Tracking The Crisis of 2008 - Debt and Destruction

Debt and Destruction 

1987, was also a turning point. In the 1980's, economies like Germany had responded to the crisis of the late 1970's, and early 1980's, by effectively retooling, and investing in real productive-capital. It meant that Germany was able to maintain its position as the world's largest exporter until just a few years ago, when it was overtaken by China. China, and other emerging Asian economies had also used the opportunity to invest in real productive capacity. Whilst, obviously, the US and UK also invested in new technologies, their economies were more notably characterised, in the 1980's, by the process that became known as de-industrialisation. Whole swathes of traditional industries from coal mining, to steel production, ship building, and even some of those new industries that had developed after WWII, such as car production, were decimated, and in some cases entirely destroyed. 

The conservative social-democratic governments, particularly in the US and UK, rather like the shareholders in companies, came to believe that, rather than expanding the economy based upon production, and the expansion of revenues, it was possible to expand the economy instead by an expansion of paper wealth, i.e. by an inflation of the price of assets. The means of achieving this is through borrowing, whilst the inflation of those asset prices itself becomes the basis of further borrowing, as those assets form the collateral against which further borrowing is undertaken. Its known as a Ponzi Scheme, and always ends in a crash, because current prosperity is a delusion based upon this borrowing, whilst the borrowing itself is continually increased solely on the basis of an artificial inflation of the assets that comprise the collateral against which the borrowing is undertaken, rather than a corresponding rise in new value creation. Its why, as set out earlier, in the period 1950 to 1980, US GDP rose by twice the rise in the Dow Jones, but in the period 1980 to 2000, the Dow Jones rose by more than five times the rise in US GDP! Once it's no longer possible to inflate the price of the assets, the whole house of cards collapses, as happened, for example, with the Tulipmania, or the South Sea Bubble, or John Law's Mississippi Scheme, or the Railwaymania in 1847. 

The collapse of Lehman Brothers and other US Banks in 2008, followed on from the collapse of the US housing market that had been blown up via such a process in the preceding years, whereby the subprime mortgage market had been inflated by selling mortgages to people who had no chance of being able to repay them, but based solely on the idea that the price of the houses they were buying would continue to go up in a straight line, so that lenders would always be able to recover their loans, by selling the underlying assets. But, this same process was true in relation to the UK property market, the Irish property market, and the Spanish, Portuguese and Greek property markets, for example. Moreover, whilst the property market illustrates the problem, it is only a microcosm of the application of this approach by these conservative governments on a wider scale. 

For example, in the 1990's, companies took contribution holidays from paying into pension schemes, because, although yields were falling, and higher share and bond prices meant that contributions bought fewer of them, they argued that they could finance future pension liabilities by cashing in on the large paper capital gains they had obtained from the rising prices of those shares and bonds. Of course, the fallacy of that argument was shown as soon as those share and bond prices crashed, as they did in 2000 and 2008. It meant that the company pension funds were seen to have huge black holes, in their ability to pay out the pensions workers had contributed towards.

It has meant the state has had to step in to cover the capital deficiency, which was caused by companies taking pension holidays, and using liquidation of capital gains, rather than yields to cover current liabilities. Governments took a similar approach in their arguments to finance the building of large projects using PFI, and they similarly saw higher house prices as the means by which people could cover the cost of their social care in old age, and so on.  But, the idea that these asset prices, including house prices could ever only go up, should have been known to be nonsense, simply by looking at even recent history.  In 1990, after having been inflated, UK house prices collapsed by 40%, in a matter of months.  In Japan, in the early 90's, after its inflated asset markets collapsed, with the Nikkei Falling from around 39,000 to just 9,000, it also saw property prices fall by more than 50%, and in prime Tokyo locations by as much as a staggering 99%!

The fundamental contradiction can be summed up like this. Asset prices are the product of two things; the revenue produced by those assets, for example, rent on land, or interest on bonds, or dividends on shares; and the rate of interest. In order to keep asset prices inflated, and rising, low and falling interest rates are required. But, the rate of interest is itself a function of the economic cycle, and particularly of the long wave cycle. When economic activity rises sharply, the demand for money-capital begins to rise more quickly than the supply of money-capital, so interest rates rise. As interest rates rise, the capitalised value of assets falls. In order to prevent interest rates rising, therefore, its necessary to restrain economic growth, and so the demand for money-capital. Hence the application of measures of austerity after 2010. But, in restraining economic growth, and real capital accumulation, that also restrains the growth of profits, and it is from profits that the revenues – dividends, interest, rent – are derived, which are that second determinant of asset prices. It is also the source from which taxes are derived, and so, by constraining growth, it also constrains the potential growth in tax revenues, which the state requires to pay down its debts. That is why austerity could never work as a solution for Greece, and why all of the austerity imposed on the UK, still saw its debt, and debt to GDP ratio continue to rise after 2010. 

In, the period prior to the 2008 financial crash, politicians also attempted to restrain the conditions which lead to rising interest rates. In the 1960's and 1970's, the continual growth in the demand for labour-power saw wages rise, and that rise in wages resulted in a reduction in the rate of surplus value, and thereby a squeeze on profits. At the same time, the rise in wages, and the growth in the workforce together brings about a continual rise in demand for wage goods that firms are driven, by competition, to try to meet so as to increase their market share, and their mass of profit, even as their rate of profit from doing so falls. It means they have to borrow more to finance their expansion, pushing up interest rates, and thereby reducing asset prices. A look at the Dow Jones, in the period after 1965 up to the mid 1980's, shows that it fell in inflation adjusted terms, and this is typical for all asset prices during that period. 

In the early 2000's, as the demand for labour rose sharply, states attempted to prevent a similar rise in wages, and a similar reduction in the rate of surplus value. Faced with soaring costs of skilled labour, for plumbers, joiners, electricians and so on, for example, Britain encouraged 2 million EU migrants, the eponymous Polish plumbers, to come into the UK labour market. In March 2008, as UK petrol tanker drivers engaged in a short strike, for a 14% pay rise, Labour Chancellor of the Exchequer, Alistair Darling, appeared on Sunday morning TV to appeal for workers not to push for inflation busting pay rises, as I discussed at the time. 

But, the fact was, as discussed in that post, and several others at the time such as Tory Voodoo Economics, Why So Many Merchants of Doom, The Bums On Pews Indicator, and More News Contradicts Doom and Gloom, the global economy had continued to grow, despite the credit crunch that had begun in 2007, and which had led to the collapse of Northern Rock. 

The view that 2008 represented an economic crisis of capitalism is wrong, as indicated in those posts. It was a financial crisis centred in the financial markets, that had been astronomically inflated in the previous 25 years, as each time the bubble began to burst it was inflated again by central bank intervention, and by intervention by the state to divert potential money capital into financial speculation.

Fictitious Capital Eats Real Capital - Part 2
2007-2008 ECONOMIC BOOM AND A SEVERE FINANCIAL WARNING

Paul Mason's Postcapitalism - A Detailed Critique - Chapter 10(7)

Distributionism, Reformism and Economic Nationalism

The weakness of Paul's distributionist approach is again manifest when he says, 

“Now reimagine the coffee shop as a co-op, paying its workers well, ploughing profits back into activities that promote social cohesion, or literacy, or post-prison rehabilitation, or better public health. The important thing is to indicate – as clearly as the 'organic' label on the coffee does – what social good is being produced and who will benefit from it.” (p 270) 

Personally, I avoid organic produce, because after years of needing to watch the pennies, I have always preferred searching out value over virtue signalling. Many of Microsoft's highly paid workers have become millionaires. Its on the basis of paying their workers well, as they share in the company's performance, however, that they justify dismissing the lowest performing 5% of workers, each year, so as to keep up the company's level of performance. Moreover, if a deciding feature is to be wider social benefits, it's going to be difficult for any social enterprise to compete with the billions of dollars that the Gates Foundation provides for healthcare, and so on, in developing countries. When I was a councillor, one of the first places to call upon for money and support for various local projects was TESCO, which had a programme of providing money to support various schemes and projects in the town and around the store. 

In order to pay high wages, provide good conditions, and so on, its first necessary to be able to operate on a significant scale, so as to obtain all of the advantages of the economies of scale. That requires adequate production, and accumulation of surplus value. It remains the case, therefore, that the locus of strategy must remain primarily within the realm of production and not distribution. 

And the reformist/distributionist approach appears again when Paul says, 

“There's one change which anybody in charge of a state could implement immediately, and for free: switch off the Neoliberal privatization machine.” (p 273) 

First of all this skips over a whole period of time and development, in relation to the nature of the state itself, what it is, and what its for, and who controls it, let alone how that control was achieved. But, secondly, if this, as is implied, is still some kind of capitalist state, why worry about privatisation? The NCB was statised, so was BL and BSC, British Shipbuilders and so on. Did those workers, in the 1980's, for example, during the 1984-5 Miners' Strike notice any benefit? On the contrary, as Kautsky points out, the difference with these industries, run by the capitalist state, is that because they have the full power of that state behind them, they are more effective in exploiting and oppressing their workers than any privately owned company. 

Nor indeed is the crucial question, in relation to healthcare, whether it is provided by state, private or cooperative employees, but is whether the healthcare is free at the point of need. If that is the real question, then whatever method of delivery achieves that, at the lowest cost for the required level of quality, is the one socialists should support. And, in terms of the capital involved in that delivery, the question for socialists is not whether it is state capital, the capital of a joint stock company, or a cooperative, but who exercises control over it. It is highly unlikely, for the reasons Kautsky describes, that workers can exercise control over state capital, so long as the capitalist state exists; to gain control over the socialised capital of joint stock companies, or to remove the control that shareholders currently exercise, will require a political struggle that essentially amounts to a political revolution, so the only practical, immediate form of workers control must take the form of the further development of worker owned cooperatives. However, in some spheres, e.g. local authority services, healthcare, social care, education, etc., that would actually require removing those spheres from the state, i.e. privatisation, or establishing worker owned cooperatives in competition with them. Engels makes clear that is what we would do. 

“It seems that the most advanced workers in Germany are demanding the emancipation of the workers from the capitalists by the transfer of state capital to associations of workers, so that production can be organised, without capitalists, for general account; and as a means to the achievement of this end: the conquest of political power by universal direct suffrage.” 

(The Prussian Military Question and the German Workers' Party) 

The distributionist approach again comes forward when Paul says, 

“The next action the state could undertake is to reshape markets to favour sustainable, collaborative and socially just outcomes.” (p 273) 

It's not that this is impossible, to a degree, but that it puts the cart before the horse. The ability to achieve all of these desirable outcomes is a function of production. First, it requires production to rise to a level whereby abundance is possible; secondly, it requires the property question to be addressed, i.e. who owns and controls the means of production, so that this abundance does not simply result in the creation of a huge surplus social product in the hands of capitalists, landlords, rentiers or the capitalist state. As Marx put it in the Critique of the Gotha Programme, 

“Right can never be higher than the economic structure of society and its cultural development conditioned thereby.” 

The two things may need to go hand in hand, but it is always production that must lead the way. That is particularly true as, in order to deal with the issue of global development, the advanced economies will need to massively increase their output, so as to provide developing economies with the capital and technology they require. 

Another example of this is illustrated in Paul's comment, 

“If you set the feed-in tariff on solar panels high, people will install them on their roofs. But if you don't specify they have to come from a factory with high social standards, the panels will get made in China, generating fewer wider social benefits beyond the energy switch.” (p 273-4) 

That sounds rather like the 1970's/80's AES type economic nationalism built around import controls, but without the actual demand for such controls. If China can provide these panels more cheaply, why would a socialist discriminate against the Chinese workers who produce them? The wider social benefits for the Chinese working-class are obvious where they are able to expand on the back of such production. The key to higher social standards in China flows through such an improvement in the position of Chinese workers, as the demand for their labour-power rises, and they are thereby enabled to organise so as to demand higher wages, better conditions etc. Indeed, for all such developing economies, the ability to benefit from the expansion of their production is significant for the growth and development of their working-class, as I set out several years ago in relation to Wal-Mart and India.

Back To Part 6

Forward To Part 8

Theories of Surplus Value, Part II, Chapter 18 - Part 3

Ricardo says, assume the total value of commodities produced in a year is £20 million, and to provide the necessaries required to reproduce labour-power is equal to £10 million. The net revenue, or surplus value, is then £10 million. However, Ricardo says, its possible that wages might be £12,13 or £14 million, in which case the surplus value would be reduced to £6, £7 or £8 million. The rest would be divided between capitalists and landlords. But, it wouldn't change the fact, Ricardo says, that the net income was still £10 million. It would simply mean that workers obtained some of this net income, as well as capitalists and landlords, in addition to their wages. 

Ricardo continues, 

“Suppose such a society paid 2 millions in taxes, its net income would be reduced to 8 millions” (l.c., pp. 512–13.)” (p 548) 

That is not quite right. The net income would still be £10 million, but £2 million would now constitute revenue for the state, just as previously part represented revenue for landlords or capitalists. 

Ricardo then sets out his difference with Smith, in relation to the importance of the net revenue as opposed to gross revenue. In Chapter XXVI, Ricardo says, 

“What would be the advantage resulting to a country from […] a great quantity of productive labour, if, whether it employed that quantity or a smaller, its net rent and profits together would be the same. The whole produce of the land and labour of every country is divided into three portions: of these, one portion is devoted to wages, another to profits, and the other to rent.” (p 548-9) 

This is, of course, wrong, because it omits the constant capital, but Marx is setting that aside, for now. 

Ricardo makes the point that taxes are only deducted from profit and rent, because, if wages are actually equal to the value of labour-power, it is impossible to deduct tax from wages, and for those wages to be adequate to enable labour-power to be reproduced. He says, 

““It is from the two last portions only, that any deductions can be made for taxes, or for saving; the former, if moderate, constituting always the necessary expenses of production” [l.c., p. 416].” (p 549) 

This reinforces what I said earlier that taxes from wages are really just prices for those wage goods such as health and social care, education and so on, which workers buy from the capitalist state, in the same way that under the Truck System, employers used to deduct money from workers wages to cover the price of the groceries etc. they sold to their workers, before the practice was outlawed. Ricardo argues that this may not be absolutely the case, because workers obtain more than the bare minimum in wages, and so can pay taxes from that share of the surplus value they obtain, in addition to their wage. This idea was also adopted by the Ricardian-socialists, and is the basis of the reformist concept of social-democrats that workers, by trades union struggle, and its extension into the welfare state, can bargain so as to obtain a share of those profits. So, Ricardo says, 

““Perhaps this is expressed too strongly, as more is generally allotted to the labourer under the name of wages, than the absolutely necessary expenses of production. In that case a part of the net produce of the country is received by the labourer, and may be saved or expended by him; or it may enable him to contribute to the defence of the country” [l.c., p. 416]” (p 549) 

Ricardo can argue this, because he does not have a theory whereby profit/surplus value is objectively determined. He takes the existence of surplus value as given, without explaining, as Smith does, where it comes from, and why it is some particular amount. If he did, he would have to admit that the necessary labour, and also the surplus labour, are objectively determinable, so that whilst subjective factors, which influence supply and demand, might cause wages to be sometimes higher than the value of labour-power, they likewise cause them, at other times, to fall below the value of labour-power, and the whip hand, in these relations, always resides with capital. So, for example, if labour, at some points, negotiates wages (including the social wage, provided via the welfare state) to be higher than the value of labour-power, this encourages capital to develop labour-saving technology. That reduces the demand for labour-power, and creates a relative surplus population, which causes wages to fall, as the supply of labour-power exceeds demand. 

Moreover, in relation to the social wage component of wages/variable-capital, Alan Freeman, in Quantitative Marxism, some time ago, showed that in every year since WWII, workers had paid more in taxes and insurance contributions than the value of benefits and pensions etc. they had received from the welfare state. In other words, instead of the welfare state representing a transfer out of surplus value to workers, it represents the opposite, of capital screwing surplus value out of workers by means other than just direct exploitation in the workplace. 

And, Ricardo goes on to show why this is possible for capital, precisely because its aim is the maximisation of surplus value, and not the maximisation of value or gross product. 

““To an individual with a capital of £20,000, whose profits were £2,000 per annum, it would be a matter quite indifferent whether his capital would employ a hundred or a thousand men, whether the commodity produced, sold for £10,000, or for £20,000, provided, in all cases, his profits were not diminished below £2,000. Is not the real interest of the nation similar? Provided its net real income, its rent and profits be the same, it is of no importance whether the nation consists of ten or of twelve millions of inhabitants. Its power of supporting fleets and armies, and all species of unproductive labour, must be in proportion to its net, and not in proportion to its gross income. If five millions of men could produce as much food and clothing as was necessary for ten millions, food and clothing for five millions would be the net revenue. Would it be of any advantage to the country, that to produce this same net revenue, seven millions of men should be required, that is to say, that seven millions should be employed to produce food and clothing sufficient for twelve millions? The food and clothing of five millions would be still the net revenue. The employing a greater number of men would enable us neither to add a man to our army and navy, nor to contribute one guinea more in taxes” (l.c., pp. 416–17).” (p 549) 

In other words, capital not only has no real interest in maximising the size of the gross product or national income, only of maximising the net product or surplus value. And, for the same reason, it has no real interest in maximising employment. It only has interest in maximising employment of productive-labour, i.e., that labour which by its employment produces additional surplus value. If capital can produce more surplus value by reducing the amount of labour employed, which may thereby reduce the total value of output, but which also reduces the cost of producing that output, it will do so, and by doing so, it will also thereby release labour, causing downward pressure on wages. 

Back To Part 2

Forward To Part 4

Theories of Surplus Value, Part II, Chapter 18 - Part 2

In fact, as Marx sets out, this very tendency of capitalism, also turns out to be one, if not the greatest of the gifts it provides to humanity, because it teaches it to use its resources effectively, and to husband those resources. The way capital seeks to maximise the production of surplus value is to minimise the cost of production, whether that is by raising the productivity of living labour, or by continually reducing the value of constant capital, or developing new ways that minimise the amount of constant capital required to produce a given quantity of output. 

“It is the constant aim of capitalist production to produce a maximum of surplus-value or surplus-product with the minimum capital outlay; and to the extent that this result is not achieved by overworking the workers, it is a tendency of capital to seek to produce a given product with the least possible expenditure—economy of power and expense. It is therefore the economic tendency of capital which teaches humanity to husband its strength and to achieve its productive aim with the least possible expenditure of means.” (p 548) 

Moreover, because, for capitalism, the aim is not the production of commodities, for the purpose of satisfying the needs of human beings, nor is the worker, as such a human being, of central concern to the system either. The worker is only of concern as an agent of production, just as other human beings are agents of consumption. Workers are only of concern to the extent that the system needs to husband them as a productive resource, whilst at the same time, using their labour as effectively as possible. The only way to maximise the surplus value is not to drive the gross product to its highest level, but to keep the necessary cost to a minimum, in relation to it. 

“Provided this surplus grows the aim of capitalist production has been achieved even if the value decreases or, if along with the value, the total quantity of the product also decreases. 

Ricardo expressed these tendencies consistently and ruthlessly. Hence much howling against him on the part of the philanthropic philistines.” (p 548) 

Ricardo, however, again repeats the error of Smith's absurd dogma, whereby the value of commodities, and thereby of the gross product, resolves entirely into revenues, thereby disregarding the constant capital consumed in its production, which has to be replaced. However, having described this inadequacy of Ricardo's theory, inherited from Smith, many times already, Marx sets it aside now, to focus on the rest of Ricardo's argument, and the inadequacy of his theory of a falling rate of profit, and of crisis. Marx sets out Ricardo's views on the centrality of the net revenue, as opposed to gross revenue, and the division of it into profit, rent and taxes. So, in Chapter XXXII, Ricardo says, 

“It is of importance to distinguish clearly between gross revenue and net revenue, for it is from the net revenue of a society that all taxes must be paid.” (p 548) 

It's important to distinguish here in Ricardo's argument, as with Marx’s, the difference between taxes in the true meaning, as a deduction from surplus value, as revenue obtained by the state to cover its own administrative expenditure, for its own operation, and money raised by the state, in the form of taxes, but which is really a price charged for commodities/services provided by the state, and which is thereby a payment from other revenues, as with the purchase of any other commodity. In other words, the state, as a capitalist, provides health and social care, and education, largely to workers, as the largest class. What it levies, again largely from workers, in the form of Income Tax, VAT, and National Insurance, is not, in the true sense a tax, but merely a price for these commodities, paid for from the workers wages. It is not a deduction from surplus value, but part of wages, and composes part of the variable-capital of society. 

Back To Part 1

Forward To Part 3

Brexit and The Millennium Bug

Brextremists have, in recent weeks, been trying to divert obvious concern about the catastrophe that would ensue from a No Deal Brexit, by labelling it as Project Fear 2.0, and referencing, in that vein, the experience of the Millenium Bug.  It's a very bad analogy for them to use.

The reason the Brextremists have gone into overdrive in trying to divert attention from the catastrophe that would arise from a No Deal Brexit is obvious.  The government that is pushing through Brexit, and its Brexit supporting Ministers, have eventually been forced to publish a series of papers setting out what would realistically happen in the event of such a No Deal Brexit.  For anyone who actually takes the trouble to read these papers, it shows a pretty horrendous set of conditions that people in Britain would face.  Of course, that does not particularly bother the millionaire Brexit supporting Brextremists like Rees-Mogg, who can simply jump on a private plane or boat, and disappear off the Europe, or some tax haven, where their millions will ensure they have the food, healthcare, medicines and so  they require, leaving the rest of us to suffer from the mess they have created.  Nor will it affect the Brextremist Lords like Lord Lawson, who sit in the House of Lords, legislating on a Brexit that will affect all of us, but who themselves, live in their expensive houses in France!

The Brextremists cannot so easily dismiss all of the horror stories that are coming out in the government papers depicting what will happen in the immediate aftermath of a No Deal Brexit, as they could when others have been pointing out the same reality over the last year.  These are the same Brextremists who argued during the referendum campaign that negotiating a deal would be the easiest thing in the world, because the EU just couldn't do without Britain, that the Irish border was not any kind of problem, and the only real issue for negotiation was over Britain's financial settlement, because the EU needed Britain's money to make its budget balance.  The government's own detailed analysis now shows that the statements about food shortages, large rises in food prices, shortages of medicines, planes being grounded and so on, were not as the Brextremists claimed fear mongering, but are the necessary and inevitable consequence of a No Deal Brexit, and the consequent ending with no replacement of hundreds of agreements that make all those things possible.

This is an example of people who for years simply railed against something they were against, but who had no idea what they wanted to put in its place, unexpectedly getting their wish.  They never really expected to win the referendum, simply being able to continue putting out their nationalistic claptrap.  They have no idea what to do, and all of their claptrap is now being exposed for what it is, but it is the rest of us that will suffer.  That is gradually beginning to sink in, and the tide is quickly beginning to go out on the Brextremists.  They can only hold the line, by trying to deny the reality that is increasingly becoming apparent.

Rather than deal with the actuality of the consequences of a No Deal Brexit, as is being elaborated in the dozens of government papers now being produced, the Brextremists try to simply say its all fear mongering, and to back that up they refer back to the Millenium Bug.  Everyone said the world was going to end, at Midnight, December 31st. 1999, they proclaim, because the Millenium Bug was going to cause millions of computers to malfunction, which would cause planes to fall from the sky and so on.  But it didn't happen, they announce moronically.  You see, it was all fear mongering, and the same will be true about Brexit.

The trouble is some of us remember Y2K, and the reality.  The potential problems of the Millenium Bug had been identified several years before.  The problem basically came down to this.  Computer chips  first began to be introduced on a large scale in the 1980's.  It never had to be considered in the architecture of these chips, what would happen, when the last three digits of the date instead of incrementally increasing, instead went to zero.  Moreover, many programmes, which require the date in order to function, had never been set up to deal with a date that began with a 2, and where the last three digits went backwards.  It was not any kind of fear mongering that led to concern that when the date flipped over on Midnight December 1999, all these computer chips, and computer programmes would malfunction.  It was a reality.

I was involved at the time, analysing what computers and what computer systems, in my workplace might be so affected.  That was happening in workplaces across the globe.  Wherever non-compliant Y2K computer chips were identified, they had to be replaced, usually requiring also a replacement of the hardware in which the chips were embedded.  Software also had to be reprogrammed so that date functions were able to cope with a date that included the year 2000.  Without all this work having been done in the year's running up to Y2K, the Millennium Bug would indeed have stopped computer systems working, it would have brought everything to a standstill, including stopping aircraft avionics systems, and air traffic control systems working properly, not to mention all of the computerised banking systems, Cash Machines and so on.  It would have caused global chaos.  So the Millenium Bug is a very bad example for the Brextremists to use. 

Chaos was avoided over Y2K, only because the necessary large-scale replacement of computer chips, the reprogramming of computers and so on, was undertaken in the years prior to December 31st, 1999.  That involved the expenditure of billions of pounds to replace hardware and software, it required large-scale investigation of potential problems, and planning to take action to avoid those problems.  Indeed, all of the money that had to be spent, across the globe, replacing non-compliant chips, and upgrading software, was one reason that the share prices of technology companies soared more than most in the later years of the 1990's, and sank sharply in March 2000, after all of those upgrades had been effected.

But, there was another reason that those share prices rose sharply, along with other asset prices, particularly in the latter part of 1999.  If you look at the prices of units in a Technology based fund, such as the Aberdeen or Henderson Technology Fund in the last few months of 1999, and the first two months of 2000, you will see a phenomenal rise, even compared with the large rises those funds had during much of the 1990's.  Partly it was based upon all of these billions of dollars that was being spent on dealing with the Millenium Bug, but the other reason was that, the Federal Reserve, along with central banks across the globe, were worried about what would happen not just at New Year 2000, but what might happen in the weeks before and after that.

The Bank of England, as Marx sets out, in Capital, always put more currency into circulation at different times of the year than others.  It did so, because at certain times of year, people have to take money out of their bank accounts to pay quarterly, or annual bills; at certain times, like Christmas, when people spend more money, more currency needs to be in circulation.  If it isn't available, it can create a panic, which creates an even greater tendency to hoard cash, which leads to a credit crunch.  In 1999, central banks were concerned that, even if there was no problem whatsoever that materialised, as a result of all the preparatory work that had been done, people would not necessarily know that.  A natural reaction would be for people to hoard cash, in case problems arose.  So, central banks pumped additional liquidity into circulation in the later months of 1999, and that additional liquidity went into inflating asset prices, particularly of technology stocks that were already rising sharply.

So, the Millenium Bug is also not a good example for the Brextremists to choose for this second reason.  In order to deal with the likely reactions of millions of people to take money out of their bank accounts, and out of ATM's, not just the usual withdrawal for Christmas and New Year, or even the additional amounts required for spending in a once in a millenium celebration, but the likelihood that they would take out even more money to protect themselves against any breakdown in computer systems etc., the central banks increased their already high levels of money printing, and put it into circulation, further hyper-inflating an already hyper-inflating range of asset prices, from property to shares, to bonds, to art, wine and so on.  The necessary preparations for Y2K, involved measures that a few years later contributed to the financial meltdown of 2008.  In fact, as soon as central banks tried to claw back some of that excess liquidity they had had to inject to deal with Y2K, it resulted in the Stock Market crash of 2000.

But, Y2K, was unavoidable.  Only if computer chips and computer programmes, from their inception, had been aware of the potential problem, could it have been avoided.  Brexit certainly is avoidable, it is deliberate self-harm that is being inflicted.  Ahead of Y2K, billions of Pounds, Dollars, Yen etc. was spent dealing with the inevitable problems that would have ensued and caused chaos.  That is the only way that chaos was avoided.  But, next to no measures are being undertaken to deal with the inevitable catastrophe that will befall Britain as a result of a No Deal Brexit.  The Brextremists instead of identifying the problems, and taking action in advance to deal with them, as happened with the Millennium Bug, have simply buried their head in the sand.  They do not want to even look for such potential problems, let alone recognise the requirement to spend the billions required to deal with them.

Northern Soul Classics - Just Like The Weather - Nolan Chance

Friday Night Disco - September - Earth, Wind and Fire

Paul Mason's Postcapitalism - A Detailed Critique - Chapter 10(6)

Democratic Planning and Cooperation

As stated, in relation to previous chapters, the same basic contradiction, inherent in Bogdanor's narrative, becomes repeated in Paul's. On the one hand, he asks us to believe that a postcapitalist nirvana is already at hand, based upon abundance and zero marginal costs, created by the high levels of productivity resulting from info-capitalism, on the other hand, he wants us to accept the notion of serious scarcity! 

“The external shocks discussed in Chapter 9 will probably hit us in sequence: short-term localized energy shortages in the next decade; ageing and migration challenges over the next thirty years; and the catastrophic outcomes of climate change after that.” (p 266-7) 

Paul, it seems, cannot escape that same catastrophism that has plagued the Left for the last century, as it cannot resist its gut instinct to be “anti-capitalist” first, and “pro-socialist” a poor second. 

But, just in the two years since Paul published his book, those catastrophist prognostications about a long depression, secular stagnation, and so on, have been proved seriously wrong, as for the last ten years I have been continuously saying they would. In addition, far from the likelihood of localised energy shortages, we are seeing the potential for persistent energy surpluses. The US has become the world's largest oil and gas producer once more, as a result of fracking. On the back of it, the US also reduced its carbon emissions, because the use of cheap gas for energy production replaced the use of dirtier fossil fuels like coal. 

However, fracking is only a stop-gap. The US has also rapidly developed solar generation and other renewables. China is investing even more heavily in that direction, and as electric vehicles quickly replace petrol-engined vehicles, in the next five-ten years, the switch away from fossil fuels will be even more dramatic. 

But, Paul is right to say, therefore. 

“The task is to develop technologies that respond to these problems through sustainable growth; we do not have to go backwards in developmental time to save the planet.” (p 267) 

One reason that any transitional period will continue to require market relations, as a supplement to increased use of planning and regulation, is illustrated by Paul's comment, 

“But we will still face a challenge similar to the one the early soviet republics faced with workers: specific social groups may have short-term priorities that clash with the wider priorities of the economy and the ecosystem. That's what networks are for: to argue things out and model the alternative possibilities. We will need new forms of democracy to arbitrate between valid competing claims. But it won't be easy.” (p 267) 

Its a point I made several years ago. Just because a centralised plan is formulated on he basis of democratic participation does not mean that any groups who have a minority position, or who feel discriminated against, by it, will accept it. Just think of Brexit, but spread over a thousand different disputes arising weak after week. The Bolsheviks dealt with that by imposing centralised authority. The end result was not a positive one. If workers in industry A feel that the plan disadvantages them, that the price they are to be paid for the product of their labour is inadequate, etc. what then if they decide to go on strike, and withdraw their labour? Are they to be starved back to work, the troops sent in, and military discipline imposed? 

Look at the situation today, under capitalism. If a train company increases its fares, commuters may complain, some may even switch to some other form of transport, but, in the main, they will accept the higher fares. No one will question their right to be able to raise their prices, because that is the way capitalism and the market works. The government might mouth sympathy for commuters, but it will certainly not demand that commuters have a right of veto over any such price rises that might threaten their ability to get to their jobs and so on. But, a completely different attitude is taken when the price of labour-power is being discussed. Let the workers of that train company demand a higher price for their labour-power, and the train company, backed by the government, and Tory media, will scream that commuters are being held to ransom, and that workers have no right to dictate what price they wish to charge for the sale of their labour-power. 

Now, when workers own the means of production themselves, individually or collectively, this dichotomy disappears. I remember 30 years ago, when I worked for myself, going to computerise the payroll system of a local engineering company. They had had some other company come along previously, but they had made a mess of it. Within a few days, I had installed a new system for them, and then went back a few times to make sure it was running smoothly. On one occasion, one of the managers, working in the office, said to me, “How can you justify charging this amount of money for a day's work?” “Well,” I replied, “I can always uninstall it, and you can call the previous company back.” They didn't. 

The point being that as the seller of a commodity other than labour-power, even a labour-service, the buyer simply looks upon it as a simple market transaction. Either they buy what you're selling, at the price you set, or they don't. Of course, as seller, if you find that no one is buying, that means you either have to reduce your price, find a way of reducing your costs, or selling some other commodity. 

The problems that arise from attempting to impose plan prices, even as determined by a democratic planning process are removed as a result of continuing to use market prices, during any such transitional period, because buyers are free to buy more or less at the particular price, and the seller is thereby led to adjust their production, and/or their prices accordingly. That does not at all prevent buyers and sellers of interrelated organisations within a growing cooperative organisation from discussing their future plans and requirements. On the contrary, it creates conditions under which that is facilitated. 

Back To Part 5

Forward To Part 7

A Labour Party Brexit

I was going to write a post on the Labour conference, and Labour's confused position on Brexit, but what I was going to write, is already contained in this post on the Irish Marxism Blog, which I have been given kind permission to repost, here.

It used to be the case that the British Labour Party conference was interesting and important, because it involved real debate and some chance that the left could win victories.  Then Kinnock and Blair deprived it of this significance and crushed party democracy, such as it was.  The mass media, if I recall correctly, was not much concerned by this.

Now, the Labour Party conference is relevant again, it is interesting and important, the left can make advances and democracy has made some sort of return, and the mass media is concerned.

Unfortunately, this being the Labour Party, we are also going back to the bad old days when union bureaucrats would frustrate this democracy, cobbling together back-room deals that mollified the right in the party while taming the left.  So, the overwhelming desire for open selection of MPs, that they should have themselves put up for endorsement by the people who get them elected – the party members, was prevented from being voted on and passed.

Democracy in the Party has always been imperfect like this, but it is easy to forget that democracy in the unions is probably worse in many cases, and democracy in the left groups definitely worse.  If even Momentum was as democratic as the Party it seeks to democratise the left would be far stronger, and more democratic.

A similar thing happened to the views of the membership on Brexit.  The vast majority oppose it and want another referendum to reverse it.  The leadership of the Party have attempted to frustrate this movement.  In doing so, their views hark back to the most reactionary nationalist ideas about socialism which used to revolve around import controls to protect British jobs; nationalisation, with emphasis on NATIONalisation; and opposition to the EEC.

Of course, they claim to be internationalists, but their internationalism is of a very restricted kind.  It’s more a sort of solidarity of left nationalisms, just like ‘national liberation’ movements support each other in their desire to set up separate, and nominally independent, states.  They are suspicious and opposed to a unity that swears loyalty, not to its own nation and state, but to the unity of its class regardless of nationality.

No one is claiming that the vast majority of the members of the Labour Party subscribe to Marxist ideas about international workers’ unity, but they do realise the disastrous consequences of capitalist separation from the EU and the reactionary nationalist politics behind it.

So, it is on this basis that Jeremy Corbyn’s leadership has thwarted the desire to have a second referendum and has held the ground against coming out squarely against Brexit.  It has nevertheless been forced to have the debate, when it was able to prevent one last year, revealing that the current mangled and incoherent policy has a use by date that is rapidly running out.

Labour policy is open and clear – it is not seeking to reverse Brexit but to deliver a good Brexit.  One that defends jobs and living standards as well as maintaining regulations which support workers’ rights and protect the environment.

Tory ineptitude, in-fighting, mad-as-a-hatter ideas about a free market nirvana, and normal anti-Tory antipathy have not been enough to divert Labour members from recognising that the leadership’s position is wrong.

In many statements this policy seems to suffer from the same level of ignorance as the Tories.  Its repetition of the importance of a customs union ignores the much more vital role of the Single Market.  The former will not remove the need for a ‘hard’ border in Ireland while it won’t prevent huge trade frictions for Britain.  In its illusion that some sort of progressive Brexit is possible its position is actually worse than the Tories.

Its six tests cannot possibly be met by any deal, including any deal the Labour leadership could possibly negotiate itself. It wants a deal “to deliver the ‘exact same benefits’ as we currently have as members of the Single Market and Customs Union.”  But the EU has made it absolutely clear, repeatedly, that Britain will inevitably be worse off because of Brexit.  It even admits that the EU itself will suffer.

Pressure from within the Party and the logic of the evolving process have compelled Jeremy Corbyn, in his conference leader’s speech, to state clearly that the Party is set to vote against any deal Theresa May comes up with, and will also oppose no deal.  So perhaps it might be said that the mass membership opposed to Brexit, and the leadership in favour of going ahead with it in some form, are going to arrive at the same destination by different routes.  Both roads seemingly leading to opposition to Brexit.

Unfortunately, there are some problems with such a view. Firstly, if no deal is agreed or approved by Parliament there will be a no deal exit, unless the EU itself postpones this eventuality itself, through some sort of extension, or fudge that allows the transition period to kick in.  But in this case the problem is postponed not avoided.  Such a scenario is a cross-your-fingers-and-toes wish that the ‘better prepared for a no deal’ EU is not yet prepared enough.  Simply running out of time is not unthinkable.

And what if time did run out and Theresa May claimed that it was the Labour Party which scuppered her deal and was now responsible for a no deal outcome?  How would Labour deal with that if the EU said ‘times up – you’re out!’

Undoubtedly the Tories have made such a hash of things that they would continue to shoulder much of the blame, and deservedly so. A no deal situation would have arisen where they had continued to push a plan that the EU had repeatedly said was unacceptable.  The Labour Party would then also have to rely on continued lack of scrutiny of its own proposals., which otherwise might reveal that they would not be accepted either.

But if the Tories were backed down to agree a deal that the EU would accept, even for a transition period, the Labour Party might find itself in strange company voting against it.  Failing to prevent the deal going through in this situation might be the least of its possible failures.

If it succeeded in voting down such a deal it would be much harder for the Labour Party to pin the blame for no deal on the Tories, and their own proposals would come under greater scrutiny, revealing the reality that their criteria cannot be delivered by any potential Brexit deal.  There would be no reason why both the Tories and EU would not jointly blame the Labour Party for the subsequent disaster.

Secondly, even if all went well and a general election was held, which Labour won, it would quickly become clear that it could not deliver a Brexit deal which would pass its own tests.  In other words, it would also have to deliver no deal or deliver something that would be inferior to EU membership.  Both would antagonise its Remain members and supporters, and also antagonise those voters who continued to support Brexit.

Of course, these voters are deluding themselves in believing that Brexit could deliver anything that was any good.  But who would have fed them this illusion and who would now be responsible for failing to deliver on it?  It would not just be the Tories. Now it would also be the Labour Party, the Party who had promised that a good Brexit was possible and had failed to deliver it.

If the Labour Party also backed down and agreed a deal that was acceptable to the EU this would be something on the lines of EEA membership or Canada-style free trade agreement.  The latter would rather quickly demonstrate how much inferior to EU membership this is for British capitalism, but would still require an extensive period of negotiations where British weakness would be exposed.  The former would require perhaps even greater negotiations, not just with the EU but with other EFTA countries.  The former leaves Britain’s role in the world hanging and unresolved and the second is not a long-term solution for anyone, for it would leave Britain as a rule taker in a small club instead of one of the leaders of the large club it had just left.

However, long before any of this became obvious, it would be clear that the Labour Party had not won over the majority of the fans of Brexit through delivering it, but would instead be savaged by them for having sold Brexit out, for having delivered Brexit in name only, a betrayal of Brexit, of all the benefits to the British people that were possible and that had been promised. And again, we would be back to the question – who was it that promised a good Brexit?

Labour leaders such as John McDonnell have embarrassed themselves and the movement they lead by proclaiming fears that Brexit cannot be stopped because it would provoke a violent reaction from the hard right. But since there isn’t going to be a good Brexit some sort of reaction like this is almost inevitable.  In this case, one delivered via a Labour Party promising that their Brexit would be so different would be a real promise broken, and would provoke an even more violent reaction from the hard-right.

There is of course a way to avoid these scenarios, but this requires being honest with workers and stating that Brexit is a disaster that must be opposed.  That if the Labour Party was elected it would reverse the decision or, at the very least, would hold another referendum to do so.  Otherwise Labour, having bought Brexit, would then own it, including all the shit that would come with it.

It would have no argument to put to Brexit supporters who would say that it had failed to deliver on its promises, and it would have nothing to say to its own supporters who would have opposed it.

Jeremy Corbyn may think his current approach to Brexit is politically shrewd, but reality is currently crushing Tory Brexit dreams and it will just as surely do the same to Labour.

The members and supporters of the Party should continue their opposition to Brexit and argue a socialist alternative.  The stronger such a movement becomes the clearer it will be that the current Labour policy is not only wrong from a principled point of view but ruinous to its future.

Ironically, it might only be the referendum that it is trying to avoid that might save the Party leadership, since it would be compelled to oppose Brexit and once again argue for Remain.

Theories of Surplus Value, Part II, Chapter 18 - Part 1

Ricardo’s Miscellanea. John Barton

[A.] Gross and Net Income

Net revenue is the way the Physiocrats conceived of surplus value, which, for them, consists only of rent. For the Physiocrats, profit is merely a form of wage for the capitalist. In this conception, the gross product consists of the capital outlay, consisting of the elements of the constant capital and variable capital, both of which must be reproduced in kind, and of the surplus product. The surplus value is then the value equivalent of the surplus product.

“Net revenue is therefore in fact the excess of the product (or the excess of its value) over that part of it which replaces the capital outlay, comprising both constant and variable capital. It thus consists simply of profit and rent, the latter, in turn, is only a separate portion of the profit, a portion accruing to a class other than the capitalist class.” (p 547) 

Every previous mode of production has been geared to a maximisation of the gross product, because it is in this that the actual wealth of society was measured. In other words, a society was wealthy or poor according to how much of these products, and ranges of products, it was able to produce. A legacy of that remains in the writing of Adam Smith, who, as against Ricardo, remains focussed on the size of the gross product and gross revenue, as against the net product and net revenue. But, Ricardo is correct, because, for capitalism, it is the net revenue, not the gross revenue that is determinate. No individual capitalist engages in production, of any particular type of commodity, for the main purpose of producing that particular commodity, but only to produce profit. That they engage in the production of commodity A rather than commodity B is governed only by the fact that they can make more profit producing A rather than B. 

And, for that very reason, no individual capitalist seeks to produce the absolute maximum quantity of any particular commodity they could produce, but only seeks to produce that quantity that will maximise their profit. If they end up producing more than that amount, it is only because the laws of capitalist production dictate that the unit cost of production falls, the larger the scale of production, and competition, therefore, drives each capital to produce at this higher level, so as to be more competitive than rival capitals, and so capture market share, whilst, thereby, driving the aggregate mass of production beyond the capacity of the market to absorb it, at prices that either maximise the realisable profit, or even reproduce the consumed capital. Hence overproduction.   Where competition no longer operates to force individual capitals to expand their production so as to capture market share, for example, where monopolies arise, this potential for overproduction is removed, because each capital only expands its capital to the extent that in doing so, it expands its mass of profit.  Overproduction for such capitals can then only arise as relative overproduction, as described by Marx, i.e. their output only constitutes overproduction, because demand for their output has itself fallen.

And, what applies for the individual capitalist applies to capitalism as a whole. Its production is not geared to what ensures the maximum output of commodities, and, thereby, social wealth, but only to what maximises the production of profit. But, for the same reasons, and as Marx sets out in Capital III, Chapter 15, what maximises the production of surplus value, simultaneously throws up barriers to the realisation of that surplus value, as profit. It drives production beyond the capacity of the market to absorb it, and leads to crises of overproduction. 

“Labour itself, from this standpoint, is only productive in so far as it creates profit or surplus-product for capital. If the worker does not create profit, his labour is unproductive. The mass of productive labour employed is only of interest to capital in so far as through it—or in proportion to it—the mass of surplus-labour grows. Only to this extent is what we called necessary labour-time, necessary. In so far as it does not have this result, it is superfluous and to be suppressed.” (p 547)

Back To Chapter 17

Forward To Part 2

Paul Mason's Postcapitalism - A Detailed Critique - Chapter 10(5)

Democratising and Socialising The Plan

Paul's confusion in relation to the labour theory of value, and the distinction between the value created by labour, and the value of labour-power is again illustrated when he says, 

“I will try to spell out what a large scale postcapitalist project might involve. I call it Project Zero – because its aims are a zero-carbon energy system; the production of machines, products and services with zero marginal costs; and the reduction of necessary labour-time as close as possible to zero.” (p 266) 

This also conflates two further separate concepts – socially necessary labour, and necessary labour. Socially necessary labour refers to the average labour-time required for the production of commodities. Necessary labour, by contrast, refers to the portion of the working-day required to reproduce labour-power. So, for example, the socially necessary labour-time required to produce 10 kilos of grain might equal 10 hours. If a worker requires only 1 kilo of grain, or its value equivalent, in other commodities, to reproduce their labour-power, then the necessary labour performed by the worker is only 1 hour. In other words, it is only necessary for them to work for 1 hour to reproduce their labour-power. The fact they labour for 10 hours simply means they provide 9 hours of surplus labour/surplus value, producing a surplus product of 9 kilos. 

Because Paul fails to grasp this distinction, and works instead with a version of Adam Smith's cost of production theory of value, where value is a function of the value of labour-power, i.e. wages, he fails to recognise that if necessary labour-time is reduced to zero, a condition capital would love to achieve, that simply means that surplus labour-time, i.e. relative surplus value, can more easily be raised to a maximum! 

The fact that it is only necessary for a worker to work a minute, in such a world, to reproduce their labour-power, does not at all prevent a capitalist employing them for 10 hours, during which they produce 10 hours of new value, and thereby producing 9 hours, 59 minutes of surplus value. 

If we give these amounts of labour-time monetary labels, so that 1 minute of labour is equal to £1, then, say a brothel keeper employs a prostitute, and pays them £1 in wages, which is equal to the value of their labour-power, because necessary labour has been reduced to near zero. The prostitute then undertakes 10 hours of labour, thereby creating £600 of new value, and realised in £600 of money paid in exchange by clients. The result is that the brothel keeper then obtains a profit of £599, a rate of profit of 59,900%. The fact that Paul adopts a Smithian cost of production theory, rather even than a Ricardian, let alone Marxian, labour theory of value, is shown by his reference to the significance of the reduction of marginal costs to zero. Essentially, for marginal costs here, read wage costs. 

I agree with Paul in his arguments about learning from past failures, and his reference to Preobrazhensky's comments about the economic relations requiring an “extremely complex and ramified nervous system of social foresight and planned guidance” (p 266). 

In fact, for the reasons I have set out previously, I believe we already have the infrastructure in place to achieve that. A social revolution has effectively already occurred. It is socialised capital that predominates and planned and regulated productive relations that increasingly dominate, on the basis of it. But, we still have, even in the developed economies, a plethora of small private capitals – about 5 million in Britain – whilst control over much of the socialised capital is exercised by that top 0.01% that own the controlling share of fictitious capital. 

Nevertheless, in terms of the actual socialised capital, as Simon Clarke pointed out thirty years ago, it operates on the basis of long-term planning of its investments, it is now fed by real-time information about even individual consumers and individual consumer preferences and behaviour. As I have pointed out in the past, individuals' actual preferences, as manifest by their spending choices are, usually, more accurate than their verbally expressed preferences. For example, people say they think more public transport is a good idea, to get cars off the road, but that usually just means they would prefer others to use public transport, leaving the roads clearer for them, in their own car; people say, in surveys, they think nurses are more deserving of higher wages than footballers etc., but they regularly vote against tax rises to pay for the NHS, whilst paying out £1,000 for a football season ticket, or a subscription to satellite sports channels etc. 

So, real-time, big data analysis of tens of millions of workers' spending choices, together with longer-term analysis of demographic changes, provides a detailed basis for formulating plan projections in a way that the market research studies of the 1970's could never achieve. That data is currently mined by the individual firms for their own purposes, but, the more socialised capital is democratised, and brought together under one organisation, the more it becomes social information, available for constantly improving adaptive planning within a larger, longer-term social plan. 

Back To Part 4

Forward To Part 6

Theories of Surplus Value, Part II, Chapter 17 - Part 91

Ricardo, therefore, believes that, although the rate of profit more or less constantly falls, because of this squeeze from rising wages and rents, the total mass of profit rises, because increased masses of capital are employed. However, unlike Marx, he believes that this can only continue for so long, because ultimately the fall in the rate of profit is so much that it affects the rise in the mass of capital. 

“Thus supposing that: with repeated accumulations of £100,000, the rate of profit should fall from 20 to 19, to 18, to 17 per cent, a constantly diminishing rate, we should expect that the whole amount of profits received by those successive owners of capital would be always progressive; that it would be greater when the capital was £200,000, than when £100,000, still greater when £300,000; and so on, increasing, though at a diminishing rate, with every increase of capital. This progression however is only true for a certain time: thus 19 per cent on £200,000 is more than 20 on £100,000; again 18 per cent on £300,000 is more than 19 per cent on £200,000; but after capital has accumulated to a large amount, and profits have fallen, the further accumulation diminishes the aggregate of profits. Thus suppose the accumulation ‘should be £1,000,000, and the profits 7 per cent the whole amount of profits will be £70,000; now if an addition of £100,000 capital be made to the million, and profits should fall to 6 per cent, £66,000 or a diminution of £4,000 will be received by the owners of stock, although the whole amount of stock will be increased from £1,000,000 to £1,100,000.” (p 545) 

As Marx sets out in Capital III, such a condition can indeed arise. It is what constitutes one example of a crisis of overproduction. In other words, capital accumulates to a degree where the social working day cannot be expanded further (the individual working-day cannot be expanded, no additional workers can be added to the workforce), so absolute surplus value cannot be expanded, labour supplies are used up, so wages rise and the rate of surplus value falls, in some conditions, the prices of raw materials may rise sharply and can't be reproduced, and so on. The sharp fall in the rate of profit is then brought about by the fact that what has been produced cannot be sold at prices that reproduce the capital. The market is glutted, prices drop and profits crash. But, this is not an indication of what Ricardo and some modern catastrophists present as an indication of a long run law of a falling rate of profit. Quite the contrary, the crisis here is a consequence of exuberant growth, of overproduction which results in a short-term squeeze on profits, and the rate of surplus value. As Marx says, in his note in respect of Smith, and such conditions, there are no permanent crises. 

It is those conditions which provide the incentive for capital to revolutionise production, to engage in intensive accumulation, which acts to replace labour, and thereby raise the rate of surplus value. It is those conditions which come out of the crisis of overproduction, which thereby create the necessary conditions for Marx’s law of the tendency for the rate of profit to fall, not vice versa. As Marx says, in Capital III, Chapter 15, 

“Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.” 

So, when Ricardo says, 

“When the accumulation of capital, however, becomes very great, notwithstanding this increased value, it will be so distributed that a less value than before will be appropriated to profits, while that which is devoted to rent and wages will be increased” (l.c., pp. 124-26).” (p 545), 

he sees this as part of this long term trend of falling profits, which were it true would, as he says, ultimately lead also to a fall in the mass of profit, which would then spell the demise of the system. Fortunately, because were the system to collapse, rather than be transcended by socialism, it would spell disaster for society, and particularly for workers, as Marx shows, Ricardo's view is completely wrong. This catastrophist vision of Ricardo is shown in his further comments indicating that even as wages rise, and profits fall, the workers living standards must also decline. 

““Although a greater value is produced, a greater proportion of what remains of that value, after paying rent, is consumed by the producers, and it is this, and this alone, which regulates profits. Whilst the land yields abundantly, wages may temporarily rise, and the producers may consume more than their accustomed proportion; but the stimulus which will thus be given to population, will speedily reduce the labourers to their usual consumption. But when poor lands are taken into cultivation, or when more capital and labour are expended on the old land, with a less return of produce, the effect must be permanent” (l.c., p. 127).” (p 545) 

There is only one case, Ricardo argues where a low price of food might be accompanied by high wages and low profits. That is essentially where food supplies are in such abundance that the demands from workers can be easily met. In that case, workers might, where accumulation is very rapid, and the competition for workers pushes up wages, spend their wages on other commodities, also then creating a demand for capital and labour in those industries. But, Ricardo believes such a situation could only be temporary, because he thinks that these high wages would prompt a rise in population, which would both reduce wages and raise the demand for food, so that the excess food supply was used up. 

“Thus Ricardo on accumulation and the law of the falling rate of profit.” (p 546) 

Back To Part 90

Forward To Chapter 18

Back To Theories of Surplus Value, Part II Index