Sunday, 7 August 2016

The Same Phoney Solution In Different Forms

“The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.”

“Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centres where the entire money business of the country is concentrated, like London, does this distortion become apparent; the entire process becomes incomprehensible; it is less so in centres of production.”

(Marx – Capital III, Chapter 30)

In the USSR, and other Stalinist states, there was huge waste of economic resources, because of things being produced that no one wanted, usually because they were of poor quality, but also because of the nature of the planned economy that was geared to meeting output targets rather than consumer preferences. But, these economies operated rather like one huge welfare state. According to the official ideology, the state was a Workers' State, that belonged to the workers, and was there to meet their needs.

A bit like the welfare state in capitalist countries, the workers realised that, in practice, this was largely untrue. But, all those involved engaged in a suspension of disbelief. The state was only a Workers State, by default. The previous ruling classes had been destroyed, and the economic basis of their existence uprooted. The only major social class left was the working-class – with a large but disparate peasantry and petit-bourgeoisie – and it, therefore, formed the ruling class, but was not able to actually rule in its own name, and had to hand over that responsibility to a state bureaucracy, much as the immature English bourgeoisie had handed over political control to Cromwell. 

Huge amounts of soviet production was wasted, but rather than the workers involved in its production being made redundant, they were kept in employment and paid their wages by the state. In effect, this was an attempt to do what Marx, in the quote at the beginning, says cannot be done. In the Stalinist states, the state was the central bank. The state bought the commodities produced by these workers, and sold them or allocated them at administrative prices that had no relation to the price of production.

It provided the enterprises that had produced these unwanted commodities with the capital required to produce yet more of them. In doing so, it created a misallocation of capital, because it kept resources going into production of things that no one wanted, whilst thereby diverting resources away from those areas of the economy that needed them. In so doing, it created the conditions for the ossification and ultimate collapse of the entire economy, and of the society along with it.

A similar thing happens with nationalised industries in capitalist countries. It is nearly always the case that industries are nationalised because they have failed, and that failure is just a sign that they are producing things that are not required. In other words, they have engaged in production that represents unnecessary social labour-time. In capitalist terms, this does not even mean that what they have produced is not needed or socially useful, only that it is not demanded.

In Theories of Surplus Value, Marx criticises Smith and Ricardo for not understanding this point, and he also refers to it in Chapter 15 of Capital III. The point is that there is not some given amount of demand for any commodity that is then met by supply. The demand itself depends upon the price of the commodity, which is determined by its price of production – cost price plus average profit.

The demand for widgets may be 1 million units if their price is £0.10, but if the price of production is £0.50, producers will not sell them at £0.10. If the demand for widgets is only 1,000 units at a price of £0.50, there is no point producing 1 million of them, because nearly all of the labour-time used in that production would turn out to have been unnecessary.

But, it may also be that, if demand is only 1,000 units, at a price of £0.50, because that price of production itself depends on producing on a large scale, not even that is possible. It may be impossible to justify the investment of capital to only produce 1,000 units.

In the same way, as for example now, with the steel industry, there may be both need and demand for steel, but not for the total amount of steel produced, at the price of production, or the particular price of production from a given plant or country.

Industries have typically been nationalised under such conditions, but usually it has again been little more than a form of welfarism. As Marx suggests, it has been an attempt, to bail-out the capitalists who lost their capital, in such ventures, but also to keep other capitalists dependent upon that industry, and the consumption of its workers, in business. It consequently, represents a similar misallocation of capital to that which arose under Stalinism. As a result, it acts as a drag on capital accumulation, and the longer-term interests of workers.

In reality, there is an argument, both in the soviet case, and in the case of the nationalised industry, for saying that it would be better to simply guarantee the wages of the workers concerned, whilst shutting down the actual production. That is because, where production continues, it is not just the variable-capital, represented by the workers' wages, that is misallocated, but also all of the constant capital, which they work with and process. The factory, might be used by some other capitalist to produce commodities that are demanded at prices that produce the average profit; the materials might be used by other capitalists, either in the same line of business or some other; the money-capital metamorphosed into productive-capital, could be used to be metamorphosed into productive-capital in some other sphere, where profits could be made from it.

In fact, some firms do this on a small scale. Where they find that production of one type of commodity is in decline, and some other is required, they shut down production, for a short time, so as to retool, and reconfigure their production. In the car industry, when it used to be based on large batch assembly line production, such shutdowns were required, whenever production was shifted from production of one model to another.

Of course, the capitalist state will never agree to such a policy of work or full pay, even if it were to result in a more rapid reallocation of resources so as to promote economic growth, because it would put workers in a stronger position.

A similar thing happens with the subsidy of low wages. If you listen to the apologists of capitalism, they often object to the idea of minimum wages, because, they say, only the market can determine what level any particular worker's wages should be. That is obviously nonsense.

Firstly, as Adam Smith identified 200 years ago, all labour is now co-operative, as a result of the division of labour. Every individual worker is merely a cog in a machine of collective labour. That is not just the case, for example, on an assembly line, but in the fact that workers in one line of production are dependent on the labour of other workers in other lines of production, sometimes located on the other side of the world.

The value of labour-power is not a function of the value produced by labour, but of the specific cost of reproducing that labour-power. If I am a capitalist producing paper-clips, I sell them at the same price to the man running a back street garage, who scrapes a living, as a I do to Microsoft, which makes billions of dollars. In the same way, labour-power is also a commodity, like paper-clips, and its value is not determined by who it is sold to, or how much value it produces. It costs as much to produce the labour-power that is sold to the back street garage, as it does the same labour-power sold to Microsoft.

If the owner of the garage were to turn to the seller of paper clips and say, “I need you to sell me your paper clips for less than you sell them to Microsoft, because otherwise, I cannot make a profit, and will go out of business”, the seller of paper clips would say, “Then run your business more efficiently, because its not my responsibility to subsidise your profit from my own pocket.” And, on the same basis there is no reason why any seller of commodities, including the sellers of labour-power, should subsidise the profits of any capitalists, by selling their commodity below its value. Yet, that is what the apologists of capitalism require workers to do, different to what they demand for the seller of any other commodity.

Moreover, the requirement for workers to sell their labour-power to these inefficient capitalists, below its value, results in the same kind of misallocation of capital, as occurred in the Stalinist States, or happens with the subsidies provided by nationalised industries. If the output of these capitalists could not be sold at its price of production then continued production of those commodities represents a misallocation of capital. It would be better, even in rational capitalist terms, to allow these unprofitable firms to go bust, and thereby to enable the capital they lock up to be used in some other line of production, where the workers could be employed at wages that covered the value of their labour-power, and where the output could still be sold at its price of production.

Society does not owe a living to those inefficient capitalists that can only produce a profit by paying workers below the value of their labour-power, especially where that is only made possible by state subsidies taken from other capitals, which thereby restricts accumulation by those more efficient firms. That is, in effect no different to the kind of welfarism of the soviet system, which enabled such misallocations of capital to develop.

In reality, if all employers had to pay a minimum wage that ensured the reproduction of labour-power, some would invest in fixed capital that raised their productivity and so reduced their unit costs, and price of production, rather than just go out of business. It would provide a positive boost to the efficiency of the economy.

We have seen another form of this phoney solution from the Bank of England. Like other central banks, over recent years, it has protected the paper wealth of owners of fictitious capital by buying government bonds, via QE. Now, it proposes to extend that by also buying corporate bonds. Let's be clear what ultimately this means.

If company A produces £10,000 of widgets, of which it can only sell £8,000 worth, then, if the worst comes to the worst, the state, via the central bank could buy the other £2,000 of widgets, and hope to offload it later, when things improve. That indeed, is how the Common Agricultural Policy, or in past times, the Milk Marketing Board, operates. As Marx says, above, it does not actually deal with the problem that the capital has not been reproduced, it simply forcibly transfers capital from one sphere to another, to compensate for the shortfall in that sphere.

But, there are limits to even this. If every capital, or just a large number, overproduced like that, it would not be possible to buy up the excess and continue overproducing. But, similarly, if the firm produces the £10,000 of widgets, and sells them all for £8,000, it could continue to produce at the old level, if it issued a bond for £2,000 to borrow the difference. This would still represent a misallocation of capital, because that £2,000 comes from the surplus value of some other firm, and could have been accumulated as productive-capital in some other sphere, where the output could be sold at the price of production.

Now, if central banks are going to print money so as to buy such corporate bonds, we arrive back at exactly the same position. The central bank may just as well have printed £2,000 of new money, and used it to buy the overproduced widgets from the company directly! 

No wonder the money-capitalists are getting more and more frightened, with increasing numbers of them saying. “sell everything!”.

Monetary policy is going further and further down the rabbit hole.

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