Saturday, 29 February 2020

Marx's Capital - Epilogue

Lenin, in What The So Called Friends of the People Are” responds to the work of the Narodnik theorists, and Legal Marxists. In responding to Mikhailovsky's claim that nowhere in Capital does Marx set out his theory of Historical Materialism, in the way that Darwin had done in setting out his materialist theory of the evolution of species by natural selection, Lenin points out that Marx's theory of Historical Materialism pervades Capital from start to finish. Marx had produced, in 1848, a hypothesis that the process of social development was just as much a natural process, driven by natural laws as was the process of evolution, set out by Darwin. 

Fundamental to that was the natural law represented by The Law of Value. It says that the value of all products, and subsequently, therefore, of commodities, is determined by the labour required for their reproduction. Man must produce in order to consume, at least beyond a very minimum level when Man can simply consume the free gifts of Nature. But, the amount of labour available for such production is constrained, so that Man always has to make choices about how to allocate this available labour-time, in order to produce the greatest use value with the available labour.

At the heart of The Law of Value is the fact that labour-time allocated for one purpose means giving up a quantity of some other use value, and in commodity production this takes the form that the exchange value of any commodity is measured, not directly by the labour-time required for its production, but indirectly by the quantity of some other use value that could be exchanged for it, and ultimately that takes the form of a money price. In every society, this means that humans will seek to maximise the use value they can obtain for the labour they expend. It means that, in cold climates, more labour-time will need to be expended on producing shelter, clothing etc. Everywhere, humans will seek to utilise the division of labour, so as to increase productivity so as to be able to produce more use values per unit of labour, thereby reducing the unit value of each product. Material conditions, and the need to produce by the most efficient means, to maximise the amount of use value produced, will determine the way human societies go about the way they organise production and society. In turn, as they develop new tools, and means of producing this will shape the way production is organised, and this will, in turn, shape the social organisation, and superstructure that arises from it. 

In Capital, Marx had set out to test that hypothesis not by examining all social development, but examining one piece of it, in detail, i.e. the development of capitalism as a particular mode of production

As Lenin points out, if Marx could show that the development of capitalism could be explained purely on the basis of an application of these natural laws, without any appeal to subjective explanations based upon Man's psychology, Human Nature, let alone God, then he would have validated his hypothesis. It could then be left to others to apply that same method to analyse and explain the development of other modes of production, such as feudalism etc. Moreover, if the hypothesis was validated, then, rather than appealing to subjective factors, such as psychology, and so on, to explain social development, the same material factors could explain the development of human psychology, human nature, religion and so on. 

That is what Marx achieves in Capital. He shows that capitalism evolves out of feudal production as a consequence of these purely natural laws. Individual peasant producers, need money, not for itself, but because they must pay money taxes, and they must buy some commodities in the market with money. The peasant household engages in the division of labour to use its labour-time most effectively. Some of its labour-time must be devoted to producing commodities to sell to obtain money, even if this money is only to be used to buy the other commodities the household needs to consume. This creates a social division of labour. Some products are produced by specialist artisans based in towns, which is where markets develop. As these markets grow larger, it becomes possible to produce these commodities using machines, and production on a larger scale enables a greater division of labour. The sale of the commodities leads to money accumulating, which can be used as capital, to employ wage labour, from which surplus value is extracted, which leads to a further accumulation of capital. 

The non-capitalist producers of these commodities cannot compete. They go out of business, their means of production are bought up by the capitalist producers, who grow larger. The former independent producer, also, therefore, has to become a wage labourer. The former independent producer, who becomes a wage labourer, also has no time left to produce those things they previously produced for their own direct consumption, and must now also buy them in the market place. That means other specialist producers of those commodities arise, and a further social division of labour, and expansion of the market arises. Marx also demonstrates, by this method, the way a continuation of this process of concentration and centralisation of capital itself leads to its own transformation into socialised capital, as the transitional form of property to Socialism. 

Lenin applies Marx's method to Russia, which was undergoing this process of transformation from feudalism to capitalism. The Narodniks saw this development as unnatural, and contrary to the natural path of development in Russia, based upon the production of the village commune. The Narodnik approach, which was that of Sismondism, was based upon subjectivism, and a moral repugnance at the horrors that capitalist development brought with it, as opposed to seeing it as an inevitable process, and one which was historically progressive, as a result of the development of the productive forces, and potential to move forward to Socialism that it brought with it. 

As a result, the Narodniks were led to continually downplay the progressive role that capitalist development was playing in Russia; they continually forecast that its development was limited and would lead to a catastrophe, and so on. There are modern day equivalents of the Narodniks and their petit-bourgeois moralism, and subjective approach. It can be seen in the various “anti-capitalist”, and “anti-imperialist” groups and ideas that focus on opposing capitalist development, and particularly capitalist development in less developed economies, brought about by foreign investment. The Narodniks themselves, in arguing that capitalism in Russia was something unnatural, emphasised that it was something that was being imposed by outside forces, or by “the authorities”, rather than growing as a result of natural internal dynamics. Another example of this petite-bourgeois moralism is the so called Third Camp, which displayed a similar subjectivism and moralism, in relation to its disdain for the development of the productive forces in Russia by a deformed workers' state.

The Narodniks and Legal Marxists based themselves primarily on a letter sent by Marx to Vera Zasulich in 1881. Zasulich had asked Marx if it was possible that Russia could by-pass capitalism as a stage in its social development, and create socialism based upon the existing Mir, or peasant village commune. Consistent with his theory of historical materialism, Marx replied that, in theory, such a development was possible. However, such development, again consistent with his theory, requires that the relevant material conditions are in place. Marx's argument is quite simple. Socialism becomes possible, in general, because first capitalism has existed, and has revolutionised production. It has replaced scattered individual peasant production with collective socialised production, based upon co-operative labour, and a social division of labour. It has raised society's productive capacity so that living standards are raised, the Civilising Mission of Capital, as Marx describes it in The Grundrisse. This Civilising Mission, means that the workers have more time, during the day, to educate themselves, to become more cultured, and so on, all of which are required for them to become a new ruling class. And, indeed, the most important thing that capitalism does in this process, is to create an organised working-class, which is then able to become the active agent in social development that can take over the socialised capital that capitalism itself creates, and thereby transcend capitalism, and create socialism.

So, Marx's argument is simply that, provided capitalism has then developed the means of production sufficiently to make Socialism possible, then it is not necessary for every country on the planet to have to go through the stage of capitalist development, because those that have done so can then make these technologies available to any other country that wishes to adopt them as the basis of its own socialist development. In Theories of Surplus Value, Marx explained that this process of collectivising the means of production could only be carried out, in Western Europe, by capital, because the village commune had already been dissolved. There was no basis upon which the individual peasant farmer could cooperate with others to bring about this collectivisation, and the collectivisation was necessary for capital to accumulate, which is the basis for the revolutionising of production. But, in Russia, the village commune still existed. It is theoretically possible for the village commune, therefore, to simply introduce these new technologies, created by capitalism, and to operate them, from the beginning on a collective basis by the commune.

Marx is then, here, setting out the argument against those bourgeois elements in Russia who insisted that Russia must pass through a capitalist stage of development. But, Marx is not saying, here, either, that Russia could simply pass straight to socialism based on the village commune, without the other required material conditions being in existence. In order for the members of the village commune to move directly to socialism they would have themselves to desire such a transition. And, the village commune did not exist in isolation. A process of capitalist development was already underway in Russia, and this created its own dynamic, its own set of material conditions. In his Preface to Capital, Marx wrote,

“Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results. The country that is more developed industrially only shows, to the less developed, the image of its own future.” 

This process itself acts to dissolve the peasant commune, and to create a differentiation within the peasantry. This differentiation creating a small class of richer peasants, and a larger class of poor peasants, itself creates material conditions that generate a set of ideas, and social relations. And, consistent with this thesis it is not possible for the Russian peasant in the village commune to have in their head the required conception of socialism unless they have an example of it already in front of them.  In a later letter, Engels, writing to Danielson, on precisely this matter, spells it out clearly, and explains what Marx meant in his letter to Zasulich. 

“You yourself admit that "the social conditions in Russia after the Crimean War were not favourable to the development of the form of production inherited by us from our past history." I would go further, and say, that no more in Russia than anywhere else would it have been possible to develop a higher social form out of primitive agrarian communism unless – that higher form was already in existence in another country, so as to serve as a model.” 

In other words, the working-class elsewhere, primarily, therefore, in Western Europe, would have to have already established socialism, and this would then act as a model for the Russian peasants to transform the village commune, utilising, at the same time, the technologies that western capitalism had developed, and that the workers had now taken over.

And, Engels is again explicit that this socialist development in Western Europe would only be possible because of that very capitalist development.

"That higher form being, wherever it is historically possible, the necessary consequence of the capitalistic form of production and of the social dualistic antagonism created by it"

Marx in his letter to Zasulich, however, had not just rested content with setting out this theoretical possibility of a transformation of the village commune, whilst bypassing capitalism, but had also examined the reality of social development in Russia. That reality included the social transformation that had already taken place as a result of the Emancipation of the Serfs in 1861, and also the consequence of the Crimean War. The Emancipation of the Serfs meant that millions of peasants were placed into debt slavery, because they now had to buy the land they farmed. It results in a rapid transformation of serfs and peasants into wage labourers, whilst transferring large amounts of land into the hands of capitalists. The Crimean War also highlights to Russia's rulers the need to rapidly industrialise in order to compete with its already industrialised rivals in France, Germany, Turkey and Britain. This process of industrialisation proceeds from the towns. As Danielson himself recognised, therefore, capitalism was already well established in Russia, in industry, by the latter part of the 19th century.

In 1877, Marx himself had to write to the Editor of the Otecestvenniye Zapisky complaining about the way Mikhailovsky had misrepresented him. Marx wrote,

“In order that I might be qualified to estimate the economic development in Russia to-day, I learnt Russian and then for many years studied the official publications and others bearing on this subject. I have arrived at this conclusion: If Russia continues to pursue the path she has followed since 1861, she will lose the finest chance ever offered by history to a nation, in order to undergo all the fatal vicissitudes of the capitalist regime...

If Russia is tending to become a capitalist nation after the example of the Western European countries, and during the last years she has been taking a lot of trouble in this direction – she will not succeed without having first transformed a good part of her peasants into proletarians; and after that, once taken to the bosom of the capitalist regime, she will experience its pitiless laws like other profane peoples. That is all.”

And, in his letter to Zasulich, he expands upon this, describing not only the proletarianisation of the peasantry, but also the active role of the Russian state in dismantling the village commune and promoting capitalist development. The former arises necessarily from the economic conditions, whilst the latter is not simply some whim by the state, but itself is a reflection of material conditions.

“Since so many different interests, particularly the new ‘pillars of society’ constructed under Alexander Il’s benevolent empire, find an advantage in the present situation of the rural commune, why should they knowingly conspire to bring about its death? Why do their spokesmen denounce the evils weighing upon it as irrefutable proof of its natural decay? Why do they wish to kill the goose that lays the golden eggs? Quite simply, the economic facts, which it would take me too long to analyse, have uncovered the secret that the present situation of the commune is no longer tenable, and that, through mere force of circumstances, the present mode of exploiting the popular masses will go out of fashion. Thus, something new is required; and this something new, insinuated in the most diverse forms, always comes clown to the abolition of communal property, the formation of the more or less well-off minority of peasants into a rural middle class, and the straightforward conversion of the majority into proletarians.” 

And, this is an important point that is also taken up by Lenin in relation to the nature of the Tsarist state as a capitalist state, and more than twenty years later by Trotsky in his analysis of the Stalinist state as a degenerated workers' state. That is the distinction between the political regime, and the class nature of the state. In the first instance, the Tsarist political regime is feudal in nature, but objectively, the Tsarist state is forced by the material conditions to promote the development of capitalism, because the productive relations in the country already dictate that the fate of the state itself depends on such development. In the second instance, the political regime of Stalinism is one which represents the interests of the Stalinist bureaucracy, and yet the soviet state is forced by the nature of the underlying productive relations, based upon statised property, and the position of the working class as ruling social class, to promote the development of those productive relations.

Ultimately, whatever the superficial appearance given by the nature of the political regime, it is the dominant productive relations which determine the nature of the state. The state is led to foster those relations, or else see the society itself wither, and with it then the position of the state is undermined. Subjective will can never override this reality. In order for Russia to avoid the path of capitalism it would have required a revolution, but a revolution was only possible, if the Russian peasants had a model in front of them of the socialist society to be created, and if they had access to advanced technologies which could only have been made available to them by workers in the West, having undertaken their own revolutions. But, as Engels sets out in his letter to Danielson, no such development had occurred in Western Europe, and so the potential for Russia to avoid capitalism did not, in reality exist. Engels says,

“But the West remained stagnant, no such transformation was attempted, and capitalism was more and more rapidly developed. And as Russia had no choice but this: either to develop the commune into a form of production from which it was separated by a number of historical stages, and for which not even in the West the conditions were then ripe – evidently an impossible task – or else to develop into capitalism; what remained to her but the latter choice?”

Engels, however, presages Lenin's view on this, and is not at all downbeat about the fact that Russia will have to then undergo this capitalist phase of its development. In Two Tactics of Social Democracy, Lenin writes,

“And from these principles it follows that the idea of seeking salvation for the working class in anything save the further development of capitalism is reactionary. In countries like Russia, the working class suffers not so much from capitalism as from the insufficient development of capitalism. The working class is therefore decidedly interested in the broadest, freest and most rapid development of capitalism. The removal of all the remnants of the old order which are hampering the broad, free and rapid development of capitalism is of decided advantage to the working class.” 

This sentiment, which is a million miles from that of today's Sismondists amongst the ranks of “anti-capitalists” and “anti-imperialists” simply echoes the views of Marx and Engels. So, Engels writes to Danielson, that the commune is doomed,

“But on the other hand, capitalism opens out new views and new hopes. Look at what it has done and is doing in the West.” 

And, the reason that the commune was doomed was not just because, the Tsarist state was being forced to seek its dissolution as a means of developing capitalism so as to save Russia, but also because the very process of economic development leads in that direction. In The Origin of The Family, Private Property and the State, Engels describes how the primitive commune is dissolved, and gives way to the rise of slave society. It arises, because slight variations, initially, in the fortunes of certain individuals leads eventually into larger variations. These larger variations create even greater advantages for some than others, which in turn creates even larger variations. An incentive towards inheritance, which implies a development of private property is established. And, this leads to families being established as separate institutions from the gens.

Engels makes the same point, here, in his letter to Danielson. The Russian village commune could only survive so long as all of the peasants within it were more or less equal.

“As to the commune, it is only possible so long as the differences of wealth among its members are but trifling. As soon as these differences become great, as soon as some of its members become the debt-slaves of the richer members, it can no longer live. The kulaki and miroyedy (kulaks and parasites) of Athens, before Solon, have destroyed the Athenian gens with the same implacability with which those of your country destroy the commune. I am afraid that institution is doomed.” 

The Narodniks tried to argue that there were no wide divergences, and they attempted to do that by presenting data based on averages for the village, which, by their nature, ignored the very real differences that existed within the village. Lenin destroys that argument by a systematic analysis of the data in relation to the economic and social relations within the village. In the coming weeks, therefore, I will be setting out the application of Marx's method utilised in Capital, by Lenin in his analysis of the development of capitalism in Russia, and his critique of subjectivism, and moral socialism.

The Value Composition of Capital - Part 1 of 4

The Value Composition of Capital is the ratio of the value of constant capital to variable capital, assuming any given technical composition of capital. It, is thereby distinguished from the Organic Composition of Capital, which is the value composition as determined by the technical composition. It thereby measures changes in the relative unit prices of the elements of constant capital, as against the unit price of labour-power, wages

These changes in unit prices are a consequence of changes outside the particular production process. For example, it is not changes in the production of yarn that causes the value/price of cotton to change. Nor is it changes in the production process of yarn that causes the value of labour-power/wages to change. A change in the value of cotton is caused by changes in the production process of cotton, for example, a change in productivity in its production, or in the production of means of production used in cotton production. A change in the value of labour-power arises from changes in the value of wage goods, which is the consequence of changes in social productivity

However, changes in market prices can arise from changes in demand and supply. For example, if a new spinning machine is introduced that is capable of spinning a hundred times as much cotton with a given amount of labour, which also, thereby reduces the value of yarn, and causes an increase in the demand for it, it will also cause a spike in the demand for cotton, to be processed by these spinning machines. If the supply of cotton cannot be rapidly increased, the market price of cotton will rise sharply, even though the value of cotton has not changed. This increase in the price of cotton is a direct result of the changed conditions in yarn production. It causes a rise in the value composition of the capital in yarn production

Such occurrences happen at the start of every new long wave uptrend, as the new industrial technologies, introduced in the previous period, and new ranges of commodities, cause demand for inputs to rise sharply, as trade and economic growth increase. The old mines, quarries, and farms that have been exploited extensively are unable to increase their output sufficiently, without much higher marginal costs. As demand outstrips supply, prices rise sharply. But, once seen as sustained, these higher prices cause a surge in investment in new mines, quarries, farms etc., often requiring the opening up of new territories, which also requires investment in roads, railways, warehouses, buildings and so on. Marx describes this situation in Theories of Surplus Value, Chapter 9, illustrating that the natural fertility of these new facilities is often higher than that of the existing facilities, contrary to Ricardo's assumption. However, the existing facilities have the advantage that they have had decades of investment in them, so that their natural fertility has been supplemented by these accumulated investments. It takes more than a decade, Marx says, before the investment in the new facilities, therefore, raises them up above the fertility of the existing facilities, so that market values begin to fall. 

The prices of primary products like copper, as well
as food, soared as the new long wave uptrend began
in 1999.  It took around 12-13 years for the new
investment in mines, quarries and farms, once it was
started to reduce market values, and to bring the
additional supply that then caused these prices to drop
That was seen in the period after the new long wave uptrend began in 1999. The prices of all primary products rose massively, as a result of rising demand. In the following decade, there was large-scale investment in new facilities. New mines and quarries were established in Central Asia, Africa, and South America, new industrial farms were established in Angola, and other parts of Africa, as well as promoting an increase in land clearance and the creation of new farms in South America. And, consistent with Marx's analysis, following on from the work of Anderson, new technologies were introduced, which raised existing levels of fertility, and made possible profitable exploitation of resources. For example, fracking meant that large shale deposits in the United States could be exploited, creating a large increase in the supply of oil and gas. 

The global financial crisis of 2008/9 caused
a global economic slowdown, which led to
primary product prices dropping sharply, but most of
the global economy continued to grow after 2008,
particularly China, and other rapidly industrialising
economies, which are the ones that use most
raw materials for production.  The market price of
 primary products rapidly spiked back up.  Its only as
all of the new production and supply came on to the
market that prices of primary products began to fall
In line with Marx's analysis, in Chapter 9, after all of this additional investment, in both production facilities and infrastructure, was completed, the market value of all these products was reduced, and, in addition, the large increase in supply brought about a collapse in the previous inflated market prices, with the price of oil, for example, going from a high of $150 a barrel in 2007, to just $26 a barrel in 2014. 

Marx notes, in Theories of Surplus Value, that, even as labour is thrown out of production, by new labour-saving technologies, the standard of living of those workers still in employment can and usually does rise. That is still consistent with wages falling. It simply requires that the prices of wage goods fall by more than the fall in wages. That can be seen in the 1930's, for example. Workers who lost their jobs, and became long-term unemployed saw their living standards fall sharply. However, the prices of most commodities also fell significantly, and by more than wages. That meant that those who remained in employment saw their standard of living rise.

It was most marked in the new industries that arose in the 1930's, such as motor car production, the production of domestic, electrical consumer products, and so on, which were developed in new areas in the Midlands and South-East. The wages in these new industries were also generally, higher than had been the case in the old declining industries. This was one reason that the Jarrow Marchers marched through these areas, so as to remind workers there that workers elsewhere in the country were still suffering tremendously. 

When the period of long wave uptrend commences, therefore, it is in these new industries that the greatest increase in employment occurs, which was seen in the postwar period. But, this period is characterised by the continued existence of a pool of available labour resulting from the creation of a relative surplus population, following on from the previous technological revolution, and introduction of labour-saving technologies. To the extent that additional labour is required, so as to boost absolute surplus value, it is achieved by extending the working-day, and working week, including the use of overtime payments if required. When this reaches its limits, the social working-day is extended by bringing married women workers into the workforce, children if possible, and by immigration, including where possible, the migration of peasant producers from rural areas into the towns and cities. 

Its only when all of these methods of extending the social working-day have been exhausted that the conditions described by Adam Smith, and by Marx in Capital III, Chapter 15, apply, whereby capital accumulates faster than the available labour supply, that the limits to absolute surplus value are reached, and the demand for labour causes wages to rise, and profits to be squeezed. That was seen in the 1960's and 1970's. It is this that is the basis of a crisis of overproduction of capital.

Northern Soul Classics - Try A Little Harder (Instr) - The Keymen Strings

Friday, 28 February 2020

Friday Night Disco - Red River Rock - Johnny & The Hurricanes

Theories of Surplus Value, Part III, Addenda - Part 80

Marx quotes Newman

““The great premium attached to the possession of Gold and Silver, by the power it gives of selecting advantageous moments of purchasing, gradually gave rise to the trade of the Banker.” The Banker “differs from the old Usurer in this respect, that he lends to the rich and seldom or never to the poor. Hence he lends with less risk, and can afford to do it on cheaper terms; and for both reasons, he avoids the popular odium which attended the Usurer” (Francis William Newman, Lectures on Political Economy, London, 1851, p. 44).” (p 537) 

This highlights the earlier point that interest rates are high under usury, because of the small number of lenders, who hold a monopoly, and the desperation of the borrowers. Under capitalism, the capitalist always has their own profits as a source of funds, and, as commercial credit develops as a means of conducting trade, between firms, the requirement for money itself, and for borrowing is reduced. It is only when such credit is restricted, and during crises, when firms must borrow to pay bills and stay afloat, that these old conditions reappear, and interest rates rise to their highest level. But, in normal times, money-lending capital is subordinated to industrial capital, and a growing mass of realised profit, along with a growing mass of other money reserves, means that the potential supply of loanable money-capital grows over time, causing a gradual, long-term tendency for the average rate of interest to fall

Marx cites a number of other writers who describe the way that usury results in a dissolution of feudal landed property. 

““The introduction of money which buys all things, and in consequence of that, the favour due to creditors, who have lent their money to a possessor of land, brings in the necessity of legal alienation for the payment of what has been thus lent…” (John Dalrymple, An Essay towards a General History of Feudal Property in Great Britain, London, 1759, fourth ed., p. 124). 

“According to Thomas Culpeper (1641), Josiah Child (1670) and Paterson (1694) wealth depends on the self-imposed reduction in the rate of interest on gold and silver.” [This rule] “was observed in England for almost two centuries” (Charles Ganilh, (Des systémes d’économie politique…, seconde éd., tome premier, Paris, 1821, pp. 58-59]).” (p 537-8) 

Hume understood that the rate of interest is regulated by the rate of profit. When the rate of profit rises, this encourages a greater demand for capital, as existing businesses expand, and new potential capitalists seek to enter production. But, a higher rate of profit, resulting in a larger mass of realised profits, is also the main source of supply of money-capital. The rate of interest is then determined by these two counteracting forces, rising where the increased demand for capital exceeds the additional supply and vice versa. 

Hume sets out his theory as against Locke, but Hume was basing his theory on the more highly developed capitalism. 

“This was even more true of Bentham when he wrote his defence of usury towards the end of the eighteenth century.” (p 538) 

In the Middle Ages, high rates of interest were paid by the feudal aristocracy, but also existed in the towns, where they were made possible by the very high rates of profit made by the town bourgeoisie in their dealings with the country people who they cheated. 

“In Rome, as in the entire ancient world—apart from merchant cities, like Athens and others, which were particularly developed industrially and commercially—[high interest was] a means used by the big landowners not only for expropriating the small proprietors, the plebeians, but for appropriating their persons.” (p 538) 

Marx quotes from Gilbart's The History and Principles of Banking (London, 1834). 

“That a man who borrows money with a view of making a profit by it, should give some portion of his profit to the lender, is a self-evident principle of natural justice. A man makes a profit usually by means of traffick. But in a country purely agricultural, and under such government as was the feudal system, there can be but little traffick, and hence but little profit.” Legislation against extortionate interest is therefore justified in the Middle Ages. “Besides, in an agricultural country a person seldom wants to borrow money except he be reduced to poverty or distress by misfortune” (p. 163).” (p 539) 

Gilbart goes on to explain that, in these precapitalist economies, the rate of interest regulated the rate of profit, whereas under capitalism, the rate of profit regulates the rate of interest. So, the town merchants who made large profits from their dealings with the countryside, handed over a large portion of those profits in interest to the money lenders. During the period of Mercantilism, and colonialism, a similar relation exists, with money-lending capital financing expeditions and trade, whilst the feudal aristocracy and merchants scooped up large rents and profits from their plantations and trade. 

“In the seventeenth century, Josiah Child in his Brief Observations concerning Trade and Interest of Money, and Thomas Culpeper in his Traité contre l’usure (1621) likewise, attacks Thomas Manley (author of the tract Interest of Money Mistaken) whom he calls the “champion of the usurers”. Naturally the point of departure—like that of all the arguments of English economists of the seventeenth century—was the wealth of Holland where there was a low rate of interest. Child considers that this low rate of interest is the cause of wealth. Manley declares that it is only the result [of wealth].” (p 539-40) 

Marx gives a number of citations from Child and Culpepper to that effect. Culpepper write, 

“the abatement of interest causeth an increase of wealth, and the increase of wealth may cause a further abatement of interest. But that is best done by the midwifery of good laws…” ([A New Discourse…, p. 59;] Traités, p. 156). 

… I am an advocate for industry, he for idleness…” ([A New Discourse…, p.71;] Traités, p. 179).( p 540) 

Marx concludes, 

“He appears here as the direct champion of industrial and commercial capital.” (p 540) 

And that concludes my reading of Marx's Capital, and Theories of Surplus Value, and my commentary on it, begun on 22nd July 2012. It is like saying farewell to a long-time friend. However, its now time to move on to an early application of the historical materialist method that Marx employs and validates in Capital. That is Lenin's application of that method to analyse the development of capitalism in Russia. 

The Value Composition of Capital - Summary

  • The Value Composition of Capital is the ratio of the value of constant capital to variable capital, assuming any given technical composition of capital. It, is thereby distinguished from the Organic Composition of Capital, which is the value composition as determined by the technical composition. It thereby measures changes in the relative unit prices of the elements of constant capital, as against the unit price of labour-power, wages.
  • If the technical composition of capital is such that 10 kgs of cotton are processed by 10 hours of labour, and the rate of surplus value is 100%, then, if the price of 1 kg of cotton is £10, and wages are £10 per hour, £100 of cotton (constant capital) is processed by 10 hours of labour, the wages for which (variable-capital) are £100, so that the organic composition of capital is 1:1.
  • There are several ways in which the organic composition can change.
    • The technical composition of capital might change. So, if productivity in spinning rises, 10 kgs might be spun in, say, 8 hours. Wages for this 8 hours are only £80, so that the organic composition rises from 1:1 to 5:4, or 1.25:1. If productivity in spinning declined, the opposite would occur, and the organic composition of capital would fall.
    • The value composition of capital might change.
      • The price of elements of constant capital might change.
      • Wages might change.
  • Constant capital comprises fixed capital and circulating constant capital. If the price of buildings, machines, or materials rises, whilst wages remain the same, the value composition of capital will rise, and it will cause a consequent rise in the organic composition.
    • The unit value of constant capital may change as a result of a change in productivity, but the unit price may change simply as a consequence of a change in demand and supply. The effect, Marx says, in Capital III, Chapter 6, is the same.
    • The rise in the unit value/price of constant capital will cause a fall in the rate of profit s/(c + v), because the amount of labour employed v, has not changed, and so the amount of new value created by labour, and consequently the amount of surplus value, s, produced remains the same whilst c has risen, causing (c + v) to rise.
    • The rise in the unit value/price of c, means that any given amount of capital will now buy less of it, and so given an unchanged technical composition of capital, less labour will be required to process this smaller quantity of material. Marx calls this a tie-up of capital. Either less labour is employed, so that the quantity of new value, and surplus value is reduced directly, or else more capital must be advanced (tied-up) in order to continue production on the same scale. This creates the illusion of a reduction in profit, because a portion of profit must now be allocated simply to continue production on the same scale, but the amount of surplus value has not changed.
    • The opposite occurs where the unit value/price of elements of constant capital falls. It causes the value composition of capital to fall, with a consequent fall in the organic composition. It causes the rate of profit to rise. It creates a release of capital, which creates the illusion that the mass of profit has risen, even though the amount of surplus value is unchanged.
    • If the unit price of elements of constant capital rises, it may not be possible to continue production efficiently on a smaller scale. Producers must continue to produce the same level of output, which requires that demand also not fall. Producers may not be able to pass on the increase in the unit value/price of elements of constant capital without demand falling significantly. So, producers must absorb some or all of the rise in the price of elements of constant capital out of their profits, causing a squeeze on profits.
  • The value composition may change as a result of a change in wages, with the unit value/price of elements of constant capital remaining unchanged.
    • The value of labour-power may change as a result of a change in social productivity, which changes the value of wage goods.
    • Wages may change as a result of demand and supply for labour-power.
    • If wages rise, and the normal working-day remains the same, the rate of surplus value will fall. Assuming no change in the unit value/price of elements of constant capital, the value composition of capital will fall, and the organic composition of capital will also fall. The rate of profit will also fall for two reasons. Firstly, assuming production continues on the same scale, the mass of surplus value falls, as a result of the fall in the rate of surplus value. So, s/(c + v) falls. But, also v rises, as a result of the rise in wages, so that (c + v) rises. This is the opposite of the situation described by Marx in relation to his Law of the Tendency for the Rate of Profit to Fall, in which the rate of profit rises, when the organic composition of capital falls. This is, rather, the explanation of a tendency for the rate of profit to fall provided by Marx's predecessors, such as Smith, Malthus and Ricardo, and is predicated on diminishing returns, i.e. falling social productivity, whereas Marx's law is predicated on rising social productivity.
    • Smith assumed that capital accumulates faster than labour supply, so that demand and supply causes wages to rise and profits to fall. This causes profits to be squeezed, and the rate of profit to fall.
    • Ricardo accepted Malthus' fallacious population theory, and believed that labour supply would rise to meet the demands of capital for additional labour, as wages rose. A rising supply of labour checks the rise in wages. However, he argued that this population growth meant that more wage goods would have to be produced, particularly food. More land would have to be brought into cultivation that would be less fertile, i.e. diminishing returns. Food prices would rise, so that the value of labour-power, and, so wages must rise, causing profits to fall. In addition, he argued that this would also cause the prices of raw materials, produced on or from the land, to rise, causing a squeeze on industrial profits, and a fall in the industrial rate of profit. That would mean that the surplus profit in agriculture rises, causing rents to rise, which creates an additional squeeze on profits.
    • A rise in hourly wages also results in a tie-up of capital. Either the mass of variable-capital remains the same, in which case less labour is employed, so that also less material is processed, less new value, and so less surplus value is produced, or else a portion of profit, must now be set aside as wages so that production can continue on the same scale.
  • Marx, in analysing Hodgskin's explanation of falling profits, in Theories of Surplus Value, Chapter 21, points out that, even on Malthus' calculation of population growth, labour supply would not keep pace with capital accumulation. So, a limit to absolute surplus value would be reached. Beyond that point, therefore, surplus value itself would not increase, and so, any additional capital would have been overproduced. The rate of profit would fall. However, Hodgskin failed to take into account, the growth of productivity, and the effect in creating a relative surplus population. In the short-term, following a prolonged period of extensive accumulation, labour supplies get used up, as Smith had suggested, which creates the limit on the expansion of the social working day, and of absolute surplus value. It also causes wages to rise, and so relative surplus value to fall, as Smith suggests, and as described by Marx in Capital III, Chapter 15. However, this crisis of overproduction, then provokes a response by capital. It innovates, and introduces new labour-saving technologies, which create a relative surplus population, and cause wages to fall, the rate of surplus value to rise, and the rate of profit to rise.
  • Ricardo is wrong, because Malthus' population theory is wrong, and because the assumption of diminishing returns is wrong. There may be short-run diminishing returns, short-run rises in marginal cost, but, in the medium and long-term, marginal costs fall, and there is increasing not diminishing returns to scale. This is a function and determinant of the long wave cycle, as short run costs might rise, only to provoke the opening up of new more fertile lands, mines and so on, and the application of new technologies.
Forward To Part 1 of 4

Thursday, 27 February 2020

Heathrow - A Good Decision Made Badly

The proposed third way for Heathrow has been thrown out by the courts.  That is a good decision, but having unelected judges strike down laws made by elected politicians is bad.  Bad political decisions should be overturned politically not by the courts, who will be a first line of defence of the ruling class should a Workers Government, or even a radical social-democratic government begin to make laws that challenge the power of capital.

The decision against the third runway is good, because far too much economic power and influence already resides in London.  London is massively subsidised by the rest of the country in meeting its needs for labour, although the revenues created in London, and appropriated by the capitalist state, in turn subsidise the activities of the state, including the provision of welfare, in the rest of the country.  But, vast amounts of that welfare are also expended wastefully in London itself.  The government spends an astonishing £22 billion a year on Housing Benefit.  The average per person is around £5,000, with 4.6 million recipients, but the majority of those recipients are in London, and the average payment per recipient in London, is much higher than in the rest of the country, because of the exorbitant costs of housing in London.  The government has to make these payments, because otherwise, the cost of living for millions of workers in London would be just too high, and businesses in London would not be able to recruit the workers they require without paying far higher wages than they do now.  That would be a big incentive for those firms to relocate their activities elsewhere, including elsewhere in Britain, though with Brexit they are increasingly likely to relocate to Dublin or other centres in Europe. 

But, Housing Benefit, which pours these billions of pounds into the pockets of landlords that could otherwise have been spent on capital investment, is only one of the subsidies given to London employers.  Commuters to London complain about the cost of rail fares, but the fact is that those fares are themselves massively subsidised by the taxpayer, i.e. by all of the other workers in the rest of the country who do not commute to London, or even use the trains.  The reason again that the government has to subsidise these rail fares is, because, as living costs in London have soared uncontrollably, businesses could only recruit the labour they required, at wages they were prepared to pay, by drawing in workers from further and further away from London, where living costs are lower.  The subsidies given to the private rail companies are today far greater than any support the state gave to British Rail.  But, without the huge subsidies to rail fares, commuters to London would need much higher wages to cover their cost of working in London, and that would mean that employers in London would again be incentivised to relocate their business.  The HS2 decision is just the latest huge subsidy being given to London employers, to enable them to draw in cheaper Labour from the rest of the country, which again will act to the detriment of the economy outside London.

If the government really were committed to rebalancing the economy in Britain it would scrap all of these subsidies that go to employers in London, so that economic development could be encouraged elsewhere.  If all of that £22 billion handed to landlords as Housing Benefit were instead used to invest in infrastructure in the rest of the country, it could go to producing well paid employment for workers.  In the process, providing well paid employment would be the best way of removing the need to spend billions on welfare payments.  Its all well and good saying that London is the hub that draws in all of this revenue, which is then used to finance welfare elsewhere in the country, but if the subsidies to employment in London were not there, so that the true cost of labour in London had to be borne by capital, it would encourage employment to shift to other parts of Britain, so that the requirement for welfare was reduced to begin with.  Workers in the rest of Britain don't want a life of welfare dependency subsidised by rich Londoners, we want proper, well-paying, permanent and secure jobs!

If you want to rebalance the UK economy, though good luck with that in the context of Brexit, and the governments intention to undermine workers rights, and to introduce further distortions via the introduction of freeports and so on, then the decision not to go ahead with a third runway at Heathrow is a necessary start.  Instead we need a huge expansion of airports outside London, so that the rest of the country can have a direct and quick connection to the rest of the world, without it all being channelled through London.

Early this morning, I spent three hours taking my son to Manchester Airport, because he's flying off to the Canaries, giving appropriate disregard to the ridiculous moral panic going on over coronavirus.  Normally, I'd take him to Crewe Station to go by train to Manchester, but in the middle of the night, there are no trains.  But, its ridiculous to have to spend three hours to get to Manchester Airport and back.  That's longer than the flight to the Canaries.  Indeed, its ridiculous to have to drive from Stoke to Crewe and back to be able to get a train, so as then to get a flight.

But, many flights still are only practical from London, which at best means a two hour train journey prior to the flight.  In the past, when we used to go to the Canaries every Christmas on last minute Ceefax deals, I've driven as far as Newcastle on Tyne, and even Glasgow to be able to get the available package.  Every major conurbation like North Staffordshire should have its own regional airport, so that the economies of these areas can be directly linked to the world outside.  That is a fundamental requirement for balanced regional economic development.

Environmentalists will undoubtedly complain, because restricting air travel has become a latest hobby horse, but the benefits for balanced and increased economic growth, and for reducing all of the waste of energy, time, as well as pollution caused by journeys to more distant airports, more than offset it.  In any case, the answer to pollution caused by air travel is not to ban air travel, but to impose greater restrictions on aircraft makers, in order to encourage them to produce cleaner, and more efficient engines and aircraft, including a more rapid development of electrically power craft.

Theories of Surplus Value, Part III, Addenda - Part 79

Marx gives another long quote from Luther from “An die Pfarrherrn wider den Wucher zu predigen” dealing with a justification for interest on the basis of compensation for loss, i.e. where the lender agrees to provide a loan for a given period, but the borrower does not repay it on time, causing the lender to suffer a loss, because they do not have the funds to pay their own bills, or misses out on being able to make some advantageous purchase or investment. Luther says, 

“Therefore thou art a usurer, who makes good thine own imagined losses with your neighbour’s money, losses which no one has caused thee and which thou canst neither prove nor calculate. The lawyers call such losses non verum, sed phantasticum interesse. A loss which each man dreams up for himself… 

It will not do to say I might incur a loss because I might not have been able to pay or buy. That would mean ex contingente necessarium, making something that must be out of something which is not, to turn a thing which is uncertain into a thing which is absolutely sure. Would such usury not eat up the world in a few years…” (p 535) 

Luther quotes Aristotle, who, in his “Politics”, says that usury is against nature, because it always takes more than it gives. Luther continues, 

“But such does a usurer, and sits the while, safe on his chair, when he ought rather to be hanging on the gallows and eaten by as many ravens as he has stolen guilders, if only there was so much flesh on him that so many ravens could stick their beaks in and share it…” (p 536) 

Luther continues his lurid description of the money-grubber, as a werewolf or other monster draining the lifeblood from humanity. 

“And they write of the great deeds of Hercules, how he overcame so many monsters and frightful horrors in order to save his country and his people. For usury is a great horrible monster, like the werewolf, who lays everything waste, more than any Cacus, Geryon or Antaeus, etc. And yet he decks himself out and wants to appear pious so that people may not see where the oxen have gone (that he drags backwards into his den).” (p 536) 

Marx notes, 

“An excellent picture, it fits the capitalist in general, who pretends that what he has taken from others and brought into his den, emanates from him, and by causing it to go backwards he gives it the semblance of having come from his den.” (p 536) 

Luther writes, 

“Thus the usurer wants to deceive the world, as though he were of use and gave the world oxen, whereas, in reality, he seizes them for himself and consumes them…” (p 537) 

This is not just a detailed description of usury in Luther's time, but also of capitalism in general. The capitalists and their apologists present things as though it is the capitalist that provides capital, whereas it is the worker who produces commodities that comprises the material elements of capital, which the capitalist merely seizes from the worker, dragging them back to his den. It is the worker who produces the surplus value which forms the profit seized by the capitalist, which is used to accumulate capital, which then confronts the worker not as the product of their own hand, but as alien property, which oppresses them. 

The Technical Composition of Capital - Part 5 of 5

As Marx describes in Theories of Surplus Value, during the period of primitive accumulation of capital, the process is one in which the means of production are concentrated and centralised, rather than undergoing an expansion. The rise in the technical composition of capital, during this period, is one that results simply from an increased social division of labour, and increasing division of labour within the workshop. It is not that more tools, or more materials are produced, or that more means of consumption are produced for the labourers. All of these already exist, but are merely brought together in a small number of locations, by capitalists. This cause of rising productivity, and a rising technical composition of capital continues, but a much greater influence on this rising technical composition, and rising productivity, is the effect of the introduction of additional fixed capital, and newer technologies. The latter goes hand in hand with the accumulation of capital, as the scale of output expands. 

Its not, then, just that a manufactory employing 100 workers replaces ten handicraft workshops employing 10 workers each, or that an industrial factory employing 1,000 workers replaces ten manufactories each employing 100 workers. Not only are workshops replaced, but the number of manufactories also increases, so that, instead of 100 workers being employed, 500 workers are employed. The basis of this is that the size of the market itself expands, and so production must take place on a larger scale. This larger scale of production justifies the capitalist in advancing capital for the larger building, and in advancing more capital for the hire of additional workers. The scale of production makes it possible with this larger number of workers to have some of them devote their time to specific tasks, i.e. they become detail workers. This increased division of labour, even as these workers continue to use hand tools, means that a given quantity of labour now processes a greater quantity of material. The technical composition of the capital, thereby, rises. 

Similarly, the market has to have increased to a minimum size to justify production on a sufficient scale that capitalists are led to advance the additional capital required to acquire a large factory, and to invest in machinery, as well as the materials to be processed by it. This accumulation of capital, which goes hand in hand with an increase in the technical composition of capital, is never about more technologically advanced capital simply replacing existing capital, and labour, with the level of output remaining constant. The absolute mass and value of capital advanced increases, including the mass of labour employed. It is only that the value of fixed capital, and of labour falls relative to the mass and value of output, as a consequence of rising social productivity. However, for the reasons described above, there are periods within the long wave cycle in which, as a result of previous technological development, there are ample supplies of labour-power, so that production can be expanded on the same technological basis – extensive accumulation. At other times, in order to overcome crises of overproduction, a technological revolution is required, and a period of intensive accumulation occurs. During such periods, associated with the latter parts of the crisis phase of the long wave, and the following stagnation phase, this intensive accumulation sees gross output rise more slowly compared to net output, as producers focus on producing a given amount with less labour. This is the basis, during such periods, for a growth in the net product/surplus value, and a rise in the rate of profit

The nature of this intensive accumulation, as labour-saving, is not manifest, here, in an actual reduction in employment. Employment levels may fall, during crises of overproduction, and unemployment levels rise, but a rise in unemployment is not the same as a fall in employment. If the workforce is 20 million, and 19 million are employed, unemployment is 1 million. If the workforce rises to 22 million, and 20 million are employed, the level of employment has risen, but unemployment will have doubled from 1 million to 2 million. The fact that more labour in total is employed, means that the total amount of new value created rises, and along with it the amount of surplus value.

The rise in the rate of surplus value, due to falling wages, means that a further increase in the mass of surplus value occurs. Periods of intensive accumulation are marked by an increase in the absolute amount of capital employed, and in the absolute numbers employed, but a relative decrease in employment compared to output. Or put another way, output can rise faster without the previous levels of increase in employment, which led to the crisis of overproduction. Its not just that the new machines lead to labour being thrown out of employment, but that the additional workers entering the workforce find it harder to find employment. It is this which creates the relative surplus population, which causes wages to fall. 

As Marx puts it, 

“If it be said that 100 millions of people would be required in England to spin with the old spinning-wheel the cotton that is now spun with mules by 500,000 people, this does not mean that the mules took the place of those millions who never existed. It means only this, that many millions of workpeople would be required to replace the spinning machinery. If, on the other hand, we say, that in England the power-loom threw 800,000 weavers on the streets, we do not refer to existing machinery, that would have to be replaced by a definite number of workpeople, but to a number of weavers in existence who were actually replaced or displaced by the looms.” 

(Capital I, Chapter 15) 

If we look at the 1980's and 90's, new technologies, introduced during that time, replaced existing labour. Some of those displaced did not have the skills, or were in the wrong locations to take up alternative employment. They had to take on lower paid jobs where they were available. The children of some of these workers, when they came into the workforce, were better able to take up some of the newer jobs that had been created, but less labour is required for any given increase in output. This, in itself, holds back the growth of the market, and the economy, because a slower growth of employment, and of wages means a slower rise in demand for wage goods, and so of aggregate demand. 

But, for the reason Marx suggests above, the new technology creates new markets for commodities, and so also creates the potential for additional accumulation of capital and employment of labour. Spinning cotton using mules reduced the value of yarn, and thereby of cloth and clothes. By reducing these prices it creates additional demand for yarn, cloth and clothes, expanding the market. More capital can then be employed in satisfying this demand, and more workers are employed – though relatively fewer than would have been required previously for this level of output. Additional capital is required to produce the additional cotton required for processing into yarn, which means more labour employed in that sphere. More profits are also produced, and these profits feed into additional consumption by capitalists, and additional capital accumulation. 

Take the development of tunnel boring equipment. Without it, the construction of the Channel Tunnel would have been too costly, and so would not have been undertaken. By reducing the cost, the tunnel boring machine, which hypothetically replaces tens of thousands of workers that would have been required to dig the tunnel by hand, in fact, creates thousands of actual jobs, because it makes possible a construction that would otherwise not have happened, i.e. it creates an additional market, which did not exist. The same is true with genetic sequencing. The cost of decoding the first genome was $3 billion. That cost has fallen to around $100, for the reasons already alluded to. Now, at this cost, a vast new market has been created. People can cheaply have their DNA sequenced to trace their genealogy, to test for potential health risks and so on. Thousands of people are now employed in this industry, providing this service, and millions more will be employed in the health sciences industry producing individually tailored health solutions, cheaply, for every individual, based upon such sequencing, so as to prevent illnesses developing, and to more effectively treat any illness that does arise. 

The new technologies, developed in the previous cycle, become the standard technology. Eventually, all of the old machines/technology is replaced. Further expansion can only occur by employing more of the new machines/technology along with additional labour. Growth in productivity slows. In other words, expansion of the technical composition of capital slows down. Capital accumulation now becomes extensive. This creates the conditions once more for labour supplies to begin to be used up. With or without Marx's Law of the Tendency for the Rate of Profit to Fall, therefore, crises of overproduction recur, as the limits on the production of absolute and relative surplus value impose themselves, and wages rise squeezing profits. Firms are, once again, forced to engage in innovation and technological development to overcome the shortage of labour, and crisis of overproduction. The real basis of crises of overproduction is changes in the value composition of capital. A rapid increase in the technical composition is the means by which the crisis is overcome as technological development raises productivity, and creates a relative surplus population, overcoming the overproduction of capital.

Wednesday, 26 February 2020

Brexit Talks Are About To Begin

Anyone who thought that with the election result it meant that Brexit was going to “get done” by January 31st, must, by now, have realised that they were badly misled. For all intents and purposes, Britain remains in the EU, with the only difference being, as one of the more astute BP MEP's recently realised, that it no longer has any MEP's, members of the Council of Ministers, or Commission, and so no say in EU rules and regulations, and their impact on Britain. Its as though they had closed ears, as well as closed minds, during the referendum debates. Talks on Britain's relationship with the EU, are only now about to get underway, and those that expected that Brexit was going to “get done” will again be badly disappointed. 

In the talks over Brexit that are set to start next month, between Britain and the EU, the true nature of Britain's subordinate position will quickly become apparent. Tory MP's and Tory media pundits continue the ridiculous posture that, because Boris Johnson won a clear majority for his Brexit position, that in some way puts him in a more powerful position as against the EU. Total nonsense. It may give him a clearer mandate for the demands he puts to the EU, but it makes not one scrap of difference to whether the EU agrees to any of those demands! Its true that if, for example, a union holds a ballot of its members, and gets a large majority for the pay claim it puts to the employer, it gives them a stronger mandate in those negotiations, but it in no way means that the employer's response to those demands is changed. That depends on quite different factors, i.e. what is the power relation between the two. 

If an employer is faced with a small, unskilled workforce, for example, that can easily be replaced, they can simply turn to the union, and reject their demands, saying they will sack the workers, and get new ones. If the company is already working on tight profit margins, and conceding to the pay claim would mean it makes losses, its unlikely to concede to the demands, because to do so, would mean committing commercial suicide. If, however, the employer is making large profits, has a large, skilled workforce that cannot easily be replaced, they are far more likely to concede a pay rise. And this, essentially, is the problem that Britain faces in its relations with the EU. 

Because Britain has decided to leave the EU, and now set itself up in opposition to it, there is absolutely no reason why the EU will pay any attention to votes in the UK parliament, in determining its own actions, because it will, instead, respond to the views of EU citizens, and, increasingly, those views will represent interests that are contradictory to the interests of Britain, and its citizens. Its one reason that socialists oppose Brexit, because it inevitably creates such borders and divisions between workers. So, whatever demands Britain puts to the EU, the EU's response to them will be determined by EU interests. The question then is, in these negotiations, what are the power relations, and so who has the upper hand. Its only necessary to ask the question to know the answer. Its the EU by a country mile. 

The EU is a $14 trillion economy, whereas the UK is a minnow by comparison, at just $2 trillion. The EU is an economy with 450 million people, whereas the UK is an economy of just over 60 million people. The UK has been in relative decline for more than a century, as it was surpassed by Germany and the US, and then by Japan. Its relative decline, which became manifest in the 1970's, as a new global period of crisis began, was itself one reason that it sought sanctuary and salvation by joining the EU, so as to mitigate the problems that its relative smallness, compared to larger countries and economic blocs, presented. Even with that mitigation, the relative decline continued, as other large economies, and economic blocs surpassed it. China overtook Britain; more recently India overtook Britain; in the near future, other countries, such as Mexico, South Korea, and Brazil, look set to overtake Britain, and Brexit is likely to accelerate that relative decline, as the stagnation now affecting the UK economy illustrates. 

The Brexiters often claim that Britain's actual weakness is a source of strength. So, they say the EU will want to do a good deal with Britain, because we have a large visible trade deficit with the EU. In other words, they sell us a lot more stuff than we sell them. But, the EU could put tariffs on UK goods and services, or other forms of non-tariff barrier that would not change that, and would, in fact, work even more in the EU's favour. If the EU puts 10% tariffs on a range of UK goods, it will make it more difficult for the UK to sell those goods in Europe. Those worst affected, such as big car makers, may then decide to simply shift their production into the EU to avoid the tariffs. It means that the UK jobs go, and additional EU jobs are created, strengthening the EU economy, and weakening further the UK economy. All of the wages, profits, rent and interest go directly into the EU economy, and then putting money into the pockets of EU shopkeepers, window cleaners, gardeners and so on, and taking it out of the pockets of similar people in Britain. 

And, some of those cars and so on, would themselves have been sold in Britain. Instead, now, they will be produced in Europe, and exported to Britain, so that the result is actually that the UK's visible trade deficit with the EU would rise, rather than fall. Its a win-win for the EU, and lose-lose for Britain. Now, of course, the UK could say that it would impose 10% tariffs on EU exports to Britain, but this is precisely where the much larger economy of the EU, compared to Britain, comes in. Its worth car makers moving to the EU if it imposes tariffs, because they want to continue to sell into its 450 million strong market, not to mention the global market that opens up to them, as a result of all of the trade deals that the EU has already negotiated with around 40 other countries and trading blocs. But, its not worth them moving to the UK, so as to avoid tariffs imposed by the UK, just so as to sell into the much smaller UK market. 

The only people who would suffer from that are UK car buyers, who would see the price of cars rise by 10%, or whatever the tariff was that was imposed. Something similar has been seen in the US, with Trump's imposition of tariffs on China, and the EU, and that is even given the much larger size of the US economy. Prices of cars, for EU citizens, would not rise, because the car production would simply shift to the EU from Britain. But, if Britain, under WTO rules, imposed tariffs on EU cars, it would have to impose the same tariffs on cars from everywhere else, unless it had specific trade deals with those other countries. The fact is that Britain would continue to import cars from pretty much the same places it does now. It would just increase the cost of cars in Britain, to the detriment of British consumers. 

The other argument that is put that tries to turn UK economic weakness into a strength is that a falling Pound means that any tariffs imposed by the EU, would be cancelled out by this lower value of the Pound. But, this is a kind of magic money tree argument. The relative values of currencies fall mainly due to economic weakness, and particularly differences in productivity. A falling Pound means that an hour of labour in Britain now creates less new value than an hour of labour somewhere else. So, yes, it might mean that British cars become cheaper in Euros, but it means that you then get fewer of those Euros for every car you sell. At the same time, you need those Euros to buy French Wine, or Spanish fruit and vegetables, and now you have fewer of them to be able to buy these imports. The price of all those things, in Pounds, in the UK market, then goes up, so that again, the cost of living for UK workers goes up. In order to keep the same standard of living, because the value of an hour of UK labour has fallen, compared to an hour of EU labour, it means that UK workers have to work longer hours. 

But, there are many things that the UK imports solely as components of other goods it then produces. Because it then has to pay more for all those things due to the falling Pound, a large part of any competitive advantage it might have had from a declining currency is itself lost. Things like food and energy will continue to be imported, but, then, at a higher cost, leading to higher levels of inflation. Inevitably, the Bank of England would have to step in to raise official interest rates, and reverse some of the massive money printing that has left a sea of liquidity ready to begin to inflate prices. Already, the global economy had started to resume growth following the initial effects of Trump's trade war. It has again temporarily been slowed due to the moral panic over coronavirus, but in a few weeks time that will have disappeared from the news, and there will be a surge to catch up on the trade that has been lost. A pick up in economic activity will more than likely begin to see global interest rates rise again, and Britain will again be badly hit by that, given its continued dependence on financial services, and speculation, as rising interest rates cause asset prices to fall. Brexit will simply amplify the effects of that. 

But, also, Britain is tied to the EU simply because of proximity. Krugman won his 2008 Nobel Prize for his theory explaining trade patterns, and the location of production on precisely this basis. If you are BMW, or Toyota building cars in Britain, your Just In Time production and stock control is based around bringing in components every 20 minutes, and those components come from close by. It depends on components moving backwards and forwards across borders many, many times. But a central aspect of the profitability of modern companies is a high rate of turnover of capital. Thousands of components, produced in a short amount of time, can be bulk shipped in a similarly short period of time, within the EU. But, that cannot happen if, instead, they have to be shipped back and forth across the Atlantic to the US, or across the Pacific to India, China, or Japan etc. As Krugman showed, even shipping the end product these large distances is not economically efficient, which is why producers tend to site their production close to the large markets for their output. But end products are larger in unit value, and only make a single journey, components are small in individual value, and move repeatedly across borders, before the end product is completed. The idea that the UK could sustain Just In Time production relations with the US, China or Japan, rather than with the EU, is therefore, just ridiculous, and a large part of UK trade, is, in fact, involved in these kinds of trade flows rather than the sale and purchase of end products. 

Britain will need to retain frictionless trade with the EU in order to sustain these Just In Time systems, and without those systems, UK industry would quickly become totally uncompetitive and suffer a rapid decline. And, so, of course, Boris Johnson and his government proclaim that they do, indeed, want such frictionless trade, in the form of a Canada style free trade agreement. And, the EU says they will grant that wish, on condition that the UK essentially remains inside the EU, but without its former political involvement. In other words, it has stated what was obvious from the beginning. Precisely because of Britain's proximity to the EU, the only basis on which the EU can give such a deal to the UK is if the UK continues to accept the rules of the single market, and customs union. That also means accepting continued free movement, and jurisdiction of the ECJ. 

Britain, can, of course, proclaim its independence, and say that it will not accept such terms. But, then, it will be in a similar position that the Grunwick workers found themselves in in the 1970's, or that the Silentnight workers found themselves in in the 1980's, or indeed that the Miners found themselves in 1984-5. In all those cases, other workers came to the assistance of their comrades, and yet we still lost, because the balance of power was against us. Boris Johnson might hope that Donald Trump will come to his assistance in such a situation, in the same way that in 1974, workers came to the aid of striking miners to shut the gates at the Saltley coke depot, but, if Johnson is sensible, he will not rely on such support coming his way, or in it being effective even if it did. 

There is a lot of nonsense being talked about Boris Johnson looking for an excuse for a No-Deal Brexit. He wants no such thing, certainly not one that involves a crash-out. If that is what he wanted, he would not have capitulated in October last year, and agreed to write the letter to ask for an extension of Article 50. He would, instead have done as promised, and died in a ditch, or at least faked such a death, whilst resigning from office, and forcing an election. And, having obtained the extension, he would not have again capitulated to the EU, by going back to the deal that the EU had proposed to Theresa May, and which Johnson had originally opposed, whereby a border was put down the Irish Sea. Indeed, in Johnson's version of that deal Northern Ireland is incorporated in perpetuity in the Irish economy with an inevitable dynamic established for a rapid unification of Ireland. 

Johnson has two options. Either he gets a Canada style free trade agreement, in the next few months, which means accepting the rules of the single market and customs union, essentially remaining in the EEA, which is what the Faragists always originally claimed was what they wanted, or else he attempts to negotiate a “managed No Deal”. The latter would mean establishing a deal that avoids all of the chaos that would ensue from a crash out. It would mean agreeing to remain within various EU institutions, such as on air safety, medicines, and so on. But, remaining in all these bodies on an ad hoc basis, membership of which is automatic for all EU members, would be costly, as Britain would be charged a subscription for each. Nor would Britain have any political input into the decision making of these organisations. 

But, negotiating such a deal, even on a bare bones basis, is not going to be possible by June. If no deal is achieved by June, then Britain would have to apply for an extension of the transition period. The EU would almost certainly demand that any such extension be for as long as possible. The fact is that Johnson and his government are on the hook. They cannot go for a No Deal Crash Out, because the consequences, now, as they always have been, would be disastrous for Britain. They would be damaging for the EU too, but only to a small fraction of the extent of the effect on Britain. For Northern Ireland, it would be particularly disastrous, leading almost certainly to the demand for a Border Poll, and a United Ireland. For Scotland, it would put rockets under the demand for independence, and it may even have similar consequences in Wales, as well as provoking a political reaction in London and other large metropolitan centres. 

Johnson cannot countenance a crash out, because the chaos would destroy him and his government, and the EU must know that. The most likely outcome is that Johnson will have to bluff and bluster, before capitulating once again to the EU, and agreeing a deal that involves a treaty obligation to abide by single market and customs union rules and regulations. It will involve a similar war inside the Tory Party as in 1848 over Repeal of the Corn Laws. For all of the sound and fury, in order to win a parliamentary majority, he will have to rely on votes from the SNP, Liberals and Labour to avoid a crash out, and to essentially keep the UK within the framework of the EU.