the dominance of big industrial capital (socialised capital in the form of the joint stock companies), together with the creation of a huge working-class, that creates the basis of the modern bourgeois social-democratic state. The process, as Marx and Engels describe, involves the separation of the private owners of productive-capital from that capital, and from their role in production. The largest of these become instead, merely the providers of loanable money-capital, owners of fictitious capital in the shape of shares, bonds and so on. As such, they continue to reflect the ideas and interests of the old oligarchies of finance and landed property.

Their place in the productive process is taken by professional managers, who themselves are increasingly drawn from the ranks of the working-class, and middle class. A separation of interest thereby develops between these latter who represent the interests of the now socialised productive-capital, and the financial and landed oligarchies, who seek to leach surplus value from capital, in the form of interest payments and rent. As this conflict develops, the owners of fictitious capital seek to defend their interests against the personification of productive-capital, by appointing tiers of management above them, in the shape of Boards of Directors, Chief Executive Officers and so on.

It becomes reflected in a political division, conservative parties being based upon and representing the interests of the old oligarchies and of this fictitious capital, and liberal parties representing the interests of big industrial capital that is increasingly in the form of socialised capital. As Engels puts it, at the start of the 19th century, the struggle had been between the bourgeoisie and the landed aristocracy, but by the latter part of the century, it was a struggle waged by this big industrial capital, against the rest, and it could only win that struggle, if it carried with it, the social mass of the working-class.

“The Reform Bill of 1831 had been the victory of the whole capitalist class over the landed aristocracy. The repeal of the Corn Laws was the victory of the manufacturing capitalist not only over the landed aristocracy, but over those sections of capitalists, too, whose interests were more or less bound up with the landed interest-bankers, stockjobbers, fundholders, etc... Everything was made subordinate to one end, but that end of the utmost importance to the manufacturing capitalist: the cheapening of all raw produce, and especially of the means of living of the working class; the reduction of the cost of raw material, and the keeping down – if not as yet the bringing down - of wages... 

“Chartism was dying out. The revival of commercial prosperity, natural after the revulsion of 1847 had spent itself, was put down altogether to the credit of Free Trade. Both these circumstances had turned the English working class, politically, into the tail of the ‘great Liberal Party’, the party led by the manufacturers. This advantage, once gained, had to be perpetuated. And the manufacturing capitalists, from the Chartist opposition, not to Free Trade, but to the transformation of Free Trade into the one vital national question, had learnt, and were learning more and more, that the middle class can never obtain full social and political power over the nation except by the help of the working class.”

Engels - Condition Of The working Class

Engels goes on to describe how this leads to a change in the view of this big industrial capital, which then scraps all of the old penny-pinching means of exploitation required by small-scale capital. This is the basis of the modern bourgeois social democratic state, a compromise and modus vivendi between this socialised capital, and the working-class, which also becomes reflected in the fact that this large-working class gets the vote. The logical conclusion of that, almost everywhere, is that appearance and reality is brought into alignment. It is this large working-class that has the weight of numbers both socially and electorally. It makes up the mass of membership of the Liberal parties. In place of an openly bourgeois party comprised largely of workers, therefore, new parties, like the Labour Party, are established openly as workers parties, but ideologically committed to the same bourgeois principles as the old Liberal parties, i.e. to bourgeois social democracy.

But, this bourgeois social democracy is premised upon the fact that the workers are prepared to accept their continued exploitation provided their living standards improve more or less continuously, and provided it can be given a modicum of social protection by the welfare states created by this social democracy. If that ceases to be the case, for any length of time, the contract is broken, and so the workers increasingly abandon their side of the bargain too. Then the social democratic parties lose votes, the conservative parties are able to return.

But, similarly, unless these conditions exist, there is no basis for creating such a bourgeois social democratic state in the first place. That is what those who think that you can simply replace Bonapartist regimes, such as that of Saddam, or Gaddafi, or Assad, and miraculously have a bourgeois democracy spring up in its place fail to grasp. However, much socialists abhor such regimes and seek to replace them, we cannot simply ignore the laws of history, as Marx has described them. Those regimes, like the regimes of Bismark, or Louis Bonaparte and others have fulfilled a necessary and progressive role, in being a means of bringing about a development of capitalist production, and of the working-class that goes with it.

Consequently, socialists should not be in favour of simply calling for opposition to such regimes, unless we have practically something more progressive and achievable to put in their place. The consequence of doing so can be seen in Libya, where the destruction of the old regime, has simply led to chaos, and the domination of political power in the streets, by a series of armed militia. The same thing is now happening in Ukraine, where again, it was attempts to overthrow the regime of Yanukovitch, which led to the present chaos.

Socialists have no reason to defend the regimes of a Yanukovitch, or an Assad, but nor should we simply be led into supporting or welcoming their opponents either, unless those opponents are themselves a means of strengthening the position of the working-class. “My enemy's enemy is my friend”, is no basis upon which socialists can formulate their strategy. But, they must also be a real basis of strengthening the position of the working-class, and not simply a phantom, based on no real, substantial social forces. Libya was a good example of that, where elements blinded by bourgeois democracy, and parliamentarism, fooled themselves into believing that just because parachuted in bourgeois politicians obtained a majority vote in Libyan elections, that they actually represented some meaningful social force! Anyone who has read Trotsky's account of the Spanish Civil War, should have realised the mistake of that approach. But, the rise of the Right Sector in Ukraine, now supplemented by Russian Nazis fighting alongside them, illustrates the point once more.

In fact, as stated in the beginning, the EU seems to have some kind of death wish. It undermined the Bonapartist regimes in the Middle East, that were bringing fairly rapid industrial development; they did a similar thing in Ukraine, and other parts of Eastern Europe, whilst drawing right-wing regimes in the Baltic directly into the EU; and they have now created a situation where Greece is being thrown into chaos through austerity, which may cause the edges of the EU to fray even more rapidly. It has caused the political centre to collapse, as Ukraine is demonstrating very clearly, but that same process is happening across Europe, a process that the conservative/Blairite politicians themselves do not seem to have grasped, which is why they cannot understand the popularity of Jeremy Corbyn, and all those offering an alternative to austerity.

The reason is quite simple. Conservatism is itself based upon an illusion. The illusion is most clearly reflected in fictitious capital itself. The owners of fictitious capital believe that it produces interest out of thin air, that it is in some way an intrinsic characteristic of this capital to expand in value. Similarly, they believe that it represents real wealth, and that when the prices of this fictitious capital expands astronomically that this represents an increase in real wealth. They have no concept that real wealth can only be created by productive-capital, and that their own actions are limiting that wealth creation process.

So, they have no reason to consider that perhaps it would be a good idea to facilitate a modernisation and recapitalisation of the Greek economy, rather than simply trying to squeeze more debt repayments from them! They have no reason to believe that regimes like that of Saddam or Gaddafi, however, monstrous, were actually performing an historically progressive role in modernising and industrialising their economies, which is the precondition for a modern social democracy.

Why would they, they are not themselves social democrats.  Their ideas stem rather from the idea of liberal democracy, which is based upon the ability of small elites to rule without concern for the majority, who they simply assume will see the world in the same way that they do, or at least simply acquiesce in it. They believe that bourgeois democracy can simply exist suspended in mid-air, with no social foundations beneath it, in just the same way that their fictitious wealth exists suspended in mid air, without any productive-capital being accumulated to produce the profits out of which its interest payments and rent is paid!

So, just as with Greece, instead of a promotion of modernisation and industrialisation, they propose to provide more loans to Ukraine, so that they can repay the interest on the debts already accrued. In fact, it is the same policy of increasing private debt that these conservative regimes pursued in the US, UK, and Western Europe from the late 1980's onwards, in a belief that interest payments and rent can keep materialising out of thin air.