Capital III, Chapter 12 - Part 5

But, this is an abstract model that must be fleshed out to more adequately reflect the real world. For example, market prices move up and down every day – in fact, with modern high frequency trading, they move up and down many times per second! - but real productive-capital does not move from one sphere to another on this basis – but again with high frequency trading, fictitious capital does get reallocated many times a second, as complex algorithms both respond to and cause such price movements.

“Experience shows, moreover, that if a branch of industry, such as, say, the cotton industry, yields unusually high profits at one period, it makes very little profit, or even suffers losses, at another, so that in a certain cycle of years the average profit is much the same as in other branches. And capital soon learns to take this experience into account.” (p 208)

In addition, there exists numerous frictions which prevent capital simply moving from one sphere to another, simply to obtain a higher rate of profit.

“Yet with respect to each sphere of actual production — industry, agriculture, mining, etc. — the transfer of capital from one sphere to another offers considerable difficulties, particularly on account of the existing fixed capital.” (p 208)

But, also, although a process of de-skilling means that large numbers of unskilled workers can be employed in one sphere rather than another, large numbers of workers remain relatively skilled or semi-skilled, so that they cannot simply move from one job to another, other than to move from a skilled or semi-skilled job to an unskilled job. In addition to that, there are problems of geographical labour mobility, as new industries develop in areas where there may be labour shortages, whilst the decline of industries in other areas causes unemployment.

Developed industrial capital seeks to remove these frictions by various means. For example, throughout the globe, larger common markets, like the EU, are being established, which encourage the free movement of labour and capital. But, as has been seen with the EU, these also come up against barriers, such as the continuation of the nation state and the interests attached to it. The legacy of feudalism and early capitalism also hangs over these developments in the form of racism and xenophobia, which creates political constraints to removing immigration restrictions.

Although physical, productive-capital is not re-allocated quickly or smoothly in response to rates of profit, the development of large liquid capital markets provides a solution to this. The potential profitability of a company is reflected in its share capital, and so the capital value of the company can be raised or lowered instantaneously via a change in its share price. But, this affects more than just share prices.

In fact, modern high frequency trading is really a confirmation of Marx’s theory of value, whereby the value of any particular commodity must be determined not by the labour-time actually used in its production, but is merely a reflection of its aliquot part in the total social labour-time being currently expended. As Marx puts it in Capital 1,

“The total labour power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour power, composed though it be of innumerable individual units. Each of these units is the same as any other, so far as it has the character of the average labour power of society, and takes effect as such.

Each individual commodity, in this connexion, is to be considered as an average sample of its class” 

This is not changed, but only emphasised by the transformation of values into prices of production.

“The price of production is not determined by the value of any one commodity alone, but by the aggregate value of all commodities.” (p 206)

If the weather is poor in South America, and this looks likely to affect the sugar harvest, so that the value of sugar will rise, the high frequency trading systems will pick this up. Money will flow within a millisecond to buy sugar futures and options, pushing the price of sugar higher. The same algorithms will factor in the rise in sugar prices to the costs of all those firms that use sugar, distribute sugar, provide sugar alternatives and so on, and again within a millisecond will pump billions of dollars into their shares, or remove it accordingly, so that each firm's capital value is moved up or down, instantaneously as a consequence of these continuous changes in commodity values.

Back To Part 4

Forward To Part 6