Tuesday, 31 March 2020

Crises of Overproduction - Part 14 of 14

2. Overproduction of Capital

2.3 The Cyclicality of Crises

b) The cycle depends upon changes in social productivity. 

  1. Crises are resolved by the introduction of new labour-saving technologies:- 
  • that raise productivity, displace labour, reduce wages, and thereby boost the production of surplus value.
  • They reduce the value of labour-power, and so raise the rate of surplus value, as well as releasing variable-capital for additional accumulation.
  • They create a relative surplus population that is only gradually absorbed in the following phases of the cycle.
  • New technologies enable raw materials to be used more efficiently, and create new types of commodities, and so new markets and demand
  • They cheapen the production of raw materials, and of fixed capital, thereby raising the rate of profit, and creating a release of constant capital than can be accumulated. This provides the basis for the new upturn.
  • This causes the mass and rate of profit to rise, overcoming the overproduction, however, because this rise in social productivity means that less labour is employed relative to the capital employed, compared to the same point in the previous cycle, it means that the rate of profit tends to be lower than at the same point in the previous cycle. This is the conclusion from Marx's Law of The Tendency of the Rate of Profit to Fall.
  • The new upturn sows the seeds of its own destruction.
  • Sharp rises in demand for raw materials cause material prices to rise sharply, which may not be passed on without causing a contraction of demand.
  • Slowly, the reserve army of labour is used up.
  • The new labour-saving technologies lead to intensive accumulation, as new machines replace older machines, but eventually all the old machines have been replaced, so that any new investment is simply an addition of new machines - extensive accumulation. Productivity growth slows as a result.
  • Slower productivity growth means that any rise in production now requires relatively more labour.
  • The increased size of the labour force means that total wages rise, leading to an increased demand for wage goods, leading to increased investment in wage goods production, requiring the employment of more labour.
  • The available labour supply does not grow as fast as the demand for labour, even after women workers, immigrants and so on are employed, and overtime rates are paid to encourage overtime. Absolute surplus value cannot be expanded further.
  • The faster demand for labour, relative to supply, causes wages to rise, and so squeezes surplus value. Eventually, any increase in capital causes wages to rise to an extent that the mass of surplus value actually falls. This is an absolute overproduction of capital, but, in many cases, even if the mass of surplus value still rises, it rises only by a small amount, whilst the squeeze on the rate of profit is enough to cause some firms to produce losses, resulting in relative overproduction. A partial crisis of overproduction affecting only some large companies, or a sufficiently large number of smaller companies leads to a generalised crisis of overproduction.
  • The rise in wages also leads to a crisis of overproduction of commodities, because:-
  • higher living standards lead to workers satisfying their demand for a range of staple goods
  • reduced profits, and a requirement to use a larger proportion of profit for investment rather than personal consumption, means that the luxury consumption of capitalists is reduced
  • workers, even with higher living standards, cannot replace the luxury consumption of capitalists for many commodities
  • workers require new ranges of commodities to consume, at prices they can afford, but these are not yet available, until new technologies make them available, and/or reduce the price of those commodities.
  • The price elasticity of demand for wage goods means that demand for them cannot be increased without reducing the price to levels whereby the capital is not reproduced.
  • The overproduction of capital thereby leads to a squeeze on profits that eventually results in a crisis, and the rate of profit drops sharply and suddenly.
  • Firms again begin to seek out new labour-saving technologies, and the cycle begins again.

Monday, 30 March 2020

On The So Called Market Question - Part 4

Lenin asks how the theory expounded by Krasin relates to the Market Question? 

“True, the theory introduces a correction into the ordinary conception of the development of capitalism, but, evidently, the explanation of how capitalism develops in general does not in the least help to clear up the question of the “possibility” (and necessity) of the development of capitalism in Russia.” (p 89) 

Krasin distinguishes between the development of capitalism in breadth, whereby capital spreads into spheres previously dominated by natural economy, and development in depth, whereby spheres already dominated by capital expand. Krasin presents a diagram showing the exchange relations between the capitalist spheres in the economy, and those still dominated by natural economy.

In the capitalist sphere, the surplus value is consumed productively, so that capital is accumulated, whereas in the case of the direct producers, the surplus value is consumed unproductively by them increasing consuming, buying a wider range of commodities from the capitalist sector, in the market. The conclusion from this, drawn by Krasin, is that the capitalist sector expands at the expense of the natural sector. The capitalist sector increasingly takes over the production of those commodities currently produced by the natural sector. 

Krasin notes, 

“From the above diagram of the development of capitalism in breadth it follows that the whole of production is most closely dependent upon consumption in ‘foreign’ markets, upon consumption by the masses (and from the general point of view it makes absolutely no difference where those masses are—alongside the capitalists, or somewhere across the ocean). Obviously, the expansion of production in A, i.e., the development of capitalism in this direction, will come to a stop as soon as all the direct producers in W turn into commodity producers, for, as we saw above, every new enterprise (or expansion of an old one) is calculated to supply a new circle of consumers in W.” (p 91) 

This presentation, Lenin says, is fully consistent with the Narodnik view. That view, as presented in the diagram, sees capitalism in Russia as somehow separate from the rest of the economy. Lenin notes, 

“... from which it is quite impossible to see what connection there is between the two “spheres,” the capitalist sphere and the people’s sphere. Why do commodities sent from A find a market in W? What causes the transformation of natural economy in W into commodity economy? The current view has never answered these questions because it regards exchange as something accidental and not as a certain system of economy.” (p 91-2) 

Nor had the Narodniks explained where the capitalist sector of the economy itself had come from. 

“... the matter is presented as though the capitalists have come from somewhere outside and not from among these very “direct producers.” Where the capitalists get the “free workers” who are needed for enterprises a, a1, etc., remains a mystery. Everybody knows that in reality those workers are obtained precisely from the “direct producers,” but the diagram does not show at all that when commodity production embraced “sphere” W, it created there a body of free workers.” (p 92) 

Sunday, 29 March 2020

COVID19 – Once Again On Testing

The government is again making a big thing about testing for COVID19. Tony Blair also chipped in, saying that probably everyone would have to be tested. The government is lining up numerous places to produce testing kits, which will not become big business for something only months ago, nobody knew we needed. But, there are two types of test, and, at this stage of development of the epidemic, only one type of test makes any sense in undertaking. That is the test to see who has had COVID19, and, thereby, acquired immunity to it. That is not what most tests being undertaken are seeking to ascertain. 

South Korea has been very successful in constraining the spread of COVID19, and deaths from it. It has done so without any lock-down of its economy, of the kind that was implemented in Wuhan, in Italy, the UK, and elsewhere. It achieved that for one simple reason. Right from the beginning, South Korea tested anyone coming into the country to see if they had COVID19. If they did, it isolated them until they were no longer infectious, thereby stopping the spread of the disease. As soon as anyone, already inside the country, showed symptoms, they too were tested. If they were shown to have the virus, they too were isolated, and everyone they had been in contact with was traced, and tested similarly. They could do this, because, doing it early, the absolute number of infections was manageable. In these early periods, the number of cases of infection was say, 100. We know that for every person infected, during the period they are contagious, of up to two weeks, they, on average, infect three more people. So, starting with 100 cases, in a fortnight, they would infect 300 other people. That 300 people would, in the next fortnight, infect 900 people, and so on. 

But, its relatively easy to be able to test 100 people, especially if most of these are people who are routinely tested on entering the country. Quickly testing this 100 people, and preventing them coming into contact with others, prevents them spreading the virus. Identifying those they came in contact with, quickly, and testing them, reduces the time they can be infecting others, if they had, in fact, been infected themselves. If 300 people are infected over 2 weeks, that is approximately 20 people per day. So, taking into consideration the initial 100 people, if 120 tests per day are conducted, the further spread of the virus can be checked. That is what South Korea managed to do. Even if the original number is 1,000, rather than 100, it means that so long as you test 1200 people per day, and effectively trace the consequent contacts, you can isolate all those infected, and thereby prevent the spread of the virus from the start. 

China had failed to do that, so that the number infected already ran into the tens of thousands. The same is true with Italy, and with the UK, and the US, Spain, France and elsewhere. Unless you do this extensive testing and tracing right at the start, when the numbers are manageable, testing to see who currently has the virus is pretty meaningless, and useless, taking up valuable time and resources, firefighting, when that time and resources could be better utilised elsewhere. The total number of people infected in the UK, for example, based upon the current number of deaths, and a mortality rate of 1 in 1000, is over 1 million. In fact, because it takes around three weeks for people to die, after they have been infected, the current number of deaths, at over 1,000, probably means that more like 3 million plus people have already been infected with COVID19, in Britain. But, if we start with the 1 million figure, it becomes obvious why it is impossible to test on a sufficient scale, as to be able to isolate those infected, or to trace those they have already infected. In two weeks, 1 million people infect 3 million. But, 3 million over two weeks, means that, on average, 200,000 people are infected per day. So, first you need to be able to test 1 million of the initial group, and, on top of that, you need to be able to test a further 200,000 people a day, so as to isolate all of these people, and prevent them spreading it to other people. But, the 200,000 people infected on Day 1, in turn, infect 600,000 people in two weeks, if not isolated, and that amounts to an additional 15,000 people per day. It is clearly impractical to be able to test this number of people per day, so as to identify those infected, and then to be able to trace those they have been in contact with. And, that is really the only point of undertaking such testing. 

For every person you test and find positive, and from there trace 3 other people they have infected, you will have missed another 1,000, 10,000 and so on, because its impossible to test on that scale in the relevant time frame. Moreover, the testing itself is rather pointless. There have been over 100,000 people going into hospital who have been tested for COVID19, but only 10% of them tested positive. The other 90% were suffering from some other flu-like virus that had laid them low. However, having now gone into hospital with these other viruses, they are quite likely then to actually contract COVID19 itself, as the experience of Italy showed, because being in an immune compromised condition already, being put into hospitals where COVID19 is already running rampant, and with inadequate facilities for isolation, lack of protective equipment for staff, and so on, the chances of then being infected are significantly increased, as was the case with people who died in hospital from MRSA, having gone in even for very minor complaints to begin with. 

So, today, for example, it was reported that health workers are to be tested to see if they have COVID19. But, what is the actual purpose? If a health worker, or care worker, does have COVID19, but does not know it, because they are asymptomatic, or have only very mild symptoms, as 80% of the population do, what is achieved by finding out this information. The implication is that such workers would then be sent home for the duration. But, if it turns out that currently 30, 40, 50 or 60% of health workers have the virus, and you send them home, what implication do you think that has for the NHS, as a whole, not just for the care of people with COVID19, but for the care of each and every individual that requires hospital treatment? It would mean that the NHS would collapse, because it could not function with such a depletion of its staff. 

Moreover, as with the rest of the government strategy, it would be idiotic to respond in that way. If an NHS worker or care worker has COVID19, but is asymptomatic, or only has very mild symptoms, there is no need for them not to continue working and providing care. It is only necessary that they have proper PPE, so that they do not infect other members of staff, and, in particular, patients. But, the fact is that all NHS staff, and care workers, should have had adequate PPE from Day 1, so that they did not get infected with COVID19 themselves, and, more importantly, that they did not infect patients, and others in the at risk 20%. The only health and care workers who should have been off work, whether they were ill or not, infected or not, were those that were in the 20% themselves, so that their own health and lives were not put at risk. But, the NHS and care system did not do that from the beginning, because it is grossly understaffed already, as a result of ten years of Tory austerity, and it is short of 100,000 nurses, a situation getting worse because of the idiotic policy of Brexit, which is depriving the NHS of the EU workers it requires. 

As the Oxford Study this week suggests, the actual numbers already infected with COVID19 could be as much as half the population. If that is the case, then the mortality rate estimated by Sir Partick Vallance of 1 in 1000 could itself be a significant overestimation, although it is itself significantly less than the mortality rate that some of the more wild and hysterical suggestions of potential deaths have used. The Glasgow study cited by Wobarg, itself suggests that coronaviruses like COVID19, are part of the general number of flu-like deaths each year, and there is no indication that COVID19 is any more virulent nor deadly than the other coronaviruses that have circulated within the population every other year. Yes, there will be deaths, and the number of deaths, as with flu, will rise or fall from one year to another, but that is not an indication of anything out of the ordinary occurring here. It is no different from the fact that deaths from “flu-like” symptoms were 1600 last year, but 17,000 in 2018, as against an average of 8,000 such deaths per year. 

But, the only way to know the answer to this question, scientifically, is indeed by testing, but not testing to see who currently has the virus, but testing to see who has the antibodies against it, i.e. who has been infected already, whether they knew about it or not. Then we will know what the actual COVID19 mortality rate is, and be able to develop public policy rationally on the basis of it. If, indeed, as the Oxford study suggests half the population, or around 30 million people have already been infected, and have antibodies, then the current number of deaths means that the mortality rate for COVID 19, is perhaps only around 1 in 30,000, or if we assume that the full picture for deaths is not yet apparent, perhaps 1 in 10,000. 

It is necessary to put all of the time and resources for testing into testing for those with antibodies, not just in order to obtain this objective, scientific information about the degree of herd immunity already established, but also because such immunity means that those with these antibodies can go about their business safely, at no risk of again contracting the virus themselves, and, thereby at no risk of passing it on to others.

Crises of Overproduction - Part 13 of 14

2. Overproduction of Capital

2.3  Cyclicality of Crises

a) Crises are cyclical because of the operation of the Long Wave Cycle

  • The Winter Phase 

In the Winter Phase, the new technologies developed to respond to the crisis of overproduction are rolled out intensively to replace existing fixed capital. This means that the mass of fixed capital grows more slowly, because 1 new machine replaces 2 or more old machines. Moreover, as Marx previously described, the technological revolution means that the existing fixed capital stock is massively devalued due to moral depreciation. Therefore, not only does the mass of fixed capital grow more slowly, but the value of this stock grows even more slowly, or even declines. The total mass of capital increases, even if the mass of fixed capital remains constant or declines, precisely because of this fact, i.e. the one new machine processes more material than was previously processed by two or more older machines. In other words, consistent with Marx's Law of the Tendency for the Rate of Profit to Fall, the proportion of raw materials in final output rises relative to both fixed capital and labour.  This is a period of intensive rather than extensive accumulation

The same process means that growth in output involves a proportionately smaller growth in employment, because the one new machine also requires only one worker, whereas the replaced 2 old machines required 2 workers. This is the basis for the creation of the relative surplus population, and fall in wages. Alongside the fall in the value of labour-power, caused by rising productivity, it leads to a corresponding rise in the rate of surplus value. During this Winter Phase, therefore, growth in total output, gross product, is relatively stagnant, but the net product, rises in relation to it. This also means that the supply of money-capital from realised profits increases relative to the demand for money-capital for capital accumulation. Hence, interest rates fall during this period. The fall in interest rates causes the prices of assets (capitalised revenues) to rise. This encourages speculation and the blowing up of bubbles. This is what is seen in the 1980's and 1990's, and into the early 2000's. Compared to the real terms fall in the Dow Jones between 1965-1982, it rises by 1300% between 1980-2000, which is an increase that was around five times the growth in US GDP over the same period. 

The new technologies that start to be developed in the Autumn Phase reach their peak of development, as base technologies, near the start of the Winter Phase. For example, Mensch dates the peak of the Innovation Cycle, corresponding to the third long wave, as occurring in 1935, and he predicted a corresponding peak for 1985. This peak does not mean a peak for the development of new technologically based products, but for the development of the underlying technology itself. In 1935, that is for things like the development of electronics, and petrochemicals. These technologies are developed as labour-saving technologies in the production process, but having been developed, they become the base technologies for the development of whole new consumer industries, and it is these new consumer products that are the growth area that leads the economy into a new period of upturn, in the next Spring Phase. In 1985, it is the development of the microchip, and of the telecommunications revolution that goes with it that performs this function. 

The Winter Phase is not a period characterised by crises of overproduction, but of stagnation. In other words, the opposite of overproduction. It is often characterised as a crisis for capitalism, because of the attendant high levels of unemployment. For example, the Winter Phase of the first long wave cycle occurs between around 1830-1843, the Winter Phase of the second long wave cycle corresponds to the period of the first great depression that ran from around 1873-1890, for the third it corresponds to the period running from around 1930-1945, and for the fourth wave the period from around 1987 to 1999. 

In all these periods, the high levels of unemployment, creation of a large relative surplus population, do not represent a crisis for capitalism, but represent its resolution of such a crisis in the previous period. Far from it being a crisis period for capital, it is a period in which it is able to raise the rate of surplus value, and rate of profit, and to substantially raise levels of productivity. Rather than being a period of crisis for capital, such periods of stagnation represent a period of crisis for the working-class, where competition between workers is intensified, where wages fall (though as Marx points out, for workers who are in employment, living standards tend to rise, sometimes significantly.  That was the case in the 1930's when workers employed in the new car and electronics industries in the Midlands and South-East saw a significant rise in living standards, even as unemployed workers in the North-East were still starving). It is a period in which this intensified competition between workers acts to destroy their solidarity and the organisations built upon it. It is a period in which the power of capital grows relative to that of the working-class.

COVID19 Another Question That Needs To Be Asked And Answered

We are often told to look at Italy to see where COVID19 is going in the UK. In Italy, the sharp rise in mortality appears to have been caused by the fact that the virus got into its health and social care system. That means that elderly people, and sick people, who we know, from all of the existing data, are overwhelmingly the categories that are at risk from COVID19, who are concentrated in such locations, were exposed to the virus, and once exposed, especially given inadequate isolation, and insufficient PPE for staff, meant that a large, concentrated pool of vulnerable people would succumb to it. A question that needs to be asked, in the UK, therefore, is, how many of the people that have become seriously ill, or died from COVID19, were people who were already in hospital for some other reason, and how many, likewise, were in care homes, or nursing homes? If Britain is following Italy, then we should expect that a large proportion were, in fact, already in those locations, and were infected by the virus, there, from other patients, or from staff, and visitors. That was the case, for example, with all of the deaths, and serious illness, some years ago, as a result of the spread of MRSA, and C-Dif throughout the NHS and care sector. During that period, it was also the case that nearly all of these instances of MRSA were in NHS hospitals, with virtually no instances in private hospitals. That is because, in NHS hospitals, care is founded upon industrial scale, standardised, Fordist lines, with people organised, effectively, into production lines, in large wards, whereas, in private hospitals, care is individual, with each patient provided with their own room etc. 

That would also explain why the number of deaths continues to rise geometrically, despite the government having imposed its lockdown now for a week. It is because this captive, vulnerable population, in hospitals and care homes, provides a static pool in which the virus can spread, and, given the vulnerable nature of the population, the mortality rate within it will be much higher than for the general population. That was also the case in Italy. But, this data, for the UK, is not available. Instead, we continue to have the line put out by government and others that its necessary for the whole of society to be locked down, which is destroying the economy, people's livelihoods, and will create far more ill-health and deaths, in the medium and long-term, than will COVID19.  That fact is already becoming manifest in Italy, with criminal gangs as well as desperate, hungry families forced to attack supermarkets in search of food.  But, all of the data, where it is available, continues to show that it is really only those in the at risk 20% that face significant risk from the virus. For example, Sky News reports, yesterday, that 1,028 people have died, and, 

“The vast majority of those were in England, where a further 246 deaths means a total of 935 people have died. 

NHS England said the victims there were aged between 33 and 100, and all but 13 of them had underlying health conditions. Those without underlying health conditions were aged between 63 and 99.” 

In other words, none of these deaths were of people not in the at risk 20%. So, although the government, media and others continue to push the line that everyone is vulnerable, and back that up with anecdotal stories about this or that individual who is under 40, and had no known previous, underlying conditions, the fact remains that these individuals, no matter how tragic it might be for them and their families, are a very tiny minority.  From a purely statistical perspective, which is the only rational basis upon which public policy can be formulated, so as to save the maximum number of lives, that number is insignificant. It continues to be the case that nearly everyone who dies, or becomes seriously ill, will be from the 20% of the population that is in those at risk groups, of being elderly or having underlying medical conditions. If and when full examinations of the facts, in each case, is undertaken, it will also, undoubtedly, be shown that those not in those groups that have died, will be found to have been suffering from some previously undiagnosed condition, or will have had their immune response compromised by some other factor. 

This probability that most of those dying or requiring critical care are people already in the hospital or care system, also explains why hospitals are cancelling operations and so on for people suffering with other conditions. If the majority of the spread of the virus to vulnerable people is taking place inside the hospitals and care homes themselves, then it obviously makes sense not to increase the population of such places with other patients suffering other conditions, who might then become infected themselves. That is all the more the case given the woeful inadequacy of the NHS and care system to be able to provide proper isolation for patients who are infectious, and the similarly woefully inadequate provision of PPE for staff. It then also becomes obvious that the main reason for hospitals becoming overwhelmed is that significant numbers of patients, originally admitted with other conditions, have been infected with COVID19, just as they were infected with MRSA and C-Dif, some years ago, and then require critical care, which itself is totally inadequate given ten years of austerity. 

But, this probability that most of those succumbing to COVID19 are people who were already in hospital, or in care homes, also again makes clear that the policy of closing down the economy, and trying to isolate, not the minority actually at risk, but the entire population, is totally idiotic and self-destructive. We see the pictures that have been broadcast night after night, over the last week of the huge healthcare factory in the Excel Centre, capable of processing 8,000 people on its production line. It becomes obvious what the purpose of such facilities is, because it is a way of creating large, instant isolation wards, rather like the old leper colonies, where all those with COVID19 can be corralled. Yet, even here, night after night, the pictures from the Excel centre show the same facts. The only thing missing from them is a few tumble-weed rolling across the floor, because they remain as empty as a Tory promise! 

Saturday, 28 March 2020

COVID19 And The Water-Diamond Paradox

Marx and Engels told us that commodity production and exchange has existed for around 10,000 years. On the basis of this commodity production and exchange, value then takes the visible form of exchange-value, and the objective basis of this exchange-value is the value of each commodity, i.e. the social labour-time required for its reproduction. As soon as money arises as the universal equivalent form of value, this exchange-value takes the form of a money price. Under capitalism, the value of commodities continues to be the underlying determinant of prices, but now these prices are not exchange-values, but prices of production. Prior to commodity production and exchange, the value of products was also determined by the labour-time required for their production, but this value was individual value, and the labour was the actual labour embodied in their production. These products were also exchanged, as different tribes met, and exchanged gifts as part of wedding rituals and so on. Indeed, these exchanges form the basis of the development of trade, and, from there, the development of commodity production and exchange itself. But, prior to the development of commodity production and exchange, there was no objective basis for the ratios in which these products were exchanged. The basis of exchange was purely subjective, based upon supply and demand. As commodity production is brought to a standstill, by government diktat, in response to the moral panic over COVID19, we are again placed in a similar condition. It is a condition in which the favourite argument of the proponents of subjective value comes into its own. 

That argument is known as the water-diamond paradox.  I discussed it, and what is wrong with it several years ago. The neoclassical economists argued that the basis of exchange ratios was the subjective value that buyers and sellers place on commodities, and this subjective value is equal to the utility that each believe they obtain from them. This concept was put forward by Samuel Bailey in the early 19th century, and is refuted by Marx in Theories of Surplus Value, Chapter 21. It was pointed out that, if the basis of the value of commodities was their utility then the value/price of water should be much higher than the value/price of diamonds, because water has far more utility than diamonds. The subjectivists eventually responded to this objection, by saying that what was determinant was not the total utility, but only the marginal utility. The way they made this argument was with the example of someone dying of thirst in a desert, who is in possession of a diamond, but no water, and a water seller, who has water to sell, and so is able to exchange it for the diamond. On this basis, the marginal utility of the water, for the man dying of thirst, is greater than the marginal utility of the diamond, and vice versa, so they exchange. 

As Marx says, in Capital I, Robinson Crusoe tells
us all we need to know about value.  Like the
 primitive commune, he has limited labour-time,
he must use to produce all of his requirements.
The value of each of these items is determined by
the time required to produce it.  He must balance
this value against the use value/utility he obtains
from it.
I have set out what is wrong with this example, in the post linked to above. Essentially, it has nothing to do with the determination of exchange values of commodities in systems of commodity production and exchange, let alone under capitalism, as a specific historical form of such a system. Prior to commodity production and exchange, primitive nomadic tribes, and communistic societies produced use values to meet their own direct needs. Each of these products had an individual value determined by the amount of labour-time the tribe or commune had to spend to produce it, as Marx sets out in Capital I, and in A Contribution To The Critique of Political Economy. So, even here, the exchange relation/value between different products is not subjective or arbitrary, as Marx again describes in Capital I, and in his Letter to Kugelmann explaining this Law of Value. Each tribe or commune had only a limited amount of labour-time at its disposal, and so the value of each use value, determines how many of them can be produced by this total labour-time. If it uses all this labour-time to produce one type of use value, it cannot then produce any other type of use value. 

The tribe or commune must then make decisions about how to allocate this total labour-time so as to maximise its welfare, i.e. to maximise the amount of use value/utility it can obtain, given the value of each type of use value. Its true that the use value it places on each type of product is more or less entirely subjective in nature – not entirely, because given the need to live, you are objectively constrained, first, to produce those things that make that possible, even if you would like to have been able to be producing something else – but that only tells you how you might allocate the available labour time; it does not change the actual value of the product, or its relation to other products. The fact remains that if you use an amount of available labour-time to produce potatoes, the cost of that, is not just this labour-time, but the other products that could have been produced instead – what orthodox economists call the opportunity cost. The measurement of the value of the potatoes is immediate, direct and independent, and is measured in labour-time; the measurement of its exchange-value, is contingent, indirect and dependent, because it depends not just on the value of the potatoes, but on the value of anything for which it is to be exchanged, and is measured in terms of the quantity of these other use values for which it exchanges. 

When tribes and communes first begin to exchange, therefore, they exchange products not commodities. These exchanges occur at ceremonies such as weddings between members of the different tribes and communes. One tribe has a surplus of some product, which proliferates in its area, and the same applies to the other. The first exchanges, therefore, have no objective basis. They are simply founded upon supply and demand, in the same way as the example of the exchange of water for a diamond. However, as I set out in relation to that example. It has nothing to do with systems of commodity production and exchange. If the market price of water, as measured in diamonds is high (its diamond price), relative to the cost of production of water, then more people will engage in the production of water for sale, in exchange for diamonds. The supply of water will rise, and the diamond price of water will then fall, until such time as the ratio matches the relative values of each. Under capitalism this appears as when the market price of each commodity is equal to its price of production, i.e its cost of production plus average profit

However, under current conditions, the subjective theory of value, represented by the water-diamond paradox comes into its own, precisely because commodity production is being brought to a halt by government diktat. The determination of prices by exchange-value, or by price of production can only operate where the supply of commodities can be increased by additional production, in response to the price of some commodities being higher than their exchange-value, or price of production. Someone who has a monopoly of supply over some commodity that everyone must have to live, such as water, can effectively charge whatever price they like for it, because the supply cannot be increased by other suppliers, and so competition cannot act to drive down its price. That is one reason that Marx saw that capitalism fulfilled a highly progressive role in breaking apart all of the old feudal monopolies. 

If the policy of governments, around the world, for example, leads to bakery workers staying home, so that no bread is baked, shops that have existing stocks of previously baked bread will be able to charge more or less what they like for this bread, because consumers will still want to have bread. The shops will have the added incentive to sell the bread at extortionate prices, because it has a limited shelf life. They will not want to miss a golden opportunity to maximise the price/profit they obtain from selling the bread, because once it has gone they too will have no more to sell, and someone else will have an even stronger monopoly of its supply. So, its no wonder that supermarkets have an incentive to blame their empty shelves on panic buying, because pointing to the fact of empty shelves only encourages more people to seek to obtain the commodities they need, and to pay higher prices for them. They are like the water seller who tells the thirsty traveller that they should hand over their diamond because there are no more water sellers for miles around in the desert. 

And, what applies to bakery workers applies to all other food production workers and those producing vital commodities. If production stops, prices for these commodities rise without limit, because demand cannot be met by supply, and so competition cannot act to regulate prices. The price of non-essential items may fall, as people use their money to buy the essential items whose prices are soaring, but that does not change the fact that these essential products will rise in price inexorably.

Moreover, as the diamond-water paradox indicates, what is essential depends on the particular conditions. It may be that people do not view a car as essential, for example, but if your own car breaks down, and cannot be repaired, because all car mechanics have stopped work, then buying a replacement car might be your only option so as to make essential journeys, and to be able to avoid contact with others using public transport. In that case, the car may become essential for you, and you may then be prepared to pay a high price for it, so as to meet that essential need. As you will only be able to buy from the existing stock of cars, as car production ceases, the car dealers who have the monopoly supply of this stock of cars, will, like the supermarket selling bread, or the water seller exchanging water for diamonds, be able to charge whatever price they like, and that price will get higher and higher, the more the stock of existing cars for sale is depleted, and that will get more severe the longer the production of cars is stopped. With no vaccine for COVID19 likely for another 18 months to 2 years, if governments continue their idiotic policy of deliberately cratering economies, the stock of cars will run out long before then. After all essential workers like health workers, require cars to get to work and so on, essential services require cars and commercial vehicles in order to function. 

Its always in such conditions when the supply of commodities is constrained that market prices can rise unrelated to underlying values, and in which black markets, and criminality rise on the back of it sharply. Just think about the price of alcohol under Prohibition in the US, or the price of illegal drugs today, or the exchange rates that people in Iron Curtain countries were prepared to offer on the street for Western hard currencies, and so on. The longer the constriction on supply continues, the higher the prices go, and the more the black marketeers step in to profit from those rising prices, and the more criminal gangs enforce that constriction on supply so as to maximise those profits. Its no wonder that alongside the idiotic policy of closing down economies, and thereby supply, governments around the globe are introducing lockdowns, curfews, and martial law! 

Those that suffer, at least initially, in these conditions are the poor and vulnerable, because they are least well placed to get access to these dwindling supplies of goods, and when they do get access, they are least well placed to be able to pay for them. Again, as wartime rationing showed, introducing rationing of goods is no answer, because it simply encourages the development of black markets. Those that can pay, pay, and buy from black marketeers and spivs, and the latter always have their own access to products via illicit channels, often depleting the stocks available for legal distribution in the process. The attempt to hold down prices by such rationing acts to further suppress legal production and supply of products, whilst encouraging the illegal production and supply of products, as was seen with Prohibition, with wartime rationing, and now with illegal drugs. 

The others that suffer in such conditions are those involved in primary production, and many of these producers are also in poorer economies themselves, with their workers being correspondingly poor and badly paid. If car and vehicle production comes to a halt, therefore, the demand for steel drops. No one wants even the existing stocks of steel, and because steel rusts if left unused, steel suppliers seek to get rid of it quickly, at almost any price, before it becomes worthless. And, with steel production closed down, there is no demand for iron ore, limestone, carbon and so on, so that the primary producers of these products also see the price of their existing stocks fall sharply. The same has been seen with oil prices, now headed towards $10 a barrel, which spells doom for US shale producers, North Sea producers, and other high cost fields. With governments around the world committing to bailing out all of these businesses, the amounts of money required become astronomical. In 2008/9, the UK spent £2 trillion bailing out the banks and financial institutions, the US spent $9 trillion. To similarly bail out the whole of the businesses in the economy, in the same way, will cost ten times these amounts, sending borrowing, and thereby interest rates to unheard of heights. 

“Its obviously impossible to know when the next crisis will occur. But, we do know there will be another crisis, because capitalism is a system whose dynamism stems precisely from its inherent contradictions. It moves forward, each time it resolves those contradictions, and, because it is an unplanned system, the only way those contradictions can be resolved is through crises... 

Similarly, it is impossible to predict what kind of crisis it might be... 

But, we do know now from Marx and Engels' Theory of Crisis, that the potential for crisis arises from the contradictions between use-value and exchange value, that arise from the separation of production and consumption, between the role of money as means of circulation and means of payment, and from disproportions in supply. We also know, from their theories of crises that these potential causes of crisis can manifest themselves in a break-down in the circuit of capital in any of its three phases, a failure to convert money-capital into productive-capital, for productive-capital to be metamorphosed into commodity-capital, or for commodity-capital to become money-capital, and we know the reasons why these break downs might arise. We also know that in addition to economic crises of the kind described above, there are other forms of crises such as financial crises, and political crises. These are crises in their own right not determined by economic crises... 

It will only be possible to analyse it when it has happened. But, there are plenty of candidates to choose from. Not only might a crisis erupt, as a result of some black swan event, that no one has foreseen, but it could arise from a large number of grey swans that are in full view.” 

(Chapter 6) 

Well, the current crisis is certainly one of those Black Swan events, not because of COVID19 itself, but because of the moral panic, and action of governments that has arisen on the back of it. But, it is also, now combining with the other “Grey Swans”, a term I developed at the time that I talked about in the book. 

What has been said above, in relation to the prices of commodities applies also to the general commodity, money, and to money-capital. The supply of money-capital is dependent on two sources. Firstly, realised profits, but profits are disappearing, because production itself is being deliberately stopped by governments. Secondly, savings, but savings are being drained down at a phenomenal rate, because both firms, and households deprived of income, are using savings to fund their continued consumption. Banks, including the government National Savings and Investment body, are e-mailing customers telling them not to go into bank branches, or to ring the bank, but to conduct all transactions online. That is a clear indication that they now fear a bank run, as savers start to draw out their savings to fund their continued consumption. Large companies are doing the same, drawing down on their credit lines with banks to fund their continued operation, and so as to pay outstanding bills. Ford in the US has drawn down $15.4 billion on two credit lines, for example and this is happening across the globe. In India, the government has had to nationalise Yes Bank, for example, and ask regional governments not to withdraw funds from it. 

The global financial system was never cured from the financial crisis of 2008, and all of the additional liquidity, acting to further inflate asset price, has, in fact, only made its situation even more precarious. As asset prices collapse, as interest rates rise in response to the rising demand for money-capital, and sharp reduction in supply of money-capital, the underlying bankrupt nature of the banking system will again be exposed. As I wrote several years ago, following the collapse of banks in Cyprus, the precarity of other banks across Europe, such as Deutsche bank was even greater, and only disguised by the size of the bank and its balance sheet

The supply of money-capital is being curtailed, just as the supply of other commodities is being curtailed as governments shut down production. But, the demand for money-capital, not to be used as capital, but as Marx describes in his analysis of crises, just to be used as currency, to pay bills, is rising astronomically, and so those who hold stocks of money can charge whatever they like for it. That is why, despite the government pumping in further billions of Pounds of liquidity, UK banks are charging businesses 12% if they want a loan, as well as imposing further restrictions and conditions. If I am the local loan shark, with a suitcase of money in my loft, and I see people around me desperate for cash to buy bread, whose price rises by the day, as its existing supplies dwindle, then I will feel free to charge 100% a day interest, and more, on any money I loan to such people, with the threat of a broken leg, for anyone that fails to make good on their debt. Welcome to the world that closing down the economy is creating in the next few months. 

On The So Called Market Question - Part 3

Lenin quotes Krasin's conclusion from this expansion of Department I

““We have seen here,” says the author, “how accumulation takes place in department I, the production of means of production as means of production: . . .this accumulation takes place independently both of the progress of the production of articles of consumption and of the personal consumption itself, no matter whose it is” (page 15/3).” (p 84) 

But, as Lenin points out, its wrong to say that this expansion of Department I is independent of Department II. For one thing, an expansion of Department I also requires an expansion of variable-capital. Department I must employ more workers, and these workers need wage goods to consume, which requires that Department II also employ more workers to produce them, and these additional workers also require additional wage goods to consume. Moreover, ultimately, the only purpose in expanding Department I is so as to produce additional means of production for Department II, who needs them because demand for consumption goods rises. 

“... evidently, by using that term the author merely wanted to stress the specific feature of the scheme, namely, that the reproduction of I c—constant capital in department I— takes place without exchanges with department II, i.e., every year a certain quantity of, say, coal is produced in society for the purpose of producing coal. It goes without saying that this production (of coal for the purpose of producing coal) links up, by a series of subsequent exchanges, with the production of articles of consumption—otherwise, neither the coal-owners nor their workers could exist.” (p 84) 

Lenin sets out a process of accumulation in which the technical composition of capital rises, as a result of rising productivity, i.e. a given mass of labour processes a growing mass of raw material. He assumes 50% of profit is accumulated. The table is presented below. 

There are some minor innacuracies, but they do not affect Lenin's conclusion that accumulation occurs fastest in the production of means of production for the production of means of production, i.e. Department I (c), then means of production for production of means of consumption (Department I (v + s), and finally in production of means of consumption (Department II [v + s]. 

What if this rise in productivity that lies behind the rise in the organic composition of capital, c:v, were such, Lenin says, that v was reduced to zero. In individual cases that might be possible, he says. In that case, accumulated surplus value would go straight to Department I (c). It would require no additional labour to process this additional raw material. Consequently, there would be no requirement for additional wage goods production, and so for accumulation in Department II. All growth would come from Department I, with stagnation in Department II

“That would, of course, be a misuse of the schemes, for such a conclusion is based on improbable assumptions and is therefore wrong. Is it conceivable that technical progress, which reduces the proportion of v to c, will find expression only in department I and leave department II in a state of complete stagnation? Is it in conformity with the laws governing capitalist society, laws which demand of every capitalist that he enlarge his enterprise on pain of ruin, that no accumulation at all should take place in department II?” (p 88) 

Lenin's argument, here, however, seems flawed, because, if as he says, a similar rise in the technical composition arose in Department II, with v being reduced to zero, Department II would increase its output, but could only find a market for these additional commodities from amongst Department I and II capitalists, which seems to create the problem of realisation of surplus value that Marx describes in Capital III, Chapter 15

Northern Soul Classics - No Right To Cry - Mamie Galore

Friday, 27 March 2020

COVID19 Again By The Numbers

According to the government's chief scientific advisor, Sir Patrick Vallance, the mortality rate for people infected with COVID19 is 0.1%. But, this average figure hides wide variations in terms of who is most at risk, and who is essentially not at risk in any statistically significant manner. A study by Imperial College provides the following table in relation to those expected to be admitted to hospital with the virus, based on data from China.
Age group
% symptomatic cases requiring hospital
hospitalised cases requiring critical care
Infection Fatality Ratio
0 to 9
10 to 19
20 to 29
30 to 39
40 to 49
50 to 59
60 to 69
70 to 79

At the time of writing, 769 people have died, in the UK, from COVID19. On the basis of Vallance's figure for the mortality rate of 0.1%, or 1 in 1,000, we then should have total number of infected people of around 769,000, though the actual figure is probably higher than this, because infections will precede deaths. The Imperial study states, 

“Analyses of data from China as well as data from those returning on repatriation flights suggest that 40-50% of infections were not identified as cases. This may include asymptomatic infections, mild disease and a level of under-ascertainment.” 

However, most studies now indicate that around 80% of people have no or only mild symptoms from COVID19, and this explains why the number of infections is much greater than the number of people who have symptoms and seek medical treatment. But, also, many people have symptoms, but do not have COVID19. In Britain, at time of writing, 113,777 people had been tested for COVID19. Only those going to hospital with symptoms are tested. Of those tested, only 14,543 tested positive, the other 99,234 tested negative, presumably meaning that they had flu like symptoms, caused by either the flu virus itself, or some other flu like virus.  This also explains why health services are being overrun.  Its not from COVID19, but from an upsurge in people suffering from flu or other flu like viruses.  In other words, the number of people going to hospital with flu like symptoms was 113,777, but only 14,543 of these had COVID19, as opposed to having flu.  If the number of flu infections is even anything like the ratio in relation to COVID19, then it means that there are probably about 10 million people who have flu infections, if there are 1 million with COVID19 infections.

If the total COVID19 infections is estimated at around 769,000 based on Vallance's mortality rate, then, if the number suffering symptoms severe enough to go to hospital is 14,543 that means that the proportion suffering such serious effects is around 2% of the total. This figure is significantly below the figure of 20% in the at risk group, but this difference can be explained by the fact that, whilst those in the 80% may experience no symptoms or only mild symptoms, not all those in the 20% group either will experience severe symptoms to an extent that leads them to go to hospital. They may experience more than mild symptoms, but perhaps only similar to what might be experienced by a bad dose of the flu, for example.  It is, after all, not everyone in the 20% who dies either.

The Imperial College data is a model based on Chinese data, not on actual UK hospital admissions. The higher standard of living, and existence of the NHS, in Britain, is likely to result in better overall outcomes than those experienced in China - and the same in relation to access to healthcare applies in relation to the US, because of its lack of an NHS or Medicare For All. The predictions from the Imperial study are for those expected to be admitted to hospital in different age categories, and are not based on total number of people infected. They conclude, from the Chinese data, that the mortality rate would be around 0.9% overall, and with 4.4% of those infected being hospitalised. However, as the analysis by Vallance indicates, this figure of a mortality rate of 0.9%, is probably out by around a factor of 10. The reason is that the Chinese authorities themselves, as in Britain, only recorded as infected those that had been tested, and, as in Britain, only those that went to hospital were tested. Moreover, China, when it tested people, did not count as infected those that had been infected with COVID19, but who had developed antibodies against it. So, the Chinese data grossly overstates the proportion of people that were hospitalised with COVID19, and its mortality rate, as against the actual total number of people infected by it. 

The figure of a mortality rate of 0.9% is the basis of some of the more wild speculations of potential total deaths from COVID19. For example, if 50 million were infected, it gives a total number of deaths of around 450,000, though even that is significantly less than some scare stories which talked of deaths amounting to 5 million, which is an indication of the degree to which a total panic and atmosphere of hysteria has been created. The actual mortality rate given by Vallance of 0.1% produces total deaths of “only” 50,000, were 50 million people infected, but the reality is that long before 50 million were infected, herd immunity would be established, and would slow the spread of the virus. A far more likely total death total would be around 20,000, which is about the same as the number of deaths from “flu” in 2018, which itself included perhaps around 2,500 deaths from coronavirus, which were attributed to flu.  That is because as a Glasgow study found, around 14% of "flu like symptoms" each year are caused by coronaviruses, not by actual flu.

But, what the Imperial data does show is the point I have set out in previous posts over the last few weeks I am grateful to Nomadron for his rational and calm assessment of my posts during that time, which is what I would expect from someone with his experience working for various international NGO's over the years. The Imperial data shows that the mortality rate amongst the under 50's is more or less statistically insignificant. If we bear in mind that the overall mortality rate from actual infections rather than only the reported infections, which is what this data was based on, is 0.1% and not 0.9%, then we would need to shift these percentage figures to the right by one decimal place. That gives a mortality rate for the under 10's of 0.0002%, for the 10 – 19's of 0.0006%, the 20's to 29's of 0.003%, the 30's to 39's of 0.008%, 40's to 49's of 0.015%. 

But, what is significant here is the risk to those in the older categories compared to the younger age groups rather than the actual percentages. In short, someone in the over 80 category is about 60 times more likely to die than someone in the 40-49 group. They are 120 times more likely to die than someone in the 30-39 category, 350 times more likely to die than someone in the 20-29 category, and 1750 times more likely to die than someone in the 10-19 category. These multiples can be approximately halved for someone in the 70-79 category, and halved again for someone in the 60-69 category, so that, for example, someone in this latter category is about 400 times more likely to die than someone in the 10-19 category. 

Of course, as I have set out previously, this breakdown by age is itself misleading, because it is not, by any means, just those who are more elderly who are most at risk, and who fall into the 20% category. Also in that group are those who have underlying medical conditions that makes them vulnerable, and, for example pregnant women. Also at risk will be anyone who may not normally have other underlying conditions, but whose immune response is currently weakened by other conditions. They may have recently had some other illness, they may have been working long hours, and so are tired, and so on. The fact is, however, as this Imperial data shows, the actual risks for those in the 80% are extremely low not just of death from COVID19, but even of serious ill-health requiring hospital admission. The need for critical care for anyone in such groups is even lower. According to this data it is only around 5%, for those younger than 50, but given what has been stated previously that figure is only for those themselves admitted to hospital, whereas a much, much larger number of people in those age ranges will contract COVID19 without knowing it, and so will not go to hospital in the first place. The percentage of people in those age ranges contracting COVID19, and requiring critical care, is then likely to be extremely small. In other words, probably only around 0.05% of those infected in those age groups would require to be hospitalised, and of those only 5%, would require critical care, that is 0.0025%. That is why the number of people, in these younger age groups, that are being admitted to hospital and require critical care, can be counted more or less on one hand, and yet, the media publicise these individual cases as though they were the rule rather than a very limited exception to it. By contrast, 27% of people in the over 80 category who are tested for COVID19, are admitted to hospital. On the above basis that the actual total number of infections is approximately ten times the number of reported cases, that means about 2.7% of this population requires hospital treatment. But, of this 2.7%, 70% require critical care, that is approximately 1.9% of the total actually infected. That is a significant number compared to those in the younger age groups. 

That is precisely why the rational strategy should have been to, early on, isolate the people in the at risk 20%, so that they could have been prevented from catching the virus in the first place, and so would have avoided needing hospitalisation, and more importantly avoided the need for critical care. It is clearly these at risk groups, particularly amongst the elderly, that are creating the surge in demand for treatment, and, particularly, for critical care. My guess is that, just as with the situation in Italy, the reason for this is that COVID19 got into the health and social care system where these elderly and vulnerable groups are concentrated. As with the spread of MRSA, in hospitals, previously, once the virus is in that environment it can spread rapidly. Care workers in most cases do not have adequate PPE, so that each care worker becomes infected with the virus, most of them suffering no symptoms, but then rapidly spreading it throughout the care home sector. Reports indicate that nurses, GP's and other health workers also do not have adequate PPE either, and so this same transmission mechanism for the virus quickly spreads it through the hospital system. 

But, the data also indicates that 10 times more people who are falling ill are people suffering from flu or other flu-like viruses, not from COVID19, despite all of the hysteria being whipped up around it.  The real story is the fact that the NHS is not fit for purpose, is badly equipped, and hugely understaffed, as a result of ten years of Tory austerity, and the same can be said of the health service in Italy, and elsewhere in Europe where the same austerity measures have been implemented following the financial crash of 2008. But, those austerity measures will appear as nothing compared to the economic damage that is currently being done to economies as a result of closing them down by government diktat.