Monday, 31 December 2018

Review of 2018 Predictions - Part 6

“A Number of Inflexion Points Are Reached” 

The US Dollar Index had been steadily rising over the last year, as it became clear that the Federal Reserve was intent on continuing to raise official interest rates. This was evidence that the return of the old rules, by which currencies rise as official interest rates rise, had occurred, in relation to the US, where, after its latest hike, the Federal Reserve has raised rates to 2.5%. This steady rise in official rates also contributed to the sell-off in US financial assets. When towards the end of the year, and following criticism of the Fed by Trump, comments from Fed officials suggested that they might be reaching the end of their rate hikes, that caused a short term sharp rally in US equities, and bonds, causing bond yields to fall back below 3%, where they had been for most of the year. 

In fact, what the Fed had said was that interest rates were approaching the range in which they would be “neutral”, in other words, being neither stimulative nor restrictive. But, this was actually no different to what they had previously said. They simply changed the way they expressed the same thing, probably to appease Trump, and also to encourage an end of year rally in stocks. The “neutral range” as it suggests is a range that extends over as much as 150 basis points, and in addition, the question is what does “near to” mean? If near to means within 25 basis points that might mean one additional rate hike, but near to might mean within 50 basis points, implying 2 more rate hikes. But, that only takes you to the bottom of that range. If a neutral position is mid way in that range, then it could mean that the Fed foresees as many as 5 additional rate hikes, whereas the spike in asset prices had been premised on the idea that the Fed might only have implemented one. 

As the wording of the Fed's analysis was further analysed, it became clear that rather than one and done, or one and pause, the Fed was on course to implement one further hike in 2018, which happened in December, and possibly four more in 2019. In fact, the Fed's dot plot suggests that it is intending three more rate hikes in 2019. That has caused stock markets to sell off once more, and as funds moved out of equities they sought safe haven once more in bonds, causing US bond yields to drop. That is likely to be a temporary flight to safety, as central banks across the globe continue to tighten monetary policy, and the ECB has now ended its own QE programme. The fact that it no longer stands behind astronomically inflated European sovereign bonds, at a time when EU budgets are likely to expand, as is happening in Italy, and with European banks again looking increasingly vulnerable, is another reason that hot money has flooded towards the safe haven of US Treasuries. But, with Trump ramping up US spending, and exploding the Budget Deficit through tax cuts, at the same time that the Federal Reserve is set to reduce its Balance Sheet by around $800 billion in 2019, as it redeems maturing bonds, a rise in US interest rates seems inevitable in 2019, with a consequent effect on global yields, and on asset prices. 

US interest rates did not rise faster, in 2018, because of the effect of the three year cycle, and because Trump's trade war, and Brexit held back growth. Estimates of 2019 growth contain a lot of inertia from 2018 conditions. If Trump's trade war results in some settlements, and if Brexit does not happen, or happens in name only, then many of the current impediments to trade and investment will be removed, and growth estimates will be quickly revised upwards. If not, then in the current conjuncture, it will only result in a relative impediment to growth. A short term hit will simply result in a global restructuring of trade and production. Tariffs imposed by the US on China, may result in an increase in US production of those commodities, but at a higher cost, reducing productivity, and thereby a relative decline in output, but with an absolute rise in output. The same applies to China, and trade will be redirected into other channels, including a more rapid expansion of domestic markets, an increase in trade between economies where no such tariffs exist, and it will encourage further trade deals between large economic blocs, such as the EU with China, Japan, and so on. The loser will be those relatively smaller national economies, such as a post-Brexit Britain, unable to impose their own protective measures, because of their lack of size and importance. 

This continued rise in global growth, though at a relatively lower level than it would be without trade restrictions, means that the demand for labour will continue to rise, and will rise at a relatively faster rate, due to lower levels of productivity, due to the limitation on the global division of labour. It will mean that the value of labour-power thereby rises faster than it would have done, due to this impact of relatively slower productivity growth, and as the demand for labour rises, that will be compounded by a higher market price for labour-power, i.e. wages, which impacts the rate of surplus value, so squeezing profits. That means that the demand for money-capital to finance the increasing level of growth, pushed forward by an increasing demand for wage goods, as more workers are employed, and wages rise, will further push interest rates higher. 

Expect, in the new year that the estimates for US and global growth will be raised, and that US wages will start to move higher. Higher costs will push US inflation higher, as liquidity flows out of financial assets, as those asset prices continue to decline as interest rates rise. 

In short, the prediction has been confirmed, and the underlying dynamic of the prediction continues to operate into the period ahead. 

Theories of Surplus Value, Part III, Chapter 20 - Part 10

As described earlier, one reason for viewing the production cost of a commodity as being what it costs society, as opposed to what it costs the capitalist, is that, unless the capitalist obtains the average profit, they will not produce it, and so it will not be brought to market. For each commodity, its production costs to society are the labour required to produce the means of production consumed in its production, plus the immediate labour

“This is the pre-condition for its emergence out of the process of production as a product, as a commodity and even as a use-value. And no matter how profit and wages may vary, these immanent production costs of the commodity remain the same so long as the technological conditions of the real labour process remain the same, or, what amounts to the same thing, as long as there is no variation in the existing development of labour productivity. In this sense, the production costs of a commodity are equal to its value. The living labour expended upon the commodity and the living labour paid by the capitalist are two different things. From the outset, therefore, the production costs of a commodity to the capitalist (his advances) differ from the production costs of the commodity itself, its value.” (p 80-1) 

And, this remains true, under capitalism, where commodities exchange at their price of production, rather than their exchange-value. That is why the Law of Value, in its more fundamental definition, continues to operate under capitalism, even though, in its more restricted sense, of commodities exchanging in proportion to their values, (used by Engels in his Supplement to Capital III), it does not. Unless it remains the case that the law of value determines the value of products, and thence commodities, it is impossible to derive either exchange-values of commodities, or prices of production. 

“Further, it is clear that whatever the relation between the value and the cost-price of a commodity, the latter will always change, rise or fall, in accordance with the changes of value, that is to say, the quantity of labour required for the production of the commodity. It is furthermore clear that part of the profit must always represent surplus-value, unpaid labour, embodied in the commodity itself, because, on the basis of capitalist production, every commodity contains more labour than has been paid by the capitalist putting that labour in motion.” (p 82) 

But, as Marx illustrates in Capital III, when the phenomenon of prices is viewed in its superficial appearance, and through the reversing lens of competition, profit becomes completely separated from surplus value, and prices become separated from values. 

“At the same time one perceives how economists who, on the one hand, observe the actual phenomena of competition and, on the other hand, do not understand the relationship between the law of value and the law of cost-price, resort to the fiction that capital, not labour, determines the value of commodities or rather that there is no such thing as value.” (p 83) 

The surplus value, which is appropriated directly by the capitalist as profit, is also the source of interest for the money-lending capitalist, and rent for the landlord. But, these are also thereby seen as necessary expenses, or costs of production, just as the average profit is a cost of production that must be met before the commodity will be produced and brought to market. The productive-capitalist who uses his own capital, rather than borrowing money-capital, will still see the interest as a cost of production. In other words, if a capitalist borrows £1,000, to buy a machine, they will see the interest they pay, on the £1,000, as a cost of production. But, if they provide this capital themselves, they will still see the interest as a cost of production, because they will view it as though, had they loaned out this £1,000, they would have earned interest on it. 

“At the same time, this reveals the significance of the distinction between the phenomena of production and of distribution. Profit, a phenomenon of distribution, is here simultaneously a phenomenon of production, a condition of production, a necessary constituent part of the process of production. How absurd it is, therefore, for John Stuart Mill and others to conceive bourgeois forms of production as absolute, but the bourgeois forms of distribution as historically relative, hence transitory.” (p 84) 

Sunday, 30 December 2018

Review of 2018 Predictions - Part 5

“The EU Becomes The Global Leader” 

Let's look at the strands of the argument behind this prediction. 

First, that the US was pulling away from its global leadership role. That has certainly proved to be the case. Having withdrawn from the Paris Climate Accords, Trump also reneged on the US Treaty obligations in relation to the Iran Nuclear Deal. He also pulled out of the nuclear arms limitation treaty with Russia. In the closing days of the year, Trump also pulled US troops out of Syria, and Afghanistan, leading to his Defence Secretary “Mad Dog” Mattis, resigning. As Trump also imposes tariffs and sanctions on many of the world's economies as part of his protectionist global trade war, he has also proposed taking the US out of the WTO. He has taken the US out of a number of UN bodies, and it's probably only a question of time, before he proposes taking the US out of the UN altogether, probably as another diversionary tactic, aimed at his base, the next time he is facing some other issue affecting his standing. 

The Paris Accords did not collapse after Trump pulled out. The other countries of the world have pressed ahead, without the US. In part, this is because, the next few decades will see a lot of capital going into new energy technologies that will replace fossil fuels. That will be true not just in relation to energy generation, where China is seeking to take a lead in relation to the development of solar energy production, but in relation to the development of electric cars, with the development of small electric aircraft not far behind. These technologies will be major value, and surplus value producing industries in the years ahead, and those countries that dominate those industries will have a significant advantage. Trump, by tying himself to a protectionist policy of trying to sustain and subsidise the old fossil fuel industries, is putting the US in a disadvantageous position, which is why, many US states, and local governments have basically ignored his policy, and continue to pursue policies designed to reduce carbon emissions, and to encourage the development of new energy technologies. 

The Iran nuclear deal also did not collapse following Trump not only taking the US out of the deal, but threatening sanctions against any businesses elsewhere in the globe that continued to trade with Iran. Although this threat did have an impact on all those global businesses that also trade with the US, and made difficult the processing of payments, it led to the EU deciding to look at ways by which they could provide support for EU businesses that refused to be blackmailed in that way. It will inevitably lead to the encouragement of alternative global payments systems that bypass the US dominance, perhaps using blockchain technology. It again shows the idiocy of Brexit, because when the EU does develop these alternative systems, the UK outside the EU, will not have their protections, and will thereby make itself even more susceptible to being blackmailed by larger economic powers. So much for bringing back control! 

It's probably only a matter of time before Trump takes the US out of NATO. His decision to take the US out of Syria and Afghanistan not only with no reference to his Defence Staff, but also no notice to his NATO allies, with troops in those arenas, is an indication of his contempt for such organisations. Its inevitable that the EU's decision to establish an EU army, will be ramped up, to better protect EU interests as against those of a go it alone US. With the US's agent, Britain, out of the EU, that trajectory will be even more clear. The need for the EU to protect its borders against an expansionist Russia in the East, the potential of jihadism rising from the South, and even tensions with Britain over the Irish border, if a no deal Brexit goes ahead, and over Gibraltar, as well as over fishing rights, in the North Sea, mean that as part of intensifying efforts at consolidating an EU state, such an EU army is likely to develop rapidly. 

The UN, as currently structured, is probably past its sell-by date. There is no justification for the UK having its permanent seat on the Security Council, for example. In an era when the globe is divided into large politico-economic blocs, it makes more sense to create some kind of organisation that reflects that reality. That is true of the other global para-state bodies such as the IMF, World Bank etc. Such a structure would reduce the significance of the US accordingly. It would mean that countries outside those larger politico-economic blocs would no longer have the undue representation they have, based upon their historical position. Indeed, they would probably have no representation at all, reflecting the growing irrelevance of the nation state in the modern world. 

China has continued to expand its influence across the globe, particularly in Africa. Its One Belt One Road policy is intended to both develop the Chinese economy internally along the path of the rail and road network stretching from the Chinese Pacific Coast through to the Atlantic Coast of Western Europe, and to extend its influence across Central Asia, Asia and the Middle East, and North Africa. But China still does not have the ability to take on global leadership. 

Global growth for 2018 is estimated by the IMF at around 3.7%, just below the 4%, I had predicted at the start of the year. That is in line with the prediction that the three year cycle, running from Q3 2017, to end of Q3 2018, would cause a temporary relative slow down, and that has been exacerbated by the effects of Trump's global trade war, and the effects of Brexit. The IMF estimates that Trump's trade war knocked 0.3% off Chinese growth, for 2018, for example. The US economy continues to grow at a rapid pace, despite Trump's trade war. The IMF estimate US growth for 2018 to be 2.9%. But, US growth has risen at a faster pace, in the second half of 2018, though by slightly less than was earlier anticipated. In the second quarter growth was 4.2%, compared to 3% in the same quarter in 2017, and in the third quarter it was 3.4% compared to 2.8% in the same quarter in 2017. Trump's trade war, clearly has not significantly depressed US, growth, yet. 

US employment has also continued to grow rapidly. The medium term effect will be to reduce global growth relatively, due to higher costs, and lower productivity, but it will also lead to a restructuring of global trade and production, if it continues. The prediction that the continued rise in global growth would lead to higher interest rates has been confirmed, and as also predicted that has caused a fall in asset prices. US stock and bond markets are ending the year lower than they started it, and some markets are entering, or have already entered, bear market territory, i.e. 20% lower than their peaks. 

As predicted, despite Trump's trade war, the US trade deficit continued to rise, driven on by his tax cuts for the rich. In fact, Trump's trade war has probably exacerbated the deficit. Retaliation meant that US soybean exports fell significantly, for example.  The US Budget deficit, which had exploded as a result of the 2008 financial crisis had been gradually reduced from 9.8% in 2009, to just 2.4% in 2015, as the economy grew under Obama, as a result of the US not engaging in the same kind of austerity policies that European economies inflicted on themselves. Despite that growth trajectory inherited by Trump, and the continued strengthening of US growth alongside strengthening and co-ordinated global growth, the budget deficit has grown rapidly under Trump as forecast, due to his lavish tax cuts for the rich, his increased military spending, and his spending on subsidies to farmers etc. who have lost out badly due to retaliation to his imposition of tariffs. The budget deficit has now risen to 3.5% of GDP, and looks set to rise faster, which means that pressure on US interest rates will intensify, making further sizeable and sustained falls in US asset prices inevitable. 

The EU economy has been hit both by Brexit, and by Trump's global trade war. Trump proceeded to impose tariffs on EU steel and aluminium producers, and with threats to EU car producers. Brexit has meant that investment in the UK has been held back, and uncertainty means that business have held back decisions in the EU too, until a clearer picture of the post Brexit landscape is available. Although political uncertainty in Europe, due to the rise of right-wing populists also holds back growth, this has a double edged effect. The disaster that is befalling Britain as a result of Brexit has meant that even the right-wing populists in Europe, such as the French National Front, and the Italian Five Star Movement, and its coalition partners from the League, no longer call for their countries to leave the Euro, let alone the EU. 

Brexit will have a further impetus to consolidation of the EU project, which will itself give a boost to future EU growth, and as it consolidates more towards an EU state, its position in the world will increase along with it. 

Conclusion, the prediction is a work in progress.

Back To Prediction 4

Theories of Surplus Value, Part III, Chapter 20 - Part 9

[c) Torrens and the Conception of Production Costs] 

It is a merit of Torrens, Marx says, that he raises the question of production costs. This issue was discussed earlier by Marx. It is the distinction between the production costs for the capitalist, and the production cost for society. The difference between these two things is the surplus value appropriated by the capitalist. In other words, the production cost for the capital is only what they lay out as capital, which is equal to the consumed constant and variable capital, plus the wear and tear of fixed capital. But, from a social standpoint, the production cost comprises the value of the consumed constant capital (including wear and tear) plus the new value added by the immediate labour

“Ricardo continually confuses the value of commodities with their production costs (insofar as they are equal to the cost-price) and is consequently astonished that Say, although he believes that prices are determined by production costs, draws different conclusions. Malthus, like Ricardo, asserts that the price of a commodity is determined by the cost of production, and, like Ricardo, he includes the profit in the production costs. Nevertheless, he defines value in a different way, not by the quantity of labour contained in the commodity, but by the quantity of labour it can command.” (p 79) 

There is a further issue here, in relation to the question of the advanced as opposed to laid-out capital, which is the reason for the difference between the rate of profit and the annual rate of profit. If a capital turns over say four times in a year, the capitalist advances, say, £1,000 for materials and £1,000 for labour-power. At the end of three months, this capital comes back to the capitalist, in the sale of the commodity. To this extent, the cost of production, for the capitalist, for every subsequent period of the year is zero. As elsewhere, apart from where Marx is specifically dealing with the rate of turnover, or the difference between the rate of surplus value and rate of profit, as against the annual rate of surplus value and annual rate of profit, he proceeds, here, on the basis that the capital turns over once during the year. 

Torrens understands production costs, in the sense that a capitalist does, as being the capital laid out for materials, wear and tear, and wages and upon which they calculate their rate of profit/profit margin. 

If a commodity is sold at its value, it sells at its production cost for society, i.e. the labour-time required for the production of the constant capital consumed in its production, plus the immediate labour expended upon its production. The difference between this selling price, and the price that the capitalist actually pays to produce it is equal to the surplus value. If all production is considered, i.e. total social output, then this condition applies. But, for each sphere of production, the selling price, or price of production is equal, not to the cost of production plus surplus value, but to the cost of production plus the average profit. This means that commodities produced in some spheres will sell at prices that are higher than the cost of production plus surplus value, but this is cancelled out by other commodities that sell at prices that are lower than the cost of production plus surplus value. 

In other words, because the price of production is equal to the cost of production plus average profit, these commodities that contain higher than average amounts of surplus value will sell at lower prices, so that the share of the total social profits will be less than the surplus value they contribute to that total social surplus, and vice versa. 

Saturday, 29 December 2018

Review of 2018 Predictions - Part 4

“Africa Emerges” 

I would class this prediction as being in the category of work in progress. In a year when the three year cycle was causing a relative slowdown, along with the impact of Trump's trade wars, and Brexit were limiting trade, it was perhaps too much to hope that any notable advance in the relative position of Africa would occur, in the space of just a year. What is certain is that Africa has continued to advance during the last year, and the conditions are in place for it to continue to do so. 

The underlying argument in relation to the prediction was a rejection of the old Stalinist notions about imperialism, unequal exchange and super-exploitation. The fact that China, itself once the victim of colonial exploitation, is, today, a major factor in the development of Africa, illustrates the point. The world is not divided into fixed camps of imperialist and exploited nations, but is characterised by a process of combined and uneven development, with former exploiters becoming exploited and vice versa. 

India has already overtaken its former colonial master, Britain, to become the world's fourth largest economy. In fact, as a result of Brexit, and the fall in the value of the Pound, Britain had already sunk to only the sixth largest national economy, anyway. Even without Brexit, Britain was set to fall quickly to only the 12th or 15th largest economy within a few years, as it is overtaken by countries like South Korea, and Mexico. 

In Capital III, Chapter 15, Marx writes, 

“Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.” 

In the epoch of imperialism, of a global economy based upon globalised, large-scale industrial capital, the main concern of that industrial capital is to then have access to sufficient supplies of this exploitable labour. In the developed capitalist heartlands, the establishment over the last two centuries of advanced, and extensive infrastructure, in roads, rail, air and sea ports, and so on, together with developed levels of health care and education, and a large amount of fixed capital backing labour, capital is able to utilise higher levels of exploitation via higher levels of productivity, to offset relatively smaller populations, and higher living standards. But, those higher living standards have also meant that family sizes have declined, causing the potential to obtain additional supplies of labour to be limited. 

Either capital responds to those shortages of exploitable labour, by utilising a free movement of labour across the globe to import the labour it requires, or, where that is not possible, it must then move capital to where the exploitable labour exists. It must then also invest in raising the level of productivity in those less developed economies to which it relocates, including raising levels of education and healthcare etc. That is the process of combined and uneven that globalisation also brings about. It is why, as Paul Mason has stated in his book Postcapitalism, that over the last few decades the largest rises in global living standards have been in these developing economies, whilst workers in the developed capitalist heartlands have seen their living standards stagnate. Opposition to free movement, so as to bring in the necessary labour, will result in growth, and thereby living standards in those developed capitalist heartlands falling at an increasing pace, relative to the developing economies in Latin America, Asia and Africa.

Back To Prediction 3

Theories of Surplus Value, Part III, Chapter 20 - Part 8

The production process is one in which matter and energy, in one form, is transformed into matter and energy in some other form, or place. If we consider Torrens' example, we might have 20 kilos of corn used as seed, and 80 kilos of corn paid to workers as wages. The workers transform the 80 kilos of corn paid to them as wages into labour-power. They plant 20 kilos of corn as seed, and their labour-power is then utilised to transform the seed once more into corn. In the production process, the seed absorbs chemicals from the soil, as water from rainfall, and energy from sunlight. These are additional use values to that represented by the 20 kilos or corn used as seed, or the 80 kilos of corn paid as wages. These additional use values, however, have no value. They come as free gifts of nature. Although they provide the physical constituents of additional use value, contained in the final product, they contribute no additional value to it. 

If, for the sake of argument, we say that it takes 120 hours to produce 120 kilos of corn, we might then deduce that the 20 kilos of corn used as seed represent 20 hours of value, and this is transferred to the value of the end product. In addition, the 80 kilos of corn paid to the workers as wages, represents 80 hours of value. However, as variable-capital, this value is not as Torrens believes transferred to the value of the end product, in the way the value of the constant capital is. The 80 kilos of corn used as wages, takes no part whatsoever in the production process of corn, only in the production of the worker. What takes part in the production process, is the worker's labour, and that is a completely separate process from the process of producing the worker. It is something completely new, and the production of a completely new value. This new value created is not then at all determined by the value of the labour-power, or thereby the value of the corn required for the reproduction of the labour-power. Were that not the case, surplus value would not be possible. 

In other words, if productivity remains constant, the workers will perform 100 hours of immediate labour. The end product of 120 kilos will then again have a value of 120 hours (20 hours seed plus 100 hours of new labour) and 20 kilos will be reproduced to be used to replace, in kind, the 20 kilos of seed consumed. A further 80 kilos will replace in kind the 80 kilos of corn paid as wages to the workers, required to reproduce their labour-power, leaving 20 kilos as surplus product, with a value of 20 hours. 

And, this is also why the capital value has to be determined by its current reproduction costs, and not by its historic price, because, as Marx demonstrates, a change in productivity, would change these values, and the proportion of labour-time thereby required to reproduce, in kind, the various components of the capital. Referring back to the comments made earlier by Marx, it is because it is the new value created by labour, and not the value of wages that is determinant that a drastic fall in productivity may result in losses rather than profits being made. 

Suppose instead of 120 kilos being produced, only 90 kilos are produced, as a result of a crop failure. The obvious thing is that the farmer, having advanced 100 kilos, and now having only 90 kilos has suffered a loss equal to 10 kilos. If the farmer were to continue production on the same scale, they would have to make up for this loss by adding 10 kilos of corn to their capital, so that they can advance 20 kilos of seed, and 80 kilos as wages. Viewed in terms of value, the 90 kilos have required 20 hours of materialised labour in seed, and 100 hours of immediate labour, 120 hours, so that the value per kilo is 1.33 hours. So, the value of the 20 kilos of seed that has been consumed, and must now be replaced in kind, is equal to 26.66 hours, and the value of the 80 kilos consumed as wages, and which must also be replaced in kind, is 106.64 hours, giving a total value of the advanced capital that must be replaced of 133.33 hours, whereas the value of the output of 90 kilos is only 120 hours, so that, in value terms, there is a loss of 13.33 hours, which is the value of the 10 kilos of corn that the farmer must add to their capital, to continue production on the same scale. 

This is the situation that Marx describes in Capital III, Chapter 6, where he discusses the tie up of capital, resulting from such a change in productivity, which causes the value of the commodities that comprise the productive-capital, to rise. In the converse situation, where productivity rises, causing the value of these commodities to fall, Marx describes how this causes a release of capital, which creates the illusion that additional profit has been created, whereas all that has happened is that the released capital is converted into revenue, because it no longer has to be physically utilised to replace in kind the consumed capital. Marx explains this further, later in this volume, where he deals with the confusion in this regard as demonstrated by Ramsey. The same confusion experienced by Ramsey is shared by the proponents of historic pricing, in the calculation of the rate of profit

Consequently, Torrens is wrong, in relation to his argument in terms of use value. 

“Regarded merely from the standpoint of use-value, these 20 quarters are not mere profit. The inorganic components have been merely assimilated by the organic components and transformed into organic material. Without the addition of matter—and this is the physiological expenditure—the 100 qrs. would never become 120. Thus it can in fact be said even from the point of view of mere use-value, that is, regarding corn as corn—what enters into corn in inorganic form, as expenditure, appears in organic form, as the actual result, the 20 quarters, i.e., as the surplus of the corn harvested over the corn sown.” (p 78) 

And, in any case, the question of whether the quantity of use value is greater or smaller has nothing to do with the question of of value or profit. For example, in the example above, the use values fall from 120 kilos to 90 kilos, whilst the total value remained 120 hours, and so the value per kilo rose from 1 hour to 1.33 hours. 

“But these considerations, in themselves, have as little to do with the question of profit, as if one were to say that lengths of wire which, in the production process, are stretched to a thousand times the length of the metal from which they are fabricated, yield a thousandfold profit since their length has been increased a thousandfold. In the case of the wire, the length has been increased, in the case of corn, the quantity. But neither increase in length nor increase in quantity constitutes profit, which is applicable solely to exchange-value, although exchange-value manifests itself in a surplus product. 

As far as exchange-value is concerned, there is no need to explain further that the value of 90 quarters of corn can be equal to (or greater than) the value of 100 quarters, that the value of 100 quarters can be greater than that of 120 quarters, and that of 120 quarters greater than that of 500.” (p 78-9) 

If we take the example above, and productivity were to remain at its new lower level, for example, the 20 kilos of seed has a value of 26.66 hours, which would be transferred to the final product, whilst the same 100 hours of new value would be created by immediate labour. It would still result in output of only 90 kilos, but the value of this 90 kilos is now, 126.66 hours, which is 6.66 hours more than was the initial value of 120 kilos. The tie-up of capital in relation to the constant capital, has now passed through, because the higher value of the seed is accounted for. The loss suffered by the farmer, is now solely accounted for by the fact that this newer higher value of corn causes the value of labour-power to have risen, to a level greater than the new value created by that labour. The workers continue to create 100 hours of positive new value, but to do so requires a greater value to reproduce their labour-power. 

“Thus, on the basis of one example which has nothing to do with profit, with the surplus in the value of the product over the value of the capital outlay. Torrens draws conclusions about profit. And even considered physiologically, as use-value, his example is wrong since, in actual fact, the 20 quarters of corn which form the surplus product already exist in one way or another in the production process, although in a different form. 

Finally, Torrens blurts out the brilliant old conception that profit is profit upon expropriation.” (p 79) 

Northern Soul Classics - Groovin' At The Go-Go Instrumental - The Larks

Friday, 28 December 2018

Friday Night Disco - Disco Inferno - The Trammps

Review of 2018 - Part 3

“Bitcoin Goes To Zero” 

Well, about 80% correct. From its peak of $20,000, Bitcoin now stands at just over $3,000, and continues to fall. As one of the first, and most prominent crypto-currencies, Bitcoin has fared better than some of the others. As I wrote in the prediction, none of these crypto-currencies have any value, and nor do they act as a token for something that does have value such as a coin, or bank note, backed by a state or a bank, as a claim to say a quantity of gold or silver. In fact, therefore, these crypto-currencies are not even currencies. They are simply an ephemeral asset whose only purpose is speculation. 

There is a possibility that the underlying blockchain technology used by crypto-currencies may have some future relevance. It enables money transactions to be undertaken without reliance on a central clearing house. As I have written, previously, there is no reason why a financial crisis caused by a collapse in the prices of speculative assets, such as shares, bonds, and property should lead to an economic crisis. There are two ways in which such a financial crisis can impact the real economy. 

Firstly, where businesses or the state have themselves engaged in widespread speculation, a collapse of the assets in which they have speculated can cause the firm, or the state to go bankrupt. In 1847, as Engels describes, private capitalists had used the resources of their businesses to speculate in railway shares. When railway share prices collapsed, the private capitalists had to drain money-capital from their actual businesses, to cover their losses, and margin calls on their speculative activity in railway shares. In 2008, some state bodies in small countries had speculated in financial assets, in the use of pension schemes etc., and when those shares became worthless, the state itself had to step in to cover those losses, which meant revenues had to be used to cover those losses, or else revenues that would have been used to cover government spending had to be diverted, with a consequent effect on aggregate demand within the economy. 

The second way a financial crisis can impact the real economy, is that as money gets hoarded to meet commitments, credit becomes restricted, so that a credit crunch unfolds, and interest rates are forced sharply higher, so that the circulation of capital and commodities gets restricted. As banks and financial institutions play a major role in the creation and provision of credit and liquidity, the degree to which those institutions are embroiled in such a crisis, due to their own speculative activity, means that they restrict the provision of credit and liquidity. The central bank can always fill that gap, as it did in 1847 and 1857, and in 2008, but it requires a mechanism by which the liquidity can be put into the system. It currently does that via the banks, which means it has to remain committed to keeping those banks afloat, thereby providing a backstop for the speculative activity of the banks. Various measures to separate out the speculative activity of the banks from their money-dealing activities have been used over the years, but these are always limited in application, and are usually relaxed several years after any financial crisis, so that when the next one comes along, no such measures exist to prevent it. 

There appears no reason why blockchain cannot operate alongside existing fiat currencies, rather than crypto-currencies, to provide a direct means by which the state, via the central bank can enable currency to circulate within the economy, effecting payments, and so maintaining the circulation of capital and commodities, without the need for this to go through the commercial banks, or shadow banking system, and thereby avoiding the need for a central clearing system, operated by those banks. It would mean that the central bank would always be able to regulate the amount of currency put into circulation, so avoiding a credit crunch, without having to bail-out the banks, as the central mechanisms for the transmission of liquidity into the system. 

As I expect interest rates to continue to rise, and thereby asset prices to continue to crash – probably via, some large single day, or multi-day falls, followed by a period of recovery, followed by more sustained periods of declining markets, so creating a secular downward trend, lasting around thirty years - I expect that Bitcoin will continue to fall, with minor recoveries, until all faith in it has vanished, and it sinks without trace.

Back To Prediction 2

Theories of Surplus Value, Part III, Chapter 20 - Part 7

“Torrens adheres to Ricardo insofar as he maintains that the value of a commodity is determined by the quantity of labour, but he declares that [it is] only the “quantity of accumulated labour” expended upon the production of commodities which determines their value. Here, however, Torrens lands himself in a fine mess.” (p 75) 

The reason is that Torrens argues that the value of a commodity is determined by the value of the accumulated labour, i.e. the constant capital, plus wages – which really means the materialised labour in wage goods (variable-capital) – but all of these are themselves commodities. Marx gives the example of woollen cloth. If the value of woollen cloth is determined by the value of the wool, the loom and so on, and the wages of weavers, what about when that woollen cloth is a finished product, and is then used by the tailor, for whom it is, in turn, constant capital? It's not only then the value of the wool, the looms, and the wages that are materialised in the woollen cloth, but the whole of the immediate labour, paid and unpaid, which has itself become materialised rather than immediate labour. In fact, as Marx shows, it's not the wages that are materialised in the value of the cloth – the wages, i.e. the wage goods consumed by the worker, play no part in this labour process, they only take part in the production of the worker themselves – but only the immediate labour, i.e. it is something completely new. That is a difference between constant capital, whose value is transferred to the end product, and variable-capital, whose value is not. 

“It is indeed a fine vicious circle to seek to determine the value of a commodity by the value of the capital, since the value of the capital is equal to the value of the commodities of which it is made up.” (p 75) 

If the value of a commodity is determined by the value of the capital which produces it, either this value remains the same, at the end of the production process, or it increases. If the former is the case, then not only does the constant capital simply transfer its value to the end product, but the immediate labour must only create as much new value as is represented by the value of wages that have been paid. In a more crude version that would be the same as if variable-capital, like constant capital, simply transferred its value to the end product. 

“If it represents more, the commodity contains more accumulated labour than the capital advanced did. Then profit arises precisely out of the surplus of accumulated labour contained in the commodity over that contained in the capital advanced. And the value of the commodity is determined, as previously, by the quantity of labour (accumulated plus immediate) contained in it (in the commodity the latter type of labour likewise constitutes accumulated, and no longer immediate, labour. It is immediate labour in the production process, and accumulated labour in the product).” (p 76) 

If, in the first case, the new value created by by the immediate labour was less than the value of wages (variable-capital) then the value of the final product would be less than the value of the advanced capital. No capitalist engages in production, intentionally, on that basis, but occasionally it may be the case, for example, where there is a dramatic fall in productivity, such as with a crop failure. But, even if the new value created by the immediate labour is merely equal to the value of wages, the question then arises, where did the profit come from? How could the value of the end product become of greater value than the value of the capital that produced it? 

“Where does the profit come from in this case? Where does the surplus-value, i.e., the excess of the value of the commodity over the value of the component parts of production, or over that of the capital outlay, arise? Not in the production process itself—so that merely its realisation takes place in the process of exchange, or in the circulation process—but in the exchange process, in the circulation process. We thus come back to Malthus and the crude mercantilist conception of “profit upon expropriation”.” (p 76-7) 

And, its to this conclusion that Torrens is repeatedly driven. But, Torrens is not as consistent as Malthus. Malthus has to explain the ability to sell commodities above their value by some fund that mysteriously drops from the sky, but Torrens insists that “effectual demand”, comes solely from supply, thereby restating Say's Law that supply creates its own demand. However, in that case, its again impossible to see how any overall profit can arise from the sellers of commodities each mutually cheating one another. He writes, 

““The effectual demand for any commodity is always determined, and under any given rate of profit, is constantly commensurate with the quantity of the ingredients of capital, or of the things required in its production, which consumers may be able and willing to offer in exchange for it” (Torrens, An Essay on the Production of Wealth, London, 1821, p. 344). 

“… increased supply is the one and only cause of increased effectual demand” (op. cit., p. 348).” (p 77) 

Malthus, who quotes this passage, in his “Definitions”, is right to protest against it, Marx says, and Torrens is indeed led into absurd conclusions. Torrens writes, 

““Market price” (Malthus calls it “purchasing value”) “must always include the customary rate of profit for the time being; [but] natural price, consisting of the cost of production or, in other words, of the capital expended in raising or fabricating commodities, cannot include the rate of profit” ([Torrens], op. cit., p. 51). 

“The farmer […] expends one hundred quarters of corn in cultivating his fields, and obtains in return one hundred and twenty quarters. In this case, twenty quarters, being the excess of produce above expenditure, constitute the farmer’s profit; but it would be absurd to call this excess, or profit, a part of the expenditure”… Likewise “the master manufacturer […] obtains in return a quantity of finished work. This finished work must possess a higher exchangeable value than the materials etc.” (loc. cit., pp. 51-53). 

“Effectual demand consists in the power and inclination, on the part of consumers to give for commodities, either by immediate or circuitous barter, some greater portion of all the ingredients of capital than their production costs” (op. cit., p. 349).” (p 77-8) 

This is wrong on a number of different levels. First of all, Torrens puts his example here in terms of use values, whilst drawing conclusions about exchange values. But, even in terms of use value, Torrens is wrong. It is as though, in his example, the additional 20 quarters somehow came out of nowhere. As Marx says, 

“... if one merely considers the use-value and the process it goes through, that is, in reality, the vegetative or physiological process, as is the case here—it would be wrong to say, not indeed, with regard to the 20 quarters, but with regard to the elements which go to make them up, that they do not enter into the production process. If this were so, they could never emerge from it. In addition to the 100 quarters of corn—the seeds—various chemical ingredients supplied by the manure, salts contained in the soil, water, air, light, are all involved in the process which transforms 100 quarters of corn into 120. The transformation and absorption of the elements, the ingredients, the conditions—the expenditure of nature, which transforms 100 quarters into 120—takes place in the production process itself and the elements of these 20 quarters enter into this process itself as physiological “expenditure”, the result of which is the transformation of 100 quarters into 120.” (p 78) 

Thursday, 27 December 2018

Review of 2018 Predictions - Part 2

“Trump Sends the US Into The Twin Deficits Crisis 2.0” 

Well, not quite yet. But, Trump's tax cuts for the rich have seen US interest rates rise, to cover the additional borrowing, and whilst those tax cuts for the rich initially fuelled additional speculation in financial assets, the rising interest rates have caused bond, share and property prices to fall. Of course, Trump being Trump, he does not blame his own policies, including the inflationary effects of his own global trade war, for those higher interest rates, and falls in asset prices, but has focussed his attacks on J. Powell, the Chairman of the Federal Reserve, who Trump appointed to the job. 

US Bond prices have continued to fall throughout the year, sending bond yields higher. Necessarily, that has also led to share prices falling, and higher interest rates have also impacted the US property market. Share prices fell sharply at the start of the year, and then slowly climbed higher, but have since been falling steadily again, with some large points falls, on individual days. The financial markets are now generally lower than they started the year. The only salvation for them, towards the end of the year, has been that as stock markets sold off, they were used to pressure the Federal Reserve, with Trump's help, to moderate its language about future rises in its official rates. That has caused shorter term rates to rise relative to the longer-term rates – known as curve flattening. That in turn has been used to warn that a recession may be ahead, and that to avoid it, the Federal Reserve should hold back on any further rate hikes. But, the curve flattening is only a necessary consequence of QE, and the fact that the Federal Reserve holds vast amounts of longer dated bonds itself. Were that not the case, these longer dated bonds would also have sold off, causing the yields on them to rise, and so causing yield spreads to widen. 

A major reason for Trump's tax cuts not resulting in a Twin Deficits Crisis, just yet, is that he has not yet embarked on the large-scale infrastructure spending he promised, and which the US economy requires in order to raise its efficiency. A second reason is that Trump has also embarked on his global trade war, which has reduced US imports, and encouraged import substitution. A third reason is that this is not the 1980's.  Despite Trump's trade war, the US trade deficit has continued to widen, as during the 1980's, it continues to suck in imports.  And, under Trump, the budget deficit has grown from 2.4% of GDP under Obama, to 3.5% under Trump.

The US will have to undertake large-scale infrastructure spending, and as the US working-class strengthens, spending in other areas to raise the social wage. As the spending rises, the US state will have to borrow more, and that will put significant pressure on the budget deficit, with Trump already in conflict with Congress over the budget, leading to a partial government shutdown. Trump's global trade war has reduced global growth, by restricting trade. As a result, the US trade deficit has not risen as much as it would have done. But, at the same time, the imposition of 25% tariffs on a range of US imports has both caused an inflationary impact on prices, and a lower level of US growth than would otherwise have occurred. 

A larger US trade deficit would have caused the Dollar to fall, further pushing up US import costs, and inflation, with a consequent effect on US interest rates. But, the US has not escaped that by introducing a wide range of tariffs. It simply sees the effect via a different channel. The tariffs directly raise US prices, and thereby inflation, and interest rates. In the 1980's, a period of long-wave stagnation, Reagan's Voodoo Economics caused the budget deficit to spiral, because it did not lead to sufficiently rapid growth to create the tax revenues to compensate. But, today, we are in a period of long-wave uptrend. That uptrend has been deliberately subdued for the last ten years, in order to hold back pressure on interest rates, so as to reflate asset prices, and try to avoid another financial crash. But, despite that, growth has continued to rise, employment has continued to rise, and it is again now beginning to cause wages, and interest rates to rise. So, the US has been able to increase its tax revenues from this higher level of growth, not because of Trump's tax cuts, but despite them. 

In the 1980's, tariffs would simply have caused economic growth to falter, but, today, in a climate of global upswing, although they reduce growth, and do so noticeably in the short-term, as global trade is restricted, and is being seen in global growth figures, they tend instead to simply redirect the growth into import substitution. China, faced with restrictions on its exports, to the US, due to the imposition of tariffs, will be incentivised to more quickly develop its own domestic market, as the destination for its production; the US, will engage in import substitution, producing goods formerly imported from China itself, just as it has developed shale oil and gas production, to substitute for its imports of foreign oil and gas. If Brexit occurs, and the EU then imposes tariffs on UK exports, it will simply lead to the EU producing those commodities itself, rather than importing them from the UK, probably with UK based production shifting to the EU, and that applies to things such as financial services and other service industries too. The UK, will be unable to follow that pattern, because unlike the US, China, or the EU, it is simply too small to follow that model. 

We are, therefore, seeing a short-term reduction in global growth, in addition to that caused by the usual three-year cycle, as a result of Trump's global trade war, and Brexit etc. Longer term growth will be lower than it otherwise would have been, as a result of these restrictions on trade, but in the medium term, the consequence of the long-wave uptrend will be that trade restrictions will lead to import substitution, and a shift in global production and trade, so that growth will continue to rise. The consequence of that will be that productivity will be lower than it would have been causing prices to rise faster, putting further pressure on interest rates, which in turn presses down on asset prices. 

My assessment of this prediction, therefore, is that it has simply been deferred.

Back To Prediction 1

Theories of Surplus Value, Part III, Chapter 20 - Part 6

Marx sets out here basically the same historical process he discusses in Capital III, in relation to the transformation of exchange-values into prices of production. When production is undertaken by self-sufficient producers with their own means of production, they are not compelled to sell their products on the market, which is why the commodity, and exchange-value does not take on its fully mature form. The costs for the direct producer consist of the tools and materials he uses, plus his own immediate labour. The commodity he produces, therefore, has a value equal to the labour contained in the tools and materials (materialised labour) plus his own immediate labour, and it is this value which is then compared with that of other commodities in determining its exchange value. Because the immediate labour expended on its production may be greater than what is required for the labourer's own reproduction, the value of the commodity already contains a surplus value, just as his product constitutes a surplus product, but it is not a surplus that has come to him freely, it is a surplus created by his own labour

The direct producer, therefore, is only interested in exchanging this commodity so as to obtain an equal amount of value in a different form, a different set of use values to meet their needs. But, in doing so, they automatically transform what was their own surplus labour and surplus product into a surplus product, or a surplus value, of some other form, including money, which they may use to pay rent and taxes etc. But, for the capitalist, the situation is different. 

The cost to the capitalist consists in the capital he advances—in the sum of values he expends on production—not in labour, which he does not perform, and which only costs him what he pays for it.” (p 74-5) 

The capitalist may advance the same amount of value as the direct producer, for tools and materials, but they only advance as wages, to the worker, an amount of value equal to their necessary labour, i.e. to the labour required to reproduce their labour-power. The direct producer may only have needed to work for four hours to reproduce their labour-power, but worked for eight hours. The additional four hours was surplus labour, embodied in a surplus product, which they took to market. With the money obtained from this surplus product, they could pay rents and taxes, so that their surplus value was appropriated by the landlord and the state. 

It's not as though there was some golden age for direct producers, therefore, prior to them becoming wage labourers. They performed surplus labour that was incorporated in a surplus product that was either directly appropriated by the landlord and state (Labour Rent and Rent in Kind, taxes and tithes) or indirectly (Money Rent, and taxes). This is one reason that, today, in many industrialising economies, peasants are keen to leave their villages, to become wage workers, in the town, where wages provide them with a higher standard of living. 

As Lenin describes, in “The Development of Capitalism in Russia”, the fact that peasant producers hand over surplus production or surplus value to landlords, or the state, does not mean that this affects all such producers equally. Some are able to retain a portion of their surplus production, which can then be used to acquire additional or better means of production, which raises their productivity further. They may also be able to employ day labourers themselves. By these means, a differentiation of the peasantry arises, with some becoming capitalist producers, whilst, at the other end, they become wage workers. 

The capitalist producer then only has costs of what they pay for the constant capital, and what they pay in wages, but the surplus product, and surplus value comes to them directly, for free. Moreover, where the capitalist producer differs from the direct producer is that the latter only produces so as to consume. What they sell on the market only covers what they need to buy, or to pay in rents and taxes. But, the capitalist only produces in order to obtain surplus value, which, in turn, they seek only to expand their production, so as to produce even more surplus value. What guides their decision, therefore, is what produces for them the greatest profit, in relation to the capital they advance. And, it is this which means that competition drives capital into the high profit areas, and thereby raises supply, of those commodities, reducing the market prices for them below their exchange-value, until they reach the price of production. 

Wednesday, 26 December 2018

Review of 2018 Predictions - Part 1

As I have done for several years now, I examine how accurate the prediction I made for 2018 have been. Last year I reduced the predictions from ten to six, each dealt with in a bit more detail, with each one treated as a separate post. I am continuing that format. A new set of six predictions will be set out later, for 2019. 

Prediction 1 , last year was 

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

I would say that prediction has been 100% proved correct. As the argument around the prediction stated, the 52:48 result in 2016, was a tiny majority, compared to say the 2:1 majority, in the first EU referendum, in 1975. There was an argument for saying that the 1975 result was so decisive that no one could rationally call for a new vote, for several years after it had occurred. That is not the case with the 2016 referendum, or even with the 2014, Scottish referendum. Simply births and deaths, and changes in population, result in the electorate itself being physically different within a few years, so as to invalidate the earlier poll as a democratic mandate. That is even more the case, where actual changes in conditions, means that there is reason to believe that the opinion of surviving electors from the initial poll may have changed. 

Since 2016, around 2 million elderly voters have died, and they voted approximately 80% in favour of Leave. Around 2 million young voters have joined the electorate, and they support Remain by around 80%. The initial majority for Leave was only about 1 million votes. So, about 1.6 million elderly Leave voters have died, with only around 0.4 million new Leave voters having replaced them. That means that just on that basis, the initial majority would be overturned. But, in addition, whilst around 0.4 million elderly Remain voters have died, they have more than been replaced by around 1.6 million new Remain voters who have been added to the electorate. That means that around 1.2 million net new Remain voters have been added. Assuming no change in the opinions of the surviving electorate from 2016, that would mean that the 1 million majority for Leave would have turned into a majority for Remain of around 1.5 million. 

But, we know that it's not just a matter of the physical change in the electorate that has occurred since 2016. As I said last year, in making the prediction, 

“The tiny majority for leaving the EU in the 2016 referendum, quickly turned into only a minority supporting Leave, by February of 2017. In every poll since then the majority of those polled have favoured remaining in the EU.” 

And, that in itself is remarkable, because as the Brexiters never tire of saying, in 2017, both Labour and Tories committed themselves to “respecting” the 2016 result, and implementing Brexit, although it's clear that having lost their majority on the basis of proposing a hard Brexit, a lot of those, particularly younger voters, under 50, that flocked towards Labour, did so, not because of its commitment to respect the Brexit vote, but, quite the contrary, because they saw it as the only credible means of preventing a hard Brexit, and hopefully of stopping Brexit altogether. Had the Labour leadership been actively opposing Brexit for the last three years, it's quite clear that a decisive majority, in the opinion polls, would today be demanding it be scrapped, and would be flooding to Labour, as the only party credibly being able to implement that policy, and of stopping the catastrophic Tory Brexit folly. 

That Labour did not do so, despite the fact that 90% of Labour members oppose Brexit, and around 70%-75% of its 2017 voters oppose Brexit, is down to two basic factors. Firstly, as a parliamentarist party, Labour, even under Corbyn, sees its main task as winning elections, rather than standing on clear socialist and internationalist principles, for which it seeks to build a majority of support within society, primarily within the working-class, which today constitutes the vast majority of society. That means that it is influenced by arguments about representing the views of a majority of voters in each particular constituency, rather than trying to shape those views. In that process, it is also led to fail to distinguish between those voters in each constituency that are Labour voters, and those that are Tory voters, Liberal voters, UKIP voters, and non-voters. It accepts the bourgeois constitutionalist view that the role of each MP is to represent the views of all the electors within the constituency, and not just those that support Labour. That concept itself is clearly absurd, as Brexit shows, because it is impossible to simultaneously represent two diametrically opposing views. 

The second reason, is that the Labour leadership are massively out of step with 90% of the Labour membership, and that 75% of Labour voters that back Remain. Corbyn comes from that tradition of Bennite reformists that have been influenced by the reactionary policies of economic nationalism promoted by the Stalinists, and their fellow travellers, that stems from the reactionary Stalinist concept of Socialism In One Country. The visible expression of that is seen in the presence of Stalinists such as Andrew Murray, and Seamus Milne within Corbyn's inner circle of advisors. Corbyn has, therefore, been loathe to adopt a clear position of opposition to Brexit, and been able to cover that up, by pretending that Labour was playing a shrewd game of riding two horses at the same time, allowing the Tories to fight it out amongst themselves. But, the policy of riding two horses at the same time, which under Blair was called triangulation, is precisely the kind of politics that Corbyn and the Left would previously have criticised mercilessly. 

That triangulation means that Labour is simply seen by voters as dishonest, thereby undermining one of the main characteristics that Corbyn was seen to possess that distinguished him from all previous politicians, in that kind of position. Labour's position is seen by voters as not credible, and its proponents, thereby as themselves not credible, duplicitous, and incompetent. It has led to them being visibly laughed at, and treated with scorn when they have tried to justify those positions. There was only two ways the Brexit decision could ever end up going. Either it resulted in some form of hard Brexit, or it ended up with Brexit being cancelled. 

There is a third option that the Tories could forge an alliance with Labour, or a sizeable portion of Labour MP's, to push through a Brexit based on a Norway plus solution, but it was clear that Norway was not keen on a disruptive Britain simply using them as a convenient stopping off point, and that such a solution would have split the Tory party asunder. In addition such a solution would not meet Labour's Six Tests. There is no reason to agree to being a rule taker, without having a right to take part in making the rules, which the EU will never grant to non-EU members. Any Labour MP's joining with the Tories to push through such a solution would be kicked out by their members. 

So, Labour's leadership always eventually had to swing behind one of the two options. Either it became open advocates of a hard Brexit, which would mean its tenure would have been very short-lived, and counter-productive, as the mass of the party membership turned against it, and the coalition of Remain supporting voters that came behind it in 2017, dissipated, or else it had to swing behind opposition to Brexit. Its current policy of “respecting” the Brexit vote, whilst arguing for a General Election – in which it will say what exactly? - or if that is not possible, another referendum – again in which it will argue for what exactly? - is clearly untenable. By failing to argue clearly and consistently for opposition to Brexit, the Labour leadership have actually contributed to the growing movement demanding another referendum, rather than a General Election. 

It is only the Labour front bench that can create the movement and dynamic for a General Election, by actively opposing Brexit, and committing itself to scrapping it. By refusing to do so, it has meant that the opposition to Brexit has been channelled into the demand for another referendum, which is something that a broader coalition of forces can organise around. In so doing, the Labour leadership has also marginalised itself, and its role, and handed over the leadership of that social movement to its political enemies inside and outside the Labour Party. Tory Remain supporting MP's, can much more easily support another referendum, rather than a General Election, in which they would both be seen as opposing their own leadership, and risking their seats, whilst the campaign for another referendum, has allowed the Blair-rights inside the Labour Party to gain precisely the policy proposal they have lacked, around which to rally the party membership, and wider Labour supporting community. The failure of the Labour leadership to take a principled socialist internationalist position of opposing Brexit over the last three years, has been a massive tactical blunder that has weakened its own potential position, and strengthened the position of its opponents. However, the dynamic of the Brexit process itself is now forcing the Labour leadership to have to choose. 

Opinion polls now show around 70% of the population are demanding another referendum. That does not mean that 75% would then back Remain, though it does give an indication in that direction. The pressure inside the Labour Party to back another referendum is also becoming unstoppable, or at least, demanding that Corbyn do what any opposition party is supposed to do, and oppose the Tories, by putting down a motion of no confidence in them. As soon as Corbyn comes out to demand another referendum, the dynamic will shift dramatically. He will then have to say what Labour will be advocating in that referendum.  Corbyn is saying that he will argue for continuing with Brexit, were there a General Election or referendum. The party membership will not allow that to stand.  Either Corbyn will be replaced, or he will be forced to shift his position, or a powerful rank and file movement arguing for a socialist internationalist position demanding Remain, will by-pass him, and he will be removed later.  At that point, the numbers backing Remain will rise substantially. 

One factor leading some Labour MP's to say they were “respecting” the 2016 vote, was the idea that a majority of voters in their constituency voted Leave. But, as I have set out previously, John Curtice showed why this argument was itself facile from a Labour point of view. Even in those Labour seats that voted Leave most heavily, a majority of Labour voters, as opposed to a majority of all voters, actually voted Remain. In those constituencies, it was only that a slightly smaller majority of Labour voters voted Remain, whilst a larger majority of Tory and UKIP voters voted Leave, and a greater number of traditional non-voters, took the opportunity of venting their spleen, by voting on this particular issue. 

As I wrote recently, that situation is today reversed. Firstly the latest polls show that there is a majority for Remain in all Labour held seats. Secondly, every country in the UK now has a majority for Remain. Thirdly, it is today the supporters of Remain who are the ones feeling angry and betrayed, as witnessed by the nearly a million strong anti-Brexit march, compared to the paltry numbers that Leave Means Leave are able to mobilise. In 2016, although it was a large poll, a third of the potential electorate did not vote. Leave actually obtained only 37% of the total electorate's support. Many Remain voters did not vote, thinking they could not lose. Today, the momentum is with Remain, and it will be Remain supporters who make sure they turn out to vote. 

In the initial prediction, I discussed May's disingenuous approach to negotiations with the EU, whereby, on the one hand, in order to get some fudge deal, to move on to a new stage, she surrendered her ridiculous red lines, only to row back on that, as she came under pressure from her own Brextremists and the DUP. I pointed out that, particularly in respect of the Irish border, this would lead to splits and resignations within her Cabinet, all of which came to pass. It has also meant that the EU lost patience with May's continual vacuity, and duplicity in negotiations. May's government is now in tatters as a result, but Labour has set out no clear course of its own, to remove them, in the way Lenin talked about kicking down a rotten door. 

The economic and financial consequences of this dynamic, as set out in last year's prediction, has also been borne out. The UK economy under the impact of Brexit has all but ground to a halt, and is on the brink of recession. The falling Dollar meant the Pound rose relatively, taking pressure off inflation. But, continued rises in global economic activity, though at the predicted slower pace, due to the three year cycle, meant that primary product prices, for oil, for example, rose, and wages continued to rise, whilst global interest rates also were thereby pushed higher. In the UK, the very low levels of productivity, resulting from the low-wage model created since the 1980's, meant that, even with growth slowing to a standstill, wages continued to rise, and that is initially exacerbated by a sharp rise in the number of EU workers leaving Britain to go back home, exacerbating labour shortages in various areas, and pushing up wages in specific areas significantly. I will deal with the continuation of that trend in my predictions for 2019. 

Theories of Surplus Value, Part III, Chapter 20 - Part 5

Torrens does refer to the fact that capitals of the same size employ different quantities of immediate labour, which, as set out above, is the basis of different values of output, and different rates of profit, but he goes nowhere with it. He says, 

““Equal capitals, or, in other words, equal quantities of accumulated labour, will often put in motion different quantities of immediate labour; but neither does this furnish any exception to our general principle” (loc. cit., pp. 29-30)” (p 72) 

Marx notes, 

“The merit of this passage does not consist in the fact that Torrens here merely registers the phenomenon once again without explaining it, but in the fact that he defines the difference by stating that equal capitals set in motion unequal quantities of living labour, though he immediately spoils it by declaring it to be a “special” case. If the value is equal to the labour worked up, embodied in a commodity, then it is clear that—if the commodities are sold at their value—the surplus-value contained in them can only be equal to the unpaid, or surplus labour, which they contain. But this surplus labour—given the same rate of exploitation of the worker—cannot be equal in the case of capitals which put in motion different quantities of immediate labour, whether it is the immediate production process or the period of circulation which is the cause of this difference.” (p 72) 

Its to Torrens credit that he expresses this, Marx says, but the conclusion he draws from it is that, under capitalism, the law of value changes, and is contradictory to capitalist phenomenon, in the shape of prices and profits. 

So, Torrens writes, 

““the total quantity of labour, accumulated and immediate, expended on production, is that […] which […] determines the quantity of one commodity which shall be received for a given quantity of another. When stock has accumulated, when capitalists became a class distinct from labourers, […] when the person who undertakes any branch of industry, does not perform his own work, but advances subsistence and materials to others, then it is the amount of capital, or the quantity of accumulated labour expended in production, […] which determines the exchangeable power of commodities” (op. cit., pp. 33-34).” (p 73) 

In other words, the value of these commodities is the value of the capital plus the average profit, but Torrens has no means of determining how much this average profit is. Like Ricardo, he simply assumes its existence and explains it on the basis of competition. However, as with Ricardo, although competition explains why an average rate of profit exists, and how it is formed, as capital moves from low to high profit areas, it explains neither where the profit comes from, nor why this rate of profit is 20% rather than 200%. 

Torrens continues, 

““As long as [these] two capitals [are] equal [the law of competition, always tending to equalise the profits of stock, will keep] their products of equal […] value, however we may vary the quantity of immediate labour which they put in motion, or which their products may require […] if we render these capitals unequal in amount, [the same law must render] their products of unequal value, though the total quantity of labour expended upon each, should be precisely equal” (op. cit., p. 39). 

“… after the separation of capitalists and labour[ers], it is […] the amount of capital, or quantity of accumulated labour, and not as before this separation, the sum of accumulated and immediate labour, expended on production, which determines the exchangeable value…” (loc. cit., pp. 39-40).” (p 73) 

But, it is not the law of value that has changed. The value of commodities continues to be determined, as before, by the labour-time required for their reproduction, but what changes, under capitalism, is that they no longer exchange at these values, but at their price of production. 

“Ricardo sought to prove that, apart from certain exceptions, the separation between capital and wage-labour does not change anything in the determination of the value of commodities. Basing himself on the exceptions noted by Ricardo, Torrens rejects the law. He reverts to Adam Smith (against whom the Ricardian demonstration is directed) according to whom the value of commodities was determined by the labour-time embodied in them “in that early period” when men confronted one another simply as owners and exchangers of goods, but not when capital and property in land have been evolved.” (p 74) 

But, the contradiction in this position was described by Marx in “A Contribution to the Critique of Political Economy”, and in “The Grundrisse”. It is the fact that it requires that the Law of Value (in the sense of the exchange of commodities in proportion to their values) only applies to the conditions that exist prior to capitalism. But, “in that early period”, when products begin to be traded, they do not exchange in proportion to their value. It's only as trade expands, and in particular, when specialist merchants arise, who conduct such trade, that the value of products begins to be measured and compared by these merchants, and through which they obtain their profits via arbitrage that the value of products becomes “stamped on their face”, as an exchange-value, and subsequently price, and the product thereby becomes a commodity

But, even where this commodity exchange becomes generalised, the majority of production continues to be for direct consumption by the producer. The producer only exchanges their surplus product, in order to obtain other use values, or to obtain money, to pay rents, and taxes, or to buy other commodities. As Marx sets out, particularly in the Grundrisse, it is then, only under capitalism, where this direct production of use values, more or less disappears, and all production is for sale, that exchange-value takes on its fully mature form. 

“... the product as a commodity. The law itself, as well as the commodity as the general form of the product, is abstracted from capitalist production and yet it is precisely in respect of capitalist production that the law is held to be invalid.” (p 74)