Carillion, Outsourcing and Conservative Protectionism (4), Who Pays?

Who Pays? 

Even if we assume that say workers, in Britain, immediately bear the cost, as a result of their falling wages leading to a diminution of their living standards, this still ultimately falls on capital. It can be seen in the relative differences in labour productivity. It takes a British worker 5 days to produce what a French worker produces in just 4 days. Surplus value is the difference between the value of labour-power, and the new value created by that labour-power. If the value of labour-power falls, as workers are pushed into a lower standard of living, or if wages fall below the value of labour-power for a sustained period, the consequence may well be a fall rather than a rise in the rate and mass of surplus value, because the new value created by this diminished labour-power might fall be a greater amount than the fall in wages. Marx, in Capital I, quotes Adam Smith, who had already recognised that wherever wages are low, the price of labour is high, by which he recognised that low wages encourage low levels of productivity. In a globalised economy, where the productivity of labour is measured on a global basis, that becomes ever more apparent. And, the productivity of labour on a national basis is not simply a question of its ability to produce greater quantities of commodities, but is also a function of its skill, its ability to use new technologies effectively, its ability to undertake skilled work in new industries and so on. The more wages are driven below the value of labour-power, the more a solution is sought in short term cuts in wages and living standards, including cuts in the provision of education and training etc., the lower the productivity of the labour, and the corresponding effect on the reduction in the rate of surplus value. 

There is then no reason why capital in general would simply acquiesce in PFI schemes that were overall inefficient, and thereby undermined the production of surplus value, and maximisation of the average annual rate of profit. Of course, that doesn't mean that such a situation might not still happen. In the US, the inefficiencies of state spending on armaments has been well documented, and its continuance has been attributed to the power of the military-industrial complex, whereby senior generals, admirals and politicians rotate seamlessly into top jobs, in the big armaments firms, and vice versa. In Britain, many of the top military personnel recognise that spending on nuclear submarines like Trident is a waste of money, and deflects from spending on conventional forces, and yet the lobbying power of those involved in the nuclear arms industry, including the trades unions whose members work in those industries, ensures its continuance, and the waste of billions of pounds.

Incidentally, the idiocy of free market apologists who argue that state functionaries cannot make the kind of business decisions that private sector executives do, is exposed by this reality.  Those executives, like Michael Edwards at British Leyland, or Iain McGregor, at the NCB, were the very same executives who before and after undertook the same function within private sector companies!  

If we want to take up the issue, then, it is on this basis of corruption, and incompetence that we should focus, not the question of whether the capitalist state should have financed itself by one method rather than another. But, to do so, it would also mean that the labour movement would have to take on the question of its limitations within the bounds of an economistic trades union consciousness. For example, it would have to take aim at the narrow immediate concern with the protection of jobs in the armaments industry, and that applies also to protectionism in terms of jobs in the public sector as opposed to private sector.  As Marxists, our focus should not be on one form of capital as opposed to another, other than being opposed to the turning back of socialised capital into private capital, but on what develops the means of production most effectively, and thereby creates the objective conditions required for the construction of socialism. 

Back To Part 3

Part 5 

Theories of Surplus Value, Part II, Chapter 12 - Part 33

As all production requires land in one way or another, for example, a factory must be built on land, a withdrawal of land will lead to a rise in prices. In order for agricultural/primary product prices to be high enough to cover the absolute rent, under conditions where the organic composition of capital is higher than the average, therefore, it would be necessary for the amount of capital invested in that sphere to be much lower than it would otherwise have been.

If we have industrial capital comprised

c 50 + v 50 + s 25,

and agricultural capital comprised

c 60 + v 40 + s 20

this only tells us the percentage make-up of the capital, and not the actual size of the capital. Suppose that in both cases these represent also absolute amounts of capital. In order for the price of industrial products to fall from £125 to £122.50, the supply of these products must rise by 10%. In that case, the actual composition of this sphere would be

c 55 + v 55 + p 12.5 = 122.5.

Assume that initially 125 units were produced, with a value of £1 per unit. Then now, 10% more units are produced, i.e. 137.5 units. Although the value of each unit remains £1, the price per unit falls to £0.91. Similarly, if 10% of capital migrated from agriculture it would be comprised of 

c 54 + v 36 + p 32.5 = 122.5.

Price per unit is then £1.09.

But, in that case, it would be obvious that too much capital had migrated, because the rate of profit in industry would be approximately 10%, whilst in agriculture it would be approximately 35%. An equilibrium point needs to be calculated based upon the average rate of profit per unit of output.

Similarly, therefore, if agricultural/primary product prices must be high enough to produce the average rate of profit, plus some amount of absolute rent, the supply of these products must be relatively curtailed, so as to bring about those higher prices. Less capital, therefore, must be employed in that sphere than were no payment of absolute rent required. At the same time, this capital is then invested in other spheres, which increases the supply of commodities in that production, reducing prices below what it would otherwise have been. The amount of capital that must move from one sphere to the other to bring about the required change in prices depends on the elasticity of demand in each sphere, but for that very reason, it may be that there is no equilibrium position that ensures that all of the invested capital can continue to be invested. In other words, more capital may have to move out of sphere I, to raise prices to the price of production, than can be absorbed in sphere A, without reducing prices below its price of production, or vice versa.

For ease of calculation, assume agricultural output (A) is 120 units, and industrial output (I) is 125 units, so that initially the price per unit of each is £1. In order that both spheres make the average rate of profit of 22.5%, the price per unit of I must be reduced, and the price per unit of A raised, and this can only arise if capital migrates from (A) to (I), lowering the supply of (A) and raising the supply of (I).

In each unit of I there is 0.4 c + 0.4 v + 0.2 s. In order to produce the average profit, the price must be comprised 0.4 c + 0.4 v = 0.8 k + 0.18 p. So, the price falls to $0.98 per unit. But, for the price to fall to this level, assume that supply must rise by 10% to 137.5 units. To effect that 10% more capital must be employed in I, so,

55 c + 55 v + 24.75 p = 134.75.

The £10 of capital that has migrated to I reduces the capital employed in A proportionally, so,

54 c + 36 v + 20.25 p = 110.25.

This is now represented by 108, rather than 120 units. So, the price per unit of A rises from £1 to £1.11.

The rise in supply of I to bring about the required fall in the unit price is a function of the elasticity of demand for I. This, in turn, dictates how much additional capital is required in I to bring about the increase in supply. The migration of this capital from A then causes a reduction in the supply of A. However, there is no connection between the price elasticity of demand in A to that in I. It may be though that if A and I are the only two spheres, this price elasticity of demand, is inversely correlated, but that would be to make the same error as with Say's Law. It assumes that these are, in fact the only two commodities, or spheres. As Marx demonstrates, in a money economy this is not true. Consumers always have the option of choosing the general commodity, money, over either A or I. 

A 10% increase in supply of I might be required to reduce the unit price of I to the price of production of £0.98, but the corresponding 10% fall in the production of A might result in the price rising a lot or a little, depending upon how demand responds to any change in price. For example, supply falls from 120 units to 108 units. If demand was 120 units, at a price of £1 per unit, this excess demand over the supply of 108 units will cause the price to rise. The price of production per unit is £1.11. However, it might be the case that even as the price rises from £1 per unit to £1.05 per unit, the demand, at this new price, quickly erodes. Demand for A at £1.05 per unit might fall to say 105 units, so that although the supply of A has fallen, it is now in excess supply over the new demand, and the market price would fall. In that case, it would be impossible for capital in A to sell its output at the price of production, and thereby realise the average rate of profit.

On the other hand, suppose that A produces and supplies the 108 units, but the demand for its output is relatively inelastic. In other words, the demand falls by a smaller percentage than the percentage rise in price. In that case, at the price of production of £1.11, the demand might fall, but only say from 120 units to 115 units, so that demand exceeds supply, pushing the market price higher. In that case, A would continue to make realised profits higher than the average. What is more were this the case it would impact I, because the continued expenditure on A would reduce money demand for I. But, then this indicates that the elasticity of demand for I is not autonomous but also a function of demand for A, and vice versa. In fact, in this respect, A and I are substitute goods, and mutually determine the elasticity of demand for the other, but not in isolation, because of the demand also for the money commodity, in competition with both.

Back To Part 32

Forward To Part 34

Carillion, Outsourcing and Conservative Protectionism (3), Class Divisions

Class Divisions 

And, of course, these divisions within the ruling-class are mirrored within the working-class too. That is why, so long as the working-class is restricted within the limits of a narrow trades union consciousness, workers employed in things such as cigarette production will always look to the threat to their jobs, and side with their employers against measures that might diminish the industry, and the same is seen in industries such as arms production, and so on. In other words, in terms of both the major classes, a general class interest is continually coming up against conflicting sectional interests. 

Ask the Carillion construction workers whether the PFI contracts, which, over the last twenty years, provided them with well paid, secure employment, were a good idea, and they would undoubtedly say yes. And, of course, given that the Carillion bosses benefited from those contracts they too would find them a good idea, as would the Carillion shareholders who obtained generous dividends out of the profits. Whether these contracts were beneficial to Capital in General, in the same way that the abolition of the Corn Laws was good for Capital in General, is up for debate. However, if they were as clearly bad for Capital in General as some have suggested, as opposed to being merely beneficial to a handful of contracting companies, the question would have to be asked, why then Capital in General did not act to assert its own interests? 

As I pointed out to Mike McNair, 

“Actually, I agree with Marx that ultimately taxes are a deduction from Surplus Value, and so if the Capitalist State makes a bad decision on how to raise funds for investment, it actually means it has to raise taxes on Capital in general, in order to subsidise Capital in particular!

If you do not hold to Marx's view then by the same token you can argue that private Capital can reduce workers real wages by raising prices. In that case you arrive at the same position. By that token if a firm decides to raise funds for investment by borrowing from a Bank, when it would have been cheaper to simply issue shares then this higher cost would mean it produces less widgets for any given amount of Capital, hence less for workers to consume at any given price!

But, Marxists do not seek to advise individual capitalists on the best way to make profits, by advising them to issue shares rather than take out bank loans, because choosing one method would result in more commodities at lower prices being produced!”

Of course, in the short term, capital can drive wages below the value of labour-power, and in the short to medium term, it can facilitate that process by extending consumer and other forms of credit to workers, so that the workers continue to consume at the old level, so as to enable the realisation of profits. And, indeed, since the late 1980's, that is what capital, particularly in the US and UK has done, which is why household debt has skyrocketed, and huge credit fuelled asset price bubbles have been inflated. But, that only defers the operation of the laws of economics, it does not overturn them. Eventually, the workers have to not only repay the debt, but also the huge amounts of interest accumulated on the debt, and that means that their consumption of commodities is cratered, with a consequent effect on all those capitals that have produced those commodities, and now cannot sell them. Alternatively, large numbers of workers default on their debts, which results in a collapse of asset prices, and rise in interest rates, or else the workers wages have to rise to a level where not only can they reproduce their labour-power, but also they can repay their debts and the accumulated interest. Either way, the cost ultimately falls upon surplus value. There is no reason, therefore, why capital in general would acquiesce in the provision of essential services and so on, by clearly inefficient means, because that, in the end, means that it is capital in general which bears that cost out of its profits. 

Back To Part 2

Part 4 

Theories of Surplus Value, Part II, Chapter 12 - Part 32

Apart from these conditions, absolute rent will exist, even if only one class of land is in existence, because landed property will not allow capital to use its land without the payment of such rent.

“In these circumstances an absolute rent will exist, even if only IV or III or II or I are cultivated. Capital can only win new ground in that solely existing class [of land] by paying rent, that is, by selling the agricultural product at its value.” (p 303)

I believe that this is true, but Marx then does not deal with the obvious contradiction here of what that implies when the value is less than the price of production. In other words, if agriculture/primary production becomes more capital intensive than industrial production, the organic composition of capital in agriculture/primary production would rise above the average.

If the average composition of capital is c 50 + v 50 + s 25 = 125, and in primary production it is c 60 + v 40 + s 20 = 120, primary production, would make less than the average profit of 22.5%, rather than producing a surplus profit out of which the rent could be paid. Capital would migrate from primary production to industrial production, until prices settled at the price of production of 122.5. However, at this price, primary production would still not produce any surplus profit, out of which to pay the absolute rent.

What is the answer to this contradiction? Quite simply it is that capital will only enter primary production when prices are at a sufficient level as to ensure a surplus profit out of which the absolute rent can be paid. In other words, landed property will demand an absolute rent, and although, like interest, this adds nothing to the value of output, it is a cost of production, which must be borne out of surplus value. If total surplus value is 45, and absolute rent is 15, then the surplus value available as profit is 30, giving an average rate of profit of 15%. Industrial products would then sell at £115, rather than £125, whilst primary products would sell at £130 rather than £120. Primary producers would pay £15 in absolute rent, leaving them with £15 profit, and thereby obtaining the average rate of profit.

The problem here then becomes what determines the absolute rent, as £15, rather than £10 or £20, or £5? So long as the assumption is that primary production has a lower than average organic composition of capital, and so produces surplus profit, the answer is simple, the absolute rent is equal to this surplus profit. However, once that assumption is dropped, the objective basis for absolute rent disappears. Marx has dealt with this kind of question previously, explaining the difference between the economic basis of rent, as opposed to the actual rent charged by landlords, as lease-rent, which may in actual fact, eat into what economically is normal profit, or even wages.

In reality, this is no different to the situation with the determination of the rate of interest, on the basis of the supply and demand for money-capital. Capital, like land, has no value, because it is not the product of labour. Yet, capital like land, has a price because both are use values that become commodities that are bought and sold. In general, the owners of land or capital will not give away the use value they own for free, whilst the buyers of these use values will not pay a higher price for them than would still allow them to produce the average profit of enterprise. If the rate of profit is high, this will cause the demand for capital and land to rise. If the supply of capital and land remains the same, the result will be that the rate of interest and rate of rent will rise. A higher rate of interest and rent will encourage more capital and land to be supplied, whilst acting to dampen demand.

If the rate of interest or rent rises beyond a certain point, owners of these use values will be led to increase their supply, whilst productive-capitalists, seeing the rate of profit of enterprise fall, will reduce their demand, causing supply to exceed demand and the rate of interest and rent to fall. Productive-capitalists, for example, may liquidate their own real capital, and use the proceeds to buy bonds or shares, or land to rent out. Similarly, as Marx points out in Capital III, in relation to the rate of interest, if too much money-capital is supplied it becomes depreciated, and the rate of interest falls. The owners of money-capital then turn themselves into productive-capitalists.

“It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.”

(Capital III, Chapter 23, p 378) 

The same applies to rents. If the supply of agricultural and primary products is such that their prices only provide the average rate of profit, so that not even absolute rent is possible, or even just very low levels of rent, landowners will stop renting out their land. They will either become productive-capitalists themselves, or they will utilise the land for other purposes, or even just leave it derelict, as Marx describes, and as Cahill described in the New Statesman article cited earlier. At times when landowners are more concerned to obtain capital gains from rises in land prices than to obtain rents, as has been seen with much of the property development in London, the incentive to simply keep such land and property unused, is that much greater.

Back To Part 31

Forward To Part 33

Carillion, Outsourcing and Conservative Protectionism (2), The Executive Committee of the Ruling Class

The Executive Committee of the Ruling Class 

A look at any large company demonstrates that the Boards of Directors, and executives, appointed to look after the interests of the main shareholders, do what every other bureaucracy does, which is to feather their own nests, whenever they have the opportunity. They organise remuneration boards, so that others of their ilk dominate them, and so each facilitates the payment of huge stipends way out of line with any value the individual executives might add to the business, along with assorted bonuses, share options and so on. The examples of Tyco, Enron, and so on, show how these practices can reach ridiculous levels, even bringing down the company, before the shareholders are able to step in and call those bureaucrats to heel. In the case of Enron, it threatened to also bring down a number of other companies. 

Marx and Engels describe the capitalist state as an Executive Committee of the ruling class, and like any Executive Committee, its role is to embrace all of the divergent views and interests. It should act in the interests of Capital in General, rather than any particular capital or group of capitals. But, in reality, at any one time, some particular capitals will be more dominant than others, their particular interests will carry more weight, within this Executive Committee, than others. In addition, in the reality of capitalist competition, each individual large capital, and every important sphere of capitalist production, will seek to press its interests over those of every other capital, and, thereby, of the interests of Capital in General. Indeed, its one of the functions of the capitalist state, as such an Executive Committee, to limit that tendency, whenever it has the potential of threatening the interests of Capital in General. 

In The Communist Manifesto, Marx and Engels describe society as dividing increasingly into two great class camps of the bourgeoisie and proletariat. That description of “class camps” of course, does not mean just two classes. It means that the two major classes, the bourgeoisie and proletariat are the poles around which all of the other social classes, and strata are drawn, at different times. And, as Marx describes when he looks at society, in practice, and at these classes in detail, nor does it mean that the classes themselves are homogeneous. As Marx describes, in Capital III, the capitalist class is divided into productive-capitalists, merchant capitalists, and money-lending capitalists. The first two of these, particularly as capital bursts asunder the fetters of the monopoly of private capital, and becomes socialised capital, have a shared interest in maximising the annual rate of profit, or more specifically the rate of profit of enterprise, from which both obtain their revenue, whilst the money-lending capitalists obtain their revenue from interest as a deduction from profits, which thereby sets the immediate interests of these two class fractions at odds. And again, as private capital gives way to socialised capital, and the main form of wealth of the private capitalists is held in the form of loanable money-capital, and in the form of fictitious capital, of shares, bonds and so on, so this division of interest between these two class fractions becomes intensified, with the money-lending capitalists sharing many common interests with the old adversary of the bourgeoisie, the landed oligarchy. 

As Engels points out, 

“The Reform Bill of 1831 had been the victory of the whole capitalist class over the landed aristocracy. The repeal of the Corn Laws was the victory of the manufacturing capitalist not only over the landed aristocracy, but over those sections of capitalists, too, whose interests were more or less bound up with the landed interest - bankers, stockjobbers, fundholders, etc... 

And the manufacturing capitalists, from the Chartist opposition, not to Free Trade, but to the transformation of Free Trade into the one vital national question, had learnt, and were learning more and more, that the middle class can never obtain full social and political power over the nation except by the help of the working class.” 

It is the basis of social democracy as the dominant form of bourgeois democratic state.

For Capital in General, there is always a requirement to create conditions that facilitate the maximisation of the rate of profit. That was the motivation behind the struggle against the landlords, for the repeal of the Corn Laws, not only as a means of reducing the value of labour-power, but also because corn, and other agriculture products formed a substantial component of the value of constant capital, and whose cheapening would act to raise the rate of profit. Yet, a reduction in agricultural prices, as a result of competition from cheaper imports, once the protection of the Corn Laws was removed, meant that not only would the landlords lose out as a result of lower rents, but agricultural capital would also lose out, as a result of lower prices, and profits. In the same way, capital in general sought to ensure that the wages paid to workers went to enhance the reproduction of labour-power, which is why they supported the Temperance Movement. Yet, if the workers heeded its calls to give up the demon drink, it would have spelled doom for the capital involved in brewing beer, gin and so on, as well as the capital employed in the provision of public houses. 

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Part 2

Theories of Surplus Value, Part II, Chapter 12 - Part 31

Marx points out that Wakefield in his colonial theory recognised the contradiction between the idea of developed capitalist production and the absence of landed property. If there is no landed property, and workers can simply occupy land, so as to be self-sufficient, where would the advanced capitalist production obtain the wage workers it required? In the US, as Marx describes elsewhere, this was indeed a problem that capitalist producers faced. Those producers had to pay higher wages than their European counterparts, because, as soon as US workers obtained sufficient savings, they took up their own small farms, and turned themselves back into self-sufficient peasant producers. It is one reason that slave labour was required.

“In colonial countries the law of supply and demand favours the working man. Hence the relatively high standard of wages in the United States. Capital may there try its utmost. It cannot prevent the labour market from being continuously emptied by the continuous conversion of wages labourers into independent, self-sustaining peasants. The position of a wages labourer is for a very large part of the American people but a probational state, which they are sure to leave within a longer or shorter term. To mend this colonial state of things the paternal British Government accepted for some time what is called the modern colonization theory, which consists in putting an artificial high price upon colonial land, in order to prevent the too quick conversion of the wages labourer into the independent peasant.”

(Marx – Value, Price and Profit) 

The situation today is somewhat different. With capitalism far more developed than it was in the 19th century, and living standards correspondingly higher, it is almost impossible for peasant producers to obtain the same kind of living standard as a wage worker, even a wage worker in a developing economy! Consequently, economic development today sees large numbers of peasant producers, and certainly their children, rushing to the towns and cities in search of that higher living standard.

“Two different aspects must be distinguished here.

Firstly: There are the colonies proper, such as in the United States, Australia, etc. Here the mass of the farming colonists, although they bring with them a larger or smaller amount of capital from the motherland, are not capitalists, nor do they carry on capitalist production. They are more or less peasants who work themselves and whose main object, in the first place, is to produce their own livelihood, their means of subsistence. Their main product therefore does not become a commodity and is not intended for trade. They sell or exchange the excess of their products over their own consumption for imported manufactured commodities etc. The other, smaller section of the colonists who settle near the sea, navigable rivers etc., form trading towns. There is no question of capitalist production here either.” (p 301-2)

So long as land is abundant, Marx says, there is always the possibility for workers to colonise it as self-sufficient producers, so that capitalist production could not become established.

“Everything the colonists of the first type produce over and above their immediate consumption, they will throw on the market and sell at any price that will bring in more than their wages. They are, and continue for a long time to be, competitors of the farmers who are already producing more or less capitalistically, and thus keep the market-price of the agricultural product constantly below its value. The farmer who therefore cultivates land of the worst kind, will be quite satisfied if he makes the average profit on the sale of his farm, i.e., if he gets back the capital invested, this is not the case in very many instances.” (p 302)

There is a different type of colony based on plantations, Marx continues. In these, production from the start is capitalistic and geared to the world market. But, although the production is capitalistic, it is only so in a formal sense, and the problem of the provision of wage-labour is overcome by the use of slave labour.

“The method of production which they introduce has not arisen out of slavery but is grafted on to it. In this case the same person is capitalist and landowner. And the elemental [profusion] existence of the land confronting capital and labour does not offer any resistance to capital investment, hence none to the competition between capitals. Neither does a class of farmers as distinct from landlords develop here. So long as these conditions endure, nothing will stand in the way of cost-price regulating market-value.” (p 303) 

Back To Part 30

Forward To Part 32

Carillion, Outsourcing and Conservative Protectionism (1) Marxist Advice To Capitalists

The collapse of Carillion has opened up the question of the outsourcing of government contracts, and the issue of the Private Finance Initiative, started under John Major, used extensively by Blair and Brown, and let rip under the Liberal-Tory and current Tory governments. But, in response to it, it has also led to some woolly thinking. 

Marxist Advice To Capitalists 

Some years ago, I responded to comments from Mike McNair, and others in relation to the question of PFI. In the post, I had argued that, it is not the job of Marxists to advise the capitalist state on the most efficient means of it raising the money-capital required to undertake its activities, and so we should not argue either for or against the use of PFI's. Mike commented, 

“Why oppose PFIs? The answer is simply that you get less school/ hospital/ railway for more money than by the state borrowing and building them, so that PFIs are just the state taking the difference in tax (which comes from the petty-bourgeoisie and working class as well as from the bourgeoisie) and handing it out to a small group of construction companies as a non-transparent subsidy.”

The collapse of Carillion - and a number of other companies, involved in such PFI contracts, appear to be in a similar situation - shows that, if that was the intention, it failed pretty miserably. As I pointed out to Mike back in 2009,

“The reluctance of many construction companies over recent years to enter into PFI's, also suggests that in reality there is not a great deal of subsidy hidden or otherwise, as was first envisaged either.” 

Looking at the situation today, with UK 10 Year Gilts trading at a yield of only 1.4%, it looks a no brainer to finance such schemes by issuing government debt. However, having done so, some of the construction schemes are so big that the construction project would still have to be let out to private companies. The inevitable cost overruns, running into billions of pounds, as has already happened with HS2, then falls on the government purse, rather than that of the private company. When Labour came to power, in 1997, even that was not so apparent. 10 Year Gilt Yields stood at between 7% - 7.5%, and even into the early 2000's, 10 Year Yields were standing at around 5%. So, the cost of borrowing, only then to still have to let the actual work out to a large construction company, and with all the risk put on the government's shoulders was not such an obvious choice. 

But, the important point here, as I also pointed out, in response to Mike is, 

“If it was then shown that actually using PFI WAS, a far more efficient means of providing schools, hospitals etc. or that privately run schools and hospitals were more efficient, and consequently that taxes could be reduced significantly, would you then using the basis of your argument here, be arguing fervently that the State SHOULD adopt such methods of funding its activities????” 

In other words, precisely by getting into the question of how the capitalist state should finance its activities, you end up getting distracted from the real issues. As I pointed out back then, there is no more reason for Marxists to advise the capitalist state to finance its activities by taxation, rather than borrowing, or by public borrowing rather than PFI, than there is for Marxists to advise a private capitalist to raise the money-capital they require by issuing shares, rather than bonds, or by a bank loan! Our job is not to advise capitalists on how to run capitalism more efficiently, but to argue for a different system to capitalism altogether. At best, we might want to point to such activities by individual capitalists, their representatives, or the capitalist state as examples of blatant corruption, of feathering of nests, and of rank incompetence, but even in respect of some of these, it is not necessarily clear where the actual truth lies.

Part 2 

Theories of Surplus Value, Part II, Chapter 12 - Part 30

Marx describes this situation by examining the scenarios set out in Table C. If the starting position is that of IV, then III-I cannot compete with it, if the market value is £1.846. If only 92.5 tons are required, IV can supply all of these on its own. IV invests £100 of capital to produce these 92.5 tons. The value of these 92.5 is then £120, or £1.297 per ton.

Table C

Class	C Capital £'s	T Output Tons	TV Total Value £'s	MV Market-Value £'s Per Ton	IV Individual Value £'s per Ton	DV Differential Value £'s per Ton	CP Cost-Price (price of production) £'s per ton	AR Absolute Rent £'s	DR Differential Rent £'s	AR in T Absolute Rent in Tons	DR in T Differential Rent in Tons	TR Total Rent £'s	TR in T Total Rent in Tons
I	100	60	110.769	1.846	2.000	- 0.153	1.833	0.769	0	0.416	0	0.769	0.416
II	100	65	120.000	1.846	1.846	0	1.692	10	0	5.416	0	10	5.416
III	100	75	138.461	1.846	1.600	0.246	1.466	10	18.461	5.416	10	28.461	15.416
IV	100	92.5	170.769	1.846	1.297	0.548	1.189	10	50.769	5.416	27.50	60.769	32.916
Total	400	292.5	540.000					30.769	69.230	16.666	37.50	100	54.166

That value is below the price of production for III – I. So, IV can sell all of its output at its value, and it will thereby produce a surplus profit of £10, which constitutes the absolute rent. That situation would change if demand rose above 92.5 tons, at a price of £1.297 per ton. In that case, IV could not satisfy all of the demand, which would mean that III could enter production. Similarly, assuming demand remains constant, if III attempted to enter production, their additional supply would represent overproduction, and the market price would fall, possibly wiping out any profit for III altogether.

Suppose there is just one class of land, Marx says. In that case, there is no differential rent. If there is unlimited land, relative to the capital and labour that seeks to use it, and if there is no landed property, then there is also no absolute rent. If the value of agricultural output is 60 c + 40 v + 20 s = £120, whilst the average rate of profit is 10%, so that the price of production is £110, capital will migrate to agricultural production in search of this higher rate of profit. The supply of agricultural commodities would then rise, and the market price of those commodities would fall as supply then exceeded demand. Capital would continue to to migrate into agriculture, so long as the surplus profits existed. Supply would continue to rise, and market prices fall until they reached the price of production of £110, at which point only average profits are made. In that case, there would be no rent at all.

“This is a tautology. For the existence of absolute rent not only presupposes landed property, but it is the posited landed property, i.e., landed property contingent on and modified by the action of capitalist production. This tautology in no way helps to settle the question, since we explain that absolute rent is formed as the result of the resistance offered by landed property in agriculture to the capitalist levelling out of the values of commodities to average prices. If we remove this action on the part of landed property—this resistance, the specific resistance which the competition between capitals comes up against in this field of action—we naturally abolish the precondition on which the existence of rent is based.” (p 301) 

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Theories of Surplus Value, Part II, Chapter 12 - Part 29

Ricardo assumes that there is no absolute rent. There are only two situations where it becomes normal for there to be no absolute rent. Either the organic composition of capital in agriculture must be at least as high as in the rest of industry, or else there must be oversupply of agricultural products so that the price falls to such a level that the least efficient producer sells at a price so far below the individual value that it wipes out the absolute rent.

In the first case, if the organic composition of capital in both agriculture and industry is say 80 c + 20 v, then the value of output, and price of production of the output would be 80 + 20 + 10 = 110. The value and the price of production would be the same, and so no basis for absolute rent would exist. That does not mean that differential rent would not exist. Some mines, farms etc. would continue to be more productive, so the individual value of their output would be below the market value of output for the sector, thereby giving rise to a differential rent. 

That situation did not exist, Marx says. But, what did exist, the relatively lower productivity of agriculture, was not what Ricardo assumed, which was a progressive absolute decline in agricultural productivity. In other words, that as less fertile land, mines etc. are introduced, the productivity in these new lands must be lower.

Ricardo assumed that the organic composition in gold and silver production was equal to the average. As seen previously, Ricardo defined this composition in terms of the relation of the fixed to circulating capital, not the constant to variable capital. Ricardo assumes that additional capital is only invested if the rise in demand causes a rise in market values. But, as Marx also sets out in Capital III, its incomprehensible why this should be necessary. Farmers do not cultivate more land, only because agricultural prices and profits rise, any more than a yarn producer only produces more yarn because yarn or textile prices are higher. Both, Marx says, expand their production in the expectation that demand for their products will be higher this year than last year.

“The mere existence of differential rent already proves that an additional supply is possible, without altering the given market-value. For IV or III or II would yield no differential rents if they did not sell at the market-value of I, however this may have been determined, that is, if they did not sell at a market-value which is determined independently of the absolute amount of their supply.” (p 300)

Consequently, if the market value remains constant, the very expansion of the market means that the producers, in satisfying that additional demand, will thereby expand their own mass of profits.

The only other situation whereby it becomes normal for there to be no absolute rent is where there is a perpetual oversupply of agricultural products which causes market prices to fall to the level of the individual price of production of the least productive capital. Under those conditions of oversupply, the more efficient producers would continue to push market prices down until demand was sufficient to ensure that they could dispose of all of their output. Again, that does not mean that these producers do not make surplus profit or pay differential rent. The individual value of their output continues to be below the market value, thereby producing surplus profit.

“If Ricardo assumes that this cannot be the case with I, then it is only because he presupposes the impossibility of absolute rent, and the latter, because he presupposes the identity of value and cost-price.” (p 300)

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Theories of Surplus Value, Part II, Chapter 12 - Part 28

If the composition of capital, in agriculture, were 50 c + 50 v, the value of its output would be 50 + 50 + 25 = 125. That means that, instead of being 10 above the price of production, it would now be 15 above it. Similarly, if the composition were 70 c + 30 v, the value of output would be 115, which would be only 5 above the price of production. Considering this, in relation to the tables, it would mean that, in Table A, the price per ton, for Mine I, would be £2.166. In Table A, I determines the market value. But, the price of production for I would still be £1.833 per ton, as before (Price of production is £100 capital plus 10% average profit = £110, which for 60 tons of output = £1.833 per ton). It continues to invest the same amount of capital; the average rate of profit is unchanged; and it continues to produce the same amount of output.

Table A

Class	C Capital £'s	T Output Tons	TV Total Value £'s	MV Market-Value £'s Per Ton	IV Individual Value £'s per Ton	DV Differential Value £'s per Ton	CP Cost-Price (price of production) £'s per ton	AR Absolute Rent £'s	DR Differential Rent £'s	AR in T Absolute Rent in Tons	DR in T Differential Rent in Tons	TR Total Rent £'s	TR in T Total Rent in Tons
I	100	60	120	2.00	2.00	0	1.833	10	0	5	0	10	5
II	100	65	130	2.00	1.846	0.153	1.692	10	10	5	5	20	10
III	100	75	150	2.00	1.600	0.400	1.466	10	30	5	15	40	20
Total	300	200	400					30	40	15	20	70	35

In Table A, the 292.5 tons of total output can all be sold at a market price of £1.833, equal to the price of production of I (Individual Price of Production £110/60 tons = £1.833 per ton). A different organic composition of capital, therefore, makes no difference in this case to that, but it does make a difference to the level of absolute rent, raising it by 50%, where the composition falls to 50:50, and reducing it where the organic composition rises to 70:30.

In the case of Table D, these changes have no impact on I, because the introduction of the new supply makes it impossible for I to pay absolute rent.

Table D

Class	C Capital £'s	T Output Tons	TV Total Value £'s	MV Market-Value £'s Per Ton	IV Individual Value £'s per Ton	DV Differential Value £'s per Ton	CP Cost-Price (price of production) £'s per ton	AR Absolute Rent £'s	DR Differential Rent £'s	AR in T Absolute Rent in Tons	DR in T Differential Rent in Tons	TR Total Rent £'s	TR in T Total Rent in Tons
I	100	60	110	1.833	2.000	- 0.166	1.833	0.	0	0	0	0	0.
II	100	65	119.166	1.833	1.846	- 0.012	1.692	9.166	0	5.000	0	9.166	5
III	100	75	137.500	1.833	1.600	0.219	1.466	10	17.500	5.454	9.545	27.500	15
IV	100	92.5	169.583	1.833	1.297	0.540	1.189	10	49.583	5.454	27.045	59.583	32.50
Total	400	292.5	536.250					29.166	67.083	15.909	36.590	96.25	52.50

The same is true if the composition of agricultural land is held at 60:40, but its assumed that the composition of industrial capital changes. If it becomes 70:30, then the price of production rises to 115 from 110. In that case, the difference with the value of agricultural output falls to 5 from 10. If the composition rises to 90:10 then the price of production falls to 105, and the difference with the value of agricultural production rises to 15. The impact on the level of absolute rent is then to cause it to fall in the first case, and to rise in the second. 

“All this would therefore be of no consequence to I D, however important it may continue to be for tables A, B, C, and E, i.e., for the absolute determination of the absolute and differential rent, whenever the new class— be it in the ascending or the descending line—only supplies the necessary additional demand at the old market-value.” (p 299)

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Theories of Surplus Value, Part II, Chapter 12 - Part 27

If the organic composition of capital for the whole of the agricultural output is 60 c + 40 v, then with a 50% rate of surplus value, the value of this output is 60 + 40 + 20 = 120. If the average rate of profit, in industry, is 10%, a capital of 100 should have a price of production of 110. If the agricultural product sells at its value of 120, it sells at 10 above the price of production, providing the basis for the absolute rent of 10. On the basis described, the composition of the industrial capital is 80 c + 20 v. In other words, agriculture employs relatively more immediate labour, signifying a relatively lower degree of productivity. That doesn't mean that this is true in every case. Some types of agriculture may have a higher organic composition. Marx refers to stock-raising. Similarly, some types of industry might have a lower organic composition than the average in agriculture.

But, Marx says, these particular cases do not determine rents. It is agriculture proper, and in particular the production of the means of subsistence, such as wheat, which determines rent. Capitalist production means that it is vegetable production, and not animal production which forms the largest element of the means of subsistence. In terms of quantity of production, and land usage, that remains true. The consumption of meat has risen significantly, and continues to rise, as more parts of the world industrialise, and living standards rise. However, the animals themselves have to be fed, and fattening animals requires even greater vegetable production than were those vegetables and cereals etc. fed directly to humans. Increased meat consumption, therefore, also requires more rather than less vegetable production. Similarly, growth has meant that the demand for land for residential, commercial and industrial uses has risen significantly. However, in terms of quantity of land use, it remains very minor, compared to agricultural land use.

In Britain, only around 10% of the land area is utilised as urban land; only around 1% is used for residential property (in fact, that is only half the land taken up by golf courses). The higher price of development land, compared to agricultural land, derives from the differential rents obtained on it, compared to agricultural land, which in turn are derived from the high value of the revenues obtainable from commercial and industrial use of the land compared to those of agricultural production.

At certain times, such as those from the 1980's, the blowing up of financial asset price bubbles can also inflate such rents, and development land prices. The creation of such property bubbles is itself facilitated by the concentration of land ownership into a relatively few hands, and by restrictions placed on land use, e.g. the Green Belt, in the UK. In Britain, in the 19th century, a study found that 90% of the land in Britain was owned by just 5% of the population. It is difficult to get hold of comparative data today, despite the existence of more extensive tax and land registry records, and computer systems. However, even after more than a century in the growth of home ownership, it remains the case that 90% of land ownership is in the hands of only 10% of the population, and the large majority of that ownership is concentrated in the hands of just 0.28% of the population, rather like the concentration of the ownership of financial assets. A 2001 article, by Kevin Cahill, in The New Statesman, recorded that whilst the majority of the population are burdened by various property, taxes, rural landowners were receiving a subsidy of around £83 per acre, amounting to a total subsidy of around £5 billion per year. He writes,

“With rare exceptions, ownership dictates how land is used. Those who now "hold" the bulk of the acreage of the UK are extremely hard to identify, almost entirely because of the defects in the land registries. But they are for the most part the descendants - the so-called cousinhood - of the great landowners of 1873. Among them are the current Duke of Buccleuch, with his 240,000 acres, the Duke of Northumberland, with 131,000 acres, the Duke of Westminster, with 129,000 acres, and the Prince of Wales, with 141,000 acres.”

Comparing these huge landed estates running into tens of thousands of acres, the average farm size, by comparison is just 220 acres, which gives some idea of the concentration of land ownership, by the remnants of the old landed aristocracy. Cahill reports that in Scotland, in comparison to the average £23,000 of subsidy received by farmers, the top 50 landowners obtained subsidies averaging around £300,000 per year, and with one receiving a subsidy of £1.2 million in 2009. Cahill also notes that,

“Behind the scare stories is a very simple financial fact: an acre of rural land worth £5,000 becomes an acre of development land worth between £500,000 and £1m once planning permission is obtained.”

Its no wonder, that this landed oligarchy seeks to maintain this monopoly, and to keep land locked up in the Green Belt, and off the market so as to both be able to continue obtaining these state subsidies, and so as to drive up the price of the residential land that is placed on the market. The convergence of interest between this landed oligarchy, which benefits from these high land and property prices, and the financial oligarchy that benefits from high financial asset prices, is then pretty obvious. Similarly, today around £9 billion a year is paid in subsidies to landlords, as Housing Benefits, as a direct result of the high price of housing, and low wages, a combination that Marx, 150 years ago pointed out always goes hand in hand. Cahill says of this coalition of interest,

“Most land in the UK held monopolistically by large landowners or estates follows the rules of what the American social economist Mancur Olson called "hidden coalitions". How these work in the UK and their impact on the housing market is very simply explained.

First, no one knows just how much land is available for development or from whom it is available. The result is that UK homes are both the smallest in Europe and the most expensive, with the land or site costing a vast proportion of the value of the dwelling. From the perspective of the 31 million people, or half the UK population, who pay direct taxes, what we are doing is in effect paying an inefficient business - the 325,000 "farmer" holders, or 0.5 per cent of the population - to keep hold of building land, further falsifying an already rigged market. The finer figures are worse. Only two-thirds of UK farms are owned; the other one-third is rented, mostly from the owners of the other two-thirds. In effect, the agriculture subsidy goes to the 0.36 per cent of the population that owns 70 per cent of the country.

If the 65,000 "farms" of under two acres are subtracted as economically meaningless, what you have is 50 per cent of the population, the taxpayers, paying 0.28 per cent of the population to hold the bulk of the country's landed assets and to make those plentiful assets scarce. The result is that the cost of a building site is two or three times what it should be for 70 per cent of the population. This is Britain's great property swindle.”

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