A Crisis Carol - Stave 2 - The Ghost Of Crisis Past - Part 1

Stave 2 – The Ghost of Crisis Past

A vision haunts the scrooges. It is the ghost of crisis past.  It takes them back to 2007. All seemed marvellous with the world. Trade had been rising since the late 1990's, and the pace had quickened even more after 2002. For the first time since 1967, not one single economy in the world was in recession. Everything was going so well that inflation had become a concern, and official interest rates were raised to halt it.

But, no sooner were those rates raised than the dark clouds gathered, and the conditions became ominous. From 1987 onwards, Monetarism had appeared to be the solution for all the woes of the scrooges. With workers defeated, demoralised and materially weakened, as large swathes of mature industries had relocated to Asia, where vast reservoirs of the cheap, unskilled labour required for this mature production existed, and as a new wave of labour-saving technologies created a growing relative surplus population, in the developed economies, it became possible to raise the rate of profit, by raising prices faster than wages, and thereby raising the rate of surplus value.

The means to do that was by increasing the money supply, which was effected by increasing the availability of bank credit, and, in particular, private household credit, and for mortgages. Wages were stagnant or falling, but consumption was expanded via this explosion of private household debt.

This seemed like Nirvanha for the scrooges. They do not like to see wages rise, because that causes profits to fall, and if profits fall, there is less of them to pay as interest (whether bond interest or dividends). If dividends fall, then the capitalised value of shares fall, and the same applies to bond prices.  Given that the wealth of the scrooges is nearly all in these forms of fictitious capital, that is one of the last things they want to see.  On the other hand, the scrooges also know that businesses can only realise profits if they can sell what they have produced, and as workers form the largest mass of consumers, stagnant or falling wages are not conducive to consumption.

The explosion of private household debt meant that profits could be realised even as wages fell. But, the scrooges are not fussy about who they lend money to, provided they can draw interest, and have confidence of a return of their capital. So, as this debt bubble expanded to ever larger proportions, it was music to the ears of the scrooges, for another reason.

Some of the scrooges lend directly to consumers. They can be seen on the high streets in increasing numbers. Some take the open form of payday lenders, charging 4000% p.a. in interest; others take the form of pawnbrokers; others a disguised form, as providers of various consumer durables that are provided on the basis of assorted payment schemes, all of which are founded on usurious levels of interest; others take the hidden form of the loan shark who dwells in the shadows, and often have their own Bill Sykes to ensure repayment by one means or another. 

But, most of the lending to private households is done via banks and financial institutions, which in this way act as the collective representative of the scrooges, just as in other ways they act as the collective representatives of the scrooges' victims, the borrowers.

The scrooges, the owners of loanable money-capital, use it to lend to a variety of companies, including banks and finance houses. The lending to the latter takes the form of buying bank shares, bank bonds, as well as straightforward deposits of money in bank accounts. The money-capital that the scrooges lend to the banks and finance houses in these various forms thereby make up a sizeable chunk of the bank capital. For a bank or financial institution, this money-capital acts in the same way that raw material works for productive-capital, or commodity-capital works for a commercial capital. In other words, it is the basis of its profits.

Its important to understand this in relation to the banks and finance houses, because it is easy to misunderstand the difference between interest and profit, given that one means by which the banks and finance houses obtain their earnings is by charging interest. The difference essentially comes down to this. A money-capitalist earns interest because they own money-capital, and lend it out. The interest is the price of the use value of the capital they lend (i.e. the use value of being able to produce the average rate of profit). A bank or financial institution makes a profit by undertaking a function for which they get paid. One function the bank undertakes is to bring together large amounts of other people's money-capital, available to be loaned, and to then provide it as loans to all those who want to borrow.

The bank can then make a profit on the difference between what it pays to those who want to lend this capital, and what it charges those who want to borrow it. In this way, its not much different to a merchant capital that buys commodities from producers at one price, and sells those commodities to consumers at a higher price. And, that as Marx describes is what, money-dealing capital, actually is, a form of merchant capital, that makes the average rate of profit, on the capital it advances, as with any other capital. This average rate of profit, as Marx describes is quite different to the average rate of interest, and determined by quite different laws.

For the scrooges, then, they could rake in large amounts of interest, during the 1990's, and early 2000's, because company profits rose across the globe. Wages were stagnant, productivity was rising sharply, unit costs were falling sharply, sales were up, fuelled by private household credit. Out of these profits, the scrooges were paid large amounts of interest as dividends, and coupon receipts on bonds. But, the explosion of private household debt used to fund this consumption, as wages were stagnant, meant that the scrooges also made large amounts of interest, as dividends on their bank shares, as the banks and finance houses fuelled the growth of private household debt. 

Its not surprising then that the scrooges used some of this large amount of interest to buy more shares and bonds, so as to increase their future revenue even more. And, in some parts of the world, for example, oil producing countries, governments that drew in large amounts of rent from oil revenues, as well as dividends on the shares they owned, had huge surpluses of money-capital to lend, which they threw into global capital markets to buy shares and bonds, and which also found its way, via the banks and finance houses, into financing the expansion of household debt.

But, the growth of the demand for shares and bonds, during this period, in order to obtain this interest, far exceeded the issuing of new shares and bonds, required to finance an expansion of productive investment. The consequence was an inevitable rise in the price of shares and bonds. In the 1980's, Thatcher in Britain and Reagan in the US, had launched into the Monetarist experiment, and deregulated financial markets. Alongside an expansion of credit went an encouragement for individuals to gamble and speculate. The privatisation programme, in Britain, seemed to offer people money for nothing, as every nationalised industry, floated on the Stock Exchange, at a low valuation, saw 30-50% rises in its share price within days.

The extent to which people engaged in this in total financial ignorance was demonstrated when share prices dropped sharply and yet people signed up to buy privatised BP shares, at issue, at a much higher price than they could buy existing BP shares on the open market!

Along with this speculation, and encouragement of borrowing, went the privatisation of council houses, as people were again encouraged to believe in money for nothing, and the idea that house prices could just rise based on thin air. But, of course, its no wonder that people were led into that delusion.

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Capital III, Chapter 46 - Part 4

Marx then turns to an analysis of land prices. He excludes from the analysis the usual temporary fluctuations, as well as speculation, but also the situation in respect of small producers for whom the land forms a major element of their productive-capital, and who must, therefore, have it almost at any price.

Its previously been described that the price of land is capitalised rent. So, if rent levels remain the same, the price of land rises if average interest rates fall. If rent on a piece of land is £100 p.a. and interest rates are at 5%, the capitalised value of the rent is £2,000. If interest rates fall to 4%, it is £2,500.

But, the price of land may rise even if the rent does not rise, because capital invested in and incorporated in the land causes the interest on that capital to rise.

On the other hand, the price of land may rise even though the interest rate remains constant, if the rent increases. The rent may increase because the prices of the products of the land rises. This may cause rent to rise for a number of reasons. Additional land may be brought into cultivation; land that previously produced no differential rent may now do so; differential rent on all land where it exists, will rise.

The rent may rise even without a rise in product prices. If prices remain constant, rents can only rise if new, more fertile land is brought into cultivation, which is sufficient to meet increased demand. In that way, prices remain the same, but a new differential rent arises on the new land, and its price rises.

The rent may also rise if the mass of capital employed increases. If the marginal productivity of capital remains constant and the additional supply simply meets increased demand, the price of production remains constant. Although the rate of rent remains the same, because the amount of capital employed has risen, the mass of rent also rises.

Whether additional capital is invested in separate pieces of land of equal fertility, or in the same piece of land makes no difference here. In the first case, rent increases because more land is cultivated. In the second because more capital is employed.

The only real difference is that in the second case, having rented the land, no additional absolute rent is charged. In the first case, the monopoly of landed property constitutes a barrier, because a second absolute rent will be charged on the additional land.

“This accounts for the opposing tendencies by which these two different forms of investment curb each other in practice.” (p 778)

If the composition of the capital remains the same, an additional investment means that the mass of profit increases by the same proportion. The rate of surplus value and rate of profit remain the same, so a doubling of the capital leads to a doubling of the mass of profit.

By the same token, the amount of rent has doubled, and the rent per hectare has doubled, thereby causing the price of the land to double. Marx credits the work of Rodbertus in this area. He made one error though, Marx says,

“... of assuming, in the first place, that as regards capital an increase in profit is always expressed by an increase in capital, so that the ratio remains the same when the mass of profit increases. But this is erroneous, since the rate of profit may increase, given a changed composition of capital, even if the exploitation of labour remains the same, precisely because the proportional value of the constant portion of capital compared with its variable portion falls. Secondly, he commits the mistake of dealing with the ratio of money-rent to a quantitatively definite piece of land, e.g., an acre, as though it had been the general premise of classical economics in its analysis of the rise or fall of rent. This, again, is erroneous. Classical economics always treats the rate of rent, in so far as it considers rent in its natural form, with reference to the product, and in so far as it considers rent as money-rent, with reference to the advanced capital, because these are in fact the rational expressions.” (Note 41, p 778)

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Capital III, Chapter 46 - Part 3

“It must be distinguished, whether the rent springs from a monopoly price, because a monopoly price of the product or the land exists independently of it, or whether the products are sold at a monopoly price, because a rent exists.” (p 775)

A monopoly price exists basically because demand exceeds what can be supplied. A buyer is prepared to offer a higher price that has no relation to the price of production, and unlike temporary fluctuations in market price, it is not possible to reduce the market price by increasing supply.

“A vineyard producing wine of very extraordinary quality which can be produced only in relatively small quantities yields a monopoly price. The wine-grower would realise a considerable surplus-profit from this monopoly price, whose excess over the value of the product would be wholly determined by the means and fondness of the discriminating wine-drinker. This surplus-profit, which accrues from a monopoly price, is converted into rent and in this form falls into the lap of the landlord, thanks to his title to this piece of the globe endowed with singular properties.” (p 775)

In this case, the rent arises because of the monopoly price. But, as was argued previously, a landowner will not allow a capitalist to make profits from using their land, without paying a rent. If making an average profit is impossible due to the need to pay this rent, then capitalists will not seek to bring such land into use. So, supply will be lower than it would otherwise have been.

This applies whether the land is to be used for agriculture or some other purpose. Only as above, where the landowner uses their own land, for productive purposes, does this not apply.

This was one reason that, in the 19th century, many representatives of capital argued for land to be nationalised. Only when prices rise to such a level that the land can be brought into use and pay the rent, whilst also retaining the average profit, will the supply be increased. But, had the land been brought into use sooner, supply would have risen and prices would have fallen. Here, it is the rent which causes an artificial restriction of supply.

“That it is only the title of a number of persons to the possession of the globe enabling them to appropriate to themselves as tribute a portion of the surplus-labour of society and furthermore to a constantly increasing extent with the development of production, is concealed by the fact that the capitalised rent, i.e., precisely this capitalised tribute, appears as the price of land, which may therefore be sold like any other article of commerce. The buyer, therefore, does not feel that his title to the rent is obtained gratis, and without the labour, risk, and spirit of enterprise of the capitalist, but rather that he has paid for it with an equivalent. To the buyer, as previously indicated, the rent appears merely as interest on the capital with which he has purchased the land and consequently his title to the rent.” (p 775-6)

In other words, possession has been turned into title of ownership. Its clear that no one can claim exclusive ownership to any particular piece of the Earth's surface. The most anyone can claim is that they staked such a claim on it prior to anyone else, but staking a first claim is no logical or ethical basis for ownership. It is, as Rousseau describes in “The Social Contract”, only a state of possession. But, possession and ownership are two different things.

Slave “owners” possessed slaves, but did this mean they had an ethical right to own them? No. And, if the original slave trader had no ethical or legal right to own another human being, they cannot create such a right simply by selling the slave to someone else. No matter how many times slaves are sold as commodities it does not create a right to ownership where none could have existed to begin with. In the same way, if I buy a stolen car, I have no legal ownership. That resides with its actual owner.

The same applies to land. No one can own land, because there could have been no original ethical or legal right to possession. The fact that such possession was exercised, sometimes by force, for long periods, and passed down through inheritance could equally give no legal right to ownership. So, when land is sold, it is no different to selling a stolen car or a slave.

What, in fact, gave the title of ownership of a slave, was the production relations of the time, which led to such slave owning societies. The legal right, irrespective of the moral right, flowed from the productive and social relations. Similarly, what creates the title of ownership of land – where in the past people were considered to belong to the land, and not vice versa – was the development of feudal society. In societies where the Asiatic Mode of Production dominated, for example, the land was in the possession of the state, and village communes.

Where that feudal land ownership conflicts with the needs of capital, as capitalist productive relations dominate, it leads to similar demands for land nationalisation, until the landlords and capitalists become more closely merged.

“What created it in the first place were the production relations. As soon as these have reached a point where they must shed their skin, the material source of the title, justified economically and historically and arising from the process which creates social life, falls by the wayside, along with all transactions based upon it. From the standpoint of a higher economic form of society, private ownership of the globe by single individuals will appear quite as absurd as private ownership of one man by another. Even a whole society, a nation, or even all simultaneously existing societies taken together, are not the owners of the globe. They are only its possessors, its usufructuaries, and, like boni patres familias, they must hand it down to succeeding generations in an improved condition.” (p 776)

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Capital III, Chapter 46 - Part 2

To the extent that a demand for land is created for all these other activities, as social progress creates rising populations, and that need more houses, roads, schools, and so on, and at the same time, creates more factories etc., the potential for rent increases, because even land unsuitable for agriculture or mining can now be put to productive use. In addition, the same social progress creates additional demand for the output of the land, both for agricultural products and for minerals and other raw materials.

“"The paving of the streets of London has enabled the owners of some barren rocks on the coast of Scotland to draw a rent from what never afforded any before." Adam Smith [An Inquiry into the Nature and Causes of the Wealth of Nations,] Book 1, Chapter XI, 2.” (Note 40, p 774)

Of particular interest in relation to the housing crisis in Britain, Marx reiterates the point made in Capital II, Chapter 12, that as regards speculation it relates to the ground rent, not the house. Houses, as commodities, tend to fall in value, with social progress, because of rising social productivity. That makes the cost of materials cheaper, and means less labour-time is required for construction. Where house prices rise, this is because of the monopoly of land ownership, which prevents additional land being made available to increase housing supply.

The extent to which the landlords benefited is indicated from the testimony of a London property speculator, Edward Capps, to the Select Committee on the Bank Acts, 1851.

“"I think a man who wishes to rise in the world can hardly expect to rise by following out a fair trade ...it is necessary for him to add speculative building to it, and that must be done not on a small scale; ...for the builder makes very little profit out of the buildings themselves; he makes the principal part of the profit out of the improved ground-rents. Perhaps he takes a piece of ground, and agrees to give £300 a year for it; by laying it out with care, and putting certain descriptions of buildings upon it, he may succeed in making £400 or £450 a year out of it, and his profit would be the increased ground-rent of £100 or £150 a year, rather than the profit of the buildings at which ...in many instances, he scarcely looks at all."” (p 774-5)

But, as Marx points out, although the property speculator would make their profit during this time, the land with all these buildings, at the end of the lease, reverts to the landowner or their successor. By these means, landowners, in London and other major cities, were able to amass huge fortunes, as vast areas of residential and commercial property came into their possession without them paying a farthing for it.

“Mining rent proper is determined in the same way as agricultural rent.” (p 775)

Many coal mines were operated by the landowners, because it was not possible to obtain a sufficient profit from their operation to be able to pay rent. The Duke of Bridgewater operated mines near Manchester, and commissioned James Brindley to build a canal for its shipment, for example. Near to where I was born, a mine where my grandfather worked, at Birchenwood, was owned by the Duke of Bridgewater, and on the same site, he also developed an iron works and a gas and coke plant.

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Productive Labour - Part 15 of 15

Both Sismondi and Ricardo accepted Smith's first correct definition of productive labour as that which exchanges with capital. Sismondi writes,

““The one always exchanges its labour against the capital of a nation; the other always exchanges it against a part of the national revenue.”” (TOSV 1, p 177)

D'Avenant (An Essay upon the Probable Methods of Making a People Gainers in the Ballance of Trade, London, 1699, p. 50) put forward a mercantilist view of productive and unproductive labour. For the Mercantilists, it was activity that created a surplus of trade which was productive. This trade surplus, thereby provided the gold and silver as a surplus value, which could then be used to finance the employment of labour in all other activities. In this regard, D'Avenant quotes the work of Gregory King (Scheme of the Income and Expense of the Several Families of England, calculated for the year 1688) who divided the nation into two classes, the first who were productive of wealth and the second who were destructive of wealth, and dependent on the first.

In the first class, King places “Lords, Baronets, Knights, Esquires, Gentlemen, Persons in Office and Places, merchants in oversea trade, Persons in the Law, Clergymen, freeholders, farmers, persons in liberal arts and sciences, shopkeepers and tradesmen, artisans and handicrafts, Naval Officers, Military Officers. As against these, the “unproductive” class consists of: common seamen, labouring people and out servants (these are agricultural labourers and day wage-labourers in manufacture), cottagers (who in D’Avenant’s time were still a fifth of the total English population), common soldiers, paupers, gipsies, thieves, beggars and vagrants generally.” (TOSV 1, p 178)

D'Avenants justification for this position was that those in the first class not only obtained an income sufficient for their consumption, but also obtained a surplus, which could be used to employ others. By such employment, D'Avenant suggested they were consumptive of the wealth created by the first class.

In fact, what was paid out as wages, and thereby added to domestic consumption was directly seen as destructive of wealth by D'Avenant and other Mercantilists, because what was consumed at home was not exported, and thereby reduced the trade surplus, which reduced the flow of gold into the country.

However, Marx says,

“Incidentally, it must not be thought that these Mercantilists were as stupid as they were made out to be by the later Vulgar-Freetraders.” (TOSV 1, p 179)

Marx quotes D'Avenant (Discourses on the Publick Revenues, and on the Trade of England, etc., London, 1698) where he indicates that he clearly understood that the real wealth consisted not simply in the store of precious metal, but in the productive capacity of the economy.

““Gold and Silver are indeed the Measure of Trade, but the Spring and Original of it, in all Nations, is the Natural, or Artificial Product of the Country, that is to say, what their Land, or what their labour and Industry produces. And this is so true, that a Nation may be suppos’d, by some Accident, quite without the Species of Money, and yet, if the People are numerous, industrious, vers’d in Traffick, skill’d in Sea-Affairs, and if they have good Ports, and a Soil fertile in variety of Commodities, such a people will have Trade, […] and, they shall quickly get among ‘em, a plenty of Gold and Silver so that the real and effective Riches of a Country, is its Native Product” (p.45)” (TOSV 1, p 179)

William Petty also has this conception of foreign trade, which brings in money, being the basis of what is productive wealth, but Petty includes in his definition of who is involved in this productive activity soldiers. This presumably reflects their role, for example, within the East India Company, of securing these colonial markets from which treasure was returned from such trade.

““Husbandmen, Seamen, Soldiers, Artizans and Merchants, are the very Pillars of any Common-Wealth: all the other great Professions, do rise out of the infirmities and miscarriages of these; now the Seaman is three of these four” (navigator, merchant, soldier) ([William Petty,] Political Arithmetick, etc. [in Several Essays in Political Arithmetick], London, 1699, p. 177). “… the Labour of Seamen, and Freight of Ships, is always of the nature of an Exported Commodity, the overplus whereof, above what is Imported, brings home Money, etc.” (p. 179).” (TOSV 1, p 180)

Petty also indicates that with a certain level of trade, a nation can also benefit from the division of labour, so that it can build different types of ships to carry different types of cargo, and to operate in different types of sea conditions, and thereby reduce the cost of construction and the cost of freight.

Petty also adopts a position similar to Smith in respect of a definition of productive being determined by whether what is produced is a material commodity.

“If taxes are taken from industrialists, etc., in order to give [money] to those who in general are occupied in ways “which produce no material thing, or things of real use and value in the Commonwealth: In this case, the Wealth of the Publick will be diminished: Otherwise than as such Exercises, are Recreations and Refreshments of the mind; and which being moderately used, do qualify and dispose Men to what in it self is more considerable” (l.c., p. 198).” (TOSV 1, p 180)

Petty anticipates the analysis of surplus value, but only in the form of rent. He defines value in terms of labour-time – although, as with Benjamin Franklin, he doesn't distinguish between concrete and abstract labour. So, he says that if it takes the same time to bring an ounce of silver from the ground in Peru, to London, as it takes to produce a bushel of corn, then “one is the natural price of the other.”

Marx quotes a further passage from Petty's A Treatise of Taxes, and Contributions…, London, 1662. In this passage Petty says that after a husbandman planted, cultivated and harvested a certain area of land by hand, then after they had deducted from their output what was required to replace their seed, what was required to cover their own consumption, and what had been given to others in exchange for the clothes and other commodities they require, then “..the Remainder of Corn is the natural and true Rent of the Land for that year; and the medium of seven years, or rather of so many years as makes up the Cycle, within which Dearths and Plenties make their revolution, doth give the ordinary Rent of the Land in Corn.” (p 182)

He goes on to ask what the corn and the rent would be in money, and again repeats the argument made previously.

Most of the critiques of Smith, Marx says, focussed on his second incorrect definition of productive-labour, and developed the weak and wrong aspects of Smith's theory.

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Capital III, Chapter 46 - Part 1

Building Site Rent. Rent in Mining. Price of Land

If the basis of differential rent is a surplus profit over the average profit, made on marginal land, then the higher profits that can be made from the use of land for mining, industry or residential development create a basis for differential rent.

“This rent is distinguished, in the first place, by the preponderant influence exerted here by location upon differential rent (very significant, e.g., in vineyards and building sites in large cities); secondly, by the palpable and complete passiveness of the owner, whose sole activity consists (especially in mines) in exploiting the progress of social development, toward which he contributes nothing and for which he risks nothing, unlike the industrial capitalist; and finally by the prevalence of monopoly prices in many cases, particularly through the most shameless exploitation of poverty (for poverty is more lucrative for house-rent than the mines of Potosi ever were for Spain), and the monstrous power wielded by landed property, when united hand in hand with industrial capital, enables it to be used against labourers engaged in their wage struggle as a means of practically expelling them from the earth as a dwelling-place.” (p 773)

As social productivity rises, the potential for higher profits rises. But, in addition, this higher productivity results from and creates a greater accumulation of capital. The capitalist accumulates fixed capital, which makes this higher productivity possible, but as seen in relation to agriculture, at the end of a lease, this capital, incorporated in the land, is appropriated by the landlord, and forms the basis of the new higher rent.

The landlord has to do nothing here other than benefit from this social progress.

“Not only the population increase and with it the growing demand for shelter, but also the development of fixed capital, which is either incorporated in land, or takes root in it and is based upon it, such as all industrial buildings, railways, warehouses, factory buildings, docks, etc., necessarily increase the building rent.” (p 774)

In relation to house rent, it comprises two elements according to Marx. Firstly, it comprises actual rent for the land on which the house sits. In Marx's time, it was common for this land to remain in the hands of the landlord, and be rented by the capitalist builder/developer. This is separate from the interest on the money-capital advanced by the builder in the form of the house.

In other words, the builder provides the use value of the house to the tenant. The house for the builder is capital, which has a money value. As was seen earlier, when capital in the shape of commodities is loaned out, it is the same as if money-capital of the same value is loaned out. The rent then depends on this capital value, plus the current rate of interest.

In addition, the capitalist will seek to recover, in the house rent, the rent they have to pay for the land, plus an amount for wear and tear of the house. The same applies to factories, shops and offices.

The land here has two separate aspects. Firstly, it is used in agriculture, mining etc. as a means of production and reproduction. Secondly, in all uses, it is a fundamental requirement for all activity – we must have land to stand on, to live on, to put factories, shops and offices on. The landowner requires rent, whichever of these functions it serves for the tenant.  Marx deals with this further in Theories of Surplus Value, Part II, in analysing the confusion in this regard by Ricardo.

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Capital III, Chapter 45 - Part 12

It was no doubt true, in Marx's day, that the majority of capital required would have been variable capital, required for the felling of trees and their transportation. It is not today. I live on the edge of a forest, and the job of felling is undertaken by less than a handful of workers, using heavy machinery, which cuts the trees, strips the branches, and cuts the trunks into regular lengths, prior to stacking them. The stacks are then collected by a single worker, with a lorry that grabs the trunks and loads them on the lorry. Yet, I have no doubt that, despite the fact, that the value of this timber is thereby below its price of production, the landowner still requires a rent for the use of the forest.

If newly cultivated land is of a superior quality to existing land, it produces surplus profit and differential rent. If it is inferior, it will produce absolute rent. But, what if it is the same quality, but does not produce differential rent?

If there has been no technical innovation that reduces values, and thereby makes it possible to bring into cultivation additional land, the bringing into cultivation of this additional land may be due to a rise in market prices. That may result in more fertile soil being cultivated that previously was excluded because of its distance from markets. Alternatively, the advantage of location of inferior soil may outweigh the disadvantage of its poorer quality.

Even if market prices do not rise, more remote, but more fertile soils may be brought into cultivation, if transport is improved, so that large quantities can be shipped more quickly and at much lower cost. That was seen in Capital II, where the introduction of new railway lines to large cities, led to the decline of former areas of supply and the development of new areas in their place.

“To sum up, then, the contradictory influences of location and fertility, and the variableness of the location factor, which is continually counterbalanced and perpetually passes through progressive changes tending towards equalisation, alternately carry equally good, better or worse land areas into new competition with the older ones under cultivation.” (p 769)

Land may also be brought into cultivation, because it was previously considered inferior, as a consequence of its chemical composition, or physical characteristics. But, as science and technology develops, the means of overcoming these problems is established and often relatively cheaply, so that what is then fertile soil can be utilised.

“In this way, light soil types in France and in the eastern counties of England, which were regarded as inferior at one time, have recently risen to first place.” (p 769)

Where land has been held communally, large tracts remained uncultivated for a variety of reasons. The nature of peasant farming often created no great demand for the bringing into cultivation of such areas. As a result, they are often brought into cultivation not on the basis of which land was most fertile, but on the basis of when the landed aristocracy was able to steal these lands away from their communal owners.

Factors such as the growth of population, affecting demand, and of the progress in the development of capital, which both stimulates demand and makes possible investment, influence the extension of cultivation. But, in addition, it is influenced by general business conditions, and the size of the capital market.

In other words, if credit is tight, and interest rates are high, it will be necessary for above average profits to be made to entice new investment. Where interest rates are low and credit is readily available, the opposite will apply.

“Better soil than hitherto cultivated would in fact be excluded from competition solely on the basis of unfavourable location, or if hitherto insurmountable obstacles to its employment existed, or through chance.” (p 770)

For one thing, there is also the cost of clearing land, before it can be brought into cultivation, and this must be justified by the returns.

“As soon as this soil then actually enters into competition, the market-price will fall once more to its former level, assuming other conditions to be equal, and the new soil will then yield the same rent as the corresponding old soil.” (p 771)

It is not necessary that the market prices rise, for this additional land to be brought into cultivation or that absent such a rise in price that this new land be rent free. What is required is that there be adequate demand at the current price to absorb the additional supply. Marx gives the example of houses.

A builder may lease a piece of land on which he builds houses to rent. Whether all these houses pay rent to the builder will depend upon whether there is sufficient demand from tenants. But, even if some or all of the houses remain vacant, the land will still pay rent, i.e. the builder will have to pay rent to the landowner.

“Just as successive investments of capital in a certain piece of land may bring a proportional surplus and thereby the same rent as the first investment, so fields of the same quality as those last cultivated may bring the same proceeds for the same cost. Otherwise it would be altogether inexplicable how fields of the same quality are ever brought successively under cultivation; it seems that either it would be necessary to take all together, or rather not a single one of them, in order not to bring all the remaining ones into competition. The landlord is always ready to draw a rent, i.e., to receive something for nothing. But capital requires certain conditions to fulfil his wish. Competition between pieces of land does not, therefore, depend upon the landlord desiring them to compete, but upon the capital existing which seeks to compete with other capitals in the new fields.” (p 771)

In other words, this expansion is explicable in terms of the same process that causes a general accumulation of capital. The amount of absolute rent must be small Marx says, because of the limit to which the value of agricultural products exceeds their price of production, and this difference is reduced with the development of agriculture. The effect of absolute rent is more marked in extractive industries, Marx claims, because, apart from fixed capital, all the capital used is variable capital, so that the value of its output exceeds the price of production by a wide margin.

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Northern Soul Classics - Scrub Board - The Trammps

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Productive Labour - Part 14 of 15

“Smith’s second view of “productive” and “unproductive labour”—or rather the view that is interwoven with his other view—therefore amounts to this: that the former is labour which produces commodities, and the latter is labour which does not produce “any commodity”. He does not deny that the one kind of labour, equally with the other, is a commodity.” (TOSV 1, p 171) 

In other words, whether the labour is productive or unproductive it is itself a commodity, and thereby “deserves its reward”. Its value is equal to its own cost of production. In reality, Smith is in error here, because it is not labour which is a commodity, but labour-power. What the worker sells is their capacity to perform labour.

“Labour itself, in its immediate being, in its living existence, cannot be directly conceived as a commodity, but only labour-power, of which labour itself is the temporary manifestation.” (TOSV 1, p 171)

Smith's conception is wrong for two reasons. Firstly, he conceives only that labour to be productive which is embodied in a material product, whereas labour creates value just as much in the production of non-material products, such as services, transport and so on. Secondly, his concept of the embodiment of labour within the commodity, implies an embodied labour theory of value, whereby it is the concrete labour employed in the production which fixes this value within it, rather like that concrete labour fixes the use value into the product.

This concept leads to a false view that the value of the commodity is somehow intrinsic to it, rather than being merely a reflection of a social relation. In other words, it encourages commodity-fetishism.

“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 of money. 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 can be seen in the thing itself (except for those who call to mind that it is not an English product). 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).” (TOSV 1, p 171-2)

For Smith, the commodity appears either as past objectivised labour embodied in a physical commodity, or else it appears as labour-power itself. But, the commodity is never living labour, i.e. the actual performance of labour.

“Productive labour would therefore be such labour as produces commodities or directly produces, trains, develops, maintains or reproduces labour-power itself. Adam Smith excludes the latter from his category of productive labour; arbitrarily, but with a certain correct instinct—that if he included it, this would open the flood-gates for false pretensions to the title of productive labour.” (TOSV 1, p 172)

For Smith, a commodity is a material product, which has required the expenditure of labour-time. It would include a machine produced by a manufacturer not for sale, but for their own use, in the production of other commodities for sale. In this case, the machine is sold bit by bit, as its wear and tear is transferred to the end product. But, likewise for Smith, the actor does not produce commodities but only immediate use values, even though they sell a commodity, their labour-power to the theatre owner.

“... the fact that their purchaser cannot sell them to the public in the form of commodities but only in the form of the action itself would show that they are unproductive labours.” (TOSV 1, p 172)

As Marx points out, the commodity is the most elementary form of bourgeois wealth, and so Smith's second definition of productive labour as that which produces these material commodities is itself a more elementary definition than his first, as that labour which produces capital.

Every commodity is money, because it is a representative of a certain quantity of social labour-time. Like the money-commodity, it is a claim to a quantity of social labour-time, in exchange for it. But, in re-establishing this centrality of value, Smith himself falls back into a Mercantilist concept of permanence, of a concept of the embodiment of labour within the commodity, which thereby establishes exchange value as a relation between things – embodiment of labour – rather than as a relation between people. Consequently, the concept of the commodity itself becomes restricted to only physical products.

Marx refers back to “A Contribution To The Critique of Political Economy”, in which he criticised Petty's view “... where I quote from Petty’s Political Arithmetick) where wealth is valued according to the degrees in which it is imperishable, more or less permanent, and finally gold and silver are set above all other things as wealth that is “not perishable”.” (TOSV 1, p 174)

Marx quotes from Adolphe Blanqui's Histoire de l’économie politique, commenting on Smith.

““In restricting the sphere of wealth exclusively to those values which are embodied in material substances, he erased from the book of production the whole boundless mass of immaterial values, daughters of the moral capital of civilised nations,” etc.” (TOSV 1, p 174)

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A Crisis Carol - Stave 1 – Monetarism's Ghost

Stave 1 - Monetarism's Ghost

Monetarism was dead to begin with. There is no doubt whatever about that. The register of its burial was signed. Monetarism was as dead as a doornail, this must be distinctly understood. (Apologies to Charles Dickens).

The scrooges know that Monetarism is dead, but its ghost has visited them and warned them to mend their ways. The scrooges – the owners of loanable money-capital – make their money from interest. Like Ebenezer Scrooge, they do not make money by engaging in any productive or even commercial activity, but rather from lending money to those who do engage in such activity.

Those who do engage in productive or commercial activity hopefully make a profit from that activity, and, out of that profit, they pay interest to the scrooges, who loaned them money-capital, so as to undertake their business. The interest takes a number of forms. If the money has been borrowed as a bank loan, it takes the form of bank interest; if it was borrowed by issuing a bond, or debenture, it takes the form of a fixed coupon payment; if it was borrowed by issuing shares, it takes the form of dividends paid to shareholders.

Whichever of these forms it takes, this interest is a deduction from the profits made by the productive or commercial capitalists (industrial capital). And, like Ebenezer Scrooge, if the scrooge's extract too much in interest, they kill off the source of their own income, because businesses can only pay interest if they first make profits. To pay more in interest, businesses need to make bigger profits, but, to make bigger profits, they need to invest in additional capital, which they can only do if they make bigger profits.

This is the nightmare that the scrooges face, and it is why they are very frightened. As Marx pointed out 150 years ago, at least as regards the medium to large capitals, the capitalists had ceased playing a part in relation to such business activity. The businesses were no longer owned as private property, but had become socialised capital. The firm itself is a legal corporate entity, which owns the capital. The firms now borrow money-capital, in order to undertake their activities, and pay interest in the aforementioned forms on this borrowed money-capital.

Today, the bulk of private wealth exists in the form of this fictitious capital, of shares, bonds, and other paper assets, as well as landed property. As the Tories, and apologists and romantics for a bygone age of capitalism, never cease to remind us, the vast majority of businesses are small, privately owned concerns. They are made up of a few million self-employed people – many of whom scrape a living from such activity, because they have given up hope of obtaining permanent, full-time employment – people who run small stores, back street garages and workshops, through to the small enterprises that may employ a few dozen people. They are people who run their own Old Curiosity Shops.

But, all put together, this privately owned productive wealth is miniscule when compared either with the trillions of dollars worth of privately owned paper wealth, or the trillions of dollars of socialised productive wealth. Moreover, nearly all of these small privately owned capitals are ephemeral. They depend almost entirely for their existence on work and business handed to them from the huge socialised capitals. More than half the new businesses created in 2009 had ceased trading by 2014, and on average, around 75% of new businesses fail within just a few years.

It may be true, as the Tories say, that small businesses create the most new jobs, but, because these small businesses collapse so soon after being established, and so frequently, they are also responsible for the largest number of job losses. Long-term economic growth, prosperity and employment depends upon the big socialised, industrial capital, and ultimately that fact determines the policies of the state.

There is also a significant difference between these small private capitals and the large socialised capitals, when it comes to borrowing money-capital. Large companies, like Microsoft or Apple, as well as large states, like the US, can borrow money at very low rates of interest. Despite having tens of billions of dollars of cash on their balance sheet, Microsoft, in recent years, has borrowed billions more, by issuing bonds, on which it paid only 2-3% interest.

The US and UK governments can currently borrow money for ten years at an interest rate of only 1.5% and 0.6% respectively. Yet, that is far from an accurate picture of the real state of interest rates, even within the US and UK, let alone were we to examine the rates of interest being paid elsewhere in the world.

As Marx set out, a more accurate picture of the average rate of interest is given by the amounts charged for these small companies to borrow, than the yield on government bonds, and that is all the more true as QE has made government bond yields meaningless.

“For instance, if we wish to compare the English interest rate with the Indian, we should not take the interest rate of the Bank of England, but rather, e.g., that charged by lenders of small machinery to small producers in domestic industry.” (Capital III, Chapter 36, p 597) 

Many of these small, privately owned capitals have had difficulty being able to borrow at all. Some of that is understandable. Around 160,000 UK firms, about 10% of the total number of firms are zombies. They are barely able to pay the interest on their existing loans, and completely unable to repay the capital sum. They clank around like old Marley's ghost, dragging their chains of debt behind them.

That bank and other lenders have no desire to lend additional sums, to these companies, is understandable. In a healthier financial system, these firms would be allowed to go bust, so that their capital could be used more effectively elsewhere. But, the banks do not foreclose on them – just as they do not foreclose on mortgages in arrears – unless they fear an imminent loss of their money, because, as long as the firm is at least paying the interest, the bank is obtaining revenue. The banks, and from there the entire financial system, has been built up, over the last ten years, on the basis of a policy of “extend and pretend”, of kicking the can down the road.

But, there are many other small firms that are not in this condition, and yet still cannot obtain bank loans. Many are not big enough to become publicly listed companies, or to raise money in the bond market. They are forced to raise money-capital by putting up private houses as collateral, or taking out mortgages on those houses, or borrowing from friends and family. Such resources are very limited. Businesses have, therefore, had to borrow from other sources. In recent years, there has been a growth of peer to peer lending, facilitated by the internet. That means that individuals currently getting next to no interest on their savings can lend, with others, to small businesses, often in their local area.

But, the rate of interest on such loans to small businesses is frequently around 10% p.a. That is in stark contrast to the 2% a large company like Microsoft can borrow at, or the 0.6% the UK government can currently borrow at for ten years.

In order to persuade them to change their ways, the scrooges have been visited by three more ghosts, the ghosts of crisis past, present and future.

Next - The Ghost of Crisis Past

Capital III, Chapter 45 - Part 11

Marx's problem arises because he has followed Ricardo's theory of rent, and only amended it. The extent of that problem is then indicated by the fact that although Marx begins by rejecting the catastrophist conclusions of Ricardo and Malthus, his own theory of rent leads him into a similar position. So, for example, like them, he is basically led into a conclusion of ultimately diminishing returns.

“It is possible for the increase of social productivity in agriculture to barely compensate, or not even compensate, for the decrease in natural power — this compensation will nevertheless be effective only for a short time — so that despite technical development there, no cheapening of the product occurs, but only a still greater increase in price is averted. It is also possible that the absolute mass of products decreases with rising grain prices, while the relative surplus-product increases; namely, in the case of a relative increase in constant capital which consists chiefly of machinery or animals requiring only replacement of wear and tear, and with a corresponding decrease in variable capital which is expended in wages requiring constant replacement in full out of the product.” (p 766-7)

This gives far too much ground to Ricardo and Malthus, and the concept of diminishing returns. What is more, it has been decisively disproved empirically. The rise in social productivity has way exceeded any decline in natural fertility, and productivity. That has been so to such an extent that the percentage of the population employed on the land, has fallen from around 80% in Marx's time, to around 2%, today, in Britain. At the same time, agricultural production has expanded massively, whilst the prices of agricultural products have been slashed. So much so, in fact, that today a litre or milk is cheaper than a litre of water!

The extent of this is indicated by Marx's comments in relation to the determination of prices in relation to cattle raising. Marx, following Adam Smith, for example, takes it that arable farming, and the production of grain is the determining factor in respect of rent, because of this being the most profitable activity. The use of land for other activities, such as cattle raising, then becomes limited to the worst soil, and only when the prices of these commodities rises to such a level as to make it possible to use these worst soils for this purpose, rather than grain production.

“Adam Smith — and this is one of his merits — has already demonstrated that a quite different determination of prices is to be observed in cattle-raising, and, for that matter, generally for capitals invested in land which are not engaged in raising the principal means of subsistence, e.g., grain. Namely in that case the price is determined in such a way that the price of the product of the land — which is used for cattle-raising, say as an artificial pasture, but which could just as easily have been transformed into cornfields of a certain quality — must rise high enough to produce the same rent as on arable land of the same quality. In other words, the rent of cornfields becomes a determining element in the price of cattle, and for this reason Ramsay has justly remarked that the price of cattle is in this manner artificially raised by the rent, by the economic expression of landed property, in short, through landed property. [G. Ramsay, An Essay on the Distribution of Wealth, Edinburgh, 1836, pp. 278-79. — Ed.] 

In fact, grain prices have fallen to such an extent that in every society, whenever living standards rise, this is marked by a relative, and often absolute fall in the consumption of grains and rise in the consumption of meat. In part, this is a function of the opening up of vast prairies, for grain production, but, in larger part, it is a function of the growing marginal productivity of capital employed on the land. Even in the US, the increased output at lower cost, is largely due to the ability to use capital-intensive methods – use of aeroplanes for crop dusting, the application of science for chemically improving the soil, and prevention of disease, use of large scale equipment and GPS tracking etc.

Moreover, this change is illustrated by the radical shift in land prices for alternative uses. Agricultural land sells at around £10,000 per acre, in the UK, whereas development land sells at around £930,000 per acre in England, and £2.6 million per acre in London, which reflects the much higher profits obtainable from using land for development rather than agriculture. In fact, agricultural land prices would undoubtedly fall much lower, if the restrictions such as the Green Belt, which introduces a further land owners monopoly, did not exist.

Marx's further example of a Norwegian forest demonstrates the point even more clearly. He says,

“But, as a matter of fact, the capital here consists almost exclusively of a variable component expended in labour, and thus sets more surplus-labour in motion than another capital of the same size. The value of the timber, then, contains a greater surplus of unpaid labour, or of surplus-value, than that of a product of a capital of a higher organic composition. For this reason the average profit can be derived from this timber, and a considerable surplus in the form of rent can fall to the share of the owner of the forest. Conversely, it may be assumed that, owing to the ease with which timber-felling may be extended, in other words, its production rapidly increased, the demand must rise very considerably for the price of timber to equal its value, and thereby for the entire surplus of unpaid labour (over and above that portion which falls to the capitalist as average profit) to accrue to the owner in the form of rent.” (p 768)

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Just Voted Jez

Productive Labour - Part 13 of 15

Marx quotes Smith, in relation to the point made earlier.

““Thirdly, it seems, upon every supposition, improper to say, that the labour of artificers, manufacturers, and merchants, does not increase the real revenue of the society. Though we should suppose, for example, as it seems to be supposed in this system, that the value of the daily, monthly, and yearly consumption of this class was exactly equal to that of its daily, monthly, and yearly production; yet it would not from thence follow, that its labour added nothing to the real revenue, to the real value of the annual produce of the land and labour of the society. An artificer, for example, who, in the first six months after harvest, executes ten pounds worth of work, though he should, in the same time, consume ten pounds worth of corn, and other necessaries, yet really adds the value of ten pounds to the annual produce of the land and labour of the society.”” (TOSV 1, p 168)

Smith's argument is that an individual worker may take £10's worth of material, and during the year, they will add to its value, as a result of their labour. As described earlier, this added value, of their labour, he confuses with their wages. So, he says that if their wages amount to £10's worth of corn during the year, they will have added £10's worth of value by their labour. Now, a product with a value of £20 exists, where previously £10 of material existed, and £10 of corn.

However, Smith says the productive nature of this labour is witnessed by the fact that this new product, with a value of £20 exists. By contrast, he says, if this corn had gone as food to a soldier or servant, it would have been consumed without anything to show for it. There would be no new product or value, he continues.

“Though the value of what the artificer produces, therefore, should not, at any one moment of time, be supposed greater than the value he consumes, yet, at every moment of time, the actually existing value of goods in the market is, in consequence of what he produces, greater than it otherwise would be” ([Wealth of Nations, O.U.P. edition, Vol. II, pp. 295-96], [Garnier], l.c., t. III, pp. 531-33).” (TOSV 1, p 168)

But, Marx says, this is quite clearly false because although unproductive labour is unproductive of surplus value, it is productive of value, in so far as it produces a use value.

“Is not the [total] value of the commodities at any time in the market greater as a result of the “unproductive labour” than it would be without this labour? Are there not at every moment of time in the market, alongside wheat and meat, etc., also prostitutes, lawyers, sermons, concerts, theatres, soldiers, politicians, etc.? These lads or wenches do not get the corn and other necessaries or pleasures for nothing.” (TOSV 1, p 168)

The actor who gives a performance thereby creates additional value as a consequence of the expenditure of their labour. As a commodity, it has an exchange-value, and thereby exchanges for other commodities of equal value, either directly or via the mediation of money.

“Since here, as in every exchange of commodity for commodity, equal value is given for equal value, the same value is therefore present twice over, once on the buyer’s side and once on the seller’s.” (TOSV 1, p 169)

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Capital III, Chapter 45 - Part 10

If all the land in a country is being cultivated, it will all be paying rent, because a condition for it being used is that rent is paid to the landlord. However, at this point, absolute rent ceases being an obstacle to the investment of capital in the land. It can only be such an obstacle in preventing land being brought into cultivation, not to the further investment of capital in land that has been brought into cultivation.

For example, the fact that I might have to pay £1,000 a year in absolute rent, for a piece of land, or else to buy it for £20,000, will be an obstacle to me investing capital in this land. Before I will do so, I must know that I will make sufficient profit to cover this £1,000 a year rent, plus the average profit. But, if the land is already in cultivation, and I am paying this rent, that has no bearing on whether I will then invest £1,000, £5,000, or £10,000, in that land, because this will not change the absolute rent. What this investment will determine is the amount of surplus profit deriving from the marginal productivity of capital, i.e. Differential Rent II.

On this basis, although all land will pay rent, some capital will not produce surplus profit, and will not, therefore, give rise to Differential Rent II.

There is though, I think, a problem with Marx's theory, here, that he seems to skirt around. He says,

“If the average composition of agricultural capital were equal to, or higher than, that of the average social capital, then absolute rent — again in the sense just described — would disappear; i.e., rent which differs equally from differential rent as well as that based upon an actual monopoly price. The value of agricultural produce, then, would not lie above its price of production, and the agricultural capital would not set any more labour in motion, and therefore would also not realise any more surplus-labour than the non-agricultural capital. The same would take place, were the composition of agricultural capital to become equal to that of the average social capital with the progress of civilisation.” (p 765)

It is indeed the case that if the organic composition of capital in agriculture or other extractive industries rose to the same or higher level as in the rest of industry, then the value of its output would no longer be above its price of production, and so this difference could no longer be a basis for absolute rent. But, there seems no reason why that being the case, landlords would cease requiring payment of rent on land whose use they lease out. That being the case, that suggests that this basis of rent is flawed. There seems to be a series of other theoretical options for the basis of rent that would comply with Marx's requirements.

Firstly, rent could be viewed in the same way as loanable money-capital, whether it is provided by productive-capitalists, or money lending capitalists. The productive-capitalist makes the average profit, and interest is a deduction from it, going into the pocket of the productive-capitalist themselves, or the money lending capitalist respectively, dependent upon who provided it. There seems no reason why the provision of the use value of land, need be treated differently, and indeed this removes the need for the division into Absolute Rent, and Differential Rent I and II. Instead, all that is required is to view the rent as the price for the particular use value of the land used.

Secondly, Marx has previously discussed the situation of other costs, that do not add value to the commodity, such as the cost of providing storage etc. The situation here is that these costs are recovered in the price of the commodity. The consequence must then be that this cost is born by capital as a whole, as a deduction from total surplus value. Absolute Rent, as a cost that all agricultural producers must pay, could then be viewed in a similar way. Marx used a similar argument, for example, in relation to depreciation in agriculture.

In industry, depreciation is a cost to capital, which is not recovered in the value of commodities. That is in contrast to wear and tear, the value of which is transferred to commodities. However, Marx, in Capital II, sets out that, because in agriculture, equipment has to remain idle for long periods, during which it depreciates, this depreciation is a cost that must be recovered in the price of agricultural commodities, rather than simply born by the individual capital.

Similarly, the costs of merchant capital add nothing to the value of commodities, but have to be recovered by merchant capital in calculating the profit and price of production.

As Marx admits, if the organic composition was to so rise, then the only basis that such an absolute rent could arise, on the basis of his theory, is if the market price was to rise above the price of production, i.e. a monopoly price, and this seems to create another contradiction.

“It seems to be a contradiction, at first glance, to assume that, on the one hand, the composition of agricultural capital rises, in other words, that its constant component increases with respect to its variable, and, on the other hand, that the price of the agricultural product should rise high enough to permit rent to be yielded by new and worse soil than that previously cultivated, a rent which in this case could originate only from an excess of market-price over the value and price of production, in short, a rent derived solely from a monopoly price of the product.” (p 765)

Marx's answer here is that a distinction must be made between a high organic composition due to a high technical composition of capital, i.e. the quantity of constant capital is high relative to the quantity of labour-power, whilst the value of the component parts of the constant capital is low, and a high organic composition which is due to a high value composition, i.e. the value of the components of constant capital is high, but the quantity of constant capital is lower.

For example, a pottery manufacturer might process a lot of clay in relation to the labour employed, but the value of the clay is low. A jewellery manufacturer may process a small quantity of diamonds, but the value of diamonds is high, so the value composition of the latter will be higher than the former, even though the technical composition is lower.

However, within the constant capital, there is also the relation between the fixed and circulating capital to be considered. A mining capital will use no raw material, in its production, and only small amounts of auxiliary materials, but it will use increasing quantities of fixed capital. So, where in industry the rise in social productivity is characterised by an increasing quantity and value of raw material processed, relative to a diminishing amount of fixed capital and labour, in extractive industries and agriculture, this tends not to be the case.

In the latter, the rise in the organic composition of capital reflects a relative increase in fixed capital, whereas, in the former it reflects a relative increase in circulating constant capital.

“The mere circumstance, then, that agricultural capital might be on the general level of value-composition, would not prove that the social productivity of labour is equally high-developed in it. It would merely show that its own product, which again forms a part of its conditions of production, is dearer, or that auxiliary materials, such as fertiliser, which used to be close by, must now be brought from afar, etc.” (p 766)

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Productive Labour - Part 12 of 15

But, just as some unproductive labour is embodied in physical products, for example, the labour of the cook embodied in the mutton chops, so productive labour may take the form of non-physical use values, of labour services. For example, an actor employed by a theatre owner provides productive labour, which not only creates the fund out of which that labour-power is reproduced, but also is productive of a surplus value for the theatre owner. As concrete labour, the actor's labour also preserves the value of the theatre owner's constant capital, in the shape of buildings, scenery, heating, lighting and so on, whose value is transferred to the end commodity – the performance – and thereby ensures that the fund is also created for the reproduction of this constant capital. Yet, the actual product here is not something physical. The performance disappears in the very instant of being given.

“In short, the production of these services can be in part subsumed under capital, just as a part of the labour which embodies itself in useful things is bought directly by revenue and is not subsumed under capitalist production.” (TOSV 1, p 167)

All commodities can be broken down into two types. There is labour-power itself, and there is every other commodity that is produced by labour-power. Labour-power is itself produced by labour-power, i.e. labour-power produces all of the commodities required for the reproduction of the worker. But, labour-power is produced in a more direct sense, by labour-power too. The labour-power of the teacher creates labour-power directly by acting immediately upon the worker, to provide them with a level of education, skill and training. The labour-power of the doctor not only brings new labour-power into the world, but sustains and extends existing labour-power by healing workers when they are sick. Given the growing importance of these factors as capital comes to rely on increasingly educated and skilled labour-power, its no surprise that capital does not leave their provision and consumption to chance, but places them under the direct regulation and supervision of the capitalist welfare state.

The reason for this regulation by the welfare state is, in fact, made clear by Marx. He writes of the conditions applying in his day, when the amount of education provided to workers was minimal, and healthcare represented nothing but the faux frais of production, required for the repair of labour-power. If for some reason, social productivity fell, so that the new value created in the year by labour fell, this would mean that the amount of revenue fell. The consequence is that less will be available as wages and profits for workers and capitalists to spend.

“If in such conditions capitalist and workman wanted to consume the same amount of value in material things as they did before, they would have to buy less of the services of the doctor, schoolmaster, etc. And if they were compelled to continue the same outlay for both these services, then they would have to restrict their consumption of other things It is therefore clear that the labour of the doctor and the schoolmaster does not directly create the fund out of which they are paid, although their labours enter into the production costs of the fund which creates all values whatsoever—namely, the production costs of labour-power.” (TOSV 1, p 167-8)

The doctor or teacher, here, merely provides their labour directly in exchange for revenue from the worker or capitalist, no different to the way the cook supplies their labour embodied in the mutton chops. The education and healthcare are as much required for the reproduction of labour-power as are the mutton chops, but the labour bought in each case is unproductive. It is exchanged not against capital but revenue. The buyer of this labour does not do so for the purpose of producing a commodity and extraction of surplus value, but only for the purpose of obtaining a use value, for their own consumption.

But, this need not be the case. Just as the cook may be employed as a productive labourer, in a restaurant, and produce surplus value, so too a teacher may be employed by a school, and a doctor by a hospital. The teacher employed by a school exchanges their labour-power with the variable capital of the school. The school, in selling a commodity – education – thereby recovers the fund required to reproduce its constant and variable capital, as well as making a surplus value over and above it.

As Marx puts it, in Capital I,

“If we may take an example from outside the sphere of production of material objects, a schoolmaster is a productive labourer when, in addition to belabouring the heads of his scholars, he works like a horse to enrich the school proprietor. That the latter has laid out his capital in a teaching factory, instead of in a sausage factory, does not alter the relation.”

(Capital I, Chapter 16)

The same is true in relation to a doctor who exchanges their labour-power with the variable capital of a hospital. The surplus value arises in each case, as with the production of surplus-value in every case, because the value of the labour-power sold by the cook, teacher or doctor is less than the value created by the expenditure of their labour. The fact that the cook, or teacher or doctor is employed by the capitalist state, to produce these commodities, and that their labour-power exchanges with the variable capital of that state does not change anything. The fact remains that they are paid wages of X, equal to the value of their labour-power, and they create new value equal to X + n, determined by the labour they perform.

Nor does it change anything that the payment for these commodities is made out of an insurance scheme to which workers contribute collectively, rather than by individual workers' payments. Nor does it change anything that the state may or may not realise the surplus value itself produced by these workers. If a cook, employed by the state, produces food for workers, and the meals are sold to workers at a price that does not realise the produced surplus value, then workers have obtained food below its value, and there is a consequent reduction in the value of labour-power. As a result, surplus value for all capitals employing those workers rises. The loss of surplus value for the state capital is then a direct gain of surplus value for all other capitals. Under capitalist production, surplus value is never appropriated by the capital that produces it, because competition brings about an average rate of profit, and a redistribution of surplus value, via prices of production.

Back To Part 11

Forward To Part 13

Traingate - The Tory Media Just Don't Get It

The Tory media have seized upon the CCTV images released by Virgin Trains to try to once again smear and undermine Jeremy Corbyn.  In fact, all they have done is to further undermine themselves, to illustrate just what is wrong with the mainstream media, and to show that they just don't get it. Like the establishment politicians that belong to the same elite, they just have not understood that the world has changed.

Like everyone else interested in politics, I watch all of the mainstream programmes like Newsnight, Marr, Murnaghan, Dateline, Peston, and the nightly Press Previews.  But, all these programmes indicate what is wrong.  They are all programmes where very highly paid, middle class journalists invite others, from within their own elite bubble, to come along and confirm their own middle class prejudices.  Often those invited on to the programmes are simply other journalists from within that bubble.  Its a bit like what happened before the Iraq War, when information from one intelligence service was passed on to another, which was then picked up by another and so on.

So, the British government and intelligence services justification, after the event, was "We were not alone in believing that Saddam had WMD".  The trouble being that the basis for believing that was that it was based on what others thought, and what others thought was simply wrong, and unfounded!

And that illustrates another problem.  Despite being extremely highly paid, most of the journalists from within this bubble appear to be extremely lazy and ill-informed.  Why would you go out and actually do real research, when you think that is a bit beneath you, and there are lackeys to do that, and when all of the others within your elite, in any case, confirm your beliefs without having to go out and do tacky things such as obtaining evidence.

A case in point has been the claims of entryism into the Labour Party.  Any journalist worth their wages should know that the claims are ridiculous, because the numbers of people involved in the sects are miniscule, and when it comes to the larger scts like the SWP or SP, that may have several hundred members, they are actually opposed to such entryist work, and too busy trying to build their own parties.  Yet the mainstream media continue to talk as though all of the tens of thousands of people that have joined the Labour Party can be accounted for by such sects!  The same is true about the kinds of people they invite on to their programmes when they want a token representative of views outside their tight spectrum.  For example, they invite along Ben Chacko from the Morning Star.

Thirty years ago, there might have been some justification for inviting along representatives of the Communist Party, but the well paid journos don't even seem to have noticed that the Communist Party split into the Communist Party of Britain, an insignificant rump of Stalinists, and the CPGB, an even less significant group of politically more healthy individuals, which by their own account amount to only about 40 people!  Of course, inviting on people like Chacko, whilst demonstrating that the elite simply do not have a clue what is going on in the world around them, also enables them to continue to present a world as they continue to see it, rather than as it actually is.

The problem for them is that, not only has the world moved on, and no longer conforms to their view of it, as it might have been 20 years ago, but the world has moved on in terms of people's ability to understand and view that world, not filtered by the lens of the mainstream media, as they were once forced to do.  Many people not involved in politics simply graze the mainstream media for news, and so the attempts to smear Corbyn are unlikely to have much impact on them.  But, for anyone who is interested, the mainstream news is almost a source of annoying entertainment, a bit like all those programmes about anti-social neighbours.  Its somewhere you go to just confirm your own belief of just how bad and biased the mainstream media is; its somewhere you might go to graze news stories, before going to search the Internet, for the real story.

So watching the Press Preview programmes on Sky and BBC News last night, and watching the discussion of #Traingate on Newsnight simply illustrated that point.  The really annoying, middle class journalists they had on simply followed the newspaper headline writers in lambasting Corbyn, finding him guilty without trial, and without any attempt to provide a balanced account.  They took the account provided by Virgin Trains, that there had been empty seats on the train, as good coin. They, of course, came out to say that Corbyn supporters would attack them for having criticised their man.  But, that was just inoculation on their part, trying to immunise themselves from the inevitable criticism in advance.

The fact, is that, earlier in the dayc others who had been with Corbyn on the train had explained the CCTV pictures.  Some seats had kids sitting on them, who could not be seen; others had bags and other bits of luggage deposited on them, and so on.  Yet, the journos seemed unaware of any of this information, as they rushed to accept the Virgin account, and smear Corbyn.  Nor did they mention that the TSSA, whose members are employed on the railway, had come out to defend Corbyn's account.

But, demonstrating that the Tory media simply do not get the way the world has changed, they also seem to have simply missed the other decisive point.  It is that Corbyn was not alone in sitting on the floor.  There were lots of other people on the train doing the same thing, with no connection to Corbyn.  So, if as Virgin claim, there were plenty of empty seats, why were all these other people sitting on the floor as well?

In years gone by, it would not have been possible to know this, and to check the biased information that the mainstream Tory media feeds us everyday, but today it is.  Many of those other passengers on the train who also had to sit on the floor have already come forward and tweeted their own accounts. In fact, many had done so yesterday, but, once again, the mainstream media ignored it, because it does not fit within their version of events, and the narrative they wanted to create.

And, of course, there was no shortage of Blair-right representatives happy to come along to chip in their three penn'orth, to show that this just illustrates that Corbyn and his team are just not up to the task of managing the media.  This from those Blair-right spin doctors who brought us the "Mrs Duffy" incident, and who then compounded that by having Gordon Brown make a grovelling apology rather than use the opportunity to make a spirited opposition to bigotry; this from the same professionals who advised Ed Miliband to produce the "Ed Stone"!  But, of course, the political memory of these people is like that of a goldfish.  They come to each event as though it was unconnected to the past, and throw out their soundbites with only concern for scoring immediate points without any regard for the collateral damage.