Wednesday, 16 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 18

The direct producers, engaged in the production of products to meet their needs or which could be exchanged for other products which met their needs, but capital produces only to create surplus value, and competition between capitals means that it must strive to produce more surplus value, so as to accumulate and be more competitive.

The very nature of this capitalist production, by replacing individual production with co-operative production, acts to increase the surplus value, and so a greater portion of the workers' output is appropriated by capital.

“Since living labour—through the exchange between capital and labourer—is incorporated in capital, and appears as an activity belonging to capital from the moment that the labour-process begins, all the productive powers of social labour appear as the productive powers of capital, just as the general social form of labour appears in money as the property of a thing. Thus the productive power of social labour and its special forms now appear as productive powers and forms of capital, of materialised labour, of the material conditions of labour—which, having assumed this independent form, are personified by the capitalist in relation to living labour. Here we have once more the perversion of the relationship, which we have already, in dealing with money, called fetishism.” (p 389)

In other words, it is here the fact that labour is more productive, when it is employed co-operatively, that explains the additional surplus value it produces, but this appears now rather as the productive power of capital, which employs all of these individual labourers under one roof. It is just the same as the way this capital appropriates the gains provided by science, even though, as with capital, those gains are themselves attributable to labour. For example, it is human labour, as scientific labour, that conceived the idea of the steam engine, and it is human labour that produces the steam engine, and its component parts, and the fuel to run it. Yet, when this steam engine enhances the productivity of the labour that uses it, for a variety of functions, it is not the labour that is credited with bringing about this increase in productivity, but capital.

“The productivity of capital consists in the first instance—even if one only considers the formal subsumption of labour under capital—in the compulsion to perform surplus-labour, labour beyond the immediate need; a compulsion which the capitalist mode of production shares with earlier modes of production, but which it exercises and carries into effect in a manner more favourable to production. 

Even from the standpoint of this purely formal relation—the general form of capitalist production, which is common both to its less developed stage and to its more developed stage—the means of production, the material conditions of labour—material of labour, instruments of labour (and means of subsistence)—do not appear as subsumed to the labourer, but the labourer appears as subsumed to them.” (p 389-90) 

The labour employed by capital preserves the value of the means of production, and creates additional new value, which is absorbed by the means of production.

“Already in its simple form this relation is an inversion— personification of the thing and materialisation of the person; for what distinguishes this form from all previous forms is that the capitalist does not rule over the labourer through any personal qualities he may have, but only in so far as he is “capital”; his domination is only that of materialised labour over living labour, of the labourer’s product over the labourer himself.” (p 390)

Tuesday, 15 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 17

[11. Apologist Conception of the Productivity of All Professions]


Marx sets out a scathing and satirical attack on the idea that all activity is productive, as described by Mandeville in The Fable of the Bees. Marx chooses as the vehicle for his satire, the activity of the criminal. Without criminals there would be no police, magistrates, gaolers, lecturers in law, and so on; there would have been no development of ever more effective locks. Torture has given rise to numerous new mechanical devices; the adulteration of food to the everyday use of the microscope and chemical analysis.

An equivalent can today be seen in the Keynesian notion, adopted by some Marxists that the physical destruction of means of production, by war or other disaster, is in some sense beneficial for capital, because it enables production to then take place to replace what was destroyed!!

[12.] Productivity of Capital. Productive and Unproductive Labour


[(A) Productivity of Capital as the Capitalist Expression of the Productive Power of Social Labour]


“We have seen not only how capital produces, but how it itself is produced, and how, as an essentially altered relation, it emerges from the process of production and how it is developed in it. On the one hand capital transforms the mode of production; on the other hand this changed form of the mode of production and a particular stage in the development of the material forces of production are the basis and precondition—the premise for its own formation.” (p 389)

Marx is discussing here the formal and real subordination of labour to capital, a process he also discusses in Capital I. In previous modes of production, the means of production are nothing more than a means for the producer to undertake production. The means of production are employed by the worker for that purpose.

On the one hand, the historical development of those means of production creates the need for production to be undertaken on a different basis. Even capitalist production, on the basis of handicraft production, changes this relation. Whether it is via the putting out system, whereby merchants provide peasant producers with material to be spun, or woven, or the manufactories where handicraft workers are brought together, working in the same old manner, it is now capital that employs labour, and this labour only has employment so long as capital requires it, rather than vice versa.

And here the capitalist is only the personification of this capital. The capitalist is the person who obtains the profit, but it is the relation between capital and labour which is the source of this profit, just as it is the basis of the accumulation of this profit as capital.

The pre-capitalist producer created a surplus product and surplus value, which took the form of rent, although some of the more favoured producers were able to accumulate some of this surplus themselves as capital. But, as soon as capital arises on this basis, the labour employed by capital of necessity must hand over this surplus product and surplus value to capital, as the price for being employed.

Monday, 14 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 16

[9. Glorification of the Landed Aristocracy by Buat, an Epigone of the Physiocrats] 

Marx writes of Buat

“This feeble and diffuse writer, who takes the outward form of Physiocracy for its essence and glorifies the landed aristocracy— and in fact accepts it [Physiocracy] only in so far as it serves this purpose—would not have to be mentioned at all, but for the fact that the brutal characteristics of the bourgeois emerge so sharply in his work; quite as sharply, perhaps, as in Ricardo’s writings later. His error in restricting the net product to rent makes no difference to this.” (p 321) 

This concept that it is only the net product, or surplus value that is the object of production is set out both by Buat and Ricardo, and for both, therefore, the productive workers, who produce this surplus are seen as an incidental expense. 

“The free labourer’s lot is conceived as only a changed form of slavery; but this is necessary so that the higher strata may form “society”.” (p 381) 

This was referred to previously by Marx in relation to Ricardo's difference with Smith over the gross and net product, and Ricardo's view that because the position of labourer was an unfortunate one, who produces a surplus for someone else, the number of people placed in that unfortunate position, should be kept to a minimum. 

[10. Polemics Against the Landed Aristocracy from the Standpoint of the Physiocrats (An Anonymous English Author)] 


Marx examines the work The Essential Principles of the Wealth of Nations, illustrated, in Opposition to some False Doctrines of Dr. Adam Smith, and others, London, 1797, which, he says, is the only important work supporting the Physiocratic Theory. Marx did not know the author of the work, but it has been subsequently identified as John Gray, of whom little is known, and not to be confused with John Gray the socialist pamphleteer. 

“He is right in tracing the origin of this view to Locke and Vanderlint, and he describes the Physiocrats as those who “very systematically, though not correctly, illustrated” the doctrine (p. 4).” (p 382) 

Marx says that the Physiocrats, by explaining industrial profits on the basis of Mercantilism, thereby create the basis for the explanation of the formation of capital as resulting from abstinence. That conception, put forward by Smith, Senior and apologists for capital, explains the origins of capital not by the appropriators of surplus value, but by the abstinence from consumption of the capitalist. 

As Marx describes in Capital I, although some industrial capitalists may initially have been workers, who acquired their original capital in that way, it does not explain the vast amount of capital formation. Primary capital accumulation arose from a variety of sources from piracy to colonial exploitation, to usury, and the creation of large national debts. Even where individual capitalists did accumulate their initial capital from saving, its further accumulation arose from the appropriation of surplus value. 

However, if the Physiocratic Theory is adopted, no profit is created in the industrial sector, and so if capital is accumulated there, it cannot be from an accumulation of profit, but only as a result of abstinence by industrial capitalists. 

““ The expence laid out in employing and maintaining them” [handicraftsmen, manufacturers and merchants] “does no more than continue the existence of its own value, and is therefore unproductive” (because unproductive of surplus-value) “The wealth of society can never in the smallest degree he augmented by artificers, manufacturers, or merchants, otherwise than by their saving and accumulating part of what is intended for their daily subsistence; consequently it is by privation or parsimony alone, that they can add any thing to the general stock” (Senior’s theory of abstinence, Adam Smith’s theory of savings). “Cultivators, on the contrary, may live up to the whole of their income, and yet at the same time […] enrich the State; for their industry affords a surplus-produce called rent” (p. 6).” (p 383) 

But, says Marx, this is the great merit of Physiocracy, because it does not begin by asking how this capital can be augmented by increased surplus-value, but rather asks first what is the origin of the surplus value. The argument of the Physiocrats that surplus value is created in production and not in exchange, is then echoed by Gray. 

““When the question is about the production of revenue, it is altogether illogical to substitute for that the transfer of […] revenue, which all commercial dealings are […] resolvable into” (p. 22). “What does the word commerce imply but commutatio mercium sometimes more beneficial to the one than the other; but still what the one gains the other loses, and their traffic really produces no increase” (p. 23). “Should a Jew sell a crown-piece for ten shillings, or a Queen Anne’s farthing for a guinea, he would augment his own income, no doubt, but he would not thereby augment the quantity of the precious metals; and the nature of the traffic would be the same, whether his virtuoso customer resided in the same street with himself, or in France, or in China” (p. 23).” (p 383)

But, as described earlier, this leads to a Mercantilist explanation of the profit obtained by industry. And that leads Gray into a Mercantilist conclusion too.

““No man, as a manufacturer, however he may gain himself, adds any thing to the national revenue, if his commodity is sold and consumed at home; for the buyer precisely loses…what the manufacturer gains… There is an interchange between the seller and the buyer, but no increase” (p. 26). “To supply the want of a surplus…the master-employer takes a profit of 50 per cent upon what he expends in wages, or sixpence in the shilling on each manufacturer’s pay; … and if the manufacture is sold abroad … [this] would be the national profit” (p. 27) of so and so many “artificers ”.” (p 383-4)

The Physiocratic view that manufacturers only modify the form of what is produced in agriculture is also echoed by Gray.

““Manufacturers are […] a necessary classbut not a productive class” (p. 35). They “occasion a commutation or transfer of the revenue previously provided by the cultivator, by giving a permanency to that revenue under a new form” (p. 38).” (p 384)

According to Gray there are four essential classes – The Productive Class or cultivators, Manufacturers, Defenders, and Instructors. The latter take the place of the Physiocrats priests. The basis is that “every civil society must be fed, […] clothed, defended and instructed” (pp. 50-51).” (p 384) 

Gray also discusses the role of the landlords in taxing improvements on the land, as described by Marx in his analysis of rent. On this basis, he is in favour of long leases.

The limitations of Physiocracy show, Marx says, in Gray's discussion of a producer of clocks or calico, who cannot sell their commodities. They only make profits to the extent they can sell, Gray says, but a farmer can live off their product without the need to sell. But, as Marx says, a farmer who is a commodity producer makes no profit either if they cannot sell, and whilst they can consume their own product without needing to sell it, they can only do so if they also then become a producer of manufactured goods, because they can only buy the latter by selling their own commodities.

Sunday, 13 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 15

[8. Addendum to the Chapters on the Physiocrats]


Marx returns to the examination of the Tableau Economique, and the false assumptions made by Quesnay, as well as the fall back into Mercantilist conceptions which flowed from them. For the Physiocrats, it is only agriculture that is productive of new value, and so of surplus value. The landlords appropriate the surplus value, in the form of rent, as it is conceived as flowing from the free gifts of nature, i.e. the land. The landlords are then entitled to the rent because they are the owners of the land, which is the source of the surplus value.

The manufacturers are seen only as labourers. The value of their product is comprised only of the value of the products of agriculture. So, it comprises only the value of the means of subsistence, consumed by industrial workers, provided by agriculture, and also the value of the means of production, also provided by agriculture.



Marx points out that Quesnay's assumption that the value of annual output is only ₣5 billion is then false, because it comprises ₣5 billion produced in agriculture and ₣2 billion of industrial production. This ₣2 billion produced in manufacture, replaces ₣2 billion produced by industry in the previous year, and exchanged with agriculture for the ₣2 billion of agricultural products used in this year's production.

But, Marx also points to another false assumption that flows from this. If the value of industrial production is ₣2 billion and this is not only equal to the value of agricultural inputs, but is wholly exchanged for it, this means that there is no profit, interest etc. produced in the industrial sector, from which the industrial capitalists could draw revenue. Moreover, if all industrial production is exchanged with the agricultural sector, this leaves no manufactured goods left over to be consumed by industrial workers and capitalists.

This had been noticed by Baudeau, Marx says, and led to the explanation that the industrial sector must sell its output above its value. This would mean that the actual value of industrial commodities was say ₣1.8 billion, they sell these to the farmers for ₣2 billion, and the other ₣0.2 billion of commodities thereby both comprise the industrial profits and the value of industrial commodities consumed by workers and capitalists in that sector.

But, Marx points out that this means a return to the Mercantilist conception of profit on alienation as the explanation for the source of profit, as opposed to the Physiocratic discovery that profit is created in production, not exchange. This is then one reason for the Physiocrats support for free competition. Such competition, they argue, limits the ability of industrial capitalists to overcharge for their commodities. At the same time, given that France was an exporter of agricultural products, free competition was seen as a means of exporting agricultural products at prices that exceeded their value.

Marx quotes, by contrast, the original arguments, given by Quesnay, as to why profit is impossible in exchange.

““Every purchase is a sale, and every sale a purchase” (Quesnay, Dialogues sur le commerce et sur les travaux des artisans, etc., éd. Daire, p. 170). “To buy is to sell, and to sell is to buy” (Quesnay in Dupont de Nemours, Origine, etc., 1767, p. 392). 

“Price always precedes purchases and sales. If the competition of sellers and buyers brings about no change in it, it exists as it is through other causes independent of trade” (l.c., p. 148). 

“It is always to be presumed that it” (exchange) “is profitable to both” (contracting parties), “since they mutually procure for themselves the enjoyment of wealth which they could only obtain through exchange. But always there is only exchange of wealth of a certain value for other wealth of equal value, and consequently no real increase of wealth” (this should be: no real increase of value) (l.c., p. 197).” (p 380)

Back To Part 14

Forward To Part 16

Saturday, 12 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 14

[(C) Massie. Interest as Part of Profit. The Level of Interest Explained by the Rate of Profit]


Marx quotes Massie's attack on Locke and Petty's argument that the rate of interest is determined by the demand and supply for money.

““It appears from these several Extracts, that Mr. Locke attributes the Government of the natural Rate of interest to the Proportion which the Quantity of Money in a Country bears to the Debts of its Inhabitants one amongst another, and to the Trade of it; and that Sir William Petty makes it depend on the Quantity of Money alone; so they only differ in regard to Debts” (pp. 14-15).” (p 375)

Massie says that the rich, instead of using their money themselves, in business, lend it out to others, who use it, and thereby, make a profit. Massie recognises that it is this profit that makes the payment of interest possible, and that interest is, therefore, a deduction from profit. But, it is only a small minority who can do this, because a lot of money-capital must be loaned, in order that the interest earned should be sufficient to sustain a family.

Massie also warns those who confuse the official interest rates, set by the state, with the market rates of interest.

““All Reasoning about natural Interest from the Rate which the Government pays for Money, is, and unavoidably must be fallacious; Experience has shown us, they neither have a agreed nor preserved a Correspondence with each other; and Reason tells us never can; for the one has its Foundation in Profit, and the other in Necessity; the former of which has Bounds, but the latter none: The Gentleman who borrows Money to improve his Land, and the Merchant or Tradesman who borrow to carry on Trade, have Limits, beyond which they will not go; if they can get 10 per cent by Money, they may give 5 per cent for it; but they will not give 10; whereas he who borrows through Necessity, has nothing else to determine by, and this admits of no Rule at all” (pp. 31-32).” (p 375-6)

But, Massie fails to recognise the point made by Marx, in this connection, in Capital III, that, in times of crisis, the capitalist also borrows money out of necessity, the necessity to keep the business afloat, and is thereby led to pay almost any rate of interest.

Massie does, however, make the important point, set out by Marx, that the rate of interest does not depend on the money borrowed actually making a profit for the borrower, but upon the fact that, as potential capital it is capable of doing so. If I borrow £1,000 as capital, it may be capable of producing an average rate of profit of 10%, and so I am able to pay, say, 3% interest on the loan. But, it does not mean that I will make 10% profit. I may make no profit at all. Yet, the lender is not concerned with this. They are only concerned with the fact that they loaned out capital with the potential to make 10% profit, and so will want their 3% cut either way.

““The Equitableness of taking Interest, depends not upon a Man’s making or not making Profit by what be borrows, but upon its” (the money borrowed) “being capable of producing Profit if rightly employed” (p. 49). “If that which Men pay as Interest for what they borrow, be apart of the profits it is capable of producing, this Interest must always be govern’d by those Profits” (p. 49).” (p 376)

And, by this Massie only means that the average rate of profit sets a limit to the average rate of interest, as Marx describes in Capital III. In other words, if the average rate of profit is 10%, capitalists, in aggregate, will not be prepared to pay 10% as an average rate of interest, because that would eliminate their profit. At rates approaching 10%, capitalists demand for money-capital would disappear, preventing rates rising higher.

“What has been said of particular Men in the same Business is applicable to particular Sorts of Business” (p. 50). 

“The natural Rate of Interest is governed by the Profits of Trade to Particulars” (p. 51).” (p 376)

Massie attributes the 4% rate of interest in England at that time, compared to the 8% interest rate of earlier times, to a lower rate of profit then compared to the earlier period. The lower rate of profit he attributed to an expansion of capital, bringing with it increased competition and lower prices. He makes the same comment in relation to varying international rates of interest.

However, its clear this cannot be the explanation for the reason Marx sets out in Capital III. That is that the growth of capital also implies a growth in the demand for capital, which would tend to cause rates to rise. In reality, higher rates and masses of profit, on the one hand, lead to an increased demand for capital, but, at the same time, create an increased supply of loanable money-capital.

[(D) Conclusion]


“Massie, even more definitely than Hume, presents interest as a mere part of profit; both attribute the fall in interest to the accumulation of capitals (Massie [speaks] especially of competition) and the fall in profits resulting from this. Both [say] equally little about the origin of the Profit of trade itself.” (p 377)

Northern Soul Classics - Frantic Escape - Innocent Bystanders

Friday, 11 August 2017

Friday Night Disco - Too Many Games - Frankie Beverly and Maze

Theories of Surplus Value, Part I, Chapter 7 - Part 13

Hume does not comprehend the true nature of capital, however, and what he describes here is a demand and supply of commodities not capital. So, he explains a high rate of interest, in a less developed economy, where the gentry dominate, by the fact that, in such a society, the production of commodities is limited, but the demand for commodities, by this gentry, is high, and they seek to borrow to obtain them. By contrast, in a capitalist economy, the production of commodities is higher, whilst the capitalists and merchants are frugal. Yet, as Marx discusses, in Capital III, this would be an explanation of why, such conditions of demand and supply, for commodities, would cause high or low commodity prices, not interest rates.

The capitalist or merchant may be frugal in respect of their own consumption, but only to be avaricious in their productive consumption, and so their overall demand for commodities, and for money-capital, so as to acquire them, may exceed greatly the demand of the “landed gentry”.

Hume recognises the role of commerce in producing profits, and thereby of loanable money-capital, which reduces interest rates, but does not recognise that it also, thereby created an increased demand for that money-capital. Essentially, that is because he does not understand capital, and does not distinguish between a demand for capital, and a demand for commodities.

“This consideration obliges many to keep their stock in trade, and rather be content with low profits than dispose of their money at an under value. On the other hand, when commerce has become extensive, and employs large stocks, there must arise rivalships among the merchants, which diminish the profits of trade, at the same time that they encrease the trade itself. The low profits of merchandise induce the merchants to accept more willingly of a low interest, when they leave off business, and begin to indulge themselves in ease and indolence. It is needless, therefore, to enquire which of these circumstances, to wit, low interest or low profits, is the cause, and which the effect. They both arise from an extensive commerce, and mutually forward each other… An extensive commerce, by producing large stocks, diminishes both interest and profits; and is always assisted, in its diminution of the one, by the proportional sinking of the other. I may add, that, as low profits arise from the encrease of commerce and industry, they serve in their turn to its farther encrease, by rendering the commodities cheaper, encouraging the consumption, and heightening the industry. And thus… interest is the barometer of the State, and its lowness is a sign almost infallible of the flourishing of a people” (l.c., pp. 334-36).” (p 374-5) 

There is a further important point made by Hume here, which was picked up by Marx in Capital III, and by Engels, which is the point about the capitalists who retire from business to live off their money-capital. Marx makes the point that, in older societies, the rate of interest tends to be lower, precisely because of this stock of loanable money-capital.

Thursday, 10 August 2017

US and N. Korean Workers Should Disarm Their Respective Madmen

I am not the only one of my generation, who grew up with the threat of nuclear war constantly hanging above our heads, who, as a child had regular nightmares about such an event taking place.  I remember going to bed one night at the height of the Cuban Missile crisis, and being woken by a huge bang, and the curtains being lit up like a huge spotlight.  But, it was only a very bad thunderstorm.  The madness that nearly destroyed the world in 1962, was at least being conducted by two people who were at least themselves experienced politicians, and cool and calculated in their brinkmanship.  That is not the case today with Kim in North Korea and Donald Trump in the US. Both are mad men with their fingers on the nuclear buttons that could send the world, or at least humanity out of existence forever.  They have to be stopped, and stopped hard.

Its only a week or so ago, that I responded to a post on Phil's blog, which asked "What Is Donald Trump?"  I responded that Trump was,

"suffering a narcissistic personality disorder. He has to be the centre of attention no matter how idiotic or outrageous the statements he has to make to grab the attention. Some have argued that the best thing to do is to not give him the attention he seeks. Now that he is in the White House that would be very dangerous, because if the world stopped giving him that attention, he would be driven to ever more outlandish statements and actions until they did.

As I said above, it shows that under capitalism you do not have to be clever, talented, or good at business to lead a huge corporation. You only need to have obtained a large amount of capital. Actually, Trump reminds me a lot of the Biff Tannon in the dystopian 2015 of "Back To The Future II". It says a lot about the degeneracy of that section of the capitalist class, i.e. of the "coupon clippers"."

That should be borne in mind with the way Trump is likely to act in this as with any other crisis.  The Whitehouse today is not like any Whitehouse ever seen in the past, including under Tricky Dicky Nixon.  Nixon was a pathological liar, but he was a pathological liar who was also an experienced politician, and his lies were designed to spin a web of deceit around his administration's activities.  Trump's lies are just ridiculous.  Trump has always had to describe everything in superlative terms.  It is why despite all the obvious facts in front of everyone's face, he had to claim that the crowds watching his inauguration were the largest ever in history!  Everything with him has to be the biggest, the best etc. whilst everything he wants to dismiss, or oppose has to be the worst, has to be failing and so on, even if the next day, he switches his position 180 degrees.  Trump's lies remind me of the attitude that was once explained to me in relation to people suffering with Asperger's Syndrome, that it is just a way of justifying an action that otherwise they could not rationally explain.

Simply expecting Trump to act rationally will lead to disaster, and as said in the above comment,  any attempt to ignore Trump, in this case by North Korea, will lead him to only ratchet up his rhetoric even further driving him inevitably to have to back up his outburst with some kind of action.  The decision to put the "football" in the hands of the President, as Commander in Chief, was initially designed to prevent over zealous generals from launching the US into a nuclear war.  Today, the problem in the US is not over zealous generals, but an erratic and unstable President.

So, far the state in the US, has started coming for Trump by approaching him with kid gloves.  They are doing so, because as again stated in the comment above, Trump is a living piece of evidence that all of the bourgeois apologism for why capitalists are very rich and powerful is blown apart.  Here is a very, very rich man - though how rich we still do not know, because he refuses to disclose his tax returns - who obtained that wealth from his parents, and yet managed to go bankrupt four times, and whose business activities, for example, in Atlantic City, amounted to little more than asset stripping, which impoverished the area.  Trump is clearly not just an ignorant, boorish oaf, but he is also clearly incompetent.  Yet, how can the representatives of US capital come out and say that openly, as part of a campaign to remove him, without at the same time condemning from their own mouths the very system that allows someone like him not only to live off the inherited wealth, and exercise such power over other peoples lives, but also to use it to get into the Whitehouse?  Yet, Trump has not responded to the US state in like manner.  Despite all of the hand-wringing, Trump's response even to the inquiries into his affairs, and those of his entourage, and their connections to Putin's Russia, has been to sack one official after another - his own officials, that he appointed, and to launch a Twitter storm against them, and anyone who speaks out against him.  Anyone who challenges him from that other arm of the US state, the mass media, is likewise denounced as purveyors of "Fake news".  We are well down the rabbit hole here.  This is the US as banana republic.

But, there is another point here that was contained in my initial response to Phil's blog post.  It is that the real question that also has to be asked, is how could Trump get elected in the first place, and what does that say about those tens of millions of Americans who voted for him, a large proportion of whom continue to think he is doing a good job.  Its a point I addressed in my post Ignorocracy.  Unfortunately, social democracy has got so used to simply relying on the Tweedle Dee-Tweedle Dum alternation of political parties, both of whom essentially sold the same product, and only tailored that product after careful consideration of what set of ideas they had to tail, and reflect that it has lost all touch with the idea that it should actually stand for something itself, and go out and fight for it, whether or not it is, at any moment in time, unpopular!  So, they will not go out and fight those ideas that allow a Trump to get elected, or a Brexit to happen, for fear of making themselves unpopular with all of those millions of voters who hold that set of ignorant and bigoted views, which only thereby legitimises those views, and allows them to spread like a cancer.  Trump, therefore, sits on top of the US nuclear arsenal unphased by the prospect of nuclear annihilation, which he probably does not even comprehend, much like Slim Pickens sitting on top of the nuclear bomb, his cowboy hat waving in the wind, in Doctor Strangelove, as he and humanity hurtled to its doom.

And, facing him off is another madman in North Korea, who sits atop what is some kind of weird feudal/asiatic dynastic regime, in which no one dare criticise the Glorious Leader, or even fail to offer up the required level of sycophancy, for fear of their own life.  The capitalist media of course, term his regime "communist", even though it is clearly about as far from any concept of communism you can get.  This is a regime that hands down the top post on the basis of dynastic succession, like the old Chinese, Korean and Japanese traditional dynasties, and hands out patronage to its sycophants on a similar basis.  The vast mass of the population are kept in a condition of abject poverty, in order that the ruling dynasty and its hangers on can live in luxury, whilst it makes a virtue out of its isolation from the wider world.

The use of the country's wealth to be able to sustain a vast army, and to develop its range of military hardware, on a vast scale, including now, its development of nuclear weapons, and intercontinental ballistic missiles, is just another expression of that, in the same way that the old dynasties used society's wealth to construct pyramids, and other huge monuments in their honour.  Yet, there is logic behind Kim's action too, just as there was in the actions of ancient Chinese dynastic rulers in constructing the Great Wall.  Korea despite being separated from the US by thousands of miles of ocean, and posing no threat to the US, was nevertheless invaded by the US, and some of its allies in the 1950's.  Indeed, the US has invaded lots of countries over the years that posed no threat to it.

Its only necessary to look at the invasion of Iraq, its bombing of Syria and Libya, and the many activities of the CIA over the years, in Chile, in Iran, and so on, where it acted to overthrow regimes.  Who as a leader of a country that feels itself a potential target for US aggression of that kind would not seek to be able to defend themselves against the overwhelming conventional military might of the US, by obtaining nuclear weapons.  After all, that is the argument put by the opponents of unilateral nuclear disarmament, for having a "deterrent" themselves.  If the opponents of unilateralism believe the arguments they put, then they should recognise the right of North Korea, Iran, and every other country to have such a nuclear deterrent.  Indeed, as Kim has argued, in justification for developing his nuclear arsenal, the US has never attacked another country that has nuclear weapons.

If we really did have a global programme of nuclear disarmament, and the US, Britain and others were scrapping their existing nuclear weapons then it would be much easier to demand that any country that had them be disarmed.  But, there is no indication that the US or Britain has any intention of engaging in such multilateral disarmament.  The UK has announced its intention to increase and modernise its Trident nuclear weapons platforms, and Trump yesterday tweeted that one of his first actions was to modernise and strengthen the US nuclear arsenal even further, even way beyond its previous capacity to destroy the world several times over!  So, why would Kim or any other country in the world not want nuclear weapons to protect themselves from potential aggression?

It is precisely the hypocrisy of states like the US, Britain, Russia, China and so on that already have nuclear weapons, and continually upgrade them, and the history of those countries in intervening militarily in the affairs of other states that leads the smaller states to note that hypocrisy, and the hypocrisy of those who defend the retention of nuclear weapons as a means of deterrence, whilst opposing the states most likely to be the victims of big power aggression own right  to create their own nuclear deterrent.

But, for the workers in every state, our real defence comes not from a reliance on our own ruling class, that same ruling class that imposes austerity upon us, that limits our own freedoms in order to preserve its own wealth and power, whether we live in Korea, the US, Russia, China, Britain or anywhere else.  It comes rather from our own international solidarity as workers against those very same ruling classes.  But, it is difficult for us to build that solidarity so long as we allow our own ruling class to build up huge arsenals, and to point them at our brothers and sisters in the working-class of other nations.  The capitalist class has long since recognised itself as a global class.  Its top echelons hold their private property in the form of globally traded shares, bonds and other financial instruments.  As the revelations around the Grenfell Tower tragedy have shown, they also hold it in the form of huge property portfolios across the globe.  They can live and hold their wealth anywhere in the globe, without having any personal attachment to any particular state, which is why they have attempted everywhere to create capitalist states that protect the rights of their property as a global class.  Workers need to recognise their own existence as a global class in constant war with the global capitalist class, and to act accordingly.

In each state, our first priority is to disarm the capitalist state whose weapons nuclear and conventional are aimed at our fellow workers, be they at home or abroad.  In the present conflict, the immediate responsibility resides with the North Korean workers and peasants to rise up against their medieval regime, and to disarm it, just as it resides with US workers to rise up and disarm Trump and his crackpot regime whose healthcare, tax and other policies is aimed at impoverishing them further, whilst lining the pockets of the Trump dynasty, and the financial parasites his regime represents.

Trotsky in his History of the Russian Revolution, recounts the following discussion that took place amongst Russian and german troops fighting in the trenches on the Russian front.

“We have overthrown our Tsar. If you do the same with your Kaiser, we can end the War, and all go back to our families.”

It is the approach we should adopt today.

Theories of Surplus Value, Part I, Chapter 7 - Part 12

[(B) Hume. Fall of Profit and Interest Dependent on the Growth of Trade and Industry]


Marx quotes Hume.

““Every thing in the world is purchased by labour” ([David Hume, “Of Commerce”. In:] Essays, [and Treatises on several Subjects,] Vol. I, Part II, London, 1764, p. 289).” (p 373)

The rate of interest is determined by the relation of demand from borrowers and supply from lenders, but Hume says, after that, essentially on the level ofprofits arising from commerce” (l.c., p. 329).” (p 373)

Hume recognises the point made by Marx, in discussing the rate of interest, in Capital III, that although the rate of interest is seen as a return on a given sum of money, in reality, this is only because the calculation can only rationally be conducted in money terms. What is being loaned is the use of capital, and its ability to generate profit. In other words, the rate of interest is the price of the use value of capital, the use value of being self-expanding value.

So, Hume writes,

““The greater or less stock of labour and commodities must have a great influence” (upon interest); “since we really and in effect borrow these, when we take money upon interest” (l.c., p. 337). “No man will accept of low profits, where he can have high interest; and no man will accept of low interest, where he can have high profits” (l.c., p. 335).” 

High interest and high profit are both the expression “of the small advance of commerce and industry, not of the scarcity of gold and silver” (l.c., p.329). And “low interest” of the opposite.” (p 374)

A lot is said in these few words. Firstly, Hume sets out the point above that what is being lent and borrowed is not money but capital. He effectively expresses the point that if the demand for this capital is high, relative to the supply, then interest rates will be high and vice versa. This, therefore, has nothing whatsoever to do with the amount of money in circulation – currency – whether, as in his day, that currency takes the form of gold and silver, or as today, takes the form of bank notes or credit money. It is a point the proponents of QE do not understand.

But, Hume's point that no one will accept a low rate of profit, if they can obtain a high rate of interest, is also of relevance today. But, he should have said no one will accept a given rate of profit if they can obtain a higher rate of interest. In other words, even if the rate of profit is high, money may go into other activities than productive investment, if a higher yet return can thereby be obtained. Today, that higher return is not seen only in a high rate of interest, which may not apply, but in high levels of capital gains, derived from speculation in highly inflated prices of paper assets – fictitious capital.

Wednesday, 9 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 11

[6. Berkeley on Industry as the Source of Wealth]

Marx quotes Berkeley,

““Whether it were not wrong to suppose land itself to be wealth? And whether the industry of the people is not first to be considered, as that which constitutes wealth, which makes even land and silver to be wealth, neither of which would have any value, but as means and motives to industry?” (The Querist, by Dr. George Berkeley, London, 1750, Query 38).” (p 372)

[7.] Hume and Massie


[(A) Massie and Hume on Interest]


Massie's “An Essay on the Governing Causes of the Natural Rate of Interest” appeared in 1750, whilst Hume's essay “Of Interest” was published in 1752, in the second part of his “Essays”.

Hume attacks Locke, whilst Massie attacks both Locke and Petty. The debate is of relevance today in relation to the actual role of quantitative easing.

Both Locke and Petty shared the delusion of those who propose QE today, that the rate of interest depends upon the supply of money, rather than as Massie and Marx point out, on the demand and supply of money-capital.

“Hume attacks Locke, Massie attacks both Petty and Locke, both of whom still held the view that the level of interest depends on the quantity of money, and that in fact the real object of the loan is money (not capital).” (p 373)

Hume also realised what many modern economists do not seem to realise, in this context, that simply printing money – and thereby devaluing it – cannot be a means of reducing interest rates, because money only acts as a means of measurement of value via prices. A devaluation of the money simply changes the unit of measurement of all prices proportionally, so that the nominal value of demand for money capital, and the nominal supply of money-capital increase by the same amount leaving the balance between the two unchanged.

“Massie laid down more categorically than did Hume, that interest is merely a part of profit. Hume is mainly concerned to show that the value of money makes no difference to the rate of interest, since, given the proportion between interest and money-capital—6 per cent for example, that is, £6, rises or falls in value at the same time as the value of the £100 (and. therefore, of one pound sterling) rises or falls, but the proportion 6 is not affected by this.” (p 373)

Tuesday, 8 August 2017

We Will Never See $100 Oil Again

Back in 2014 , I predicted that oil prices would spike down to $25 a barrel. They actually fell to $26 a barrel. I predicted that they would be limited in their recovery, because there was a lot of excess supply to absorb, and because, once prices rose to around $50-60 per barrel, large amounts of US shale oil would again come into the market, increasing supply and depressing prices. Again that was what happened. When prices spiked down to $25 a barrel, shale oil producers shut down rigs, but as prices steadily rose back above $40, some of the more efficient shale producers came back on stream. The shale producers also found ways of reducing their own production costs. I argued that oil prices would rise to a range between $40-$70, a barrel by the end of 2016, with a long run price of production around $80 per barrel. In fact, I now doubt we will see any prolonged period of oil prices above $80, and we will never see $100 oil (in 2017 Dollars) again.

In the last year, as I had predicted, oil prices did climb steadily higher, staying sustainably above $40 per barrel. But, $40 per barrel is crucifying for those oil states dependent on oil rents for their economies. Saudi Arabia, is probably the lowest cost oil producer. It can make profit on oil even at around $7-10 per barrel. However, the Saudi state requires oil at around $100 per barrel, in order to obtain the rents and taxes required to cover its state expenditure. Even with oil at prices around $50-60 per barrel, Saudi Arabia has gone from being a major source of loanable money-capital into global capital markets, to becoming a source of demand for loanable money-capital, in those markets. It has issued sovereign bonds to raise money to cover state spending, and it is selling off hundreds of billions of Dollars of shares in Saudi Aramco, to raise money to cover its budget deficit.

The same continued period of low oil prices has caused similar problems for the Norwegian sovereign wealth fund, which relied on North Sea oil and gas revenues. Russia has suffered from the same causes, and Venezuela which based its economic polices on high oil prices, rather than developing and diversifying its production, has suffered catastrophically, thereby undermining the bourgeois nationalist regime of Maduro. Not surprisingly, it has been those low oil prices that have prompted Russia to join with OPEC producers in setting output limits, so as to try to rebalance global markets, and lift the market price of oil. It is not that global oil demand has been falling. There is not a problem of underconsumption. Global oil demand has continued to rise by around 2% p.a. The crisis is a crisis of overproduction, as years of high prices encouraged exploration and development of new oil fields, along with the development of new technologies, such as fracking, to be able to extract greater quantities of oil.

But, that will not be the case in coming years. Where a few years ago, the talk was of “Peak Oil”, meaning that the potential to increase annual oil production had reached its limits, now it is more likely that we are near a point of peak oil consumption. Its not that demands for environmentally friendly energy production will have created that condition, but that alternative forms of energy production will simply have become more efficient, and lower cost. Some years ago, I reported on the comments of legendary USA oil man, T. Boone Pickens, who was campaigning for US truck and bus producers, to convert engines to LPG. The US had lots of gas, he argued, as shale gas production increased, and gas prices fell by around 80%, and that meant the cost of conversion would be quickly recovered, and the US dependence on Gulf oil producers would be removed.

In fact, there has been no real move to undertake such conversion, but there has been a shift in US energy production away from the use of oil to the use of gas, in power stations. That is one reason, the US was able to quickly reduce its carbon emissions. But, another reason has been that the US has also developed alternative energy production on a significant scale, not just in wind-power, but also in solar, where the development of technology has year on year reduced the cost of producing solar cells, and increased their efficiency. However much Trump seeks to reintroduce coal production in the US, he is fighting a losing battle, because US coal is losing out to US alternative energy producers, not to foreign energy producers. It is losing out, because these alternative energy sources are not just cleaner, but they are increasingly cheaper and more efficient.

In discussing, the diesel emissions scandal, that hit VW in 2015, I also pointed out that part of the reason for VW, and as we now know other European diesel engine producers spending money on trying to fiddle the emissions data was because they have spent decades investing in diesel engine production, and very little on the development of electric motor and battery powered cars, compared to Japanese producers, or US producers such as Tesla. I was recently looking at buying a hybrid car, which is the closest that European producers have come to moving towards electric cars. I was shocked at how bad they actually are, in terms of efficiency, because, of course, they end up falling between two stools. The range of just the electric battery is only around 30 miles, whilst, because they have to carry around an electric motor and batteries, as well as a conventional engine and fuel tank, they handle badly, and suffer higher fuel consumption, averaging only around 30 mpg when using the internal combustion engine. A Tesla, by comparison, can go between 350-400 miles on a full charge, and the cost of charging the battery is only around £3.

The German and French governments have said that they will ban the sale of internal combustion engined cars by 2040. That means they know that car producers will actually have stopped such production long before then. Volvo, now owned by the Chinese Geely Group, has said it will not produce any new solely petrol or diesel engined cars after 2020. China is now investing heavily in new battery technologies.  That still leaves Volvo the option of continuing production of its existing ranges, and of producing hybrids, after 2020. Other producers have been moving in a similar way, but a move directly from internal combustion to electric now seems to be the most likely transition. Its why BMW have only committed to building the existing body shell of the Mini at Cowley, whilst focussing on the development of their battery technology, and electric motor technology in Germany, If you are only going to travel short distances, and so use only the electric motor of a hybrid, you may as well just have an electric and charge it at the end of each short journey, and if you do longer journeys, the lower fuel efficiency of a hybrid makes a conventional engine a better bet.

According to one industry source recently, battery technology is developing at around 30% p.a. in terms of efficiency and cost, so that, by 2020, an electrically powered car will be cheaper to buy than a petrol/diesel engined car. The main problem at the moment is the lack of charging points, but again, one provider of fast charging service stations is already offering a full charge in around 15 minutes. An Israeli company has also been working on a system whereby batteries can be simply dropped out and replaced in a matter of seconds. Other options include the potential for charging cars while they are on the move from underground power loops, via wireless transmission, in the same way that mobile phones can now be charged, and of developing actual solar cells built into roads.

The potential to roll out an extensive charging network at existing service stations etc. could be done in fairly short order, if the will were there to do it, and at that point, electric cars will take off, spelling the death of the internal combustion engine, and thereby decimating future demand for oil. That appears now to be only 5-10 years into the future, and it is unlikely that oil demand from other sources will rise sufficiently to soak up the existing levels of supply, so as to push oil prices higher. As demand contracts, or at first fails to rise by historic averages, supply from the more expensive fields will become unprofitable and be shut down. That means North Sea Oil, which is only profitable at prices around $60 per barrel will close down. As the more expensive oilfields are removed, so that supply comes from the more efficient fields, then, as Marx describes in his analysis of primary product prices of production, market values, and rents, the market value of oil will fall, and the rents obtained from oil production will also thereby fall.

Its not just the imminent move to electric cars that is at hand. Over recent years we have seen the development of a sharing economy, particularly in relation to cars. The development of the Internet of things, and of mobile phone technology, means that alongside the development of driverless vehicles, the need to own a car, for many people, will become redundant. My son was recently involved in making a video for the Chinese company that produce Mobikes, which have been rolled out in Manchester. But, already there are companies offering a similar service with electrically powered scooters. The logical step, with driverless electric vehicles is to enable people to summon one via their smart phone, whenever, and wherever it is required, and to leave it when they have reached their destination. That would make vehicle usage enormously more efficient, given that today, most cars stand in one place for the vast majority of the day.



And, last week also saw the first successful test of the hyperloop in the US, another investment in real capital that has been supported by Elon Musk.  The hyper loop, which uses the same technology that some of us remember from our childhood that sent messages in department stores via vacuum tubes, offers the potential of travel, over long distances, at near supersonic speeds. It is another example, of the vast areas of new products and services that technology has opened up, and the potential, thereby of huge markets, and profits when, like Musk, other capitalists put money to work in actual capital, rather than in simply financial speculation on stock, bond and property markets.

As I wrote back in 2014/15, as oil prices fall, and the huge oil rents of the Gulf states and other large oil producers disappear, that will also remove a large element of the revenues that have been fuelling that financial speculation. Falling asset prices will create a big incentive for others to follow Musk in turning once more to a search for profits, rather than paper capital gains. The world will change greatly in the next five years.

Theories of Surplus Value, Part I, Chapter 7 - Part 10

As set out earlier, North is the first to have a correct view of interest as determined by the demand and supply of capital rather than of money, as proposed by Locke and Petty. North also recognises that price is only the money form of the exchange value of a commodity, and the means by which one use value is transformed into another via exchange.

“... it is one of the earliest recognitions of the fact that in this transaction we are dealing with gold and silver only as a form of existence of the exchange-value of commodities, as a phase in their metamorphosis, not with gold and silver as such.” (p 370)

Marx also quotes a passage from North which he himself paraphrases in Capital, to indicate that the cause of crises is not shortage of money, even though, for the sellers of commodities, it appears that way.

““What do these People want, who cry out for Money? I will begin with the Beggar…it is not Money, but Bread, and other Necessaries for Life that he wants…the Farmer complains, for the want of Money…he thinks that were more Money in the Country, he should have a Price for his Goods. Then it seems Money is not his want, but a Price for his Corn, and Cattel, which he would sell, but cannot…why he cannot get a price? …1. Either there is too much Corn and Cattel in the Country, so that most who come to Market have need of selling, as he hath, and few of buying; Or 2. There wants the usual vent abroad, by Transportation, as in time of War, when Trade is unsafe, or not permitted; Or 3. The Consumption fails, as when men by reason of Poverty, do not spend so much in their Houses as formerly they did; wherefore it is not the increase of specifick Money, which would at all advance the Farmers Goods, but the removal of nay of these three Causes, which do truly keep down the Market.”” (p 370)

North also recognises the difference between value stored up as a hoard, and value stored up as capital, for the purpose of creating surplus value.

““No Man is richer for having his Estate all in Money, Plate, etc., lying by him, but on the contrary, he is for that reason the poorer. That Man is richest, whose Estate in a growing condition, either in Land at Farm, Money at Interest, or Goods in Trade” (p. 11).” (p 370)

Marx also quotes John Bellers, Essays about the Poor, Manufactures, Trade, Plantations, and Immorality, etc., London, 1699, cited by North.

““Altho’ every one desires to have it” (money) “yet none, or very few care for keeping it, but they are forthwith contriving to dispose it; knowing that from all the Money that lies dead, no benefit is to be expected, but it is a certain loss” ([North, l.c.], p. 21).” (p 371) 

North also noted the role of gold and silver as world money, being shipped to cover payments, and he also noted that it is the circulation of commodities which determines the quantity of money in circulation.

““If never so much be brought from abroad, or never so much coyned at home, all that is more than what the Commerce of the Nation requires, is but Bullion, and will be treated as such; and coyned Money, like wrough Plate at Second hand, shall sell but for the Intrinsick” (pp.17-18).” (p 371)

The point made earlier about why North opposed any restriction on interest rates is also highlighted by the comment detailing who was most affected by them.

““The Moneys imployed at Interest in this Nation, are not near the Tenth part, disposed to Trading People, wherewith to manage their Trades; but are for the most part lent for the supplying of Luxury, and to support the Expense of Persons, who though great Owners of Lands, yet spend faster than their Lands bring in; and being loath to sell, choose rather to mortgage their Estates” (North, l.c., pp.6-7).” (p 371)

That is a good summary of the economic model pursued by conservatives over the last thirty years, which led to the financial meltdown of 2008!

Monday, 7 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 9

[5.] North [Money as Capital. The Growth of Trade as the Cause of the Fall in the Rate of Interest]


North's work, Discourses on Trade (1691), like Locke's work, is directly based on the work of Petty.

“The work is mainly concerned with commercial capital, and so it is not relevant here, though it shows masterly skill in the field with which it deals.” (p 368)

From around 1641, the price of wheat fell, and brought with it a fall in rents. Between 1641 and 1649 the average price of wheat was just over £5 per quarter (12.7 kilograms = 1 quarter, so £0.39 per kg.) In the second half of the 17th century, the price fell to £2.10 per quarter (£0.17 per kg) and in the first half of the 18th century to £1.80 per quarter (£0.14 per kg.).

During this period, the landlords continually complained about falling rents. The landlords, noting the effect of the rate of interest on the price of land, sought to bring about a fall in interest rates, so as to increase the price of land. This may also have been, in part, driven by the fact that these landlords, reluctant to modify their extravagant lifestyles, in response to reduced revenues, found themselves getting increasingly into hock to the usurers.

“Although the industrial capitalist class played a considerable part in the compulsory reduction of the rate of interest (from the time of Culpeper and Sir Josiah Child), the real protagonist of this measure was the landed interest. The “value of land” and the “raising of it” were proclaimed to be in the national interest. (Just as on the other hand from about 1760 the rise in rents, in the value of land and in the price of corn and provisions, and the complaints of the manufacturers on this score, form the basis of the economic investigations on this subject).” (p 368)

It was the landed aristocracy, during this period, that had overwhelming political power, and were able to use it, to bring in legislation to limit usury. The landlords also complained about the improvements that capitalist farmers were introducing. By raising productivity, on the less fertile soil, and by making possible the working of previously unworkable land, output was raised, which caused a fall in agricultural prices, and rents on the more fertile soils. Marx discusses this in his analysis of rent in Capital III.

Although industrial capital had an incentive to see lower interest rates, because interest is a deduction from profit, the ideological representatives of capital, such as Petty and Locke and North, opposed any legislation to limit interest rates. In part, this is because it was possible to tie the usurious interest to rent as both deriving from an exploitation of labour (at a time when the division between labour and capital was not so stark), because it weakened the landlords, and also because usury acted, at the time, as a means of primary capital accumulation.

“This is the first form in which capital starts its revolt against landed property, as in fact usury was one of the principal agents in the accumulation of capital—i.e., through its co-proprietorship in the landlord’s revenues. But industrial and commercial capital go more or less hand in hand with the landlords against this outmoded form of capital.” (p 367)

Sunday, 6 August 2017

Bank of England Decision – It Will End In Tears

On Thursday, the Bank of England's Monetary Policy Committee voted 6-2 not to increase official interest rates from their 0.25% level, that was introduced as an “emergency measure” following the Brexit vote in June 2016. The Bank of England argued, last year, that one reason that the economy had not suffered, more than it had, following the Brexit vote, was down to its decision to cut rates from 0.5% to 0.25%. However, the fact is that the economy was never going to start suffering the dire consequences that were predicted, simply on the back of the referendum vote. Only when Brexit actually happens will the real damage to the economy begin. In the last year, the economy continued to grow, and there is now as near full employment as there is ever likely to be. So, why continue with what was supposed to be an “emergency measure” for a Brexit effect that never actually materialised anyway? The truth is that the low interest rate policy and QE never was intended to spur the economy. It was only ever intended to keep asset prices inflated.

On Thursday, on Newsnight, Ann Pettifor complained about the fact that the economy is again weakening, but two members of the MPC had voted to raise rates. A similar line has been taken by other Keynesians, like former MPC member David “Danny” Blanchflower. It misses the point, that actually, one reason for the lack of a strong economic recovery, is not that interest rates, at 0.25%, are too high, but that they are actually way too low, and that economic recovery will only come when central banks begin to convey the message that they are no longer going to underpin the paper wealth of the owners of loanable-money capital, but are going to start encouraging real investment in productive-capital.

After all, if the state really wanted to stimulate the economy, why proceed with policies of austerity? The difference between the US economy, which rejected austerity in the years after 2009, and the UK and EU which implemented austerity has been stark. All of these economies began to recover sharply in 2009, as their governments all once again rediscovered their Keynesian side. The chart shows a typical “V” shaped recovery for all up to 2010.

But, the US, which, under Obama, continued to implement fiscal stimulus, continued to grow, whereas, the UK which implemented austerity under the Liberal-Tory government in 2010, saw its own strong recovery, come to a halt, and then reverse, into recession, before spending several years flatlining. The EU, which imposed austerity on the periphery after 2010, saw a similar pattern of its recovery going into reverse, before flatlining until the last year or so. The US recovery would have been even faster had it not been for Republicans blocking some of Obama's fiscal stimulus at Congressional and state level, as well as imposing political crises over the Debt Ceiling etc., on the economy.

The only point of monetary easing, as a means of providing economic stimulus is if it is being combined with a fiscal stimulus, but as Keynes pointed out simply printing more money, or lowering official interest rates, only acts like pushing on a string, unless there is some basis for an increase in demand. In other words, there is simply a slowdown in the velocity of circulation of the currency. But, the situation is even worse than that. As Marx pointed out in relation to paper currencies, once they have been put into circulation, the state has absolutely no control over where that currency then goes. Combining monetary easing alongside a policy of austerity is insane, therefore, if the policy is really intended to provide economic stimulus. But, it wasn't. It was intended only to avoid the inevitable collapse of asset prices – shares, bonds and property – which are the main form of wealth, now, for private capitalists. Monetary easing along with austerity pushed the increased currency in the direction the state wanted it to go, into those financial assets, and policies by the state to prop up the housing market facilitated that further.

My thesis is quite simple. The role of the state, and thereby of central banks is to protect the wealth and power of the capitalist class. Ultimately, that means protecting and facilitating the growth of the dominant form of capital, which today is socialised capital, in the form of huge multinational corporations. But, at different points in the long wave cycle, this is not apparent. The capitalist class and its representatives can suffer from the delusions caused by competition, and its manifestation in various forms of fetishism, just as can every other class. In the last thirty years, the illusion has taken hold that the paper wealth represented by continual capital gains in financial assets, can continue more or less unrelated to the growth of actual capital. The state has seen its role as protecting and advancing the growth of those asset prices. It does so whilst pretending that its actual intention is to stimulate the real economy, just as the representatives of shareholders on company boards pretend they are acting in the interest of the company, when, in fact, they are only acting in the interests of shareholders (and often just themselves).

In just the same way that the short term interests of shareholders are contrary to the interests of the company itself, and the requirement for capital accumulation, so the short-term interests of the capitalist class are contrary to the interests of real capital, for such capital accumulation. Eventually, as Marx says, the latter must win out, because money-capital is subordinated to productive-capital, which is the source of new value and surplus value, from which the payment of interest is derived. In acting to ensure that asset prices are inflated, and reflated whenever they crash, the state has created incentives for available loanable capital to go into speculation, and thereby to be diverted away from real capital accumulation, and money (revenue) to be drained from commodity circulation, and again diverted into speculation, pushing up property, share and bond prices.

By definition, this slows capital accumulation, aggregate demand, and economic growth from what it otherwise would have been, and in doing so, creates disinflationary pressures, which when combined with other factors, such as rising productivity, can lead to actual deflationary pressures. Prices are merely the exchange value of commodities expressed in money, and if the exchange-value of commodities is being reduced, whilst the amount of currency actually in general circulation is restrained, because it is diverted into this speculation in assets, the market prices of commodities must also thereby fall, or at best rise only modestly. The lack of commodity price inflation is not due to there not being enough liquidity in total, or interest rates being too high (at 0 – 0.25%!), but is precisely because the excess liquidity is sucking large amounts of total liquidity into speculation.

The growth in the global economy since 2010 has been despite the actions of central banks and governments, not because of it. If economic growth had been stronger, the demand for money-capital would have risen, causing interest rates to rise, which would crash asset prices, which are based upon capitalised revenues. If the excess liquidity had been used simply as revenue to fund consumption, then consumer goods prices would have risen creating inflation that would have led to interest rate rises, as was happening prior to the 2008 crash. Governments and central banks have then had a direct interest in holding back such economic growth, for fear of cratering those asset prices. As growth rises anyway, and liquidity gets sucked back into general circulation, inflation will rise, and is likely to rise much faster than anyone currently believes, given that huge sea of liquidity out in the global economy. Central banks, in responding, are likely to cause that liquidity to stream out of assets, and into general circulation.

The main form of private capitalist wealth today is in the form of fictitious capital – shares, bonds, property (mortgages etc.) and their derivatives. This reflects the fact, as outlined by Marx and Engels, and further elaborated by Kautsky – for example in The Road To Power – that from the end of the 19th century, the private capitalists had become a socially redundant class, like the landlords before them. The 'functional' role of the capitalist, as an organiser of production, had been taken over by professional managers, increasingly drawn from the ranks of the working-class, as free state education, provided workers with the skills required to perform those tasks. These worker-managers, were the personification of what was now socialised capital, whether in the form of the joint stock companies, or the actual worker-owned co-operatives. As capitalist enterprises, still functioning within the context of a capitalist economy, albeit one that was increasingly managed and regulated, by the capitalist state, as the personification of this socialised capital, the professional managers still had to act as such, by attempting to maximise the production of surplus value, and the accumulation of this socialised capital. 

Doing so meant that they were in conflict with the interests of the private capitalists who were now reduced merely to the role of providers of loanable money-capital, in the form of the purchase of shares and bonds. The functional capitalists sought to accumulate real capital, even where this meant the rate of profit was reduced, whereas the share and bondholders sought the maximisation of the interest paid to them as dividends or interest on their bonds. For that reason, the private money-capitalists sought to ensure their interests were protected as against the interests of the real capital, i.e. against the interests of the firm. They appointed Boards of Directors to sit above the actual day to day managers, and they used their political power to ensure that the laws on corporate governance enabled them to have a vote proportionate to their shareholding, and thereby to exercise such control.

In the 1980's, and into the 1990's, as labour-saving technologies were introduced, productivity rose sharply, labour was shaken out, causing wages to fall, and the rate of surplus value, and profit to rise. The production of profits, and thereby realised potential money-capital rose faster than the demand for loanable money-capital, and so the rate of interest fell progressively. Because the prices of revenue producing assets are based upon the capitalised value of their respective revenue, falling interest rates pushed up the prices of shares, bonds, and property.

When in 1987, a financial crisis struck that was worse than the 1929 Wall Street Crash, and sent stock market prices down by 25%, it was followed by panic. The erstwhile supporter of Ayn Rand, and of sound money based upon gold, Alan Greenspan, now ensconced as Chairman of the US Federal Reserve, abandoned his former sound money beliefs, and stepped in to support the stock market, by cutting the Federal Reserve's official interest rates. So began what came to be known as The Greenspan Put, whereby every time the stock market, property market etc. seemed like it might falter, the Federal Reserve stepped in to cut rates, and send it back up again. It became a one way bet for speculators.

With vast amounts of liquidity swirling around the global economy, not just from all of these masses of realised profits, but also from vast amounts of interest received by the owners of financial assets, and rents received by landlords, including the billions in petrodollars possessed by the Gulf States, and North Sea oil states like Norway, even allowing for the actual increases in real investment that took place from around 1999 onwards, as the new long wave boom got underway, the amount of available money-capital continued to exceed the demand for it, and with states and central banks guaranteeing that stock and bond and property markets would only ever go up, that excess liquidity went into speculation in these financial assets.

The Dow Jones rose by 1300% between 1980 and 2000; other stock markets had similar rises, way in excess of GDP growth during the period; in 1988-1990 UK house prices doubled, before crashing back to their original level in 1990, as interest rates rose at the same time that the UK economy slowed; by 1997 it was back to its 1990 level, and then more than doubled again in the years up to 2007. In 1999, Greenspan and the Federal Reserve pumped additional liquidity into the system, just in case there was a problem with the Millennium Bug. There wasn't but all of the additional liquidity went into yet more speculation into the stocks of choice of the time, technology, which soared, and then in March 2000, crashed by 75%! Once again, Greenspan was on hand to pump more liquidity into the system to stop asset prices crashing further.

The real interest of the owners of this fictitious capital, in the long-term, is to obtain revenue from the ownership of that asset. A landlord desires rent, the owner of money-capital desires interest. So long as the prices of these assets remains fairly stable, that is the decisive factor. If profits increase, so that the payment of interest increases, and rents increase, the rate of interest and rate of rent may not change much, but the amount of interest and amount of rent increases, simply on the back of larger amounts of capital being accumulated. Similarly, the price of land/property, and price of bonds/shares may not change much. It is the revenue from each asset that rises.

However, the opposite is also true, if the price of shares, bonds, land/property rises quickly, the yield on those assets falls, and that may be the case even if the actual amount of interest or rent rises. The rampant speculation in these assets from the 1980's onwards, drove their prices ever higher, underpinned by central banks, and by other actions by the state, for example the Help To Buy, and other policies adopted by the British government. The extent to which speculation drove the asset prices higher, even compared with increasing revenues is shown by the fact that in the 1970's, about 10% of company profits went to pay dividends to shareholders, whereas today that figure is around 70%, and a similar picture exists in the US and elsewhere, yet yields on all these assets have continued to fall.

In other words, as these asset prices soared, thereby driving down yields, those representatives of the owners of fictitious capital, sitting on Company Boards, and in the C-Suites, siphoned off profits increasingly to pay out higher dividends, and other forms of capital transfers to shareholders, and away from investment in real productive-capital, i.e. expanding production, building new factories, taking on additional workers and so on. Moreover, as the yields, on these assets got driven ever closer to zero and beyond – look at German 2 Year Bunds with a Yield of -0.60%, or even debt ridden Italy, whose 2 Year Bonds are at - 0.22% – the main concern of the owners of these assets shifted away from the potential for yield, and towards the potential for capital gains, i.e. an increase in the price of the asset.

The classic example has been property, where, it has now become commonplace in London, for example, for foreign speculators to buy up and finance property developments that then remain empty, because the owners are not interested in obtaining a potential rent – often set so ridiculously high that no one could afford them – but only in the potential for the price of the property to rise by 20% p.a. It was recently shown, for example, that within a short distance of Grenfell Tower, there were more than 1200 luxury properties owned by foreign speculators that have been left empty. With yields sent to near zero – you are lucky if you can get more than 0.1% on ordinary savings deposits now – and consequently, annuities paying out dismal amounts for pensions, large numbers with any cash were driven to place their savings into these forms of speculative asset.

But, across the globe, central banks have been forced to start tightening monetary policy, albeit grudgingly. Most developed economies are close to what is effectively full employment. So far, it has not resulted in rapidly rising wages, but one interesting explanation for that was given by an analyst on CNBC recently. It was that baby boomer workers are falling out of the labour force, and being replaced, by millennials. The latter start on much lower wages than the boomer workers they have replaced. However, the analyst said, look at the annual rise in wages of these replacement workers, and it is rising by around 4%. There has also been a lot of slack in the labour market, because boomer generation workers who have retired early, can come back into the workforce if wages are high enough, particularly if they only have to work part-time to supplement pensions etc. In both the US and UK, there has been a lot of low productivity, casual and fake self-employment, which means workers temporarily absorbed that way, start to take up permanent jobs.

On reason for low wages often given, but which is false, is low levels of productivity. It is low wages that cause low productivity, not vice versa. As Marx pointed out, at one point in the 19th century when women workers wages were particularly low, capitalists used women to pull canal barges rather than horses, because it was more profitable! Ricardo also pointed out that wages have to be high enough to encourage capital to introduce productivity raising machines etc. It is always when wages rise, due to a shortage of labour, which then squeezes profits, creating the greater potential for crises of overproduction, that capital starts to innovate and develop new labour-saving technologies. That sparks a new round of intensive accumulation, as was seen in the late 1970's, and early 1980's. As Marx puts it,

“Improvements, inventions, greater economy in the means of production, etc. are introduced not at times when prices rise above their average level, but when they fall below it, i.e., when profit falls below its normal rate.”

(Theories of Surplus Value,II, Chapter 8, p 26 – 7)

What we are seeing is that the underlying strength of the long wave boom phase is asserting itself despite the attempts of the state and central banks to hold it back, via measures of austerity, and of draining money-capital into unproductive speculation. Vast new areas for capital to be invested in exist in space technology, renewable energy technology, the switch from petrol/diesel engines to electrically powered cars, and self driving vehicles, huge potential in health sciences, biotechnology, gene technology, and cyber technology exists, all of which offer huge profits, and the development of vast markets. In fact, the holding back of that growth after 2008, is likely to see the current long wave cycle extended, beyond its normal conjuncture of 2025 to somewhere between 2030-2035, before a new crisis phase begins.

But, the fact that yields on assets are now at such low levels, which means that the ability to raise asset prices by money printing etc. has run its course, and the fact that global growth is rising again, with labour shortages starting to appear, means that the ability to divert money-capital into speculation rather than real capital investment has also run its course. Rising employment and wages also means that liquidity no longer diverted into speculation, will also be sucked into commodity circulation, leading to rising inflation, which will provoke rises in market rates of interest.

The attempts to extend the astronomical inflation of asset prices, at the expense of real capital accumulation, of which the Bank of England's decision last week, is just the latest example, will end in tears, as the financial bust will be much larger than it otherwise would have been had it simply been allowed to play itself out in 2008/9.