Sunday, 31 December 2017

Predictions For 2018 - Part 1

There will be an inexorable dynamic that creates a coalition and demand for an exit from Brexit.

The tiny majority for leaving the EU in the 2016 referendum, quickly turned into only a minority supporting Leave, by February of 2017. In every poll since then the majority of those polled have favoured remaining in the EU. The latest poll gives Remain its largest ever lead, with 54.5% supporting Remain, as against 45.5% supporting Leave. The largest component of this increased lead for Remain comes from amongst those who did not vote in the 2016 referendum, amongst whom, 80% back Remain, against 20% supporting Leave.

The main argument that has been made by Labour, and Remain supporting Tories, against actively opposing Brexit, has been a misplaced requirement to respect the narrow referendum result. The fact that a clear majority of the population now reject that referendum result, removes any such requirement. It would clearly be ludicrous for any politician to argue that they continue to uphold the requirement for Brexit, on the grounds of a snapshot poll in June 2016, now that it is clear that a substantial majority of the population support Remain. It would be to mindlessly allow the past to command the present and future. If Labour, and Remain supporting Tories were to follow the logic they have applied over the last year, which led them to mindlessly claim the need to implement Brexit, they would now claim the same requirement to oppose Brexit. If Labour and Remain supporting Tories, did so, the majority in favour of Remain would quickly grow even faster. And, the realities of bourgeois electoral politics will quickly impose a necessity on those politicians to change their positions in order to reflect the views of that Remain supporting majority of the population, if they want to get elected. That will impose itself more acutely on Labour, a large part of whose increased support in the 2017 General Election came from Remain supporting Liberals, Greens, and Tories, and mobilised youth, looking for a means of overturning the referendum result.

The lies told by the Leave campaign are being necessarily exposed as every day passes. It's not just the big lie about the £350 million a week for the NHS that was promised, which turns out not only not to be coming, but turns out to be that the effect of Brexit, already in lost economic growth, has cost the country around £350 million a week, which could have been going to the NHS. Every day, every week that goes by, some other aspect of the lies told by Leave gets exposed, and the more attention that is given to Brexit, and the more people get to actually discuss, and find out the reality of the EU, the more they get to realise that all of the lies that the gutter press fed to them over the last thirty years are completely without substance, just as the same xenophobic lies that gutter press told about immigrants, were without substance, and merely a means of finding scapegoats for the deficiencies of British capitalism.

The puffed up, colonial era bravado of the Brexiteers that still tried to pretend that Britain was some global power to whom the world was beholden, and to whom it would quickly bend its knee, collapsed, on first contact with reality, as Theresa May was forced to surrender every one of her red lines, in the negotiations with the EU. The ridiculous lie put out by the Brextremists that the question of the Irish border posed no problem, was shown up for what it was as soon as negotiations began, and the fudge, undertaken by May, on that issue, in order to get permission to enter Stage 2 talks on the Transitional Period, after Christmas, will quickly lead to the divisions in her Cabinet exploding in the New Year, as the EU, alerted by the statement by David Davis and others, and capitulated to by May herself, will demand that the Stage 1 deal be set down in a legal document that removes all question over what “Regulatory Alignment” means, before they agree to grant Britain a Transition Period, prior to entering into trade talks.

The Brextremists claimed that all of the “project fear” pronouncements of the Remainers prior to the referendum had been proved wrong. But, those pronouncements, some of which were overblown, were largely based on the assumption that Article 50 would be triggered more or less immediately after the referendum. The fact that it wasn't, therefore, necessarily altered the calculus on those pronouncements. Nevertheless, the referendum result itself was enough to send the Pound tumbling by 20%, which then caused UK inflation to rise sharply, putting a further squeeze on UK workers' living standards. The Brextremists have tried to put a brave face on it, by claiming that a lower Pound gives British firms a competitive advantage in export markets. That is also false. For the most important elements of UK exports, in high end professional services, price is not the most decisive feature. For UK manufacturers, any benefit of a lower Pound in reducing export prices, is offset by the higher cost of inputs, for that manufacturing, resulting from the same lower Pound.

In recent months, the Pound has strengthened against the Dollar, as the Dollar has weakened due to the ending of QE by the Federal Reserve, and its raising of official interest rates, which causes hot money from abroad, seeking secure capital gains, or at least capital preservation, in US financial assets, to move into Europe and elsewhere, where central banks are still standing behind those asset prices, to keep them inflated. That means that some of the inflationary impact of the lower Pound has relaxed, as the Sterling price of oil and other internationally traded primary products falls. However, the quickening in the pace of the global economy means that demand for many of those products is rising, causing global prices to rise. If the Federal Reserve continues to raise official rates, at some point in the next year, a tipping point is likely to be reached, whereby the yield on US financial assets will prove attractive to hot money, as it considers the potential for other monetary authorities, such as the ECB, withdrawing from QE, and thereby withdrawing support for the financial assets in those countries. At that point, the Dollar is likely to appreciate more quickly, and the Pound will depreciate.

Already, many UK companies have seen reduced profitability, as they have attempted to hold on to market share, by holding their prices down, whilst higher import prices have caused their input costs to rise. In the coming year, that will see either many of these companies simultaneously raising their prices, or else will see some of them going bust, before the remaining companies then raise their prices accordingly. That means that faced with a falling Pound, and rising inflation, the Bank of England will be led to raise its own official interest rates, but the immediate effect of that is likely to be that hot money, fearful of suffering capital losses, as UK bonds and financial assets sell-off, will leave the country, causing a further fall in the Pound. Only when UK interest rates rise to a sufficiently high level that they offer an attractive yield for those speculative flows, will it be possible to stabilise the currency.

But, those rises in interest rates will cause a sharp sell-off in UK assets, including in UK property. The continued inflation of asset price bubbles, has been the main factor underlying the economic model of British governments for the last 30 years, and more. The conditions that enabled and encouraged that model are now unwinding fast. It means the debt bubble, which is the other side of the coin to this asset price bubble will burst along with it. The specific conditions that Brexit brings with it, means that Britain will suffer more than other economies, as their own asset price and debt bubbles burst.

Those other countries are now entering a period of more rapid economic growth, as the policies of austerity and QE, which aimed to restrict economic growth, and to divert resources into inflating asset price bubbles, reached their limits, and the underlying economic fundamentals and reality assert themselves. Across the globe, near zero yields on financial assets, led private productive-capital to find ways of raising funds to invest in real capital, where a much higher rate of profit was achievable. As, across the globe, the number of workers increased, and those workers began to demand additional wage goods, so the ability of austerity measures to restrict the growth of aggregate demand reached its limit. The more demand for wage goods rose, the more an incentive was created, for firms to invest in additional capital, even if initially only additional circulating capital, in the form of labour-power and materials, which in turn creates additional aggregate demand in the economy. Not only does this create a dynamic whereby the demand for money-capital rises relatively so that interest rates rise, and asset prices decline, but that same dynamic means that the decades long certainty that asset prices would rise, is ended, and the potential money-capital tied up in financial assets and property, starts to get released, and floods into the wider economy, enabling consumer goods prices to rise.

Britain, in the next year, will face a rapidly growing global economy, most notably, for Britain, in the EU, whilst the UK economy stagnates or goes into recession. It will face rising global prices, as that economic growth accelerates, which will cause UK import prices and inflation to continue to rise, contrary to the predictions of the Bank of England and the government. That inflation will be exacerbated as the Pound resumes its fall against both the Euro and the Dollar. And, as global interest rates rise, the UK will face even higher rates of interest as it suffers more notably from rising inflation, and a falling Pound.

The more these consequences not just of Brexit, but also of the false economic, debt based model, of the UK economy, become obvious, the more it will become obvious that the problems of the UK economy were not a consequence of EU membership, or of immigrants, and that, in fact, both those things mitigated the effects of the conservative economic model pursued by UK governments over the last 40 years. Moreover, it will become increasingly obvious that, if Britain exits from the Brexit process, it would have some chance of, at least, retaining some of those concessions that it currently enjoys, for example, its budget rebate, its exemption from being in the Eurozone, and Schengen Agreement. If Britain continues with the Brexit process, and finds itself, after 2019, needing to try to get back in, as these deleterious consequences for the economy intensify, it is likely only to be able to do so, on similar terms to any other new entrant, though on a fast track, as within the period of the Transition Period up to the end of 2020, it would not effectively have left. It would then have to commit to joining the Euro, losing its rebate and so on.

Those factors, together with the increasing pressure being applied by big business, as the effects of Brexit manifest themselves, will likely create the conditions for a sizeable coalition of forces demanding an end to Brexit, before March 2019.

Forward To Part 2

Theories of Surplus Value, Part II, Chapter 12 - Part 2

[2. Various Combinations of Differential and Absolute Rent. Tables A, B, C, D, E]

All cultivated land, mines, quarries etc. pay an absolute rent. The economic basis of this rent, the fund from which it is paid, is the difference between the price of production and the value of output. The value of output is taken as being greater than the price of production, because the composition of capital, in these spheres, is lower than the social average composition of capital. On top of this absolute rent, paid by all capital in these spheres, the capitals employed in the more fertile lands, mines etc. also pay a differential rent, the basis of which is the difference between the individual value of their production and the market value.

Marx sets out the following example. There are three mines. They each employ £100 of capital, and its has the same composition in each case. Mine I pays an absolute rent R; Mine II pays twice as much rent 2R; and Mine III 4R.

A new Mine IV is opened up that is more productive. By employing the £100 of capital employed in Mine I, instead on Mine IV, it becomes possible to not only replace all of Mine I's output, but also half of Mine II's output.

The amount of absolute rent paid by each mine is the same. So, when Mine I stops production, this has no effect on the absolute rent paid by Mines II-IV.

“The absolute rent, derived from IV, would, in amount and rate, be absolutely the same as that formerly derived from I; in fact the absolute rent, in amount and rate, would also before have been the same on I, II and III, always supposing that the same amount of capital was employed in those different classes. The value of the produce of IV would be exactly identical to that formerly employed on I, because it is the produce of a capital of the same magnitude and of a capital of the same organic composition. Hence the difference between [the] value [of the product] and its cost-price must be the same; hence [also] the rate of rent.” (p 254) 

Saturday, 30 December 2017

Theories of Surplus Value, Part II, Chapter 12 - Part 1

[Chapter XII] Tables of Differential Rent and Comment

[1. Changes in the Amount and Rate of Rent]

If more productive quarries, or mines, are discovered, that means they will produce the same quantity of output with less expenditure of capital and labour. That is what happened, for example, with the Californian, Alaskan and Australian gold discoveries. Because less capital and labour is required, the unit value of output falls, but that does not mean that the total value of output falls. The value of a ton of coal may fall from £100 to £80, but, if previously output was 1,000 tons, and is now 1,500 tons, the total value of output rises from £100,000 to £120,000.

If the new production is large enough to meet all of the demand, then the old production would be forced out. Of course, in practice, the old production does not get forced out quickly. Large amounts of fixed capital tend, in such conditions, to be treated as sunk capital. Provided the income generated can cover current costs, for wages and overheads, so that an operating profit is made, production will often continue. Particularly, large companies will take a very long term view of such investment, and anticipate that future demand and market prices will be likely to rise, to compensate for current conditions.

This why primary product prices tend to follow the same pattern over the course of  the long wave, whereby there is a long period, of around 20-25 years, coinciding, more or less, with the Autumn and Winter phases of the cycle where existing mines etc. are exploited, and little investment in exploration and development occurs. As the new Spring phase begins, existing supply cannot meet rapidly rising demand, so prices and  profits rise sharply. Miners etc. will only commit the huge amounts of capital required for new developments when they are convinced that the higher demand, and prices, will last. That was seen with all primary products after 1999. When large-scale investment, then, does occur, it takes around 12-13 years to come on stream, during which time prices continue to rise, provoking additional investment that eventually becomes over-accumulation.

When all of this new production hits the market, the extent of overproduction becomes apparent, as happened with oil, copper, iron ore, agricultural products, like milk, and so on, around 2014. Then market prices crash until the glut is cleared, as the more expensive production gets taken out. The increase in productivity here arises not from a change in  the organic composition of capital, but from the greater fertility of the mine, quarry or land. If the method of production remains the same, less capital and labour is used, in the same proportion. In that case, the total amount of wages, profit and rent change in the same proportion.

Suppose Mine A produces 1000 tons of coal with £100 of capital. Demand rises from 1000 tons to 2000 tons. A more productive Mine, B, is developed, which can produce 1200 tons of coal with £100 of capital. This still does not meet the demand of 2000 tons. Therefore, additional capital of £66 would be required. However, provided the capital and labour are employed in the same proportion, the organic composition is not changed. The amount of constant and variable capital rises by 66.6%. The only difference is that, as the value of a ton of coal has fallen from £0.10 per ton, so the amount of value represented by wages, constant capital, profit and rent has fallen per ton also.

Had the increase in demand only been equal to the amount of additional production that the same capital could produce in a more productive mine, the total value of production would remain the same, but the value per ton would fall. In other words, if demand had risen to 1200 tons, this could now be produced with the same £100 of capital.

“But the total tonnage has the same value as before. As regards the individual ton, the size of the portions of value which resolve into profit and rent decreased together with the value it contained. But since the amount of capital has remained the same and with it the total value of its product and no organic change has taken place in its composition, the absolute amount of rent and profit has remained the same.” (p 252) 

The rate of rent does not change, because there is no change in the organic composition of capital. The amount of rent may change, only because either more or less capital is employed.

However, if there was a change in the organic composition, as labour productivity rose, and less was laid out in wages, in relation to constant capital, then the rate of rent would fall, because the difference between the value and the price of production of the commodity would have fallen.

“Accordingly, therefore, when the greater productivity of labour, or the lower value of a certain measure of commodities produced, arises only from a change in the productivity of the natural elements, from the difference between the natural degree of fertility of soils; mines, quarries etc., then the amount of rent may fall because, under the altered conditions, a lesser quantity of capital is employed; it may remain constant if there is an additional demand; it may grow, if the additional demand is greater than the difference in productivity between the previously employed and the newly employed natural agencies. The rate of rent, however, could only grow with a change in the organic composition of the capital employed.” (p 253) 

The amount of rent does not necessarily fall if the less fertile production is abandoned, because it may go along with a rise in demand that is satisfied from the more fertile production. The rate of rent never falls where less fertile production is abandoned, but whether the amount of rent rises, remains the same or falls depends on the quantity of capital employed.

“Ricardo distorts the correct idea, that in this case, depending on the state of demand, the amount of rent may fall, in other words depending upon whether the amount of capital employed decreases, remains the same or grows; he confuses it with the fundamentally wrong idea, that the rate of rent must fall, which is an impossibility on the assumption made, since it has been assumed that no change in the organic composition of capital has taken place, therefore no change affecting the relationship between value and cost-price, the only relationship that determines the rate of rent.” (p 253)

Northern Soul Classics - Love Man From Carolina - Bird Rollins

Friday, 29 December 2017

Friday Night Disco - Curtis Mayfield - Diamond In The Back

Year End Review 2017 - Part 8

I'm dealing in this post with the last three predictions from last year.

Prediction 8 was,

“Merkel wins again, but the SPD increases its relative position, as the AFL takes some votes away from other right-wing parties.”

Merkel certainly did win, and the AfL did take votes from other right-wing parties. However, Merkel didn't win enough seats to form a government, and the SPD did not increase its relative position, other than having failed to be able to form a coalition with other right-wing parties, Merkel again was led to approach the SPD to form a grand coalition. The SPD refused, but is in a relatively stronger position if it does eventually agree to a deal, because of Merkel's relatively weaker position. History would suggest that it is a mistake for the SPD to enter a coalition with Merkel. 

However, if Germany's current economic boom, and the need to consolidate the EU, means that the SPD might find itself pushing against a relatively open door, in demanding policies of fiscal stimulation, and greater EU integration, as Martin Schultz has recently been promoting, could provide a justification. Even if the SPD did not find itself benefiting electorally in the short-term from such a dynamic, the strengthening of a social-democratic trend across Europe, would be larger significance, and strengthen the position of the SPD in the medium term.

As I went on to say last year,

“There is a strong incentive for Germany to consolidate its position in the EU, as the UK withdraws, by investing in productive capacity in lower cost EU countries. Expect companies like BMW, Siemens etc. to relocate production from Britain into Ireland, Spain, Portugal, Italy etc.”

Where conservative governments have created a dynamic for centrifugal forces within Europe, there is a potential now for progressive social-democratic forces to utilise the new period of economic growth to drive in the opposite direction. Germany could act as the driving force for a policy not only of greater EU integration, planning and regulation, able to develop a more specifically European capital, but also to drive the fiscal expansion across Europe, and specifically into its more undeveloped regions, that creates more unifying dynamics.

Prediction 9 I got completely wrong. It said.

“Within days of Trump's inauguration, China flexes its muscles by starting to sell its huge holdings of US sovereign and corporate bonds.”

There does seem to have been some evidence that China has not been buying as much US debt as it was, but there was certainly no flexing of its muscles by a large scale selling of of bonds etc. China possibly sees that continuing to hold that debt gives it leverage for the future, and it is keeping its powder dry. Moreover, large scale selling of debt, at a time when the US Federal Reserve is stepping back from QE, could have caused bond prices to fall sharply, and left China with large capital losses.

Prediction 10 stated,

“Trump's cosying up to Putin, and coolness to NATO, strengthens the incentive for the EU to also look to its own greater economic ties to Russia, and its own defence and strategic interests, particularly as it tries to create a more stabilised economic buffer zone around its periphery.”

The EU has not yet shown signs of developing its economic ties to Russia. It has, however, demonstrated increasing intent to look after its own security and strategic interests with the development of its Border security forces, which appear as the first signs to creating a European army.

It concluded,

“The EU will have greater success in establishing a modus vivendi with Russia, with which it has far greater economic ties, than will the US. That leads to a fit of pique on Trump's part, and a rupture between him and Putin. Putin will lose no sleep over it, as Russia's economy starts to grow on the back of increased trade and investment from the EU and China.”

Trump has not yet fallen out with Putin, but the potential for such a falling out clearly exists. These predictions can probably be described as work in progress.

Theories of Surplus Value, Part II, Chapter 11 - Part 6

Ricardo makes the same argument in relation to the mine or quarry.

““The compensation given for the mine or quarry, is paid for the value of the coal or stone which can be removed from them, and has no connection with the original and indestructible powers of the land” (l.c., pp. 54-55).” (p 249) 

It may have no connection to the original powers of the land, Marx says, but it clearly does have a connection to the “original” and “destructible” productions of the soil. Ricardo never talks about value as use value or utility, and so his use of the term “value” here is “just as ugly here as the phrase “repaid himself with a profit” was above.” (p 249) 

If he means by “value” here the value of the coal or minerals, in their natural state, before they are removed, when he talks about compensation, he negates his theory of value, because having not been produced by labour they could possess no value.

“Or does value mean here, as it must do, the possible use-value and hence also the prospective exchange-value of coal and stone? Then it means nothing but that their owner is paid rent for the permission to use the “original composition of the soil” for the production of coal and stones. And it is absolutely incomprehensible why this should not be called “rent”, in the same way as if the permission were given to use the “powers” of the land for the production of wheat. Or we end up again with the annulment of the whole theory of rent, as explained in connection with wood.” (p 249)

What is the actual situation? If we take the situation of the virgin forest, the labour employed is only that which removes it from its natural state, as with coal from a mine, or minerals from a quarry. That is different to a commercial forest, where labour and capital is employed to cultivate the forest, to plant replacement trees, etc., and where, therefore, labour has gone into the actual production of timber. In the case of a virgin forest, or coal or minerals, the labour does not produce the product but removes it from its natural state, processes it, and transports it. In such cases, the organic composition of capital is low. No raw material is used, and so, even as productivity rises – as a result of more and better fixed capital being employed – this does not have the effect of increasing the organic composition, as happens in manufacturing.

In manufacturing, more effective fixed capital causes productivity to rise, which causes the mass of raw material consumed to rise, and the value of circulating  constant capital to rise. The same process causes the value of the variable capital, and wear and tear of fixed capital to fall as a proportion of output value. But, where no raw material is used, this is not the case. This is also true in relation to the service industry that currently accounts for around 80% of value and  surplus value production. It is the main reason today why the  Law of the Tendency for the Rate of Profit to Fall, is now largely inoperable. As Marx points out, capital only introduces new fixed capital where it costs less than the value of the paid labour it replaces. Suppose a machine helps extract 100 tons of coal in a year. The machine has a life of ten years, and costs £1,000. It loses £100 per year in wear and tear to production, which is equal to £1 per ton. But, a new machine costing £2,000 may lose £200 p.a., and yet if it helps produce 250 tons p.a. that is only £0.80 per ton.

So, the increase in productivity causes no rise in constant circulating capital, and although this fixed capital increases absolutely, it declines relatively.

“If, therefore, the commodity is sold at its value here, then this value will be above its cost-price , i.e., the wear and tear of the instruments of labour, the wages , and the average profit . The excess can thus be paid as rent to the owner of forest, quarry or coal-mine.” (p 249-50) 

Marx asks why Ricardo used these clumsy formulations, the wrong use of value etc. and suggests the reason may emerge later. Ricardo wants to distinguish agricultural rent from these other forms of rent, and to create the basis for his theory of differential rent, by specifying the power of the soil to provide varying degrees of this “original power”.

Thursday, 28 December 2017

Year End Review 2017 - Part 7

Prediction 7 read,

“Fillon wins the French Presidency, but the Socialist Party splits, leading to a realignment. A Corbynite movement develops within it, attracting sections of the French Left to it.”

That was almost completely wrong. The amazing thing about the French Presidential Election was the series of political scandals that struck, and the fact that all of the leading candidates failed to get selected as the nominees of their respective parties. If there was any element of the prediction that was right it was the fact that the Socialist Party selected Hamon as its candidate, which reflects the kind of development of a Corbynite, radical progressive social-democratic movement in France, and the party also effectively split, with a lot of the Blairite elements jumping ship to support Macron, a possibility that has not existed for such elements in Britain. The continued weakness of the French labour movement remains the continued strength of Stalinism, even if not in the form of the Communist Party, but still in the form of the statist, national-socialist ideology that the history of Stalinism has inculcated within the labour movement, and whose manifestation in these elections was represented by Melonchon.

Melonchon was able to present as some kind of left-wing alternative, to Hamon, but actually represented no such thing, just as those who organised around NO2EU, or who advocated LEXIT in Britain posed as some kind of radical left, but who only represented a reactionary national socialism, and all of the reactionary implications it has, whilst also acting to divide the left.  It demonstrates once again that a starting point for any real progressive social-democratic alternative, let alone a socialist alternative, has to be internationalism, and the forging of a European wide labour movement, that begins to fight on an EU wide basis for solutions that meet the needs of all workers across the EU, rather than trying to provide sectional solutions for individual groups of workers either by industry or by country.

The election of Macron was simply a consequence of the French left failing to provide any such perspective. French workers were presented with a perspective of voting for Hamon as the representative of a Socialist Party still too highly tainted by the Presidency of Hollande, and his attacks on the working-class, after having posed left, before the previous election, and Melonchon, whose national socialist programme was little different to the programme of Le Pen and the Front National. Melonchon was able to draw more support because of the fake left populist nature of his programme, and the legacy of Stalinism within the French working-class, but only thereby undermined the possibility of a left candidate going through to the second round, as opposed to Macron. Whilst a large proportion of workers recognised that Macron offered no real way forward, and so abstained, it was inevitable that a large enough number of workers, and of the liberal middle class would vote for Macron, simply to stop Le Pen. But, the Blairite policies of Macron are precisely the kind of policies that have led to the rise of the nationalist right in the first place. Those policies undertaken by Hollande, were what caused support for the Socialist Party to collapse. Just as they led to the collapse in support for New Labour. Unless the Left in France reorganises within the Socialist Party to provide a credible, and fighting alternative to Macron, as he attempts to roll out his anti-working class measures, there is every chance that he will simply open the door in four years time to Le Pen, or something worse. 

The only thing that might prevent that is if the resumption of the long wave boom, and the marked pick up in European economic growth comes to Macron's rescue. A resurgent EU economy, especially at a time when Brexit nationalism is sending the UK economy into the toilet, will further undermine right-wing populism. However, that is no reason that the French Left should abrogate its duty to rebuild and reorganise, and to take its place alongside the internationalist Left across Europe, in forging a new progressive social-democratic agenda, and building an EU wide social movement fighting across borders for its implementation.

Theories of Surplus Value, Part II, Chapter 11 - Part 5

Under capitalism, some things that do not have value do become sold as commodities. Capital has no value, but is sold as a commodity, whose price is interest; land has no value, but is sold as a commodity, whose price is the capitalised rent.

“Then we would have to say: Rent is the price paid to the owner of natural forces or mere products of nature for the right of using those forces or appropriating (by labour) those products. This is in fact the form in which all rent appears originally. But then the question remains to be solved, how things which have no value can have a price and how this is compatible with the general theory of value.” (p 247)

But, the real question to be asked, Marx says, is from what fund is this compensation paid?

“Well, says Ricardo, “by the sale of the timber”. That is, out of the price of the timber. And furthermore, this price was such that, as Ricardo says, the man “actually repaid himself with a profit”.” (p 247)

But, then it becomes apparent why this is not possible within the context of Ricardo's theory of value. Ricardo argues that prices of production and exchange-value are the same, so we can ignore the issue of the price of production here, and focus on the value. What is the value of the timber? We can ignore any constant capital. The value of the timber, the price it obtains by sale, is then equal to the labour required to fell it, process it, and transport it to market. On the assumption that this is a capitalist operation, part of this labour will be paid labour, covering the wages of the forestry workers, and the other part will be unpaid labour, constituting the profit of the timber capitalist. But, in that case, had this capitalist been involved in cotton spinning and employed the same quantity of labour, that labour would have produced the same quantity of new value and surplus value. In that case, it's clear that the capitalist could not finance the purchase of the timber, coal, or stone – or use the land from which they came – out of the value/price of the commodities. 

The only other option would be that the commodities sold at a price above that value, but that would destroy Ricardo's labour theory of value, because it would mean that the value of these commodities was greater than the labour required for their production.

The reason that Ricardo falls into this error is that he proceeds on the basis of how things appear to stand from the perspective of the capitalist. First of all, the timber capitalist, for instance, pays the landowner for the timber taken from the land. As virgin timber, it has no value. In fact, Marx says, while it exists simply as trees it doesn't even have use value as timber.

Ricardo never investigates surplus value, but simply assumes the existence of an average rate of profit, which each capitalist expects to obtain on their capital, within the price of the commodities they sell. So, if the capitalist pays £5 per ton for timber, to the landowner, Ricardo sees this as being like the advance of capital by any other capitalist. If the capitalist had no other costs, he might then sell the timber for £6 per ton, obtaining the average rate of profit of 20% on his capital. By the same token, had the landowner only charged him £2 per ton, he could have sold it for £2.40 per ton, and still made 20% profit. In this case, the price of timber would be wholly dependent on the amount of compensation the landowner demanded.

“Whether the “rent”—compensation—is paid to the owner of the land for the use of the “power” of the land or for the “use” of the “natural products” of the land, in no way alters the economic relations, in no way alters the fact that money is paid for “a natural thing” (power or produce of the earth) upon which no previous human labour has been spent. And thus on the second page of his chapter “On Rent” Ricardo would have overthrown his whole theory in order to avoid a difficulty. It would appear that Adam Smith was a great deal more far-sighted here.” (p 248-9)

Back To Part 4

Forward To Part 6

Wednesday, 27 December 2017

Year End Review 2017 - Part 6

Prediction 6 has already been referred to in relation to global growth in Part 5. Prediction 6 said,

“The three-year cyclical slow-down sets in again in the fourth quarter of 2017, but, for the reasons set out in 5), it will be manifest in relative rather than absolute terms, i.e. growth in general will be strengthening, whilst the period Q4 2017 – Q4 2018 will be just slower than this quickening trend. Specific economies, such as the UK, may suffer greater effects, because of particular conditions, such as Brexit.”

As I have discussed, for several years, in various posts, for at least the last thirty years, a distinct three year cycle is discernible, during which growth slows for about a year, starting in the third quarter. It was visible in 2002, 2005, 2008, 2011, 2014, and I expect it to be visible in 2017, though, as described above, that will only become apparent in later years, as it will appear as a small kink in the upward trend I expect now is entrenching itself.

In previous posts, I have suggested that this three year cycle may be due to the role of technology within the economy. In Capital II, Marx discusses the wear and tear of fixed capital, and its replacement. Marx notes that, because some fixed capital remains in operation for several years, it transfers a portion of its value in wear and tear to the commodities in whose production it takes part. The capitals that produce these commodities, thereby, take value out of the economy equal to the value of this wear and tear. However, they do not need to throw this value back into the economy, to replace that fixed capital, which can continue to operate unhindered. They hoard the money equivalent of this value, ready to be used to purchase replacement fixed capital, when it is worn out.

But, the consequence of this is that a necessary imbalance arises. The producers of consumer goods in Department II, take this value out of the economy in the form of the value of the wear and tear of their fixed capital. This value is provided to them by the capitalists and workers of Department I, which produces means of production, as those workers and capitalists buy consumer goods from Department II. But, Department II, then does not pass this value back to Department I, instead hoarding the money equivalent, for several years, until it is required to replace the fixed capital. Department I, therefore, cannot replace the value of the wear and tear of the fixed capital it has produced and sold to Department II. As Marx puts in Capital II, it results inevitably in overproduction by Department I, even if it has simply continued to produce at the same level.

Similarly, when the fixed capital employed by Department II, does wear out, it will need to replace it all, which will cause a large rise in the demand for fixed capital from Department I. It will buy this fixed capital with the money equivalent of the value of wear and tear, it has hoarded from previous years. Department II, will thereby transfer a large amount of value to Department I, for the purchase of this fixed capital, but will not recoup this, in the value of wear and tear for the current year, in the value of the consumer commodities it sells to Department I workers and capitalists. It means a necessary instability is established within the system between Department I and II, as a disproportion in production is created, one year too little means of production being produced, and in other years too much means of production. Orthodox economics also recognises this idea in the Accelerator Effect.

Marx notes, in Capital II, Chapter 20,

“This illustration of fixed capital, on the basis of an unchanged scale of reproduction, is striking. A disproportion of the production of fixed and circulating capital is one of the favourite arguments of the economists in explaining crises. That such a disproportion can and must arise even when the fixed capital is merely preserved, that it can and must do so on the assumption of ideal normal production on the basis of simple reproduction of the already functioning social capital is something new to them.”

And, he notes that this disproportion, must also occur even under socialist production.

“Once the capitalist form of reproduction is abolished, it is only a matter of the volume of the expiring portion — expiring and therefore to be reproduced in kind — of fixed capital (the capital which in our illustration functions in the production of articles of consumption) varying in various successive years. If it is very large in a certain year (in excess of the average mortality, as is the case with human beings), then it is certainly so much smaller in the next year. The quantity of raw materials, semi-finished products, and auxiliary materials required for the annual production of the articles of consumption — provided other things remain equal — does not decrease in consequence. Hence the aggregate production of means of production would have to increase in the one case and decrease in the other. This can be remedied only by a continuous relative over-production. There must be on the one hand a certain quantity of fixed capital produced in excess of that which is directly required; on the other hand, and particularly, there must be a supply of raw materials, etc., in excess of the direct annual requirements (this applies especially to means of subsistence). This sort of over-production is tantamount to control by society over the material means of its own reproduction. But within capitalist society it is an element of anarchy.” (ibid) 

This disproportion, in fact, Marx says, is averaged out under capitalism, because of several factors. Firstly, businesses in the same sphere, come into existence at different times, so that as each new business starts, it creates a demand for fixed capital from Department I, so Department I is continually supplying fixed capital to firms in Department II, in a phased manner. Assuming this fixed capital all has the same lifespan, of say 10 years, it will all then wear out at similarly phased intervals. Also, Department II firms are engaged in a range of spheres of production, and so they will use different types of fixed capital. These different types of fixed capital, will have different lifespans, so although Department I may not be producing a given amount of fixed capital for Department II firms involved in confectionery production, they might instead be producing fixed capital for firms involved in car production. Moreover, on the basis of capital accumulation, at any one time, firms may use the funds they have built up for the replacement of fixed capital, to add to the fund of surplus value they have built up, so as to increase their accumulation of capital, which thereby creates additional demand for fixed capital, and other means of production from Department I.

However, as Marx also points out, in Capital I, whenever some revolutionary new technology or machine is introduced, existing firms are led to have to scrap their installed machines even if they are not worn out, and even if they are relatively new, and to replace them with this new technology. If they do not do so, they will be unable to compete with any new firms entering that production, who start off with the new technology from day one, or with any existing firms who are in the process of replacing their existing machines with the new versions. This creates an inevitable tendency towards synchronised upgrade cycles, whereby all firms in a particular sphere, are led to need to replace their fixed capital, of a particular type, at or around the same time, and this thereby reintroduces the tendency towards disproportion and overproduction.

The upgrade cycle for ICT equipment is fairly well known, as the power of microchips doubles approximately every 18 months, and this leads to the development of new computer software and hardware, able to take advantage of the increased computing power, approximately every three years. Most large businesses, have thereby come to have an upgrade cycle for their installed ICT base of around three years. Given that it is not now just in offices and other administrative functions that the microchip plays a central role in personal computers, and so on, but the microchip is now central to more or less every piece of fixed capital, and every consumer durable, it is easy to see the technological basis of this three year cycle.

For, the last 15 years, I have been arguing that the global economy had entered a new long wave upswing. That phase lasts on average for around 25 years, and so this upswing starting in 1999, should last until 2025, or thereabouts, before entering a new plateau, or crisis phase. The indication of that new upswing after 1999 was fairly clear, and I have described it in many posts, as the global working class, increased by a third in the first decade of this century, output increased massively, global trade increased significantly compared with the previous period, and the sharp rise in demand for primary products saw the prices of copper, oil, iron oil, and food rise sharply. The rise in inflation, and the rise in interest rates in 2007, acted to burst the huge speculative financial bubbles that had been inflated over the previous thirty years, and led to the financial meltdown of 2008.

Whilst, initially, in order to overcome the shock to the economic system itself, that resulted from the credit crunch, as banks collapsed, states introduced large fiscal stimulii, alongside the liquidity required to ensure that commodity circulation could continue, and this led to a sharp “V” shaped recovery, everywhere it was applied, this fiscal stimulus was quickly withdrawn in 2010, when stability had been restored, as populist conservative governments were elected on policies of introducing austerity, and balanced budgets. The effect in the UK, and in Europe, where such austerity was introduced, was marked, as the economic recovery was halted, and economies more or less flatlined, whilst in the weaker economies like Greece, Spain, Ireland, and Portugal weighed down by large amounts of debt, particularly debt related to a property bubble, the austerity sent them into severe recession. Even in the US, the action of Republicans was to undermine the fiscal stimulus policies that Obama sought to introduce.

It has not been easy since 2010, therefore, to argue that the global economy is in a period of long wave upswing. But, to conclude otherwise means to be blinded by superficialities, and to believe that long established material forces at work within the economy have somehow ceased to operate. It is a version of the repeated error of financial speculators who whenever they get caught up in a new speculative mania, proclaim that “this time it's different”, but when the crash happens, it simply shows that it wasn't.

It is the same here. The underlying nature of the conjuncture is indicated in the period up to 2008, not in the distorted conditions that have been created after 2008, and particularly after 2010. In the period after 2010, the political power of the owners of fictitious capital has exerted itself. If you watch the film, The Big Short, it gives some indication of the corrupted nature of the system that enables this distortion to occur. The film, however, only talks about the way the bankers and others involved in the financial services industry were bailed out, by states over the last ten years, but the real bail-out has gone to the global top 0.001% whose private wealth is now almost exclusively held in the form of fictitious capital, of shares, bonds, derivatives, and property, and who have seen vast amounts of liquidity produced by central banks, via QE, that was used to reflate the prices of those shares, bonds, and property, diverting money from the real economy, leading to deflation and disinflation in consumer product prices, and diverting potential money-capital away from productive investment into financial and property speculation, thereby reducing economic growth.

Yet, the reality is that global growth has continued since 2008, despite all of the claims about there being a long depression, a great recession, or secular stagnation. The slower growth in the UK, EU, and in part in the US, is a direct result of self-inflicted austerity wounds. But, those wounds themselves were not accidental. Not only in order to provide the taxes used to bail out the banks, was a corresponding reduction in government spending inflicted, but these states set out to limit economic growth, and to impose austerity directly in order to keep interest rates at low levels, which is vital in order to keep bond, stock and property prices inflated. They learned the lesson of the period into 2007, when rapid economic growth led to rising interest rates, which crashed the capitalised prices of revenue producing assets.

Trump's tax plan is aimed at a similar effect. It provides a large tax cut for corporations. The executives of those corporations have said publicly that they will use the tax cuts, not to invest in real capital, but to buy back stock, to increase dividends and so on, which will again act to boost share prices. Yet, as I have set out many times in previous posts, this approach has sowed the seeds of its own destruction. The crash of 2008 was the warning tremor of that destruction. The actual earthquake is growing closer by the day, as I set out in my book - Marx and Engels' Theories of Crisis - Understanding The Coming Storm.

Between 1980 and 2000, the Dow Jones rose by 1300%, whereas GDP rose by 257%, so that the stock market rose by around 5 times the growth of the economy. This is in stark contrast to the period between 1950 and 1980, where the economy grew by about twice the rise in the Dow Jones. In the financial meltdown of 2008, the Dow Jones dropped dramatically to around 7500 in early 2009, but, today, it stands at around 24,600! Yet, although there has been growth in the US economy, during that period, there certainly has not been the kind of 300% growth seen in the stock market. Growth during that period has been only around 20%. In other words, we have the same set of conditions that existed prior to the 2008 crash, but now on an even more extended basis. 

The attempt to keep asset prices high by diverting money into such speculation, and away from the real economy is self-defeating, and the extent to which that is the case, is likely to be manifest in the near future.

Theories of Surplus Value, Part II, Chapter 11 - Part 4

Marx then examines what he says is a very strange logic applied by Ricardo. Ricardo notes that Adam Smith talks about rent being paid for wood from virgin forests, and coal from mines, stone from quarries etc. In other words, the point being made is that there is some natural resource, which has no value, i.e. it has not been produced by labour – virgin timber as opposed to cultivated timber. The importance of the distinction being obvious that these use values have no value, and yet the owner of them will insist on a price for their use.

Ricardo says,

““Is it not, however, evident, that the person who paid what he” (Adam Smith) “calls rent, paid it in consideration of the valuable commodity which was then standing on the land, and that he actually repaid himself with a profit, by the sale of the timber?” (l.c., p. 54).” (p 246) 


““… the compensation[…] for the mine or quarry, is paid for the value of the coal or stone which can be removed from them, and has no connection with the original and indestructible powers of the land. This is a distinction of great importance, in an enquiry concerning rent and profits; for it is found, that the laws which regulate the progress of rent, are widely different from those which regulate the progress of profits, and seldom operate in the same direction” (l.c., pp. 54-55).” (p 246) 

This is very strange logic, says Marx. Ricardo wants to argue that what is paid for the virgin timber, or minerals, is not rent, because it is not payment for the “use of original and indestructible powers of the soil.” Instead, he argues as though it is the same as the profit that a capitalist obtains from advancing capital to the land, for example, to farm it, or the interest that may be obtained from having invested in fixed capital on the land, which is then loaned to a farmer. For example, a landowner may erect barns, which they loan out to the farmer. What the farmer pays for the use of the barn is not rent, but interest on the fixed capital value they have use of, as part of their production. But, this is clearly not the case with the owner of virgin forests, mines, etc.

“Has the owner of a “virgin forest” invested “capital” in it so that it may bear “wood” or has the owner of stone-quarries and coal-mines invested “capital” in these, so that they may contain “stones” and “coal”? Whence, therefore, his “compensation”? It is by no means—as Ricardo tries to make out—profit or interest of capital. Therefore it is “rent” and nothing else, even if it is not rent as defined by Ricardo. But this only shows that his definition of rent excludes those forms of it where the “compensation” is paid for mere natural things, in which no human labour is embodied, and where it is paid to the owner of these natural things only because he is the “owner”, the owner of land, whether this consists of soil, forest, fish pond, waterfall, building land or anything else.” (p 246-7)

Ricardo ends up in confusion here, because he argues that what is paid for is a valuable commodity – virgin timber, coal, minerals etc. But, he began himself by distinguishing his position from Smith by insisting that value is determined by labour. As far as the virgin timber, coal and mineral are concerned they have no value, because, in their original state, no labour has been expended on them. They are very great use-values, but that does not make them products, possessing value, let alone commodities possessing exchange-value.

All of them only obtain value when they are the subject of labour. The trees must be felled and processed; the coal must be mined and the minerals quarried and processed. They must then be sent to market. Only then do they become commodities possessing exchange-value.  In the case of virgin timber, there may be a further complication, which does not apply to say minerals.  Minerals in the ground, cannot be produced by labour, however, timber can be produced as a result of forestry, in the same way that other agricultural crops are produced.  Virgin timber, as Marx says has no individual value, because it is not the product of labour.  But, as Marx points out the value of timber as a commodity is not determined by the actual labour embodied in it (here none), but by the socially necessary labour required for its reproduction.  In terms of the social value of virgin timber, therefore, it is indistinguishable from the social value of cultivated timber.  The virgin timber when cut down, must be reproduced by forestry, and so its social value is determined by the labour required for its reproduction.

This does not change the basis of Marx's argument in relation to Ricardo.  It means that the virgin timber has no individual value, but its social value is determined as with cultivated timber.  It is the fact that there is this difference between the individual value of the virgin timber, and its market value, that provides a basis for differential rent for the land on which it resides.

Back To Part 3

Forward To Part 5

Tuesday, 26 December 2017

Year End Review 2017 - Part 5

Prediction 5 has been a bit like the Curate's Egg. The first sentence of the prediction said,

“As happened in similar conditions, in the mid 1960's, inflation will spike sharply higher.”

Well, sort of. The huge falls in the prices of many primary products that set in around 2014, have certainly been reversed, and the prices of many of those things have risen sharply. The threat of deflation that occupied minds in 2016, has certainly disappeared, as global inflation has started to rise. In the UK, where Brexit has caused a fall in the Pound, that has been exacerbated, as import price inflation feeds into the system, and inflation has continued to rise, at every point that the Bank of England has claimed it had peaked. We are not yet, at the point of the rapid pick-up in inflation that arose in the mid-1960's, but the conditions are in place for such a trajectory.

The second sentence stated,

“As interest rates rise, the price of financial assets, land and property will fall sharply. Money will flow out of those things quickly, as no one will want to be left holding a rapidly depreciating asset, and for those assets that are illiquid, such as property and junk bonds, this crash will be more pronounced as everyone rushes for the exit.”

Well, global interest rates have been rising, and even central banks are now having to raise official interest rates. But, we have not yet seen the take-off in interest rates that are required for asset prices to begin to fall sharply. Partly, that is because of the continued monetary stimulus that is given to encourage speculation, and because of the continued implementation of policies of austerity aimed at restricting economic growth.

The rest of the prediction set out that it did not matter whether the money that came out of speculation went into the purchase of commodities for consumption, or went into productive investment, because the consequence would be that the increased demand for commodities would act to stimulate economic growth, and to cause those commodities prices to rise, as they found ample liquidity to enable that price inflation. The rising demand for these commodities would, in turn, lead to rising levels of investment, so as to meet the rising demand.

That has proved correct, as the continued firming of commodity prices, the notable increase in economic growth across the globe, and the notable increases in employment, as the investment in circulating capital, increase. What we have not seen yet, is the pace of growth that last year I anticipated, and so the extent of the other elements of the prediction have not materialised either. The last quarter of 2017, saw the onset of the latest three year cycle, during which growth tends to moderate for a year. However, such moderation is necessarily a relative effect. Global growth, has in fact, risen notably in the last year, and the pace of that growth appears to be accelerating, including in the most important economies in the US, and the EU. In other words, even if the effect of the three-year cycle is to knock 1% off the growth figure, for 2017-18, that does not mean that the growth figure itself might not be say, 3%, and may, therefore, be higher than in 2016-17. It means that when the effect of the three year cycle is removed, if conditions continue on the same basis, growth for 2018-19, might be expected to be closer to 4%.

Theories of Surplus Value, Part II, Chapter 11 - Part 3

[3. The Inadequacy of the Ricardian Definition of Rent]

Adam Smith, as was seen, began with a labour theory of value, but ended up falling back from it into a cost of production theory, whereby the value of commodities was a composite of wages, profits and rent. Ricardo rejected this view and insists on a labour theory of value. He says,

““Adam Smith… cannot be correct in supposing that the original rule which regulated the exchangeable value of commodities, namely, the comparative quantity of labour by which they were produced, can be at all altered by the appropriation of land and the payment of rent” (l.c., p. 67).” (p 245) 

The conscious connection that Ricardo makes here between his theory of rent and the determination of value is its theoretical merit, Marx says. But, apart from that, Marx continues, Ricardo's Chapter II, “On Rent”, is inferior to the exposition provided by West.

Marx makes a distinction between three things for which rent of land is paid. Firstly, there is the agricultural rent proper. As Ricardo says, it is paid for the permission to invest capital in the land, and thereby to produce capitalistically. Marx distinguishes between this condition, where the land is the element within which production takes place, and two other conditions. The second is where a rent is paid for some particular natural feature which facilitates production, and acts as a condition for it. For example, a miller might use the natural motive power that a waterfall provides, to drive a water-wheel. But, the miller's production does not take place in the waterfall, as a farmer's production does take place in the land.

The third situation is with mines or quarries. Here again the land is not the element where production takes place. Rather, the land is a reservoir containing various minerals, and once they have been extracted, the production ceases.

“In this case payment is made for the land, not because it is the element in which production is to take place, as in agriculture, not because it enters into production as one of the conditions of production, as in the case of the waterfall or the building site, but because it is a reservoir containing the use-values, which are to be got hold of through industry.” (p 245)

Marx quotes Ricardo,

““Rent is that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil” (l.c., p. 53)” (p 245) 

This explanation is poor, Marx says, for several reasons. Firstly, the soil has no “indestructible powers”. It can be over-cultivated, and worn out. But, similarly, it has no original powers either. All land is the result of a long historical process. Some of that process is natural. For example, in some areas, centuries of natural composting has taken place, as leaves have fallen, plants have decayed and been incorporated into the soil; in other areas, centuries of wild animal herds have manured the land; over millennia, the action of water, wind and heat have shaped the land and its composition. But, also from the time that Man began settled agriculture, cultivation has transformed the soil, and land conditions.

“By “original” powers of the land we understand here those, which it possesses independently of the action of human industry, although, on the other hand, the powers given to it by human industry, become just as much its original powers as those given to it by the process of nature. Apart from this, it is correct to say that rent is a payment for the “use” of natural things, irrespective of whether it is for the use of the “original powers” of the soil or of the power of the waterfall or of land for building or of the treasures to be found in the water or in the bowels of the earth.” (p 245-6)

Back To Part 2

Forward To Part 4

Monday, 25 December 2017

Year End Review 2017 - Part 4

Prediction 4 was,

“This will be a decisive year for Corbyn and his supporters.”

Once again, more than comfortably confirmed. Last year, I argued that the special conditions of the Copeland By-Election, which Corbyn's opponents had seen as a harbinger of future election results, and a means with which to beat Corbyn, were not a good guide. There were a number of elements to this prediction. On the one hand, I argued that what was important was how Corbyn, and those around him responded to the triggering of Article 50. I argued that there had been considerable vacillation by many around Corbyn, over the question of immigration etc., and that it was necessary for Labour to adopt a clear message. Some pundits have argued that it has been the lack of a clear message by Labour over Brexit that has benefited them, as they were able to present themselves to Leave supporting Labour voters as committed to carrying out the referendum result, but still able to pick up the votes of Remainers, on the basis of being the only credible opposition to a Tory hard Brexit.

This last contention is certainly true, but I have never accepted the first, and I think the analysis done by John Curtice proves the correctness of my thesis. I think Labour could have potentially polled more votes with a clear anti-Brexit position, and if it is to win back support in Scotland, such a clear position is vital. Moreover, it should always be the case that Labour stands on a principled basis, as that is the best long-term means of securing support, rather than simply opportunistically chasing short-term electoral success. On other aspects of Labour's programme, put forward by Corbyn, that has been proven conclusively.

Despite all of the hostility to a clear progressive social democratic position, from Blair and his dwindling band of supporters in the PLP, in Council Chambers, and in the House of Lords, Corbyn's programme, when argued for clearly and confidently, found widespread support amongst the electorate. It was again a confirmation of the other argument I put forward last year.

“Labour should mobilise its half million members, and its resources, to physically support every strike, every community action against austerity etc. If Corbyn and his supporters do that, Labour's standing in the polls will rise, as voters see a credible answer being provided.” 

Labour under Corbyn did that in a way that the Right of the party have never been able to do. It confirms my own experience of winning a City Council seat back in 1983, by standing on a principled left-wing platform, and going out to argue for it decisively and confidently, even in the face of opposition from the right-wing of the party, and at a time when the vacillation of the Labour Party leadership nationally had allowed Thatcher to claw back support, and which saw Labour get trounced in the General Election of that year.

But, there is still a lot that needs to be done, and had Labour pursued the course I had suggested,

“Its time for Corbyn and his supporters to turn the ideas about building a social movement into action. We should see regular large rallies and demonstrations, joining with other European workers and organisations for the defence and advancement of workers' rights and interests, across Europe. We should join with these other forces to demand action by the EU to end austerity and introduce stimulative investment, particularly in the peripheral economies, to cut unemployment and spur growth, whilst demanding no more bail-outs for the banks.”

We would now be in a much stronger position to turn back the course of Brexit, to be able to present a progressive social-democratic alternative to it, and to the conservative policies of austerity that the Tories, and their co-thinkers across Europe still seek to impose on the working-class.

Theories of Surplus Value, Part II, Chapter 11 - Part 2

[2. The Connection Between Ricardo’s Theory of Rent and His Explanation of Cost-Prices]

Marx wants to investigate the relation between rent and prices of production. To do this, he says, its necessary to ignore differential rent, and to focus on the basis of absolute rent. Of course, Ricardo denies the existence of absolute rent, and this denial flows from his identification of prices of production and values. If such an identity exists, then Ricardo is quite right to deny the possibility of absolute rent, because, if a commodity sold at its value, it could not pay a rent, and if the price includes such a rent, it would have to be selling above its value, and its price of production, thereby demolishing the Labour Theory of Value.

In every sphere whether in agriculture or industry, Marx says, the value of commodities is not determined by the labour-time embodied within them. Rather, it is determined by the average socially necessary labour-time required for their reproduction. That means that some commodities, in each sphere, will have embodied more abstract labour-time in their production, and some less than this average socially necessary labour-time. Some will have an individual value higher than the social value/market value, and some a lower individual value. But, they will all sell at the market value, or at least market prices that revolve around it. In that case, those producers whose output has a higher individual value, will sell at prices that do not realise all of that value, and so surplus value. Similarly, those producers whose output has a lower individual value will make surplus profits.

“Manufacture and agriculture only differ from one another here in that in the one, the excess profits fall into the pocket of the capitalist himself, whereas in the other they are pocketed by the landowner, and furthermore, that in the former they are fluid, they are not lasting, are made by this capitalist or that, and always disappear again, while in the latter they become fixed because of their enduring (at least for a long period) natural basis in the variations in the land.” (p 241)

But, the question is, under what condition an absolute rent exists, and if it does, what does that mean for Ricardo's theory of cost-prices. If Ricardo's assumption that commodity values equal their cost-price/price of production is dropped, then it becomes obvious that an absolute rent is possible. If the value of agricultural products/wheat is higher than the price of production, then the capitalist farmer can sell at a price that enables them to make the average profit, and also to pay an absolute rent equal to the difference between the price of production and the value of the commodity. And, we know that the price of production, in some spheres, is lower than the value of the commodity, just as in other spheres the value of the commodity is lower than its price of production. Wherever the organic composition of capital is lower than the average, or the rate of turnover of capital is higher than the average, the price of production will be lower than the value of the commodity, and vice versa.

The difference between the price of production and the value of the commodity forms a surplus profit. But, normally, this surplus profit would be competed away. Additional capital would invested in this sphere, in search of the surplus profit. The supply of commodities would then rise, and their market price would fall until it reached the price of production, at which point only the average profit is made. So, the question is why it is that this competition does not occur in agriculture; and why the surplus profit is then appropriated as absolute rent by the landlord.

“The question already contains the answer. Because, according to the presupposition, this can only happen in so far as the competition between capitals is able to effect such an equalisation, and this in turn can only occur to the extent that all the conditions of production are either directly created by capital or are equally—elementally—at its disposal as if it had created them. With land this is not the case, because landed property exists and capitalist production starts its career on the presupposition of landed property, which is not its own creation, but which was already there before it. The mere existence of landed property thus answers the question. All that capital can do is to subject agriculture to the conditions of capitalist production. But it cannot deprive landed property of its hold on that part of the agricultural product which capital could appropriate—not through its own action—but only on the assumption of the non-existence of landed property.” (p 243)

As I have said previously, in relation to Marx’s analysis of rent in Capital III, I am not convinced by his argument. If his argument is correct then, as he says, absolute rent is only possible if the organic composition of capital is lower than average.

“The same chain of reasoning which demonstrates the possibility of the existence of absolute rent, shows its reality, its existence, as a purely historical fact, which belongs to a certain stage of development of agriculture and which may disappear at a higher stage.” (p 244)

But, firstly, Marx has failed to take into consideration another factor here, which is the average rate of turnover of agricultural capital. As he has set out previously, if the rate of turnover of capital is higher than the average, this will mean that the price of production is higher than the value. In agriculture, it might be the case that the rate of turnover of some capital is higher than the average. For example, milk is sent to market every day. Other products such as butter, cheese and eggs – in less developed capitalist economies prior to these being produced by large scale industry – are sent to market on a frequent basis. But, crops, by their nature, require several months before they can be harvested, cattle take several years before they are ready for slaughter. Consequently, the rate of turnover of agricultural capital will tend to be lower than that for industrial capital.

Even in so far as the organic composition of capital in agriculture is lower than the average, and so setting the price of production below value, therefore, this might be offset by the lower rate of turnover, which has the opposite effect. But, as Marx says, its not clear that the historically lower level of productivity in agriculture had to continue. In fact, modern industrial agriculture uses large amounts of technologically advanced fixed capital, and relatively little variable-capital. Only around 2% of the population in advanced economies are employed in agriculture, and yet agricultural production is many, many times what it was 100 years ago, and food prices have continued to fall at a significant pace.

But, none of that has resulted in landowners ceasing to levy absolute rents. Marx's argument is premised on the assumption that an agricultural capital will not rent land, and engage in production unless it can make average profit, and pay the absolute rent. That requires that agricultural prices be high enough for that to occur. However, I see no reason why a capitalist farmer will not rent such land, even if they do not make the average profit, after having paid the absolute rent. That is no different from the fact that a capitalist shirt producer, who is less efficient than the average producer, in that industry, continues in business even though they make below average profits.

Ricardo, however, denies the possibility of absolute rent, because he assumes that the organic composition of capital is the same in agriculture as in industry. But, he also posits differential rent as arising from an absolute decrease in agricultural productivity, arising from the progressive resort to less fertile soils. Anderson had rejected such an idea. Anderson showed that differential rent arises from relative differences in fertility. If land type A produces 10 kilos of wheat, and land type B 20 kilos, then if land type A provides the average rate of profit, and no differential rent, land type B will pay rent. If productivity rises and land A produces 20 kilos, and B 40 kilos, and assuming demand rises so as to consume all of this production, B will still pay the same differential rent, because its fertility still has the same relation to A as before.

Ricardo, therefore, falls into a two-fold error.

“On the one hand, he assumes that the productivity of labour in agriculture is absolutely the same as in industry, thus denying a purely historical difference in their actual stage of development. On the other hand, he assumes an absolute decrease in the productivity of agriculture and regards this as its law of development. He does the one in order to make cost-price on the worst land equal value and he does the other in order to explain the differences between the cost-prices [of the products] of the better kinds of land and their values. The whole blunder originates in the confusion of cost-price with value.” (p 244)