Sunday, 26 March 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 20

(b) Early Attempts to Distinguish between Productive and Unproductive Labour (D’Avenant, Petty)

D'Avenant (An Essay upon the Probable Methods of Making a People Gainers in the Ballance of Trade, London, 1699, p. 50) put forward a Mercantilist view of productive and unproductive labour. For the Mercantilists, it was activity that created a surplus of trade which was productive. This trade surplus, thereby provided the gold and silver as a surplus value, which could then be used to finance the employment of labour in all other activities. 

In this regard, D'Avenant quotes the work of Gregory King (Scheme of the Income and Expense of the Several Families of England, calculated for the year 1688) who divided the nation into two classes, the first who were productive of wealth and the second who were destructive of wealth, and dependent on the first.

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

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

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

However, Marx says,

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

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

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

Saturday, 25 March 2017

The Fart and the Deal

According to the so called billionaire business genius, Donald Trump, he is the master of deal making, and even wrote a book on it called "The Art of the Deal".  No doubt, Trump believes it is the best book ever folks, all other books are failing and terrible.  But, of course, as with everything Trump it is simply foul-smelling hot air, as his record already as president demonstrates.

Since becoming President, he put forward a disastrous decree to prevent people from seven Muslim majority countries from travelling to the US, which was struck down almost immediately by US Courts; he has pissed off his own state security services, by publicly attacking them, and comparing them to the Nazis, as well as pissing off the British state by trying to draw them in as collateral damage to cover his ridiculous claims that Obama has been phone tapping Trump Tower (which he can, of course feel free to do, as Britain embarking on Brexit, has to tug its forelock to every large power in the globe); and now even his flagship Health Insurance Programme cannot even win the backing of his own Republican Party in Congress, let alone any wider backing!

The fact is that Trump is full of shit, but he has been able to get away with it, in the same way that others of his ilk can get away with all sorts of rubbish and incompetence, because he was born with loads and loads of money, though by some accounts he has lost even a lot of that.  The fact is that Trump has actually been lucky that his fellow republicans have been fighting like rats in a sack over his Healthcare Bill, because had it passed, it would have caused chaos, and led to massive rises in health insurance costs for millions of those who actually voted for him, and the withdrawal of health insurance for millions more.  Hard reality, would soon have led those supporters to sober up, smell the coffee and ditch the Donald.

In places where people have had experience of him in the past, some of those illusions have already been shattered.  In Atlantic City, for example, Trump made big promises, like those he has made to the people of the US as a whole.  He took over a number of big Casinos, but instead of the area flourishing, it went backwards, whilst Trump stripped money out of the Casinos, before disappearing.

Its the same kind of asset stripping that was seen with BHS in Britain under Phillip Green.  Now it seems that Trump has his sights on a bigger asset to strip - the US itself no less.  He has already appointed members of his own family into this new empire.  We can only hope for the American people that having asset stripped the country, and left yet another venture in bankruptcy, Trump does not follow the example of Phillip Green who sold on the BHS for a pound, and sell on the US to Putin for a dollar.

Theories of Surplus Value, Part I, Chapter 4 - Part 19

6. Advocates of Smith’s Views on Productive Labour. On the History of the Subject

(a) Advocates of the First View: Ricardo, Sismondi

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

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

Ricardo also argues that it is better for workers if capitalists and landlords spend their revenue on hiring “unproductive labourers” than that they spend it on the purchase of luxury commodities. If they buy the latter then, once these commodities have been consumed “and there would be an end of them”, no more labour would be employed. However, Ricardo continues, if the revenue were spent on hiring menial servants, this would increase the demand for labour. 

“As the labourers, then, are interested in the demand for labour, they must naturally desire that as much of the revenue as possible should be diverted from expenditure on luxuries, to be expended in the support of menial servants” ([David ] Ricardo, [On the] Principles [of Political Economy, and Taxation,] third edition, [London,] 1821, pp. 475-76).” (p 177)

Marx does not challenge this view here, but its not at all clear that Ricardo is correct in this argument, for the reasons Marx has set out previously. If revenue is spent simply on hiring a cook, to prepare a meal for me then once I have spent that money it is gone. It is not reproduced. Unless I have some more revenue I have no means of employing the cook to produce further meals. The commodity they supply, the service of cooking a meal, has gone just as much as is any other commodity I buy, such as some luxury clothes. Ricardo does not seem to take into consideration that in buying say an expensive suit, this too created a demand for labour as with hiring a cook.

The tailor is added labour here, as is the labour of the weaver, who produces the cloth, the spinner who produces the yarn, the farmer who produces the cotton or wool, the machine maker who produces the loom, and the spinning machines and so on.

All of this additional labour is demanded because the revenue is expended upon buying a suit, which increases the demand for all these other commodities, and the labour required for their production. In hiring the menial servant, the revenue merely enables that worker to reproduce their labour-power, but adds nothing to capital accumulation. However, in buying a luxury suit, the revenue enables the surplus value of the tailor to be realised, so that his capital can be expanded. This expansion of capital thereby creates the condition not only for the existing labour to be reproduced, but for a demand for additional labour to be created.

Northern Soul Classics - Reaching For Something I Can't Have - The Marvellettes

Friday, 24 March 2017

Friday Night Disco - Girl, Why You Wanna Make Blue - The Temptations

Defend Scots Democratic Rights - Part 5 of 6

What we have are two competing nationalisms, confronting each other. We have the Scottish nationalism of the SNP being confronted by a Popular Front comprising the Tory Party, Labour Party and Liberal Party that is promoting English nationalism in opposition to it, wrapped up in the clothes of Brexit. Socialists should give no support or succour to the illusions fostered by either, but should work for the unity of the working-class on the widest, and deepest possible basis. That in itself poses a problem, when the immediate consequence of demanding that the 5.25 million Scots workers remain united with the 53 million workers of England, within the confines of the British state, is to demand that they simultaneously thereby become separated from the 450 million workers of the EU, including the nearly 5 million workers in Ireland. In that respect, only, the nationalism of the SNP is at least, more progressive and outward looking, than the purely Little Englander nationalism of the English Popular Front, which looks only inwards, and backwards.

As I have written recently, this is further complicated by the fact that the British state itself is moving backwards and towards disintegration, whilst the EU is moving forwards and in the direction of a more extensive and intensive integration. The EU is being driven by the logic of social-democracy, and the objective requirements of socialised capital, whilst English policy is being driven by conservatism, and an attempt to turn back the clock, based upon the ideas of mercantilism and colonialism, and the antediluvian forms of capital that underpin it.

The rational solution here would be, not for Scotland or Northern Ireland to become independent from Britain, but for England to become independent from Britain, a possibility that is not at all impossible were it the case that all nations within the union were actually equal. It would be quite rational for England to leave Britain simultaneously with leaving the EU, enabling a Britain of Scotland, Northern Ireland, and Wales if it chose, to remain in the EU.

Had England actually negotiated, on an equal basis, with the governments of Scotland, Wales and Northern Ireland, that is a solution that could have been agreed upon. Theresa May's argument is nonsense when she tries to claim that the SNP's demand for independence, so as to hand sovereignty back to Brussels, is muddled. If I put my money in Bank A, because I believe it is the best place for it, if B comes along and steals that money, there is nothing muddled or irrational about me then trying to remove it from B's thieving grasp, so as to put it back in Bank A, where I wanted it to be in the first place! What would be irrational would be to allow B to simply get away with their act of theft.

It is also nonsense for May to insist that Scots can only hold a referendum after Britain, and thereby Scotland, has been taken out of the EU, thereby necessitating Scotland having to reapply for EU membership. One option would be for Scotland, Wales and Northern Ireland to hold referenda jointly calling for England to be expelled from the Union, thereby enabling the other nations to remain inside both Britain and the EU.

Theories of Surplus Value, Part I, Chapter 4 - Part 18

As capitalist production extended to cover all aspects of life, and all aspects of life was geared to facilitate the accumulation of capital, so this provided the basis for the apologists to claim that anyone engaged in any activity was in some way a productive labourer. In this way, all of the restrictive monopolies and absurdities of feudal society and its state were replicated by the bourgeois state.

An example, in that respect, is provided by healthcare. For Smith, and the early industrial capitalists, the role of a doctor was unproductive, and a cost to production, because it is only required due to “physical infirmities”. In other words, rather than adding something positive, it is simply something correcting some existing imperfection. The goal was then to minimise this cost. The best way of minimising the cost was to avoid the imperfections to begin with, which is one reason the industrialists placed emphasis on temperance. But, modern bourgeois society places much less emphasis on the prevention of ill-health, and instead spends tens of billions on providing remedies for sickness, after it has arisen. The companies that sell these expensive cures, hospitals, machines, and so on make billions in profits from doing so, and nothing from people enjoying good health. The bureaucrats who earn huge salaries from running the hospitals and health systems, only exist on the basis of providing such healthcare, and would lose their raison d'etre if instead people fell sick in far smaller numbers to begin with.

As Brecht put it.

When we come to you
Our rags are torn off us
And you listen all over our naked body.
As to the cause of our illness
One glance at our rags would
Tell you more. It is the same cause that wears out
Our bodies and our clothes.

The pain in our shoulder comes
You say, from the damp; and this is also the reason
For the stain on the wall of our flat.
So tell us:
Where does the damp come from?

A Worker's Speech To A Doctor – Berthold Brecht

Thursday, 23 March 2017

Defend Scots Democratic Rights - Part 4 of 6

Scotland clearly is not the equal of England, within the British state. It is Westminster that collects the vast majority of taxation and other forms of revenue, and then allocates it to the devolved parliaments and regions etc.; it is England that has the overwhelming majority of MP's in the British Parliament, so that, even with the SNP holding all but three of the Scottish seats, at Westminster, whilst the Tories hold only one, it is the writ of that English Tory government that holds sway across Scotland.

And that inequality has been demonstrably marked, when Tory English nationalism sought to assert itself over Brexit. When Scotland held its 2014 independence referendum, 16 and 17 year olds were rightly given the vote. Had they also been allowed to vote in the EU referendum, a majority for Remain would have resulted, but the English Tory government denied 16 and 17 year olds the vote, not just in England, but in Scotland too.

When the Scottish independence referendum took place, the Westminster parliament insisted on its right to determine the basis on which it was held, but at least it accepted negotiation over those terms. No such negotiations with the Scottish Parliament, Welsh Assembly or Northern Ireland Assembly was allowed over the EU referendum, or on the terms of Brexit, however much the Tories prattle about the dialogue of the deaf they undertook, as a cover for such negotiations. They can refer to the vacuities that May included in her Lancaster House speech, but none of those twelve principles were even included as commitments in the Brexit Bill!

If the nations of Scotland and Wales, and the people of Northern Ireland, were to have equal rights to England, in relation to the EU, the referendum should have recognised them from the start, so that they could not be wrenched out of the EU against their will. But, England utilised its dominance over those other nations to impose its terms, and to assert its privileged position within the union, to override the democratic wishes of those other nations.  To claim that the Scots have proportional rights, as part of a unitary state, is itself to admit that they do not have equal rights, because political rights are not divisible.  Scotland cannot be in or out of the EU, in proportion to the size of its vote, it can only be either in or out, just as you cannot be a little bit pregnant.

Moreover, even in terms of the process following the referendum, the English nationalists, of the Tory Party, in Westminster, have imposed their authority in defiance of the democratic rights of Scots. Article 50, even according to the promises given by the Tory government, should only be triggered after agreement with the Scottish Parliament and Welsh and Northern Irish Assemblies, has been reached, on the terms of the separation. But, no such agreement has been reached, and its clear that the Tory government had no intention of reaching any such agreement. The fact that Labour collapsed into English nationalism (also grotesquely symbolised by its use of the flag of St. George on its election leaflets in the Stoke Central by-election) in lining up with the Tories' Brexit Bill, facilitated the Tories in pursuing such a disregard for these democratic rights.

The Scottish government had proposed a series of principles for such an agreement, and those principles, such as continued membership of the single market and customs union, and so on, were principles that Labour itself had originally claimed were its own red lines, for any triggering of Article 50. Yet, Labour has not only surrendered itself, in relation to those principles, but now does not even offer any support to the Scottish government, or the Scottish people, who voted to remain in the EU, in insisting on those principles.

Theories of Surplus Value, Part I, Chapter 4 - Part 17

5. Vulgarisation of Bourgeois Political Economy in the Definition of Productive Labour

The polemics against Smith's distinction between productive and unproductive labour were mostly undertaken by the second rate economists and vulgar apologists. It wasn't difficult to see the motivation behind these polemics. In its growth, bourgeois political economy, like the bourgeoisie itself, is revolutionary, in setting itself up against all of the restrictive monopolies and absurdities of feudal society.

The bourgeoisie has no reason to wish to see its profits eaten up in rents paid to landowners or in taxes paid to a bloated bureaucratic feudal state, or payments to any of the other lackeys and functionaries associated with it. But, all of these individuals and functionaries, having held positions of high status for generations, are not likely to sit quietly by whilst their position in society, and the lifestyle to which they have become accustomed is called into question.

People of such wealth and status are in a good position to hire apologists to fight their corner.

“The great mass of so-called “higher grade” workers—such as state officials, military people, artists, doctors, priests, judges, lawyers, etc.—some of whom are not only not productive but in essence destructive, but who know how to appropriate to themselves a very great part of the “material” wealth partly through the sale of their “immaterial” commodities and partly by forcibly imposing the latter on other people—found it not at all pleasant to be relegated economically to the same class as clowns and menial servants and to appear merely as people partaking in the consumption, parasites on the actual producers (or rather agents of production). This was a peculiar profanation precisely of those functions which had hitherto been surrounded with a halo and had enjoyed superstitious veneration. Political economy in its classical period, like the bourgeoisie itself in its parvenu period, adopted a severely critical attitude to the machinery of the State, etc.” (p 174-5)

All of those that were not involved in some actual production of commodities “... are regarded by Adam Smith, as by the industrial capitalists themselves and the working class, as incidental expenses of production, which are therefore to be cut down to the most indispensable minimum and provided as cheaply as possible.” (p 175)

But, once the bourgeoisie has established its own hegemony, it reproduces, “in its own form everything against which it had fought in feudal or absolutist form.” (p 175) But, also economists representing the interests of one or another group came forth to declare that some other group was unproductive.

Ricardo, representing the industrial capitalists, came forth to declare that the landlords were unproductive; Carey declared the merchants to be unproductive; and the capitalists themselves were declared unproductive.

“Many intellectual workers seemed inclined to share the scepticism in regard to the capitalist.” (p 176)

This was only likely to increase, as those intellectual workers took on the role of functioning capitalist, and as with the worker owned co-operatives, the distinction between the wages of supervision and the profit of enterprise became ever more apparent, as well as ever wider. That was sharpened itself as the workers themselves developed their own critique of the unproductive labourers, and as public education expanded, thereby reducing the difference between the wages of the functioning capitalists and other workers.

“It was therefore time to make a compromise and to recognise the “productivity” of all classes not directly included among the agents of material production. One good turn deserves another; and, as in the Fable of the Bees, it had to be established that even from the “productive”, economic standpoint, the bourgeois world with all its “unproductive labourers” is the best of all worlds... Both the do-nothings and their parasites had to be found a place in this best possible order of things.” (p 176)

Wednesday, 22 March 2017

Defend Scots Democratic Rights - Part 3 of 6

Labour seems intent on self-destruction, snatching defeat from the jaws of victory. Having won the leadership, and grown the party to half a million strong, Corbyn, McDonnell and Momentum have refused to organise to replace the old Blair-right/soft-left MP's (as witnessed clearly in the Stoke Central by-election, for instance), and party apparatus, and have allowed themselves to become captives of it. Not only have they lined up with the Tories to push through the reactionary policy of Brexit, but they are now lining up with the Tories attempt to deny the democratic right of self-determination for the Scots. The Blair-rights have no need to rush now to remove Corbyn and McDonell, as they are getting them to do their bidding with the minimum of pressure applied to them, and can simply wait for the steady drift away, and demoralisation of the newly acquired party members, and the collapse in failure of the existing leadership.

Corbyn was quite right, a week ago, to say that another Scottish independence referendum would be quite alright. In fact, Gordon Brown, at the weekend made an almost identical comment that if the Scottish parliament voted to hold such a vote, it would be quite wrong for Westminster to try to deny it that right. To say so does not in any way commit Labour itself to calling for such a referendum. In fact, there are very good reasons for socialists not calling for a referendum now, just as there were before 2014, and for socialists arguing against a vote for independence in any such referendum.

But, it is quite different to say that socialists will not call for such a referendum than to say that if Scots themselves demand such a referendum, socialists will oppose them being granted that democratic right. Yet, within hours of Corbyn making his perfectly reasonable comment, Blair-right and soft-left MP's and MSP's were decrying it, and as has all too often been the case, Corbyn retracted, leaving Labour now once more wedded to the position of May's reactionary government, and its authoritarian stance of denying democratic rights to the people of Scotland, as it tried to do in relation to Parliament, in pursuance of its policy of hard Brexit.

Lenin wrote,

“The Social-Democrats will always combat every attempt to influence national self-determination from without by violence or by any injustice. However, our unreserved recognition of the struggle for freedom of self-determination does not in any way commit us to supporting every demand for national self-determination. As the party of the proletariat, the Social-Democratic Party considers it to be its positive and principal task to further the self-determination of the proletariat in each nationality rather than that of peoples or nations. We must always and unreservedly work for the very closest unity of the proletariat of all nationalities, and it is only in isolated and exceptional cases that we can advance and actively support demands conducive to the establishment of a new class state or to the substitution of a looser federal unity, etc., for the complete political unity of a state.”

That is why I opposed the demands of liberals for the creation of a new class state in Kosovo, for Tibet and so on, and why I opposed Scottish independence in 2014.

But, Lenin also distinguishes the priority for socialists in the “oppressor” nation to those in the “oppressed” nation.

“People who have not gone into the question thoroughly think that it is “contradictory” for the Social-Democrats of oppressor nations to insist on the “freedom to secede”, while Social-Democrats of oppressed nations insist on the “freedom to integrate”. However, a little reflection will show that there is not, and cannot be, any other road to internationalism and the amalgamation of nations, any other road from the given situation to this goal.” 

Now, of course, as I described back in 2014, Scotland is not an oppressed nation, vis a vis England. For the last 300 years, Scotland has been an integral part of the British state, and acted as an imperial power, in that vein, during all that period. Yet, the general principle, described by Lenin, still applies.

English socialists emphasise the right of Scotland to secede, even if they argue against it doing so, whilst Scottish socialists should emphasise the importance of integration and class unity. Moreover, as Lenin describes in relation to the situation in regard to Sweden and Norway, the existence of oppression is not decisive in this regard.

“Until 1905 autonomous Norway, as a part of Sweden, enjoyed the widest autonomy, but she was not Sweden’s equal. Only by her free secession was her equality manifested in practice and proved (and let us add in parenthesis that: it was this free secession that created the basis for a more intimate and more democratic association, founded on equality of rights). As long as Norway was merely autonomous, the Swedish aristocracy had one additional privilege; and secession did not “mitigate” this privilege (the essence of reformism lies in mitigating an evil and not in destroying it), but eliminated it altogether (the principal criterion of the revolutionary character of a programme). 


Devolution, and the further autonomy that Gordon Brown has proposed, mitigates, the privilege that England possesses over Scotland, but it does not eliminate it. And, there is no doubt that England does possess privileges compared to Scotland, and nor is there any doubt that, under Theresa May, aided and abetted now by Labour, the guiding principle of the Westminster parliament, is English Nationalism designed to defend and extend those privileges, in pursuance of Brexit, and English particularism.

Theories of Surplus Value, Part I, Chapter 4 - Part 16

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

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

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

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

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

Smith's opponents disregarded his first definition and concentrated on his second, with all of the contradictions in it highlighted by Marx above.

“And their attacks were made all the easier for them by their insistence on the material content of the labour, and particularly the specific requirement that the labour must fix itself in a more or less permanent product. We shall see in a moment what it was that particularly gave rise to the polemics.” (p 173)

Marx quotes Smith's comment that the great merit of the Physiocratic system was that it represented the wealth of nations as consisting “... “not in the unconsumable riches of money, but in the consumable goods annually produced by the labour of the society”( [Wealth of Nations, O.U.P. edition, p. 299], [Garnier] t. III, l. IV, ch. IX, p. 538).” (p 173)

Here, Smith's second definition is clearly in view, as wealth is defined only in terms of these physical commodities – consumable goods.

“The definition of surplus-value naturally depended on the form in which value itself was conceived. In the Monetary and Mercantile systems it is therefore presented as money; by the Physiocrats, as the produce of the land, as agricultural product; finally in Adam Smith’s writings as commodity in general.” (p 173)

For the Physiocrats, value is merely use value, whereas for the Monetary and Mercantile schools it is pure exchange value – money. Smith combines both use value and exchange value as contained in the commodity, “... so all labour is productive which manifests itself in any use-value, any useful product.” (p 174)

Smith thereby goes beyond the Physiocrats and restores value – labour-time – as central to bourgeois wealth, but without its fantastic form, as it appears for the Mercantilists, as gold and silver. By re-establishing value as labour, Smith demonstrates that,

“Every commodity is in itself money.” (p 174)

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

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

Marx concludes this section with a quote from Adolphe Blanqui's Histoire de l’économie politique, commenting on Smith.

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

Tuesday, 21 March 2017

Defend Scots Democratic Rights - Part 2 of 6

The Tory government is more and more appearing as an elected dictatorship, whilst Labour seems intent on committing political suicide. The Tories attempt to deny the Scottish people the democratic right of self-determination, and Labour's alignment with the Tories over the issue, is the latest example.

As I wrote recently, May's government shares many features with that of Trump, Putin, Erdogan and Netanyahu, as well as with the right-wing populism of Le Pen, Wilders and others. This right-wing populism, based on conservative social forces, is acting neither in the interests of capital nor labour. That is one reason it has to resort to authoritarian methods. The Tories, for example, did all in their power to prevent Parliament having any say in how the government implemented Brexit. When the courts, insisted that the government was acting illegally, and insisted that it operate constitutionally and in conformance with such basic democratic principles, a wave of conservative hysteria was unleashed against the judges, just as Trump has done in the US, when the legality of his actions have been challenged.

What has facilitated this conservative response has been the appalling position adopted by Labour, which stands in contrast to the wave of popular protest and opposition to Trump that has been built up in the US, and the oppositional stance to Trump and the Republicans that Democrats have adopted in Congress and other parliamentary forums. Corbyn originally put forward the correct approach, which was to argue that socialists would fight for a Remain vote, whilst giving no support for the existing capitalist limitations of the EU. We seek to be in the EU, as the starting point for building European workers unity, and creating a Workers' Europe.

Its true that Corbyn did campaign extensively during the referendum, contrary to the accusations of the Blair-rights and Tories, but, for a party that proclaims its intention of developing a social movement, the referendum should have been the opportunity to launch a massive Europe wide campaign for such a perspective, complete with regular large street demonstrations and so on, bringing together socialists and workers movements across the continent.

After the referendum, Corbyn also correctly set down a series of red lines, of principles around defending membership of the single market, customs union and acceptance thereby of the right of free movement, without which Labour would oppose triggering Article 50. But, as with so many other red lines and principles, the Labour leadership soon abandoned them under pressure.

Brexit is against workers' interest, and so as a matter of principle, Labour should oppose it, but even within the context of the argument it presented, of respecting the referendum result, it should have refused to vote for the Brexit Bill without its amendments. Signalling its surrender in advance, let alone its failure to mobilise any kind of mass social movement in defence of those principles, was an act of class cowardice, which also guaranteed that any such opposition would be demobilised, and that the potential even of generating support from Tory rebels would be undermined.

It might have been thought that Labour would have learned its lesson, in that regard, from the last Scottish referendum. By lining up alongside the Tories, in that referendum, Scottish Labour was destroyed, opening the door not only for the Tartan Tories of the SNP, but even resurrecting the long dead Scottish Tories, who pushed Labour into third place! Labour might also have learned from the experience of the Liberals in the coalition government of 2010-2015, or the similar destruction of the Dutch Labour Party, in the recent elections, following its lash up with the Dutch conservatives. But, it seems that the Stalinist influences operating now in the background of the Labour Party, have made such Popular Fronts the tactical order of the day.

Theories of Surplus Value, Part I, Chapter 4 - Part 15

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

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

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

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

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

“The materialisation, etc., of labour is however not to be taken in such a Scottish sense as Adam Smith conceives it. When we speak of the commodity as a materialisation of labour—in the sense of its exchange-value—this itself is only an imaginary, that is to say, a purely social mode of existence of the commodity which has nothing to do with its corporeal reality; it is conceived as a definite quantity of social labour or of money. It may be that the concrete labour whose result it is leaves no trace in it. In manufactured commodities this trace remains in the outward form given to the raw material. In agriculture, etc., although the form given to the commodity, for example wheat or oxen and so on, is also the product of human labour, and indeed of labour transmitted and added to from generation to generation, yet this is not evident in the product. In other forms of industrial labour the purpose of the labour is not at all to alter the form of the thing, but only its position. For example, when a commodity is brought from China to England, etc., no trace of the labour involved can be seen in the thing itself (except for those who call to mind that it is not an English product). Therefore the materialisation of labour in the commodity must not be understood in that way. (The mystification here arises from the fact that a social relation appears in the form of a thing).” (p 171-2)

In other words, it is the basis of commodity fetishism.

Monday, 20 March 2017

Defend Scots Democratic Rights - Part 1 of 6


  • The Tory government is adopting an increasingly authoritarian stance, as witnessed over its attempts to prevent Parliament having a say over Brexit.
  • Labour's strategy is being driven by Stalinist Popular Frontism, in support of the Tories to push through a policy of Brexit, and fantasies about some possible future ability to carry out a policy of building Social-Democracy in One Country.
  • Given the opposition to Brexit in Scotland and Northern Ireland, the policy is being increasingly implemented on the basis of promoting English nationalism, at the expense of the democratic rights of these other nations and regions.
  • English socialists should emphasise the right of Scots to self-determination, Scottish socialists should emphasise the need for unity of Scottish workers with the workers of other nations. No support for the illusions of nationalism.
  • Scotland is not an oppressed nation, but nor do the nations of Scotland or Wales, or the people of Northern Ireland occupy an equal status with England within the British state. Socialists should not content themselves with the reformist solution of merely mitigating the privilege that England has over the other nations.
  • Demanding the continuation of the unity of the British state as the means of preserving the unity of Scottish workers with English and Welsh workers, simultaneously means demanding that Scottish workers are wrenched away from their unity with 450 million European workers, including Irish workers, within the EU.
  • Britain is headed in an opposite and reactionary direction to the EU. That should be taken into account in determining, in practice, the position that socialists should take in deciding upon these two conflicting demands. The truth is always concrete.
  • For now, we should attempt to maximise the unity of the British working-class, within the British unitary state, and oppose its fragmentation. We should do so, on the basis of defending democratic rights and equal status within that state, and on the basis of a struggle to oppose Brexit, and to maintain the unity of the European working-class, and to strengthen it, in a fight for a Workers' Europe.

Theories of Surplus Value, Part I, Chapter 4 - Part 14

But, Smith is wrong to believe that, for production to expand, it requires more workers. The same effect can be achieved by an increase in the length or intensity of the working day. This need not involve an increase in wages. It would involve greater wear and tear of equipment but this would not be in proportion to the greater use, and would be offset to an extent, in the reduction of depreciation. There would be an increase in laid-out circulating constant capital, but, if the higher level of production resulted in the capital turning over more quickly, the advanced circulating constant capital may be unchanged, or even reduced.

Two examples illustrate these points. Suppose a capital employs ten workers who operate a machine with a value of £10,000. They work eight hours per day, and, at this pace, the machine loses 10% of its value in wear and tear to the produced commodity, so that is £1,000. However, the machine also loses £200 p.a. in depreciation. That is, irrespective of whether it is used or not, it loses this value, because of deterioration due to time. The most obvious manifestation of this is “moral depreciation”, where the value of the machine falls due to falls in its cost of production, or becoming outdated. In other words, simply as a result of the passage of time, productivity rises, so that the current replacement value of the machine falls, and new machines are introduced, making the current machine outdated.

The £1,000 of wear and tear is transferred to the value of its output, but the £200 of depreciation is not. It is a straightforward capital loss, just as if it had been damaged or stolen.

If the workers begin to work a shift system, with five on each shift, working eight hours, as before, the workers are now working more intensively, but no additional variable capital may be required to cover their wages. Similarly, the existing machine is being employed. In theory, it should now wear out in five years, rather than ten, and will transfer all of its value during this shorter period. In practice, this would not be the case.

However, even if it were, it would have reproduced its own value in five years rather than ten, so no additional capital is required for its replacement. But, in these five years the machine will only have lost £1,000 in depreciation, whereas previously it would have lost £2,000, over its lifetime. This represents a saving of £1,000 in depreciation costs, which is why capital always prefers to use fixed capital as intensively as possible.

Now, consider the situation whereby these workers and this machine process 10,000 kg of cotton in the year, into 10,000 kg of spun yarn. The cotton costs £5,000. But, now this 10,000 kg is spun in six months rather than a year. If the value of the yarn is say £14,000, this may comprise £5,000 of cotton, £1,000 wear and tear of machine, £4,000 wages and £4,000 profit.

This 10,000 kg is now sold after six months, and thereby reproduces this capital. As a result, no additional capital for the additional 10,000 kg. of cotton is required.

Sunday, 19 March 2017

For Want of a Nail

For want of a nail, a shoe was lost.  For want of a shoe, a horse was lost.  For want of a horse, a knight was lost.  For want of a knight, the battle was lost.  For want of the battle, a kingdom was lost.

The Tories have just been fined £70,000 by the Electoral Commission for their activities during the last General Election, and three by-elections.  The Electoral Commission criticised the Tories not just for the scope and nature of their activities in failing to report and misreporting their election expenses, but also for trying to frustrate the Commission's investigation into those activities, including the Commission having to get a Court Order to force them to hand over information.

The Electoral Commission's fine and report, gives some idea of what the Police in 12 different authorities have been investigating, which has now resulted in files being passed by the Police to the Crown Prosecution Service.  The background to the investigations is now fairly well known as a result of the work done over the last year by Channel 4 News.  Basically, it comes down to the fact that in a number of vulnerable seats, across the country, Tory Central Office, used its national resources to pay for campaigning work within the constituency.

Election rules separate out national election expenses from local election expenses.  The former should cover only activities related to the national party's general campaigning work.  Any activity specifically related to supporting a local candidate should be accounted for as part of the local expenses.  In a number of these cases, it appears prima facie that the Tories did not do that, and that expenses to cover national figures campaigning on behalf of local candidates were set against national expenses rather than local expenses.  In a number of cases, had the expenses been properly accounted for, it appears that the limit for local expenses would have been exceeded, potentially invalidating the election of the candidate.

Part of the problem the Tories faced was that in a number of seats they faced the potential of having their vote squeezed, by UKIP.  The other problem is that as a party on the ground, the Tories are effectively moribund.  They have few local activists, and those they have are largely old people, who are not able to get out and do a great deal of active campaigning.  To make up for that, the Tories had to ship in via their battle bus, younger activists, and national figures to undertake such campaigning in those seats where they were possibly going to lose.

Given the extent to which the government majority was slashed at the last election from around 70 for the Tory-Liberal government, to just 12 for the current government, the importance of winning these marginal seats is quite clear.  David Cameron, of course, never expected to win an outright majority.  He expected that he would continue to have cover from the Liberals in a new coalition government.  It was on that basis that he thought he was safe buying off the UKIP Fifth Column inside the Tory ranks, by offering an EU Referendum, and its also why he and Osbourne thought that they were safe trying to ambush Labour with the proposal to free Taxes and National Insurance rates.

But, of course, the Liberals had destroyed themselves by their coalition with a right-wing Tory government, and with their betrayal over Tuition Fees.  By pushing the Liberals into a corner over austerity, over Tuition Fees, over the Bedroom Tax, and thereby exposing the true conservative nature of the Liberals, Cameron helped to destroy them, and thereby to destroy his own left cover against his nationalist ultra-right wing.

But, had the Tories not won those handful of seats by means that now look to have been at the very least questionable, if not illegal, Cameron would not even have obtained a majority at all.  Moreover, having destroyed themselves the Liberals would not have been able to have come to his aid.  The scenario that Cameron tried to scare the electorate into rejecting of a Labour government, supported by the votes of the SNP,  would then have come to pass.

But, in that case, its unlikely that the EU Referendum would have taken place, and even if it had, the terms under which it would have been fought would have been quite different.  A referendum on the EU under a Labour government would have stressed the importance of staying in the EU, not for the reasons that Cameron proposed of weakening workers rights, and international solidarity, but the opposite, of the need to join with other EU workers to transform Europe.  As with the experience on Thursday in the Netherlands, where the pro-EU, pro-immigration D66, and Green Left parties secured significantly improved votes, whilst the right-wing governing party, lost seats, and the Labour party which had sucked up to it was crushed, following the experience of depasokification elsewhere.

If, the Tories MP's are disqualified following an investigation, it raises the question of the legitimacy of everything else that has happened since the election.  If those MP's were actually illegitimate then the Tories had no majority, and was itself not a legitimate government, which means that all of the legislation it has passed since, including the referendum legislation, and the Brexit legislation is also illegitimate.

Theories of Surplus Value, Part I, Chapter 4 - Part 13

Marx quotes Smith's statement in respect of the Physiocrats,

“When the patrons of this system assert, that the consumption of artificers, manufacturers, and merchants, is equal to the value of what they produce, they probably mean no more than that their revenue, or the fund destined for their consumption, is equal to it” (that is, to the value of what they produce)” (p 169) 

This is correct in respect of wages and profits. As Marx has set out elsewhere, the consumption fund is equal to the new value created during the year, and this is equal to the revenue as wages and profit, in the first instance, with rent and interest being only subdivisions of that profit, paid out by the capitalist to the landlord and money lender.

Smith goes on in his criticism of the Physiocrats.

“The annual produce of the land and labour of any society can he augmented only in two ways; either, first, by some improvement in the productive powers of the useful labour actually maintained within it; or, secondly, by some increase in the quantity of that labour.” (p 169)

This creates, Marx says, a double vicious circle for Smith. Firstly, for the annual product to be increased by higher labour productivity, according to Smith, itself requires an accumulation of capital.

The increase in the quantity of useful labour actually employed within any society must depend altogether upon the increase of the capital which employs it; and the increase of that capital, again must be exactly equal to the amount of the savings from the revenue, either of the particular persons who manage and direct the employment of that capital, or of some other persons, who lend it to them” ([ibid., p. 297], [Garnier], pp. 534-35).” (p 169)

In fact, Marx says, this is not true. Increased productivity from machinery requires intensive accumulation, i.e. the introduction of better, labour-saving machines, not extensive accumulation, where simply more of the same type of machine is rolled out.

“... it has been shown above that the increase of productivity in its origin always presupposes merely the concentration of capital, not the accumulation of capital.” (p 170)

The first vicious circle Smith lands in here then is that in order to bring about this accumulation of capital, the annual product must increase, but he has rested the increase in the annual product on the increased capital accumulation. The second vicious circle arises because his other means of increasing the annual product is for more labour to be employed, but for more labour to be employed, more capital must be accumulated to set it to work, but more capital can only be accumulated if the annual product is increased. Smith's solution to both circles is “savings”. In other words, the capitalist must transform a portion of their revenue into capital.

But, Marx had indicated towards the end of Capital III, that the idea of capital being created out of profits is wrong. Profits are received as a form of revenue, just as are wages, rent and interest. Capital is no more a direct consequence of profits, therefore, than it is the consequence of wages, or rent. However, it is also wrong to consider all of profits purely as revenue, because a portion of profits must always be set aside for accumulation, because capital by its nature must accumulate or die.

“The law of capitalist production requires on the contrary that a part of the surplus-labour, of the unpaid labour, performed by the workman should be transformed into capital. When the individual capitalist functions as a capitalist—that is, as a functionary of capital—he himself may think of this as saving; but it also appears to him as a necessary reserve fund.” (p 170)

Saturday, 18 March 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 12

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

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

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

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

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

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

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

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

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

Northern Soul Classics - Going To A Happening - Tommy Neal

Friday, 17 March 2017

Friday Night Disco - He's The Greatest Dancer - Sister Sledge

In memory of Joni Sledge who died this week.

Its Not Rocket Science

Donald Trump in his election campaign railed against the domination of Washington politics by Wall Street financiers.  He told millions of distressed workers and farmers across America that he was their saviour.

In office, the billionaire Donald Trump has stacked his government with more billionaire Wall Street financiers than you can shake a stick at.  In his first budget, the billionaire Donald Trump has proposed policies that will benefit other billionaires, that will provide huge tax cuts for billionaires dividend payments, and will provide huge government contracts for big US defence corporations, who will then make huge profits from those contracts, and pay out more in dividends to the Wall Street billionaires that own the majority of shares in them.  At the same time, the billionaire Donald Trump has proposed to introduce measures that will hit hard at all of those distressed workers and farmers that Trump promised he would come to save.

In the meantime, the other billionaires that the billionaire Donald Trump has appointed to his government have themselves put forward proposals that will assist the other billionaire financiers like themselves to make even more money as a result of their speculation on the financial markets, whilst putting at risk the livelihoods of millions of US workers.

Who would have thought it?  A billionaire appoints billionaires to support them, and those billionaires then push through policies to help billionaires in general make even more money, at the expense of ordinary workers, whilst screwing the workers and farmers they conned into voting for them the hardest.

Its one thing to have a healthy scepticism about the views of experts when you come to think about things and cast your vote; its quite another to disregard common sense, and to completely ignore the bleeding obvious.  After all understanding who billionaires are likely to favour in their policies, and who they are likely to screw to pay for it, is hardly rocket science, is it?

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

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

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

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

There are a number of points that need to be drawn out of this. Firstly, in Capital III, Marx had described the way that capital was concerned that labour-power should be reproduced in the most efficient manner. That was not just a matter of trying to reduce the value of wage goods, via such measures as the repeal of the Corn Laws, to reduce the price of food. It was also a concern for temperance, to ensure that workers did not use up their wages in the consumption of alcohol, which not only did nothing to reproduce labour-power, but actively damaged it.

The introduction of the capitalist welfare state addressed this problem, referred to above, in several ways. Firstly, by forcibly deducting a price for the provision of education, healthcare and other commodities required for the reproduction of labour-power, out of wages, via the tax and national insurance system, capital ensured that the decision over this allocation of workers wages was taken out of their hands. Workers now had no choice but to allocate the proportion of the wage fund that capital required of them, so as to reproduce their labour-power to the necessary standard of education, training and fitness that was optimal for capital accumulation.

Secondly, even if workers' wages fell, this same amount of revenue would continue to be allocated to health and education, to ensure that labour-power of the required standard was produced, and this was so even more, because it was the capitalist state which now had a monopoly over the provision of these commodities to workers. This provided a powerful ideological tool, also, for capital. Not only did the capitalist state thereby obtain a direct transmission belt for bourgeois ideas through the educational system, into the heads of workers, from birth, but the idea of this welfare state as something that was class neutral, or even “socialist” was fundamental to the socialising of the working-class into the acceptance of their subordinated role within the modern bourgeois social democratic state.

Similarly, by vesting this monopoly power in the hands of the capitalist state, for the provision of these commodities, it meant that it could regulate their provision for the optimisation of capital accumulation. At times, when capital required innovation, greater scope for academic freedom can be allowed, to encourage the development of the new ideas it can harness. At other times, when what is required are simply more drones, the emphasis switches to the mass production of automatons, whose educational experience is focussed on vocational training and so on. At times, when labour-power is in general excess supply, spending on the provision of education and health can simply be cut back, whilst the existing supply is used up.

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

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

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

Nor does it change anything that the payment for these commodities is made out of an insurance scheme to which workers contribute collectively, rather than by individual workers' payments. Nor does it change anything that the state may or may not realise the surplus value itself produced by these workers. If a cook, employed by the state, produces food for workers, and the meals are sold to workers at a price that does not realise the produced surplus value, then workers have obtained food below its value, and there is a consequent reduction in the value of labour-power. As a result, surplus value for all capitals employing those workers rises. The loss of surplus value for the state capital is then a direct gain of surplus value for all other capitals. This process occurs all the time, for all capitals, not just state capital, as surplus value is redistributed via the formation of prices of production.

Thursday, 16 March 2017

The Fed Rate Hike

Yesterday, the US Federal Reserve hiked its official interest rates by 0.25% points, as predicted.  Financial journalists, in discussing the consequences, continued to repeat the old orthodoxy that higher US rates would mean a higher dollar, and so problems for the US exporting its goods and services.  In fact, as I had suggested previously, rather than the Dollar rising after the rate hike, it fell.  The Dollar fell, yesterday, by around 1% against both the Pound and the Euro.

The reason, as I previously suggested, is that both the Bank of England and the ECB are seen to be standing behind the inflated financial asset prices, and particularly the government bonds.  The ECB continues its huge QE programme that is buying up the bonds of European countries, banks, and companies, whilst the Bank of England is seen keeping its QE programme at its current level, and holding its official interest rates pinned to the floor for as long as it can.

But, in terms of Hemingway's description of how people go bankrupt, we are still in the stage of "slowly at first", rather than yet the "then all at once" stage.  The US Federal Reserve is less reliable as a buyer of last resort of all these astronomically over priced financial assets, than are now the Bank of England or ECB, but it still has $4 trillion of those assets on its balance sheet.  Not only is it not selling any of them, it is when they mature actually still using the proceeds to replace them.  Janet Yellen has said that they will not start shrinking that balance sheet until the process of raising official interest rates has become more normalised.  So, far they have only increased official rates three times since the process began in 2015.

But, bond king Jeff Gundlach has suggested that the Fed may now go old school in its rate hike strategy.  That is, it may start to raise rates at each of its meetings, or at least the so called "live" meetings, where it holds a press conference following its meeting.  That would mean there would be many more rate hikes this year than the 2-3 the markets are currently expecting.

Listening to Yellen at the press conference yesterday a number of things materialised.  Two weeks ago, markets put only a 30% chance of a rate hike on the books.  By the time the meeting happened that had risen to a near 100% certainty.  The reason was a series of statements by Fed officials in the intervening period.  The Fed clearly wanted to signal to markets that something had changed, and it was entering a more serious period of rate hikes.

Yet, the Fed, like other central banks and participants in the global financial system, is scared stiff of throwing markets into a panic that financial conditions are being tightened too quickly.  The reason is, as I set out in the previous series of posts, that when speculators feel that the end of the road has been reached and that reality is imposing itself on interest rates, asset prices will crash.  It will be the "all at once" stage.  Central banks and financial institutions want to delay that for as long as possible, even if they cannot avoid it.

But, the fact is that they cannot any longer avoid it for much longer.  Yesterday, financial pundits were still talking about equity markets rising because of the magical properties of compound interest.  They seem to think, as Marx pointed out, that financial assets produce interest, like a magic money tree, in the same way that a pear tree produces pears.  They never ask where this interest comes from, what is the fund that enables this interest to be paid?

The fact is that interest/dividends can only be paid, and can only then become compound interest, because real capital produces profits.  If more interest/dividends are to be paid then more profit must be produced, as the fund out of which that interest is paid.  There is only two ways that this profit fund can expand.  Either more capital must be employed - extensive accumulation - which employs more labour-power, which produces more surplus value, and consequently more profit, or else the average rate of profit on existing capital must rise, which itself requires that the value of either constant or variable capital, or both is reduced, or the average rate of turnover of capital is increased, which in turn requires that social productivity rises, which means that the technological basis of production must be revolutionised.  In other words, it requires an intensive accumulation of capital. Either way, it requires an accumulation of capital.

But, what we have seen is an increasing proportion of realised profits going not to real capital accumulation, but to speculation, which drives up the financial asset prices, and thereby drives down the yields on those assets.  That is not to say that there has been no accumulation of real capital.  Clearly there has been.  But, all that this process requires for yields to fall, and the basis for remedying that to be undermined is that the proportional growth of real capital, and on the basis of it, profit, to be less than the proportional growth of financial asset prices, which in turn means the proportional growth of realised profits devoted to such speculation, rather than real capital accumulation.

That is what has happened, and has happened at a quickened pace in the last 9 years after the financial crash, as central banks underpinned financial asset prices with endless amounts of money printing.  But, in the end, you can't get blood out of a stone.  If real capital and so real profits do not grow fast enough, whilst asset prices based on the potential of interest/dividends paid out of those profits, grow astronomically, something eventually has to give.  As Andy haldane has pointed out, in the 1970's only about 10% of company profits went to pay dividends, yet today that figure is around 70%, even though yields have continued to shrink.

The total global financial assets are estimated at around $1,000 trillion, or about 14 times global GDP.  If that was to be put in the context of the price of stock markets it is the equivalent of a stock market being valued at 14 times the revenues of the companies listed on it.  And, of course, revenues are not the same as earnings.  Revenues are simply the total sales of the company, whilst its earnings are the profits it makes from those sales, i.e. sales minus costs.

If we assume a global rate of profit of say 10%, that would give profits of around $7 trillion, and would give a global p/e ratio of these financial assets to global profits of around 140.  The average p/e ratio for stock markets is considered to be around 12-14, and ratios over 24 are associated with periods just ahead of financial bubbles bursting.  Stock markets are considered cheap after such crashes when p/e ratios are around 8.  Some technology companies with sky high p/e/ ratios do have ratios running into hundreds, and some even into thousands, but often either the company is expected to have extremely high rates of growth, or else the valuation is yet again simply an example of speculation that sooner or later results in a bust.

With the level of financial asset prices at such a high level compared to global profits, and with no prospect that profits are going to rise sharply to correct that situation, a bust of asset prices is inevitable, and as set out in the previous post, the very mechanisms of the capitalist system ensure that, as capital will be driven to accumulate, and to drive up interest rates, whatever central banks do, and thereby to cause the capitalised value of those assets to fall sharply.

So, it was interesting, given Gundlach's comments about the Fed going old school, that in her comments at the press conference, Yellen seemed to counter that suggestion.  Asked about what normalisation might look like, she referred back to the period of rate hikes in 2004, when the Fed did begin to hike rates at each live meeting, and stated that she did not envisage a process as rapid as that.  The period after 2004, of course, saw US official rates rise to around 6%, ahead of the bursting of the financial bubble at that time, which led to the 2008 global financial crash.

We will see, but my instinct is that, as with Fed speak earlier in the year, which led markets to originally place only a 30% chance of a rate hike in March, until two weeks before, when they signalled it was a certainty, Yellen here is just trying to shape the market to deter the feeling as long as possible, that as Gundlach has said, there is going to be a sustained period of rate hikes, and speculators had, therefore, better get used to the idea that their fictitious wealth is going to shrink substantially over a sustained period.  Its obvious why Yellen and the central banks want to deter that message getting out to speculators for as long as possible, but its also clear why people like Gundlach, and Bill Gross, responsible for managing hundreds of billions of dollars of speculators money want to be able to get their clients out of such situations ahead of the crowd.

The period of "slowly at first" continues, but the period of "all at once", is fast approaching.