Theories of Surplus Value, Part I, Chapter 7 - Part 2

Slavery may be contrary to nature, but the question, Linguet says, is whether it is contrary to the nature of society. It is not, he says, because it is the foundation of society, which requires that property be in the hands of a minority. In that case, the issue becomes which form of slavery is most beneficial. In talking of slaves and servants in the modern world, Linguet did not mean just lackeys or those in bondage.

““The towns and the countryside are peopled by another kind of servant, more widely spread, more useful, more laborious, and known by the name of journeymen, handicraftsmen, etc. They are not dishonoured by the brilliant colours of luxury; they sigh beneath the loathsome rags which are the livery of penury. They never share in the abundance of which their labour is the source. Wealth seems to grant them a favour when it kindly accepts the presents that they make to it. It is for them to be grateful for the services which they render to it. It pours on them the most outrageous contempt while they are clasping its knees imploring permission to be useful to it. It has to be pleaded with to grant this, and in this peculiar exchange of real generosity for an imaginary favour, arrogance and disdain are on the side of the receiver, and servility, anxiety and eagerness on the side of the giver. These are the servants who have truly replaced the serfs among us” (pp. 463-64).” (p 347-8) 

And this condition, Linguet says, places them in a worse condition than the slaves and serfs of previous times, because they were never in this position of the potential to starve to death due to lack of employment.

““He is free, you say. Ah! That is his misfortune. He is bound to no one; but also no one is bound to him. When he is needed, he is hired at the cheapest price possible. The meagre wage that he is promised is hardly equal to the price of his subsistence for the day which he gives in exchange. He is given overlookers to compel him to fulfil his task quickly; he is hard driven; he is goaded on, for fear that a skilfully concealed and only too comprehensible laziness may make him hold back half his strength; for fear that the hope of remaining employed longer on the same task may stay his hands and blunt his tools. The sordid economy that keeps a restless watch on him overwhelms him with reproaches at the slightest respite he seems to allow himself, and claims to have been robbed if he takes a moment’s rest. When he has finished he is dismissed as be was taken on, with the coldest indifference, and without any concern as to whether the twenty or thirty sous that he has just earned for a hard day’s labour will be enough to keep him if he finds no work the following day” (pp. 466-67).” (p 348)

Linguet identifies the fact that, deprived of means of production, the worker is really a slave, because they must work for someone else, to live. The fact that they are nominally free to work for whoever they choose, he says, is mere sophistry, because,

“... the number of those who make others work is very small and the number of labourers on the contrary is immense” (pp. 470-71). “What is this apparent liberty which you have bestowed on them reduced to for them? They live only by hiring out their arms. They must therefore find someone to hire them, or die of hunger. Is that to be free?” (p. 472).” (p 349)

Moreover, this fact means that they must hire themselves out on the cheap, and as this makes their condition all that more wretched, the more desperate they become for employment, which means they sell themselves even more cheaply.

““Their” (the slaves’ and the labourers’) “chains are made of the same material and only differently coloured. Here they are black, and seem heavy: there they look less gloomy and seem hollower: but weigh them impartially and you will find no difference between them; both are equally forged by necessity. They have precisely the same weight, or rather, if they are a few grains more in one case, it is in the one whose external appearance proclaims that it is lighter” (p. 510).” (p 349)

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Theories of Surplus Value, Part I, Chapter 7 - Part 1

Linguet [Early Critique of the Bourgeois-Liberal View of the “Freedom” of the Labourer]

Linguet was a reactionary.

“He defends Asiatic despotism against the civilised European forms of despotism; thus he defends slavery against wage-labour.” (p 345)

But, like the reactionary socialists, of the type of Sismondi, Linguet provides an early critique of the ideas of the liberal bourgeoisie. In response to Montesquieu's comment that the spirit of the laws is property, Linguet points out that the rich have taken possession of all property, as means of production, and, by so doing, have removed any potential for liberty, for the vast majority.

“In order to get hold of some of this wealth appropriated by the rich, it must be purchased with heavy labour, which increases the wealth of these rich persons.” (p 346)

Marx notes that Linguet echoes the Physiocrats view of the surplus product deriving from Nature.

““Thus it is that all captive nature has ceased to offer to these children resources of easy access for the maintenance of their life. Its favours must be paid for by assiduous toil, and its gifts by stubborn labours” [p. 188].” (p 346)

Linguet seems to have a notion of the nature of the state as the means by which a ruling class (here the rich) maintains its power. He sees it in terms of the laws introduced by society being ones that sanctify the appropriation of that property, and enshrines the conditions for it continuing in the hands of the rich.

“Laws exist in order to “sanctify a primary usurpation” (of private property), “to prevent new usurpations” (p. 192). “They are, as it were, a conspiracy against the greater part of the human race” [p. 195] (that is, against those who own no property). “It is society which has produced the laws, and not the laws which have produced society” (p. 230). “Property existed before the laws” (p. 236).” (p 346)

There is a comparison here with Rousseau, who wrote,

“Man was born free, and he is everywhere in chains.” (The Social Contract)

For Rousseau, Man creates society as an act of conscious will to form a social contract. As individuals outside society, Men are completely free. But, outside society this freedom is expressed as an absence of law. There can be no property, because property entails legal ownership. There can then only be possession. Without a legal right to possession there is no property, and what one man possesses today, can be removed from their possession tomorrow, and that possession exercised by someone else. Men create society, and create laws to remove this arbitrariness. But, Linguet seems to recognise that, in reality, these laws are not laws created by all men acting out of free will, as Rousseau presumes.

But, there is also an element here of the idea that society is created out of an act of force by these rich individuals, which is similar to the concept put forward by Duhring, and criticised by Engels.

“On the one hand, there were peaceful and isolated husband-men and shepherds. On the other hand—

“hunters accustomed to live by blood, to gather together in bands the more easily to entrap and fell the beasts on which they fed, and to concert together on the division of the spoils” (p. 279). “It is among the hunters that the first signs of society must have appeared” (p. 278). “Real society came into being at the expense of the shepherds or husbandman, and was founded on their subjection” by a band of hunters who had joined hands (p. 289). All duties of society were resolved into commanding and obeying “This degradation of a part of the human race, after it had produced society, gave birth to laws” (p. 294).” (p 346)

and,

““Violence, then, has been the first cause of society, and force the first bond that held it together” (p. 302). “Their” (men’s) “first care was doubtless to provide themselves with food… the second must have been to seek to provide themselves with it without labour” (pp. 307-08). “They could only achieve this by appropriating to themselves the fruit of other men’s labour” (p. 308). “The first conquerors only made themselves despots so that they could be idle with impunity, and kings, in order to have something to live on: and this greatly narrows and simplifies…the idea of domination” (p. 309). “Society is born of violence, and property of usurpation” (p. 347).” (p 347) 

But, as Engels describes, in opposition to Duhring, and also sets out in “The Origin of the Family, The State and Private Property”, this is a false conception. It is impossible to have slavery in conditions where the slave cannot produce more than is required for their own reproduction. In other, words, slavery is only possible where society, and with it the level of social productivity, has become reasonably developed.

The division of society into classes arises not because of the ability of some to mobilise violence, so as to subjugate and enslave another section of society, but because the productive potential of society itself develops so that some of its members are able to accumulate wealth, and to separate off into families, which are then able to acquire servants by economic means. The story of Joseph and the Pharaoh in the Bible is an example of that process, whereby peasant farmers become debt slaves. It is economic power that makes possible the mobilisation of force to consolidate social and political power, and to defend it, not vice versa.

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Theories of Surplus Value, Part I, Chapter 6 - Part 20

[6. Significance of the Tableau Économique in the History of Political Economy]

Marx emphasises the important role that the Tableau played, especially considering when it was produced. He did not share the view of Mirabeau, cited by Smith,

““There have been since the world began three great inventions… The first is the invention of writing….The second is the invention (!) of money…. ‘The third is the economical table, the result of the other two, which completes them both” ( [Smith, Wealth of Nations, O.U.P. edition, Vol. II, p. .300], Garnier, t. III, l. IV, ch. IX, p. 540).” (p 543)

However, Marx lists everything that the Tableau depicts and demonstrates, and concludes,

“... and all this depicted in a Tableau which in fact consists of no more than five lines which link together six points of departure or return— [and this was] in the second third of the eighteenth century, the period when political economy was in its infancy—this was an extremely brilliant conception, incontestably the most brilliant for which political economy had up to then been responsible.” (p 344)

What the Tableau shows is the reproduction process of capital. Within this process, money which had been central to the Monetary School's conception of the production of wealth, is reduced only to a means of circulation, which itself comprises only a phase in the circulation of capital. The Tableau illustrates the origin of revenue as well as the exchange between capital and revenue, and so between productive and unproductive consumption.

It also depicts,

“... the two great divisions of productive labour—raw material production and manufacture—as phases of this reproductive process.” (p 344),

which mirrors Marx's division of this process into Department I and Department II.

“As regards the circulation of capital—its reproductive process, the various forms which it assumes in this process of reproduction, the connection between the circulation of capital and circulation in general (that is, not only the exchange of capital for capital, but of capital for revenue)—Adam Smith in fact only took over the inheritance of the Physiocrats and classified and specified more precisely the separate items in the inventory. But his exposition and interpretation of the movement as a whole was hardly as correct as its presentation in outline in the Tableau économique, in spite of Quesnay’s false assumptions.” (p 344)

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Back To Theories of Surplus Value, Part I, Index

Northern Soul Classics - If This Is Love - The Precisions

Great stomper from The Precisions.

Friday Night Disco - Twilight - Frankie Beverly and Maze

Brexit and Ireland

During the EU Referendum campaign the Brexiteers told a whole series of lies, such as the £350 million per week that they would give to the NHS.  But, the most serious lie they told was over the border between the Irish Republic and Northern Ireland.  The question was repeatedly put to them that Brexit would inevitably mean the reintroduction of a hard border between North and South, undermining the Good Friday Agreement, and the peace that has followed it.  Most shameful was the role of the then Northern Ireland Secretary, Theresa Villiers, a hardline Brexiteer, who repeatedly said that no such problem existed.

Well, of course, a very serious problem does exist.  The Brexiteers continually fell back on the argument that a common travel area had existed between Ireland and the rest of Britain going back long before the creation of the EU, so that Britain out of the EU would make no difference to those arrangements.  But, of course, it does, precisely because there has never been a situation before where Britain has been in the EU, whilst Ireland was not, or vice versa.  There was no problem with a common travel area when neither Britain nor Ireland were in the EU, the problem arises precisely because of Britain leaving, whilst Ireland does not!

The Brexiteers, of course, were keen to play down any such problems, because they, along with their fellow ultra-nationalists across Europe, and in the US, hoped that Britain leaving the EU was just one domino falling as far as the EU as a whole is concerned.  They hoped that the solution to the Irish border question would be resolved by Ireland joining Britain in committing suicide by leaving the EU.  But, that was never going to happen.  The ultra-nationalists have passed their peak whether it is Le Pen, Wilders, Farage and so on in Europe, or Trump in the US.

In the US recently, one Republican Senator being questioned about their failure to repeal and replace Obamacare, was honest enough to admit that their problem was that they never expected Trump to win.  So long as they could simply attack Obamacare, and play to their base by saying they would scrap it, they could continue to win votes without having to seriously consider what they would put in its place.  In many ways, its the same with Brexit.  Many of the top Brexiteers never expected they would win in a Month of Sundays.  They hoped to be able to use the referendum simply to push their nationalist agenda further, both for internal political reasons, and in the hope of squeezing further concessions out of Brussels.  Having won the referendum, the extent to which they now have absolutely no clue what to do next, becomes more apparent as each day passes.

In terms of Ireland, its clear that there are only two rational solutions if Brexit goes ahead.  Either a hard border is established between the Republic and Northern Ireland (as part of a hard border with the rest of Britain) or else, the hard border is put around the whole of the island of Ireland, and between it and the rest of Britain.  This last option is what the Irish government now appears to be suggesting, and what, therefore, I would expect the EU to press in the Brexit talks.  It means problems for the British government of a similar type to those it will face over Gibraltar.  A hard border between the whole of the island of Ireland, and Britain is just another step forward from the current de facto scrapping of the Irish border, and its de jure scrapping by the creation of a United Ireland.

So far, although Northern Irish Protestants also voted overwhelmingly to remain in the EU, and the economic interests of both capital and Irish workers is for the border to remain open, there seems little likelihood that Protestants in the North would vote for a United Ireland, or that a majority could be won for such a position, despite the size of the remain vote, and despite the fact that in the last elections, Sinn Fein became the largest party in the North.  The DUP, stands out like a sore thumb in its support for Brexit as against the community it purports to represent, and it would undoubtedly oppose such a move, backed up by the Tory government in Westminster, beholden to the bigots simply to stay in office.

But, the facts on the ground remain intractable.  Take the situation exposed in recent days in relation to a possible trade real between Britain and the US.  For the US to agree to any such deal it will undoubtedly use its far superior strength to dictate the terms to Britain.  It will insist that Britain agree to the import of chlorine washed poultry, hormone fed beef, and genetically modified crops etc.  But, one those products land on the shores of Northern Ireland, an open border will mean that they flow across into the South, where under current EU food safety regulations they are banned.  And, that is just the case with foodstuffs.  There will be a whole range of products that will be able to be imported into Britain from third countries that would not be allowed into the EU, because they breach food safety, environmental or health and safety laws, which could then be simply transported across an open Irish border, and from there into the rest of the EU.

The importance of those EU regulations has been illustrated with the Grenfell Tower fire.  The EU has stringent regulations on such matters, and checks on buildings in Germany and elsewhere indicates that those regulations have been adhered to.  That even despite the regulations, its now been found that 600 tower blocks in Britain failure the fire safety checks, is an indication yet again of the penchant for British bosses, and authorities to go for the cheap option whenever they can, and to bend regulations, simply to make penny pinching savings at the cost of the lives of British workers.  Can there be any doubt that without the current EU regulations, those same bosses and authorities would take that trend even further?

But, the intractable problem with the border exists in the other direction too.  The main consideration for all of the bigots that voted for Brexit was a demand to curb all immigration at whatever cost.  But, with an open irish border, there will be nothing preventing EU migrants simply catching a plane to Dublin, and then making their way North across the open border, into Northern Ireland, and then going by boat or plane to London or Manchester.

There are only two ways to prevent the movement of migrants from South to North, from the EU into Britain, and to prevent goods moving North to South from Brexit Britain into the EU, and that is either to place the hard border between the whole of the island of Ireland and Britain, or to place a hard border between the irish Republic and Northern Ireland.  The Brexiteers have to choose one or the other.

The BBC Gender Pay Gap Is Not The Real Issue

For the last week the media has been engaging in its favourite pastime of inspecting its own navel. The Tories had required the BBC to publish the pay of its top personnel, and the figures showed huge disparities between male and female presenters.  But, in truth that is a "Dog Bites Man" story.  Surely, it is no surprise to anyone that nearly 50 years after Labour introduced the Equal Pay Act, women continue to be paid less than men.  In fact, the pay gap between men and women at the BBC is probably less than in other media establishments, and in companies across the country.  The focus on the pay gap between men and women, is a useful distraction.  The real issue is the size of the incomes of the top presenters in general, men and women, and what this should tell us about the way the news and current affairs is packaged and presented for general consumption.

With newsreaders getting paid upwards of half a million quid, is it any surprise that even a mildly radical Labour Party gets treated as being the enemy of the people.  Of course, you can't mechanically equate wealth and income with political stance.  Engels was a rich capitalist who was able to retire with a personal fortune equivalent of around £3 million in today's money; Marx was always short of money, but his mother came from a rich family, and Marx himself got regular handouts from his mother and from his uncle Lion Phillips, who was a Dutch tobacco baron, and whose family created the Phillips electronics empire.  And, Steve Coogan is probably worth a few bob, but it didn't stop him providing support for Jeremy Corbyn in the last election.  That said, taken on average, it would not be surprising if people with lots of money tended to support parties that traditionally have looked after the interests of the rich.

What the real story over BBC pay should be is the extent of these large incomes itself.  The real story should indicate why its not just necessary to know how much BBC celebrities are being paid, but how much people are getting paid at Sky, ITV, Channel 4 and 5 etc.  And, the same is true about all of the other media, and newspapers.  That the capitalist media is biased against Labour, and even more so against socialist ideas, should itself be no surprise, but opening the books, makes it clear exactly what the real basis of that bias is.

But, as I wrote eight years ago, at the time of the MP's expenses scandal, its not just the wages and expenses of MP's, and BBC celebrities whose incomes we need to know.  We should as I said then open the books on bourgeois democracy.  We need to know all of the incomes of the top civil servants, the military brass, the top layers of the church and so on.  Even local councillors have to disclose any interests they might have on issues they discuss at Council meetings.  We should have all of the multitude of links between these various elites one with another.

The reality is that the various media celebrities often come from the same backgrounds as the establishment politicians, and the top civil servants, military top brass and so on.  Even where they do  not come from the same families, they often marry into the families of the top 0.001%.  I don't support the idea of putting artificial caps on the incomes of such people, because they never work, and create lots of anomalies, but we should have all of these figures out in the open, for everyone to see.  It would be another good reason for the Labour Movement creating its own media.

Theories of Surplus Value, Part I, Chapter 6 - Part 19

In the third case, the values of commodities exchanged do not cancel out, but more money is thrown into circulation than is required just as means of payment. So, if F buys ₣1 billion of commodities from S, whilst S buys ₣2 billion of commodities from F, all that is required is ₣1 billion to make up the difference. However, if S first buys ₣2 billion of commodities from F, they must throw ₣2 billion into circulation. Only when F then buys ₣1 billion of commodities from S does this additional ₣1 billion flow back to S.

The assumption here has been that the exchanges take place between two individuals, for example, a farmer and a manufacturer. But, in reality, these exchanges take place between many different individual capitals. However, this only adds complexity rather than invalidating the analysis of the underlying relations.

If we assume that there are three sellers – A, A' and A'' – and three buyers – B, B' and B'' – with the sellers each having ₣1 billion of commodities to sell, a series of purchases and sales may occur, but, in the end, ₣3 billion of commodities are exchanged, for ₣3 billion in money.

What changes, depending upon the sequence of the exchanges, is the amount of money which must be thrown into circulation, and so the velocity of circulation. If all three buyers want to buy simultaneously, each must have ₣1 billion, in money, so as to make the purchase. However, if some of the participants act both as buyers and sellers, its possible that only ₣1 billion in money is required to circulate the ₣3 billion of commodities.

“Thus for example: (1) A sells to B for 1 thousand in money; (2) A buys with this 1 thousand from B'; (3) B' with the 1 thousand in money buys from A'; (4) A' with the 1 thousand in money from B''; (5) B'' with the 1 thousand in money from A''. The money would have changed hands five times between the six persons; but also commodities to the value of 5 thousand would have circulated. If commodities for 3 thousand are to be circulated, it would be like this: (1) A [buys] from B for 1 thousand in money; (2) B from A' for 1 thousand in money; (3) A' from B' for 1 thousand in money.” (p 341)

In A Contribution To The Critique of Political Economy, Marx discusses the role of the velocity of circulation in relation to the quantity of money that must be thrown into circulation for any given value of commodities. The discussion here is consistent with the laws developed there.

“In example 1 above, 1 thousand in money circulates three times, and in fact it circulates commodities to the amount of 3 thousand. The amount of money in circulation is consequently 3,000 (sum of prices)/3 (velocity) or 3,000 (sum of prices)/3 cycles = 1,000 money.” (p 341)

The other point that Marx elaborates here is that in considering the velocity of circulation, although an average figure can be determined, this hides the fact that different sums of money may circulate at different speeds.

“In case III or IV the total prices of the commodities in circulation are, it is true, equal to 3,000 in money; but the rapidity of circulation is different. 2,000 in money circulates once, that is, 1,000 in money plus 1,000 in money. Of the 2,000, however, 1,000 circulates once more. 2,000 in money circulates two-thirds of the 3,000 in commodities, and half of it, 1,000 in money, circulates another third; one 1,000 in money circulates twice, but another 1 000 in money circulates only once.” (p 341)

In that case, in aggregate, the velocity of circulation is 1.5, because 2,000 in money circulates 3000 in commodities. What determines the differences in velocity here is the value of commodities in circulation at any one time. Marx notes,

“For the same reason, larger varieties of coin must circulate in wholesale trade than in retail trade.” (p 342)

This is also why I've pointed out that, in some conditions, its possible that even where an excess of liquidity is thrown into circulation, it may result in that liquidity being concentrated in certain segments of the market, and draining liquidity from elsewhere, so that the result is an inflation of some prices and a deflation of others..

In A Contribution To The Critique of Political Economy, in the chapter, The Circulation of Money, Marx indicates that the reflux of money shows that a buyer has become a seller. The money they threw into circulation makes possible the reflux of this money, in exchange for the commodities they later sell, even if the buyer of these commodities is not the person who first sold. This is also the basis of Marx's explanation, in Capital II, of how all capitalists together are able to realise their surplus value. In other words, each throw their money into circulation equal to the value of their surplus value, and this money flows back to them in purchase of the commodities in which that surplus value is represented.

“Continuity in the circulation of commodities —tantamount to its constant renewal (I, p. 78)—is, therefore, reproduction. The buyer can become in turn seller—as in the case of the manufacturer in relation to the labourer—without this denoting an act of reproduction. It is only the continuity, the repetition of this reflux, in relation to which it can be said that it denotes reproduction.” (p 342)

When money returns, as the money form of the commodity-capital, it represents the completion of the period of turnover of capital. It is available once more, for reconversion into productive-capital.

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Forward To Part 20

Brexit and The Mini Decision

As the British economy begins its inevitable descent, following the Brexit decision, and decades of being sustained on little more than a constant drip feed of credit, to fuel consumer spending, and speculation, the Tories have seized on the decision of BMW to assemble its electrically powered Mini at Cowley as a sign of confidence in the British economy. It isn't.

The important thing to note is that the main value component of the Mini will be created in Germany. All that is happening at Cowley is that the existing body shell will continue to be built there, whilst the new electric batteries and motor for the car are being developed in Germany, and will be exported to Britain to be fitted into the car bodies. It doesn't represent additional capital investment in Britain, just not an end yet to the current investment. But, the main value component of the car is the technology for the development of the new batteries, and of the electric motors etc.

It makes sense for BMW to keep the current mini assembly at Cowley because it has huge amounts of capital employed there assembling the current Mini, and 20% of all Mini production is sold in Britain. With the Pound falling, the need for BMW to import the electric motors and batteries from Germany will give the company a direct currency boost to its profits, in a similar way to say British oil companies who make their profits overseas in dollars, but then ship those profits back to Britain, in Sterling. Anyone watching yesterday's BBC Four documentary on robots will also have seen that the car assembly at Cowley is now done exclusively by robots. Although 650 people are employed at Cowley alongside the robots, their jobs are not those of car workers of the 1960's/80's. They are now skilled technicians, who program computers, place sensors and so on.

Governments across Europe, including yesterday the UK, have committed themselves to banning the sale of petrol and diesel powered cars by 2040. That means these governments already know that the car companies themselves will have stopped internal combustion engine production long before then. Volvo has said it will not produce any more petrol/diesel only vehicles by 2020. Battery technology is now developing at such a pace that by 2020, electric cars will be cheaper than petrol/diesel powered cars, and already electric cars are capable of running for around 350 miles on a full charge. Charging technology is also developing quickly, so that one company is now able to offer a full charge in just 15 minutes. That is likely to fall further, although the real development may come from either the ability to charge batteries on the move, from power loops located beneath roads, or else to be able to simply drop out batteries and replace them, within seconds, at service stations, in the way motor racing teams do with wheel changes etc.

If Britain does leave the EU, it will make sense for BMW to keep the final assembly plant at Cowley, because the actual main value creation will be in Germany, whilst it will be able to not only sell the finished vehicles in the UK, but have the potential for onward export to the US etc. Britain would then become just a convenient location for this final low value, assembly work, in the same way that 90% of the value of an Apple iPhone is created in the US, by the highly skilled designers, software engineers, etc. with only the other 10% coming from the actual assembly of the phones by workers in China.

In China, however, over the last thirty years, as in Singapore, Malaysia and elsewhere, there was a conscious decision by the state to develop the economy by moving up the value chain of production whenever the opportunity arose. It was a conscious decision after development began to take off, to pursue a policy of pushing up wages, and encouraging investment in productivity-raising technology. As a result, some of the low skilled jobs previously undertaken by workers in China have started to come back to the UK and US, as Chinese wages have risen, whilst wages in the UK and US have stagnated. Both Apple and Foxconn have announced in the last few days that they intend to start new assembly factories in the US, for example. When government critics talk about it pursuing a policy of turning Britain into Singapore, they actually do Singapore a great disservice!

Theories of Surplus Value, Part I, Chapter 6 - Part 18

The most interesting thing about the movement in case 3 and 4, Marx says, is the ₣1 billion in money. This comes down to this. F sells ₣2 billion of commodities to S, whilst S only sells ₣1 billion of commodities to F. In both cases 3 and 4, therefore, this difference must be made up by a payment of ₣1 billion in money. The difference is in relation to where this money originates.

“In both cases S receives 2 milliards in commodities, and F 1 milliard in commodities plus 1 milliard in money, that is to say, the balance in money.” (p 338-9)

If F is the first buyer, they must throw additional money into circulation, because at that point, none of the ₣2 billion they paid as rent has returned to them. Similarly, if as in case 4, S is the first buyer, but buys all of the ₣2 billion of means of subsistence and production in one go, ₣2 billion of money must be put into circulation by them, whereas had they sold manufactured goods first to landlords, the ₣1 billion received would then have to buy food, so that they would only have had to put an additional ₣1 billion into circulation to buy raw materials. Or, had they only bought food, the ₣1 billion put into circulation for that purpose would have returned from F, when they bought manufactured goods, and could then have been used to buy raw materials.

“In both cases S has to pay a balance of 1 milliard in money, because he takes commodities to the value of 2 milliards out of circulation, and puts into it commodities only to the value of l milliard. In both cases F has to receive a balance of 1 milliard in money, because he has thrown 2 milliards in commodities into circulation and only drawn from it 1 milliard in commodities; the second 1 milliard must therefore be paid in money to him.” (p 339)

If F bought ₣2 billion of commodities from S, rather than ₣1 billion there would be no balance to pay, whatever the sequence of transactions. If F bought ₣1 billion of goods from S, and S bought then ₣2 billion of goods from F, both would each have had to have ₣1 billion in money to begin with. F pays ₣1 billion to S, and S then uses this plus their additional ₣1 billion to buy ₣2 billion of commodities from F. F then uses ₣1 billion of this to buy ₣1 billion of commodities from S.

As at the start of this exchange both have ₣2 billion in commodities, and ₣1 billion in money. Money has acted only as means of circulation. Had they both had accounts with each other, the total value of commodities on each side would have cancelled out. Each's commodities would have acted as money, so that no actual money would need to be exchanged.

“Thus the money which circulates as means of circulation between two persons who confront each other mutually as buyers and sellers returns to its source; there are three cases in which it can circulate.” (p 339)

In the first case, if the commodity values are equal, the money returns to whoever used their capital to initiate the circulation. In other words, if F pays ₣1 billion to buy commodities from S, this ₣1 billion returns to them when S buys ₣1 billion of commodities from them.

If S rather buys ₣2 billion of commodities from F, they must not only return the first ₣1 billion, but advance ₣1 billion of their own capital. In reality, both have then advanced an equal amount to circulation, and receive the same amount back.

“Secondly: The commodity values exchanged between the two parties do not cancel each other out. There is a balance to be paid in money. If, as above in case I, the circulation of the commodities has taken place in such a way that no more money has entered into circulation than is required for the payment of this balance— it being always only this sum that passes to and fro between the two parties—then it comes finally into the hands of the last seller, in whose favour the balance is.” (p 340)

Back To Part 17  

Forward To Part 19

The Elastic of The UK Economy Is Ready To Snap

UK second quarter GDP rose 0.3%, on the first reading. That comes after just a 0.2% rise in the first quarter. I expect that the second quarter reading will be revised down, and that in the second half of the year, growth will slow further, or come to a standstill. The IMF the other day revised down its growth forecast for the UK to 1.7% for 2017. I think that is highly optimistic. The fact is that the UK economy has been living on borrowed time for several years. The growth has been built on froth, as an already huge level of private debt, has been recklessly expanded even further, simply to keep asset prices inflated, and consumer spending going. The use of credit has acted like elastic to stretch the ability of consumers to keep spending beyond their limits, now the elastic is about to snap.

In the mid 2000's, as the UK economy, along with the global economy grew rapidly, as the new long wave boom got underway, wages began to rise sharply, in a way they had not done for more than 20 years. In 2007, oil tanker drivers won pay rises of 14% with not much of a fight; the then Chancellor of the Exchequer, Alistair Darling, appeared on Sunday morning politics shows to implore workers to accept lower than inflation pay rises, so as not to push up inflation further. Plumbers and other craftsmen could not be found for love nor money, as the construction boom exposed the lack of investment in skills training, and the extent to which those previous skilled workers had been lost to the economy, following the damage to it by Thatcher, in the 1980's. It was why, the eponymous Polish plumbers were recruited to make up these shortfalls, something that is being seen again now, but in a different context, in relation to the shortage of nurses, and other healthcare workers.

For the previous 20 years, the stagnation phase of the global economy had meant that labour-power was in excess supply. In the 1970's, and early 80's, it was capital that faced repeated crises of overproduction, as rising wages squeezed profits, in the later 1980's, and through the 1990's, it was labour that faced repeated crises, as unemployment rose, technology raised productivity replacing labour, even where output expanded, causing wages to fall, and the rate of surplus value and of profit to rise. Falling wages from the late 1980's onwards, posed a problem for capital in realising profits on the vastly increased quantity of commodities that were being thrown on to the market as a result of this new revolution in technology.

As I set out in my book, part of the answer to this was that the value of labour-power was reduced as a result of this very same rise in productivity, and from the cheapening of wage goods now produced in China, so lower nominal wages did not result in a proportionate fall in living standards. Part of the answer was that the vast quantity of commodities produced in China, and sold in Britain, meant that part of the surplus value produced by Chinese workers in production, was realised by British workers, who now sold them as the number of retail and commercial jobs increased. And finally, the answer came from the vast expansion of private debt, as workers were encouraged to borrow on an unprecedented scale, as Thatcher's government removed financial regulations, and credit controls. This expansion of debt, often collateralised against the property that some workers after WWII had built up, meant that workers obtained the illusion of affluence, whilst all the time being impoverished, as their assets/capital was converted into revenue. That happened also with the pension funds they had built up over the previous half century, as pensions were increasingly paid out, not from the revenue generated by the fund, but from the illusory and ephemeral, paper capital gains that the funds experienced as part of the blowing up of a series of asset price bubbles.

In the early 2000's, the onset of the new boom meant that this period of falling wages, and rising private debt could be brought to a halt. But, the extent of the debt, and moreover, the extent to which asset price bubbles had been repeatedly inflated – The Greenspan Put – posed a problem for central banks and other policy makers.

The problem faced by Keynesian orthodoxy in the 1970's had been that, in order to halt recessions, increasing amounts of fiscal stimulus was required, and increasingly, employers who saw that any respite would only be temporary, began to use any uptick as an opportunity to raise their prices rather than add to their capital. They raised their prices, which meant that workers in a climate where labour supplies were already stretched, obtained higher wages, so that the result was an inflationary price-wage spiral. Monetarist orthodoxy now faced a similar problem.

Monetarist orthodoxy was that in order to stimulate economic activity additional liquidity had to be put into the economy, that would then reduce interest rates, and encourage additional borrowing, spending and investment. The problem is that this theoretical standpoint is bogus, for several reasons. Firstly, putting additional liquidity into the system, does not reduce interest rates, unless there was already a problem of inadequate liquidity, i.e. a credit crunch. All that additional liquidity does is to devalue the currency, and thereby create inflation. Secondly, even if interest rates did fall, then as Keynes pointed out, unless businesses see some potential for being able to sell any increased output, they will be unlikely to accumulate additional capital, just on the back of lower interest rates. The additional liquidity, he pointed out, would be like “pushing on a string”.

What capitalists are interested in is making additional profits, not simply theoretical profits, but actually realised money profits, as their commodities are sold. At a time when technological developments were making labour relatively surplus, and wages were falling, the rate of surplus value, the amount of profit that was theoretically being squeezed out of workers, in production, was rising, but the contradiction facing capital, was then how to realise this profit, how to turn it into actual money profits, when those very same workers formed a large part of the consumers for those same commodities.

When a supporter of Ricardo wrote describing such a situation that where workers wages were reduced so that profits were raised, this inevitably also led to a glut, Marx commented,

“This is indeed the secret basis of glut.” (Theories of Surplus Value, Part III)

The third problem with the Monetarist solution was that having put additional liquidity into the system, the authorities then had no control over where it went. Some went simply into covering the increasing importation of those wage goods that were now produced in China and elsewhere, and sold in Britain, and the UK etc. It was one reason that the trade deficits in these countries expanded hugely. But, particularly during the 1990's, an increasing amount went into financial speculation, again egged on by the deregulation of financial markets undertaken in the UK and US in the late 1980's.

So, it is often said that the vast increase in liquidity has not resulted in a rise in inflation. But, it has. The inflation has been in asset prices. The Dow Jones Index rose by 1300% between 1980 and 2000. Similar rises can be seen in other stock markets. In 2008, the Dow Jones along with other stock markets crashed, falling to around 7500, but as yet more liquidity was pumped into the system, it rose from the ashes again. It now stand at over 21,000, nearly treble its level in 2008. It has risen by around 2100% since 1980, way in excess of the nominal growth of the US economy, during that period, or of the profits of US companies. And the same applies to the UK stock market.

That huge inflation of asset prices meant that in the 1990's, the paper value of pension funds rose massively. On the one hand, that meant that the contributions that workers and employers paid into those funds, bought fewer and fewer shares and bonds, and so undermining the capital base of the funds to generate revenues to cover future pension payments. On the other, the paper capital gains gave the illusion that the pension payments could simply be paid out of the capital gains rather than revenues. In other words, pension payments could be made by selling some of the shares and bonds in the fund, whose prices had risen significantly. It also meant that employers used this as an excuse not to make their own contributions into the funds, during that period, which boosted their profits, and is why pension funds today face huge black holes in their ability to meet their commitments.

So, increasingly, economies took on the form of a huge Ponzi Scheme, where no real new revenue was being created, at least not in proportion to the growth of asset prices, and revenue was being created by destroying capital, whilst the appearance of capital growth was being achieved simply by printing money, and encouraging borrowing, and speculation in financial assets and property, which in turn acted as collateral for yet further borrowing!

The problem was that when in 2007, the working of the real economy began to impinge on this dream world, as inflation began to rise, central banks attempted to raise interest rates, and that exposed the extent to which financial markets were simply floating in mid-air, supported by nothing substantial. The epitome of that was the subprime lending to the housing market, and the extent to which banks and building societies had lent money way in excess of realistic property values. Some banks collapsed across the globe, before central banks and states intervened to bail them out, and thereby prevent a collapse of those grossly inflated asset prices. Ironically, but also typically, it was Labour's bailing out of those banks and other assets that caused government borrowing to spike, but which has subsequently enabled the Tories to pursue its policy of austerity, based on the lie of Labour profligacy!

Central banks and states succeeded in bailing out the banks, and reflating asset prices, only at the cost of depressing real economic activity over the last 8 years. It has distorted the current long wave cycle, which is now likely to be extended as a result. But, now, again, the real economy is asserting itself. Global growth has continued to grind higher. Even allowing for the extent of hidden unemployment, and underemployment in the UK, US and other economies, we are approaching levels of full employment. The figures given in the last couple of days of the inability to recruit nurses etc. are an indication of the extent of the problem, but other reports have shown that there is a shortage of around 75,000 lorry drivers, shortages of construction workers also exist, and with Brexit looming, not only are EU workers less likely to come to Britain, but EU workers already here are likely to start to leave.

The Bank of England, in particular, is in a bind. Brexit has already caused the Pound to fall, and inflation thereby to rise. UK households are at levels of debt now again comparable to those ahead of the financial crash in 2008. A number of recent reports indicate the nature of the problem, and how capital has stretched the elastic over recent years in order to keep expanding.

A couple of years ago, fears in the US were expressed over the size of subprime loans in the car sector. In the last few years, that phenomenon has appeared in Britain too. Today, very few new cars are actually bought outright. The majority are leased. Some months ago, I investigated the possibility of such a lease myself, only to find that what it really is, is just a means of car companies and dealers turning themselves into finance companies selling credit, as well as cars. The salesmen tried to show me that I was virtually being given free money, until I went through the figures with him to show that his conclusions were based on a series of false assumptions, and bad maths, just to put the best interpretation on it, and an attempt to deceive potential buyers to put a more accurate interpretation on it.

The other example, in recent days, has been the disclosure that millions of people were sold homes under a similar deception. Millions of people have bought homes that were only leasehold without apparently understanding the difference between leasehold and freehold. This seems to open up the potential for billion pound claims against solicitors who conducted the conveyancing of these homes, similar to the PPI compensation claims that arose out of the similar misselling ahead of the 2008 financial crash. The fact that millions of people could buy homes that they didn't know were leasehold, or without understanding the difference between leasehold and freehold is itself a reflection of the economy that has been created on the back of easy credit.

When I bought my first house, I was 23, and my wife 20. We bought it outright for cash having saved relentlessly for three years to do so. That makes you a bit more attentive to how you spend your money, and to make sure you do all due diligence before making any purchase. But, over the last thirty years or so, a climate has been created whereby no one saves money, no one buys things from their earnings, and everything is bought without any great thought, simply by using the easily available credit. When it appears that the things you buy are paid for by money that magically appears from nowhere, it makes you less inclined to spend time checking out all the details, even though you could do it easily nowadays by spending 5 minutes googling “leasehold”, rather than checking up the latest antics on Love Island! You are even less likely to spend time doing due diligence on your purchases, when, as now with leasehold properties, the government comes along to offer to bail you out, at taxpayers expense.  The same is true with houses bought in floodplains and so on.

But, the situation with leasehold is only a variation in the very policies that governments themselves have pursued in recent years to try to keep the property market inflated. Builders sold properties leasehold, because in doing so, they could sell them cheaper than if they were freehold. Like a car dealer leasing new cars, the builder gets a chunk of money now, and further chunks of money in ground-rent for ever more. It was a way of builders being able to sell more houses at a time when the demand for houses was falling, as people were already loaded up with too much student debt, credit card debt, car loan debt, store card debt, pay day loan shark debt and so on. But, it is really no different in that sense than all of the shared equity, and rent to buy scams that the government has also promoted over the years to try to keep housing demand from collapsing, at a time when real wages were still falling.

The Bank of England needs to try to prop up the Pound by talking about raising interest rates, because as the Pound continues to fall, inflation will rise again, and with labour becoming scarce that will lead to rising wages and squeezed profits, which is hardly a recipe for stock markets to rise further. But, actually raising interest rates will itself crash stock and bond markets, and send the housing market into a sharp decline. They are at the end of the road, the elastic has been stretched to the point of snapping, and Brexit means that Britain will be ill prepared to deal with the consequences.

Theories of Surplus Value, Part I, Chapter 6 - Part 17

The second case is more complex and offers more alternatives.

“There are various possible cases of the circulation assumed above of 3 milliards in commodities, of which 2 milliards are means of subsistence and 1 milliard manufactures; we must however note: first that on Quesnay’s assumption there is 1 milliard in money in the hands of S and 1 milliard of money in the hands of F at the moment when the circulation between the two of them begins; secondly, we will assume by way of illustrating the point that in addition to the 1 milliard which S receives from L, S has in his till another 1 milliard in money.” (p 335)

Marx sets out first the case as Quesnay puts it. S buys ₣1 billion in money. Along with the ₣1 billion that has returned to him from L, it represents capital. It is the money equivalent of part of his commodity-capital. It could be used, as money-capital to reproduce productive-capital, but, in fact, will be used to pay the ₣2 billion of rent due in the following year. In other words, this is a situation whereby capital is converted into revenue, because in the hands of L, this ₣2 billion will be used as revenue and consumed unproductively.

“1 milliard in money has here circulated three times— from S to F, from F to S, from S to F—and each time in exchange for 1 milliard in commodities, that is, for 3 milliards in all. If the money itself has value, values to a total of 4 milliards are in circulation. Money here functions only as means of circulation; but for F, in whose hands it finally remains, it is transformed into money and possibly into capital.” (p 336)

In the second case, money only acts as means of payment. S sells ₣1 billion of commodities to F, whilst buying ₣2 billion of commodities from F. If they keep accounts with each other, then S has to pay a balance of ₣1 billion.

“As in the former case, 1 milliard in money comes into F’s money-box, but without having served as means of circulation. The money is a transfer of capital for him, as it only replaces his capital of 1 milliard in commodities.” (p 336)

Again, if the money has value ₣4 billion are in circulation, but where previously the ₣1 billion of money moved three times, here it moves only once. It has acted only as means of payment for the balance of commodities equal to itself. In effect, the commodities themselves here that were exchanged acted as money, with the money commodity itself merely making up the difference.

In the third case, having received back ₣1 billion from L, F use it to buy manufactured goods, rather than leaving it in a hoard to cover next year's rent. They can buy goods from S with it, because S has ₣2 billion of commodities produced last year, as their commodity-capital.

S now then has ₣2 billion in money, ₣1 billion received from L, and a second ₣1 billion received from F. With this ₣2 billion S can now buy ₣2 billion of commodities from F.

“Now values to the amount of 5 milliards have been in circulation (3 milliards in commodities, 2 milliards in money). There has been a circulation of 1 milliard in money and 1 milliard in commodities, and a circulation of 2 milliards in money and 2 milliards in commodities. Of these 2 milliards in money, the milliard originating with the farmer circulates twice, the milliard originating with 5 only once. Now 2 milliards in money return to F, of which however only 1 milliard settles his balance; the other 1 milliard in money, which he himself had thrown into circulation because he took the initiative as buyer, flows back to him through circulation.” (p 336)

In the fourth case, S buys ₣2 billion of from F. They do so with ₣1 billion of money from L, and ₣1 billion of their own, thrown into circulation. F then buys ₣1 billion of commodities from S, so that the ₣1 billion they had thrown into circulation returns to themselves

“Values to the amount of 5 milliards have circulated. There are two acts of circulation.” (p 337)

In case 3, of the ₣2 billion in money, which S returns to F, ₣1 billion is money thrown into circulation by F and ₣1 billion in money that S had thrown into circulation. ₣1 billion returned to S, but was then returned to F. In case 4, ₣1 billion returns also to S, but is not then paid out again to F. However, unlike case 3, this is only a return of the same ₣1 billion that S had themselves thrown into circulation from their own funds.

“In case I and indeed in case II there is never more than 1 milliard in money circulating; but in case I it circulates three times and in case II it only once changes hands; this is merely due to the fact that in case II a high development of credit, and consequently economy in payments, is assumed; while in case I the movement is rapid; however, each time the money functions as means of circulation, and therefore the value at the two poles must each time appear twice, once in money and once in commodity. In case III and IV 2 milliards circulate, instead of 1 milliard as in I and II. This is because on one occasion in both cases (in case III by S as buyer who closes the circulation process, in case IV by S as buyer who opens the circulation process) commodity values to the amount of 2 milliards are at a single stroke thrown into circulation; that is, 2 milliards of commodities enter into circulation in a single act; it is assumed, moreover, that the commodities have to be paid for on the spot and not after the balance has been struck.” (p 337)

This latter would, therefore, suggest a less developed system of credit, and a lower rate of turnover of capital.

Back To Part 16

Forward To Part 18

Theories of Surplus Value, Part I, Chapter 6 - Part 16

Another alternative is possible, as Marx describes, which is,

“Or, S buys from F raw materials for 1 milliard in money, and means of subsistence for 1 milliard in money. F buys goods from S for 1 milliard [in money]. In this case 1 milliard flows back to S, but only because it was assumed that in addition to the 1 milliard in money he receives from the landlord, and the 1 milliard in goods that he still has to sell, he had over and above this another 1 milliard in money which he himself had thrown into circulation. Instead of 1 milliard circulating the goods between him and the farmer, on this assumption 2 milliards would have been used for it. Then 1 milliard returns to S. For he makes purchases from the farmer for 2 milliards in money. The latter buys 1 milliard from him, for which he pays him back half the money he had received from him.” (p 334)

In essence, either S buys in two stages, so that he pays out ₣1 billion for food, which flows back to him as farmers then buy manufactured goods, and he then uses this same ₣1 billion to buy means of production, or else he makes one purchase of ₣2 billion for food and material, for which he must hand over ₣2 billion in money, and of which he then only gets back ₣1 billion, when the farmer buys manufactured goods.

In the second case, ₣2 billion rather than ₣1 billion of money must be in circulation, to bring about the circulation of the same ₣3 billion of commodities - ₣1 billion manufactures, ₣1 billion food, ₣1 billion raw material.

In the first case, S has no money other than what they receive from L. They buy food with it, and it returns to them as F buys manufactured goods. But, S then uses this money to buy material so that at the end they again have no money.

In the second case, S have ₣1 billion in addition to the ₣1 billion received from L. They thereby throw this additional ₣1 billion into circulation to buy material, and this capital flows back to them as F buy manufactured goods, so that at the end they again have ₣1 billion in money.

“In the first case S makes purchases from F for 2 milliards, and F from S for 1 milliard. So in both cases the balance in F’s favour is 1 milliard. But this balance is paid to him in such a way that his own money flows back to him, because S first buys 1 milliard from F, then F 1 milliard from S, and finally S 1 milliard from F. In these transactions 1 milliard has circulated 3 milliards. But in the aggregate the value in circulation (if the money is real money) has been 4 milliards, 3 milliards in commodities and 1 milliard in money. The amount of money originally thrown into circulation (to pay F) and circulating was never more than 1 milliard—that is, never more than the balance which S had to pay to F. Because F bought from him to the amount of 1 milliard before he buys from F to the amount of 1 milliard for the second time, S can pay his balance with this 1 milliard.” (p 335)

Back To Part 15

Forward To Part 17

Theories of Surplus Value, Part I, Chapter 6 - Part 15

[5. Circulation of Commodities and Circulation of Money in the Tableau Économique. Different Cases in Which the Money Flows Back to Its Starting-Point]

Marx here turns to this question of what the Tableau Economique demonstrates in terms of the role of money, in these great social exchanges, and the circulation of commodities and capital. A number of things are apparent. Firstly, it has already been discussed earlier that the amount of money required to effect the exchanges depicted is the result of the assumption that the rent is paid in one lump sum rather than in say ten instalments during the year.

In short, the amount of money required is itself a function of the velocity of circulation, which is driven by the pace of economic activity, as well as the rate of turnover of capital. If commodities change hands quickly, the same piece of money can be used for more transactions than if they change hands slowly. Similarly, if capital is thrown into circulation quickly, and metamorphoses into money-capital more quickly, i.e. if the rate of turnover of capital is high, less capital itself must be advanced to achieve a given level of output, and consequently less capital, in its money form, is required.

In addition, the amount of money required to effect a given circulation of production, as depicted in the Tableau, depends upon other assumptions, for example, in relation to the sequence of exchanges. If we take the ₣2 billion paid to landlords, for example, its possible that ₣1 billion may be paid in rent, which is used by landlords to buy manufactured goods. The manufacturers then use this to buy means of subsistence. The ₣1 billion now back in the hands of farmers, is then used to pay a second instalment of rent, which in turn flows back, as landlords buy food. In that case, only ₣1 billion in money would have been required to circulate ₣3 billion of commodities - ₣1 billion manufactures sold to landlords, ₣1 billion food sold to manufacturers, and ₣1 billion food sold to landlords, from the second instalment of rent.

Moreover, different results arise if we assume that money is already in the hands of landlords and manufacturers, prior to the payment of rent by farmers. Marx now examines some of these various means by which money flows back. If we look at the exchanges between manufacturers and farmers, the former buys ₣2 billion of food and raw material from the latter. But, they only sell ₣1 billion of manufactured goods to the former. That leaves a balance of ₣1 billion that the manufacturer must pay to the farmer. As Marx says,

“Quesnay seems to confuse this payment of 1 milliard to F with the purchase of F’s product to the amount of 1 milliard.” (p 333)

In fact, the balance must be made up in money, and this money comes from the ₣1 billion paid in rent by the farmer to the landlord, and which passes from landlord to manufacturer, in exchange for manufactured goods.

“In fact (on our calculation) the 2 milliards have only served to: (1) pay rent to the amount of 2 milliards in money; (2) circulate 3 milliards of the farmer’s gross product (1 milliard means of subsistence to L, 2 milliards means of subsistence and raw materials to S) and to circulate 2 milliards of the gross product of S (1 milliard of it to L, who consumes it, and 1 milliard to F, who consumes it reproductively).” (p 333)

Marx is distinguishing here between those transactions whereby commodities exchange for commodities, and money only acts as means of circulation, and those exchanges where no commodities are exchanged on the other side, and where money acts, therefore, as a means of payment.

“In the last purchase (a''–b'') in which S buys raw materials from F, he pays him back in money.” (p 333)

This is money that has come from L in exchange for manufactured goods, a-c. But, it originally came from F as payment of rent to L. When S buys means of subsistence from F, therefore, it simply flows back to F. It does not, in fact, represent any exchange of commodities between F and S. F has provided commodities to S, not in exchange for an equivalent value of commodities from S, but for ₣1 billion of their own money, originally paid as rent to L.

With the same ₣1 billion, F then buys manufactured goods from S. Finally, S buys ₣1 billion of raw materials from F. So, here there is an actual exchange of commodities with the money acting merely as means of circulation.

Back To Part 14

Forward To Part 16

The Sharks Smell Blood

Over the last few weeks we've heard a lot about the different countries that want to do trade deals with Britain. The Brexiteers that trumpet this attention don't seem to realise that it is the equivalent of sharks having smelled blood in the water, or buzzards circling over a wounded animal.

The Brexiteers, and unfortunately also the Labour leadership think that Britain can simply put its demands to the EU, and apart from some small fudge here or there, the EU will agree. The policy of hard Brexit has gone off the front burner for now, as a result of the General Election result, though given the government's support from the DUP, and the strength of the ultra-nationalist elements on the Tory back benches, and from elements like Gove, I still would not rule out the possibility of the government walking out of the talks before this year is out. However, that simply puts in stark relief the totally unsustainable nature of the stance of “have cake and eat it” that the soft Brexiteers, including the Labour front bench are now left trying to uphold. It is typical British exceptionalism, born of the quaint notion that Britain is still some 20^th century, imperial and global power that can negotiate on preferential terms with the rest of the world.

There is absolutely no reason why the EU would grant Britain the same rights and benefits of being in the single market and customs union, whilst not actually being members of those structures. There is every reason why they will not do that. No organisation that wants to stay in existence gives equal or preferential treatment to non-members as opposed to members. It is typical British arrogance to think that the EU will make an exception to that for Britain. They won't, and its deluding the British people to pretend they will. Even the kind of options that Norway has in relation to the EU, are not tenable as far as Britain is concerned, because Britain is a much larger economy than Norway. As the EU negotiators said at the start, the real options after all the initial talking has gone on will come down to Hard Brexit or No Brexit. Hard Brexit will be a disaster for Britain, and it is up to socialists to say so, and to tell the truth to British workers on that account, and to start making the case as to why Brexit should be dropped.

Labour is being tied in knots trying to cope with all of the irreconcilable contradictions in its stance. It just makes Labour spokespeople look like the Tories second 11, as well as making them appear indecisive, if not dissembling in the inevitably confused answers they give to media questions. If they persist with this stance, Labour risks throwing away a large portion of the support it has won over the last year or so.

But, the same arrogance and cognitive dissonance can be seen in relation to the Brexiteers, and their spokespeople like Liam Fox. They portray the advances of Donald Trump, or of Modi and others as being evidence of the fact that Britain still has it, and the world still wants it. Well they would be better advised to think about it in terms of Trump seeing just yet another pussy to grab. The only reason that Trump would want to do a deal with Britain, is because outside the EU, Britain is weak. The US will be able to dictate terms to Britain on trade in a way they could never do with the EU, the economy of which is larger than that of the US. In fact, that is what characterises imperialism. Even a fairly large national economy, such as Britain, might obtain nominal political independence outside the EU, but only at the expense of losing real sovereignty. In the age of imperialism, it is impossible for any nation to exercise absolute sovereignty, because political independence does not provide, and indeed undermines economic sovereignty.

When it comes to taxes, and a whole range of other issues, Britain will find itself even more at the mercy of large multinational corporations able to blackmail it into providing subsidies, lower tax rates and preferential treatment, and so on, on pain of simply moving their investment and business elsewhere. That is already happening, ahead of Brexit in relation to the big transnational banks. And, to the extent that Britain seeks to align with others in challenging the power of those multinationals, it will find itself doing so on the terms of these other larger organisations, without having any seat at the table itself.

And the same applies to all of those other countries that have given notice of their willingness to do trade deals with the UK. British politicians still think that this is the age of the Empire, and that they can pick up where it left off in terms of trading with India, Australia and so on. In 1800, India still accounted for 25% of global textile production. Britain, in breaking up the old village communes, which were the basis of its Asiatic Mode of Production, also undermined that production. At the same time, Britain imposed swingeing import duties on Indian textiles, so as to protect the rapidly developing capitalist textile production in Britain.

On that basis, Britain supplanted India as the world's leading producer of textiles, whilst India was thrown back on to producing cotton. Even then Britain obtained most of its cotton from the United States, only resorting to the lower quality Indian cotton, when the US Civil War, prevented supplies coming to Britain. Britain could dictate terms to India, just as it did to other parts of the Empire, and could organise production of primary products within them to meet its domestic needs, as well as using them as protected markets for its manufactured goods, thereby keeping out the manufactured products of its competitors such as Germany, France, and the United States. But, those days are long gone. Even after WWII, that world was broken up.

Britain is no longer a major manufacturing centre. That title now goes to China. Australia has enjoyed a 25 year long boom, largely on the basis of being a major supplier of primary products to China. China can absorb all of the minerals, all of the meat, and all of the wool that Australia produces. There are significant advantages for a country like Australia being able to trade on such a large scale with a single country like China, which is why it can do so on better terms than if it were selling its output to a relatively small country like Britain. Similarly, Australia has opened up its own trade with the United States across the Pacific Ocean, as well as with Japan.

Canada's main trading relation now is with the US, and it is likely to be followed by its trade with the EU, not Britain. India too has become a regional economic power. It may indeed want to do trade deals with Britain, but they will likewise be deals based on its interests and its terms, not those of Britain. None of these countries will be looking to do deals with Britain that in any way favour Britain, or replace what it will lose in terms of trade with the EU, and that will be even more the case as Britain's significance in the world continues to diminish.

Theories of Surplus Value, Part I, Chapter 6 - Part 14

Marx points out here that, on the basis of Quesnay's presentation, however, there seems to be a gap in relation to the allocation of the gross product. According to Quesnay, the value of the gross product is ₣5 billion. For the Physiocrats, it is only agriculture that produces new value, the manufacturers only transforming the value produced in agriculture into other products.

“That is to say: one-fifth goes into reproduction for the farmer, and does not come into circulation; the landlord consumes one-fifth (that makes two-fifths); S gets two-fifths; in all, four-fifths.” (p 331)

Marx's assumption here, and in his further analysis is based on the idea that, for Quesnay, it is only a fifth of the output, which does not enter into circulation. Marx returns to this later. But, also he refers to it in Chapter X of Engels' “Anti-Duhring”, which Marx wrote. There, Marx writes,

“The whole gross product, of a value of five milliards, is therefore in the hands of the productive class, that is, in the first place the farmers, who have produced it by advancing an annual working capital of two milliards, which corresponds to an invested capital of ten milliards. The agricultural products—foodstuffs, raw materials, etc.—which are required for the replacement of the working capital, including therefore the maintenance of all persons directly engaged in agriculture, are taken in natura from the total harvest and expended for the purpose of new agricultural production. Since, as we have seen, constant prices and simple reproduction on a given scale are assumed, the money value of the portion which is thus taken from the gross product is equal to two milliard livres. This portion, therefore, does not enter into general circulation. For, as we have noted, circulation which takes place only within a particular class, and not between one class and another, is excluded from the Tableau.”

(Anti-Duhring, Part II, Chapter X, p 315-6)

This is a similar situation to that discussed by Marx in criticism of Smith and the Trinity Formula, that, in fact, the gross output is greater than the value of the commodities that enter circulation, and form the consumption fund, because a portion of output is always simply consumed in kind, as an exchange of capital with capital. In fact, Marx points to a number of flaws in Quesnay's presentation.

The ₣5 billion represent only the gross annual product. However, Quesnay's presentation requires that the farmers had ₣2 billion also in money, at the start of the year, which they pay as rent to landlords. In addition, the manufacturers must also have in their possession ₣2 billion of manufactured goods, which are the product of last year's activity.

When the landlords buy ₣1 billion of food from farmers, this food is the product of last year's harvest, which must be replaced out of this year's production. Similarly, when the landlords buy ₣1 billion of manufactured goods these come out of the existing commodity-capital of the manufacturers, and this production must be replaced out of this year's output.

In the current year, therefore, the total value of output is ₣7 billion, ₣5 billion produced in agriculture, and ₣2 billion produced in manufacturing, but the ₣2 billion produced in manufacturing is actually comprised of ₣1 billion of raw materials produced in agriculture, and ₣1 billion of food used as means of subsistence by manufacturing workers, so that, consistent with the Physiocratic system, it only represents a transformation of this value into another form.

“We thus have: (1) 2 milliards in money in the farmer’s hands; (2) 5 milliards in gross product of the land; (3) 2 milliards in manufactured goods. That is, 2 milliards in money, and 7 milliards in product (agricultural and industrial).” (p 332)

The Tableau Economique is, therefore, important not just for its function in describing the basis of these social exchanges of production, but also the role of money in this process of the circulation of commodities and capital. Its possible to envisage the exchanges of physical products that result, but not on the basis of capitalist production and exchange.

Quesnay's presentation suffers because of the limitations of Physiocratic concepts of value. For example, in this schema it is only the farmers who are capitalists, the landlords are simply recipients of revenue, whereas the manufacturers are merely wage earners (even those who are capitalists) but, it is possible, as Marx does, to move beyond those limitations.

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