Michael Roberts and Inflation - Part 2 of 16

As trade expands, it becomes obvious that the constraints of barter have to be broken, and also future payment on the basis of credit, no longer becomes viable. Sellers require buyers to provide to them the actual money commodity itself, so that they have, immediately, the equivalent value to that of the commodity they have sold, and in the form in which they can use this money commodity for the subsequent purchase of the commodities they require, C - M - C, commodities they can now buy from a whole range of sellers, having broken free of the constraints of barter. So, now, money acts not just as the unit of account, by which the prices of commodities are ideally established, but itself becomes the medium by which such exchanges themselves take place, it becomes currency, and this takes the form C – M – C. In other words, the seller sells their commodity, for a given amount of money, whose amount has been already ideally determined, prior to the exchange, and, now, with this money, can buy other commodities, to an equal value to that of the commodities they sold.

This establishes an important point in relation to the money commodity, and the value of the commodities it is to circulate by performing this function of currency. If the money handed over in each of these transactions is the equal of the value of the commodities being bought or sold, and it can only act as money on this basis, then the total amount of currency in circulation, must itself be equal to the value of the commodities it is to circulate, i.e. for which it is the equivalent form of value. At least, that would be the case, if each piece of money performed only one transaction, which, of course it does not. If we take 1 ounce of gold, in the example above, first of all it is used to buy the 1 litre of wine, then the wine seller uses this same 1 ounce of gold to buy 1 metre of linen. The same 1 ounce of gold (£1) has then acted as currency to circulate £2 of value. So, the amount of gold currency required in circulation, as Marx says, is given by the value of commodities to be circulated, divided by the value of the currency unit, multiplied by the velocity of circulation of the currency. Here, £2 = £1 x 2.

“Commodity circulation is the prerequisite of money circulation; money, moreover, circulates commodities which have prices, that is commodities which have already been equated nominally with definite quantities of gold. The determination of the prices of commodities presupposes that the value of the quantity of gold which serves as the standard measure, or the value of gold, is given. According to this assumption, the quantity of gold required for circulation is in the first place determined therefore by the sum of the commodity-prices to be realised. This sum, however, is in its turn determined by the following factors: 1. the price level, the relative magnitude of the exchange-values of commodities in terms of gold, and 2. the quantity of commodities circulating at definite prices, that is the number of purchases and sales at given prices....

But the quantity of money in circulation is, as we have seen, determined not only by the sum of commodity-prices to be realised, but also by the velocity with which money circulates, i.e., the speed with which this realisation of prices is accomplished during a given period. If in one day one and the same sovereign makes ten purchases each consisting of a commodity worth one sovereign, so that it changes hands ten times, it transacts the same amount of business as ten sovereigns each of which makes only one circuit a day. The velocity of circulation of gold can thus make up for its quantity: in other words, the stock of gold in circulation is determined not only by gold functioning as an equivalent alongside commodities, but also by the function it fulfils in the movement of the metamorphoses of commodities. But the velocity of currency can make up for its quantity only to a certain extent, for an endless number of separate purchases and sales take place simultaneously at any given moment.”

(A Contribution to The Critique of Political Economy, Chapter 2)

In other words, we have, here, the same Monetarist formula that Roberts cites of MV = PT. If we know the value of 1 ounce of gold, and we know the average price of commodities and the number of transactions (equals the total value of commodities to be circulated), then the amount of currency required is determined by dividing PT by the value of 1 ounce of gold x the velocity of circulation. Provided we assume that currency takes the form of a money commodity such as gold, then Roberts argument that it is the value of commodities to be circulated that determines the money supply is correct – well not entirely, because in Capital II, Marx sets out that in addition to the value of commodities to be circulated, there also has to be taken into consideration the requirements for currency to cover payments, i.e. the balances arising from credit transactions, as well as prepayments, payments of rents, taxes and so on. As Marx says,

“If the velocity of circulation is given, then the quantity of the means of circulation is simply determined by the prices of commodities. Prices are thus high or low not because more or less money is in circulation, but there is more or less money in circulation because prices are high or low.”

(ibid)

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The Economic Content of Narodism, Chapter 4 - Part 36

The Narodniks accused the Marxists of breaking the democratic thread, because of their criticism of the Reform etc. Far from it, Lenin replies. In supporting all of these kinds of reforms, and on insisting on them being applied consistently they “want to develop and strengthen this trend, they want to bring it closer to life, they want to take up the “thread” that “society” and the “intelligentsia” are letting slip out of their hands.” (p 504) 

On this latter point, Lenin quotes an article from Vorontsov in Nedelya in which he argued that social relations had mirrored those in Western Europe, in the period of active political struggle, but had then sunk into social indifferentism. This was no accident, Lenin says, because, as shown in Chapter 1, the bourgeoisie, whilst suffering disadvantages as a result of the Tsarist regime, also enjoys advantages from the existence of a capitalist state, and from the fact that other social classes have no access to the political regime. 

Presaging his writings against Economism, Lenin notes, 

“This demand—not to discard the “thread,” but, on the contrary, to strengthen it—is not the accidental result of the personal mood of some “Marxists” or other, but is necessarily determined by the position and interests of the class they wish to serve, is necessarily and unconditionally dictated by the fundamental requirements of their “doctrine.”” (p 505) 

But, the Marxists raise these demands in a different manner to the Narodniks. The latter talk about modern science, morality and so on, as though the failure to act was simply an error, failure of understanding, and so on, rather than the manifestation of class interest. The Marxists, identifying these class interests, emanating from the productive relations, both understand the reasons that particular policies are pursued, and seek consistent democracy so as to pursue their own set of class interests, those of the proletariat. 

“Such a way of posing the problem will absolutely eliminate the possibility of their “theories” being utilised for professorial arguments that rise above classes, for projects and reports that promise “splendid success.” That, of course, is just an indirect merit of the change of viewpoint referred to, but it is also a very great one, if we bear in mind how steep is the slope down which contemporary Narodism is slipping into the bog of opportunism. But the matter is not limited to mere indirect merit. If the same problems are posed in their application to the theory of class antagonism [and this, of course, requires a “reconsideration of the facts” of Russian history and reality], then the replies to them will provide a formulation of the vital interests of certain classes; these replies will be intended for practical utilisation by those interested classes and by them alone—these replies will, to use the splendid expression of a certain Marxist, break out of the “cramped chamber of the intelligentsia” towards those who themselves participate in production relations in their most highly developed and pure form, towards those who are most strongly affected by the “breaking of the thread,” and who “need” “ideals” because they are badly off without them. Such a way of raising issues will instil a new stream of life into all these old problems—taxes, passports, migration, Volost boards of administration, etc.—problems that our “society” has discussed and interpreted, chewed over again and again, solved and re-solved, and for which it has now begun to lose all taste.” (p 506) 

But, Lenin notes, this consistent democracy that opens the door to the political struggle, as a class struggle, in the true sense, does not make Socialism an immediate agenda item, because it requires a long preparatory period. The political struggle itself requires the organisation and education of the workers to become a class for itself, fully conscious of its own interests, and it required the continued development of capitalism, because the reality was, contrary to the Narodnik pious wishes, there was no realistic alternative. 

“Of course, for this “utilisation” to take place a tremendous amount of preparatory work is required, and what is more, work that by its very nature goes unseen. Before this utilisation takes place a more or less considerable period may pass during which we shall say out right that there is no force capable of providing better paths for the fatherland—as against the “sugary optimism” of Messrs. the Narodniks who assert that such forces exist and that all that remains to be done is to advise them to “leave the wrong path.” (Note **, p 506) 

Whether considered from the economic sphere or the political sphere, the conclusion to be reached was the fundamental progressive role played by the advanced working-class, the working-class in the shape of the industrial proletariat, which had been completely separated from all previous modes of production, and on whose shoulders rested the future development of society and humankind. 

“... a task advanced by the epoch in which we live, that of the universal significance of the idea of this class.” (p 507)

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Michael Roberts and Inflation - Part 1 of 16

Michael Roberts, in an article in WW, says COVID has blown a hole in mainstream economic theories of inflation, he's right, but his argument, and alternative, is also wrong. His main object is to counter the Monetarist theory, but, although he also seeks to oppose the Keynesian theory, he actually ends up with a version of Keynesian cost-push inflation. He objects to the Monetarist definition of inflation as a monetary phenomena, but that is also what Marx says in his analysis of inflation.

In A Contribution To The Critique of Political Economy, Marx discusses the role of money as unit of account, and as currency. Its necessary to examine this, as Marx does, on the basis of the development of money as a money commodity, and, then, its further development, in the form of money tokens, such as coins, or paper notes. Marx discusses the development of a money commodity in Chapter 1, and he discusses it again, in Capital I, Chapter 3, where he sets out the value form analysis. Under systems of barter, commodities are exchanged one for another, and the rate at which they exchange is determined by the value of each commodity. Initially, value takes the form, as it does with products, rather than commodities, of individual value, but trade means that commodities of the same kind, produced by a number of communities, all have different individual values, dependent upon the specific advantages or disadvantages that these different communities have in their production. When it comes to trade, exchange of these commodities for other commodities, competition means that all of these different individual values are subsumed into an average, or market value for each commodity. In each case, value is measured directly in labour-time, and the basis of exchange for commodity A with commodity B, is that they both represent an equal amount of value, i.e. an equal amount of average social labour-time.

As each commodity is traded for another, this comparison of values, in each case, means that, in place of a measurement of value directly, in terms of labour-time, this appears as a measurement of value indirectly as the quantity of each other commodity that can be obtained in exchange for it. The value of commodity A, is measured as the quantity of B,C,D,E etc. that can be obtained for it. This is what Marx calls the relative form of value. But, over time, a number of regularly traded commodities start to be identified, whose values are well known, and these can now act as an indirect measure of value of all other commodities. This is what Marx calls the equivalent form of value. Eventually, just one commodity is separated out to act as this equivalent form of value, by which the value of all other commodities is measured. It becomes the universal equivalent form of value, or money commodity. Its first function, is to act as this equivalent form, and thereby, to act as unit of account, measuring the value of commodities to be exchanged, and, thereby equating them. It fulfils this function, even if it does not enter the process of exchange directly itself. It functions to determine prices ideally, whether they are exchanged or not.

For example, suppose that gold is this money commodity. In order to fulfil this function, gold must be a commodity, and must have value, i.e. it represents a given amount of social-labour-time, equal to that required for its own reproduction. Let us say that 1 ounce of gold represents 10 hours of social labour-time. Now, a litre of wine also equals 10 hours of social labour-time, as does 1 metre of linen. The values of wine and linen can then both be expressed as a money price of 1 ounce of gold. We might give this 1 ounce of gold the name £1, in which case the price of a litre of wine, and of 1 metre of linen is £1. If the seller of wine comes to trade with the seller of linen, they can both exchange on this basis, therefore. Actual gold, as currency, does not have to be present for this exchange to take place. First of all there is an ideal conversion of each commodity into money. In other words, the seller of wine and the buyer of wine convert, in their heads, the value of the litre of wine into money. This is C-M. Ideally, therefore, the wine has now become £1. Similarly, the seller of linen, and buyer of linen do the same thing, and ideally, 1 metre of linen has become £1. So, the seller of wine can now offer to exchange to the seller of linen 1 litre of wine, for 1 metre of linen, and vice versa. The sellers of wine and linen, in the market, put price labels on their commodities of £1, and competition between all sellers of these commodities, forces them to do so. No actual money need take part in the physical exchange of these commodities, which occurs essentially still within the confines of barter.

The same applies where they exchange on the basis of credit, or trust, which is the original meaning of credit. The seller of linen, might give the seller of wine some token promising to pay, the 1 metre of linen to them at some later date, the token, being a symbol representing £1, as the equivalent of the linen to be supplied.

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The Economic Content of Narodism, Chapter 4 - Part 35

Narodism itself, thereby, had progressive and reactionary sides. The Lexiters who object to the EU's bourgeois nature are reflecting a progressive motive, but instead of looking forward, to going beyond its bourgeois constraints, they look backwards to the nation state, which is reactionary. The “anti-imperialists”, who object to the exploitation of workers in developing economies, by multinational capital, express a progressive motivation, but, in the absence of any realistic socialist alternative, for those workers, the “anti-imperialism” amounts to only pursuing a reactionary alternative based on the small scale capital within the developing economy itself.

The “anti-capitalists” who object to the actions of big capital express a progressive motivation, but their objections are not connected to any realistic proposals by which the workers could take control of those businesses, and, thereby, go beyond their bourgeois limitations. As a result, it amounts only to a protest against big capital, at a more or less individualistic level that simultaneously gives small capital a free ride, a more reactionary form of capital. They appear as a protest not against capital, and for socialism, but only a protest against the more developed, more progressive forms of capital, and, thereby, support for the less developed, more reactionary forms of capital. 

“Narodism is reactionary insofar as it proposes measures that tie the peasant to the soil and to the old modes of production, such as the inalienability of allotments, etc., insofar as it wants to retard the development of money economy, and insofar as it expects not partial improvements, but a change of the path to be brought about by “society” and by the influence of representatives of the bureaucracy (example: Mr. Yuzhakov, who argued in Russkoye Bogatstvo, 1894, No. 7, about common tillage as projected by a Zemsky Nachalnik and engaged in introducing amendments to these projects). Unconditional warfare must, of course, be waged against such points in the Narodnik programme.” (p 504) 

And, the same thing can be seen today in relation to that “anti-capitalism”. On the one hand, it wants to place constraints on this capitalist development. It does not seek the kinds of actions that would actually make real change possible such as development of worker-owned cooperatives, a struggle for workers' control of their pension funds, or a political struggle to change company law to prevent shareholders exercising control over capital they do not own, and for company boards to be elected by employees. On the other hand, it insists on a complete change of course for society, a change of course brought about not by society, i.e. by the workers themselves, but by the capitalist state, which is called upon to undertake large-scale nationalisation and then to provide workers' control. And, like the Narodniks, those that propose such nonsense seem to have failed to have noticed that this state belongs not to them but to that very bourgeoisie against whom they are demanding it act!! 

“But there are also other points, relating to self-government, to the “people’s” free and broad access to knowledge, to the “raising” of the “people’s” (that is to say, small) economy by means of cheap credits, technical improvements, better regulation of marketing, etc., etc. That such general democratic measures are progressive is fully admitted, of course, by Mr. Struve, too. They will not retard, but accelerate Russia’s economic development along the capitalist path, accelerate the establishment of a home market, accelerate the growth of technique and machine industry by improving the conditions of the working man and raising the level of his requirements, accelerate and facilitate his independent thinking and action.” (p 503-4) 

In this respect, Lenin says, the Narodniks better represent such development than does Skvortsov, who is favoured by Struve. 

“The Narodniks in this respect understand and represent the interests of the small producers far more correctly, and the Marxists, while rejecting all the reactionary features of their programme, must not only accept the general democratic points, but carry them through more exactly, deeply and further. The more resolute such reforms are in Russia, the higher they raise the living standard of the working masses—the more sharply and clearly will the most important and fundamental (already today) social antagonism in Russian life stand out.” (p 504)

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US June Economic Data

Economic data for the US Q1, and monthly data for May came in today.  First quarter GDP came in at 6.4% as against estimates of 6.5%.  Weekly jobless claims came in at 406,000, the lowest in the post lockout period, and down significantly from the 430,000 of the previous week.  The data shows continued rapid upward pressure on inflation.  Durable goods orders were also up by 1% ex autos, though down 1.3% including autos, which fell by 6.7%, whilst capital goods orders, fuelled by rising demand from businesses facing rapidly expanding monetary demand, rose by 2.3%, way above expectations.

The data showed that the economy is growing rapidly fuelled by monetary demand, resulting from large injections of liquidity directly into people's pockets, which was burning a hole in them, as soon as they were let out to be able to spend it.  Durable goods orders were expected to rise by 0.8%, but fell by 1.3%, due to a large drop in car sales.  That drop is due to the fact that car makers had to shut down production, because surging global demand has created a shortage of microchips.  Given the temporary shutdown of car makers due to the microchip shortage, it is likely also to have had an impact on the jobless claims data too.  Without those shutdowns, jobless claims could have been back to the pre-lockout levels of 200,000, which was a sign of growing labour shortages.

The GDP data was also weakened by a sharp drop in inventories, which is an indication that retailers, in particular, have cleared their stocks, without yet having been able to replace them from suppliers.  The consequence will be a stronger upsurge in production in Q2, as suppliers ramp up production to meet those demands from retailers and wholesalers for restocking, alongside rapidly rising growth in sales.

At the same time, Joe Biden has announced a new fiscal stimulus package, promising to bring a $6 Trillion budget to Congress for infrastructure spending.  That is on top of all the other fiscal stimulus measures previously proposed.  All of this spending now promises to increase US debt to around 117% of GDP.  The US is projected to have a budget deficit of over $1 Trillion in each year for the next decade.  So far, bond markets seem to doubt that such spending will ever get through, and, together with the fact that the US Federal Reserve, which already owns a large mass of US Treasury Bills that no one else would, otherwise, want to own, continues to keep its knee heavily pressed down on the neck of the bond markets, means they have still not crashed, thereby, suspending disbelief for a while longer.

Tightening labour markets, as lockouts are lifted, rapidly rising inflation with huge oceans of liquidity, with rampant government spending fuelling huge levels of debt on top of existing high levels of household and company debt, is reminiscent of the conditions of the 1970's, when wages were rising due to a long period in which labour supplies were run down, when governments ran up large deficits to fund public spending on welfare programmes, on the Vietnam War, and on counter-cyclical measures, as economic growth began to falter, and suffer sharp contractions as with the 1973 Oil Crisis, that also saw primary product prices rising.  That led quickly to inflation at over 20% in Britain, and over 15% in the US, despite it becoming a period of stagflation, in the late 1970's.

The difference today, is only that we are at a different point in the long wave cycle, that would be closer to the equivalent of the early 1960's.  But, given current conditions that simply means that we are likely to see even sharper increases in growth, and pressure on inflation, wages and interest rates.  We are, after all, a long, long way from the kinds of interest rates of the 1960's.  In 1962, homebuyers in the UK faced interest rates of 5.50%, which rose to 15% in 1976, and 16% in 1981.

In the US, 3 Month Treasury Bills rose steadily from under 0.5% in the 1940's, to 4.5% in 1960.

Monetary authorities will have some rapid catching up to do.

Michael Roberts and Inflation - Summary

 Summary:

• Michael Roberts in an article in WW says COVID has blown a hole in mainstream economic theories of inflation, he's right, but his analysis and alternative is also wrong.

• His main object is to counter the Monetarist theory, but, although he also seeks to oppose the Keynesian theory, he ends up with a version of Keynesian cost-push inflation.

• He objects to the Monetarist definition of inflation as a monetary phenomena, but that is also what Marx says in his analysis of money and inflation.

• Roberts' analysis might be correct if currency were still in the form of a money commodity like gold, but it isn't, and, the shift to money tokens, as Marx described in A Contribution to The Critique of Political Economy, be they coins, paper notes, (or now electronic digits), changes things, and, in fact, turns it on its head.

• The quantity of a money commodity put into circulation is determined by the value of commodities to be circulated, i.e. the average value of all commodities multiplied by the quantity of commodities to be circulated, divided by the value of the money commodity, multiplied by the velocity of circulation, in other words, the equation MV=PT that Roberts objects to. As Marx describes, where a money commodity, such as gold or silver, is used as currency, it has to be the value of commodities that drives this, because, if more value of gold is put in circulation than is required, the value of the currency, say an ounce of gold, falls below the value of gold as a commodity or bullion. Gold as currency would be taken out of circulation, and converted to bullion or used as a commodity, for use in jewellery etc. But, this cannot occur when money tokens replace the money commodity, because they do not possess the value of the gold they represent.

• Because of this relation of currency to the value of commodities to be circulated, its apparent what the problem with Roberts' argument is. He says the underlying determinant is changes in the value of commodities. The determinant of values, however, is social productivity. In pre-capitalist modes of production, differences in productivity, in different spheres, bring about variations in these values, and consequently exchange values, i.e. the proportion in which one commodity exchanges for another. The value resolves into c + v + s. If, productivity, in one sphere, remains constant, so that v + s remains constant, whilst a fall in social productivity causes v, i.e. wages, to rise, then the consequence is that s must fall proportionally, leaving c + v + s unchanged. However, under capitalism, commodities exchange at prices of production, not exchange values. The price of production is k, the cost of production (c + v), plus the average profit, p. So, now, if social productivity falls, and wages rise, this will also affect the price of production of the commodity, even though it does not affect its value! This applies to gold, if it were the money commodity too. In other words, under capitalism, the prices of all commodities are determined by the prices of all other commodities.

• If we put this in terms of exchange-values, then, a change in social productivity would affect the value of gold in the same way it affects every other commodity. If we assume that the velocity of circulation is 1, let 1 ounce of gold have a value of 10 hours labour. Let this unit of currency be called £1. The total value of commodities to be circulated is 1 million hours, say 100,000 commodities, so each with an average value of 10 hours labour, or £1. The amount of currency to be put into circulation then amounts to MV=PT, and so £1 x 100,000 = £100,000 = 100,000 units x £1. If there is a fall of 10% in social productivity, so that the commodities now require 1.1 million hours to produce, so each, on average, has a value of 11 hours labour, how many currency units are then required, and how does this affect prices, and inflation? Well, gold is also a commodity, which  is a requirement for it being the money commodity. However, the same fall in social productivity means that 1 ounce of gold also now requires 11 hours of labour to reproduce, i.e. the value of 1 ounce of gold is now 11 hours labour. The 1 ounce of gold, called £1, thereby, also now represents 11 hours labour. Dividing the total value of commodities to be circulated, of 1.1 million hours, by the value of 1 ounce of gold, which is now equal to 11 hours labour, means that 100,000 currency units are required, as before, and the total prices of commodities remain at £100,000. In other words, there would be no inflation, even though the fall in social productivity means that the total value of the commodities being circulated has risen by 10%.

• This demonstrates the difference between values (measured directly in labour-time) and exchange values (measured indirectly in quantities of other use values), and part of the error in Roberts' argument is that he fails to make this distinction. If all values rise equally, there is no change in exchange values, including the exchange value of the money commodity to all others.

• This assumes, of course, that the 10% reduction in social productivity still allowed the same volume of commodities to be produced and circulated as before. That would require, in fact, that additional labour could be employed to produce this additional value. In other words, it would require workers to work 11 hours during the day rather than 10, or would require 11 workers to be employed, where only 10 were employed before. If this were not possible, then the fall in social productivity would mean that fewer commodities were produced. In that case, with the value of the money commodity itself increased by 10%, fewer currency units would be put into circulation. For example, suppose with a fall in social productivity there is only sufficient social labour-time available to produce 90,000 commodities, each now with an average value 11 hours labour = 990,000 hours value. But, 1 ounce of gold now also has a value of 11 hours, due to the same fall in social productivity. In that case, only 90,000 currency units have to be put into circulation. The name of each currency unit would remain £1, and the average price of a commodity would remain £1. There would be no inflation of prices.

• It is quite clear, then, that inflation cannot be the result of changes in values, i.e. from an increase in costs due to a fall in social productivity. It can only result from a change in the relation of the value of commodities to the value of the money or the tokens that represent it. Inflation is a monetary phenomena.

• Suppose we swap the 1 ounce of gold, for a paper note. The paper note, now, becomes a proxy for the 1 ounce of gold, or, more correctly, for the amount of social labour-time it represents. If, 1 ounce of gold now represents 11 hours of labour-time, then so must the token that takes its place. In the latter example, the amount of paper notes in circulation must be reduced, as the total value of commodities has fallen to 990,000 hours, whose equivalent form is 90,000 ounces of gold. In the former example, 1 million notes would be in circulation, as equivalent form of the 1.1 million hours of labour time embodied in the commodities to be circulated. In both cases, the average price of the commodities remains £1, so there is no inflation. It is not the increase in the value of commodities that causes inflation, but the change in the relative values of commodities, in respect of the money commodity, or its token. Inflation is a monetary phenomenon.

• When precious metals were used as currency, or the money commodity out of which coins were produced, inflation could arise when the value of the money commodity fell relative to the value of other commodities. So, for example, when the Spanish conquered South and Central America, they obtained vast amounts of silver. When it was taken back to Spain, this lower value of silver, used as currency, led to an inflation of prices. When gold takes over the role of money commodity from silver, the same thing occurs with vast amounts of gold pillaged and sent back to Europe, and when large new sources of gold are more easily acquired, from the various gold rushes, this has the same effect of devaluing the money commodity, and, thereby, its relative value (exchange value) to other commodities, causing the prices (exchange-value expressed as a quantity of the money commodity) of those commodities (inflation) to rise.

• Inflation arises when money tokens are put into circulation representing a greater value of the money commodity than would otherwise have been required. This is true whether those tokens are comprised of the money commodity, or are comprised of other materials, including paper, or are simply electronic digits, registered in an account on a computer. If a £1 coin comprises 1 ounce of gold, and represents 10 hours of social labour, it is not a matter of whether this coin is debased or not that results in inflation, but merely the quantity of such coins put in circulation, relative to the quantity required. If 100,000 gold coins are required to circulate 100,000 commodities, representing a total value of 1 million hours of labour, then if 110,000 full weight coins are put into circulation, each coin will be depreciated by 10%, even though its value, as determined by the gold content of the coin, will remain 10 hours of labour. It would now require 11 such coins to buy 10 ounces of gold. Consequently, it becomes logical for the owners of such coins to take them out of circulation, to use them as bullion, to melt them down and sell the gold itself for use as jewellery etc. By this means, the number of such coins in circulation would be reduced.

• The determinant is not the gold content of the coin, but the relative quantity put in circulation. If the gold content of each coin were to fall to half an ounce due to wear, or clipping, so long as there remained in circulation only the same 100,000 coins, they would continue to function as though they were full weight, because the coins act only as token for the 1 ounce of gold they represent, which, in turn, acts only as representative of a given amount of social labour-time. If half the coins in circulation are half weight, and the rest are full weight, but twice as many coins are put in circulation as required, the value of each coin will still act in the same way. Every coin, full weight or half weight, will be depreciated by 50%. It is depreciated as a coin, as a token of the money commodity, not as a commodity. In such conditions, full weight coins can be removed from circulation. They cease being currency/money, and become commodity. The half weight coins could not, because the value of the gold in them would be no more than the depreciated value of the coin itself, but it is not the diminished quantity of gold in the coin that devalues it, but the excess quantity of currency in circulation. For this reason, base metal coins or paper notes cannot be removed from circulation, when the issue is excessive and converted into commodity. That is why, as Marx describes, the situation becomes turned on its head when these worthless tokens take the place of precious metals as currency.

• Once these worthless tokens take the place of precious metals as currency it is no longer the value of commodities to be circulated that determines the amount of currency to be put in circulation, but the quantity of currency put in circulation which determines the average prices of the commodities being circulated. The currency tokens become devalued when they are issued in excess, and so the values of commodities, becomes expressed in a higher money price – inflation. Inflation is a monetary phenomena.

• Roberts argues that more money has been put into circulation, and yet prices have not risen. Firstly, that fails to take into account the effect on the values of commodities resulting from massive rises in social productivity from the 1980's onwards. If commodity values fall, then prices should fall too, but if they remain the same or rise slightly in money terms, that is an indication that there has been inflation, i.e. excess currency was put into circulation so that the exchange value of the currency relative to commodities has fallen. Secondly, its not true to say that prices have not risen. Roberts himself admits that the prices of assets have risen over that period. Assets are also commodities bought with currency. A look at the rise in the Dow Jones since 1980 shows the massive inflation of asset prices during that period, resulting from the excess amounts of currency put into circulation. Look at the rise in bond and stock markets over the period of the lock-downs, which is a direct result of the massive increases in currency put into circulation over that period, despite the fact that the revenues to those assets were sharply curtailed during that period.

• The fact that it was asset prices rather than commodity prices that rose sharply is a reflection of what Marx points out in the Contribution that having put currency into circulation the authorities cannot control where it goes, and so which prices it will inflate. More correctly, in this case, it is an indication that central banks did exert significant control over where the currency went, by directly using the currency to buy financial assets, and encouraging others to follow suit, in search of large capital gains, and so also to drain liquidity from general circulation. The fact, that, during the lockouts, those spheres where consumers were able to spend, saw large rises in inflation, as the excess currency swilled into them, is further indication of that. The fact that, as lockouts end, and money demand increases sharply, as all of this excess currency is mobilised, prices of commodities across the board are rising by large amounts, is further evidence of that reality. Inflation is a monetary phenomena.

• Roberts wants to argue against the Keynesian cost-push theory of inflation, but his own argument is a version of cost-push inflation, phrased as an increase in values rather than costs. That is hard to justify, given that, under capitalism, prices are determined by prices of production, not exchange values, and prices of production are a function of cost of production plus average profit. Roberts also makes the same mistake as the Keynesians, by confusing the superficial appearance for the underlying reality. Both are right in seeing that rising costs/values lead to rising prices, but fail to identify the underlying mechanism. If we take a money commodity, then, as described above, its impossible for rising costs/values caused by falling social productivity to cause inflation, because the value of the money commodity would increase in proportion to the value of other commodities. Its only where there is a disproportion that inflation could arise, i.e. the value of the money commodity/token falls relative to the value of the commodities it is to circulate. In a regime of prices of production, determined by costs of production and average profit, the prices of all commodities, including the money commodity are determined by the prices of every other commodity. If social productivity falls, then the prices of inputs for gold producers, for example, including the costs of wages, will rise, so that the cost of production of gold rises. Applying the average profit to this cost of production then gives the price of production of gold, around which its market price revolves.

• Roberts adopts the cost of production theory of value of Adam Smith, as against Marx's labour theory of value. Suppose that we have c 1000 + v 1000 + s 1000 = 3000, where these are values measured in labour hours. Now, social productivity falls in Department I by 10%. To reproduce the constant capital, requires 1100 hours. Smith, and Roberts now calculate the value of output as c 1100 + v 1000 + s 1000 = 3100. However, this is impossible unless an additional 100 hours of new labour are undertaken during the year. The value of the consumed constant capital was given as 1000 hours. (If that represented 1000 units, the fall in productivity means that say only 900 are produced, this year, so that the unit value of each is increased, reflecting this rise in the value of the consumed constant capital)  As a result of the fall in social productivity, in order to reproduce this consumed constant capital, 1100 hours are required, and in resolving the value of this years output, the increased value of constant capital would have to be accounted for. This is what Marx sets out in Capital III, Chapter 6, and in Theories of Surplus Value, Chapter 22, in relation to The Tie-Up of Capital. In other words, if only the same amount of new labour is undertaken during the year, the consequence is that a portion of the surplus value, is now tied up to reproduce the consumed constant capital, otherwise it is not physically reproduced, and social production would be contracted. As Marx says, it creates the illusion of an actual fall in profit. So, if no additional labour is undertaken, the output of the current year, with a value of 3000, then resolves as follows: c 1100 + v 1000 + s 900. In other words, it appears that the surplus value has fallen by 100, even though, there is no change in the rate of surplus value, i.e. 2000 of new value is created by labour, and only 1000 of that new value is required to reproduce the consumed labour-power. What it really represents is that a portion of total current output now has to go to replace the consumed constant capital, whose value has been increased retrospectively. If production is to continue on the same scale, the same quantity of labour must be employed as before, determined by the technical composition of capital, and so 1000 of the current output must again reproduce the variable-capital, which means that 100 hours of current output that would previously have gone to surplus value, no longer exists, which means that the unproductive consumption of the capitalists, or else the amount they would have allocated to capital accumulation is reduced by this amount. As Marx describes in Theories of Surplus Value, Chapter 22, although this apparent reduction in surplus value is an illusion (it is a conversion of revenue into capital), what it does constitute is a fall in the rate of profit. In other words, even if we disregard the fall of 100 in profit, the rate of profit would fall from 1000/2000 = 50% to 1000/2100 = 47.62%. This is clear when looking at the next year. In the next year, with no further change in social productivity, we would have c 1100 + v 1000 + s 1000 = 3100. In other words, the 1100 hours value of constant capital is now included in the value of current output, and reproduced out of it. The employed labour again produces 2000 hours of new value, and is resolved into 1000 to reproduce variable-capital, leaving 1000 as surplus value. But, this 1000 of surplus value, whilst still constituting a 100% rate of surplus value, and despite the total value of output now having risen to 3100, or indeed because of it, now represents a rate of profit of 47.62%, not the 50% that existed prior to the fall in social productivity.

• What the Keynesians and Roberts see is rising costs/values followed by rising prices, but this is the consequence of the currency taking the form of money tokens. Take the economy as a whole, so that we can ignore the question of exchange-values as against prices of production. Now, the value of output resolves into c + v + s. Let us say, this is equal to 1 million hours of labour, represented by 100,000 paper notes each called £1, and representing 10 hours of social labour-time. If social productivity falls/costs rise, then as Marx describes in Capital, the increase in the value of c will be reflected in the value of the output, out of which it is reproduced. The new value created by labour (v + s) will also increase, because more new labour is required. But, this increase in costs means that more labour-time is required to reproduce labour-power, so that v will rise relative to s.

• If money took the form of a money commodity, such as gold, then these increased values/costs would also be reflected in the value of gold, so that the price of commodities, i.e. their exchange value measured in gold, would be unchanged, unless there was some disproportionate change in the value of gold compared to all other commodities. If 1 ounce of gold is given the name £1, then the gold price of all commodities would remain unchanged.

• But, the currency is not comprised of units of gold put into circulation. It is comprised of tokens, of generally worthless bits of base metal, or paper – as well as bank money. These tokens become separated from their relation to any money commodity, or from the relation to the quantities of social-labour-time for which that money commodity itself acted as proxy. This illustrates the point that these tokens act as representatives of social-labour-time, not as representatives of gold or some other money commodity. If social productivity falls so that 1 million hours of value in commodities now becomes 1.1 million hours of value, the equivalent form of this value is 100,000 gold coins, each with a value of 11 hours labour, rather than 10 hours labour. Each coin is called £1, whether it originally comprised 10 hours of labour, or as now, 11 hours of labour. The price of each commodity, on average remains £1, and so there is no inflation. The same would be true if 100,000 £1 notes fulfilled this function. Indeed, assume that the value of gold does not rise, in which case, more gold would have to be put into circulation as currency, the value of gold would fall relative to other commodities, and gold prices of commodities would then rise. In effect, this is the same thing as if there had been a fall in the value of the money commodity, causing prices to rise. However, assume the currency takes the form of paper £1 notes. If the same 100,000 of them are put into circulation, they would continue to function as before. Each note bearing the name £1 would buy 11 hours of labour, in the form of commodities, including gold. There would be no inflation of commodity prices, and, in fact, the price of gold would fall. Each £1 note would now be a representative of 11 hours of social labour-time, as against the 10 hours of labour-time each previously represented.

• But, the monetary authorities, seeing rising costs, do place additional currency into circulation. If the cost of constant capital increases, this is passed on into the higher value of output. The higher value of commodities increases the value of labour-power, reflected in higher wages. If a £1 note is fixed as representing 10 hours of labour-time, then a 10% increase in costs, and output value, must result in a 10% increase in the quantity of these notes put into circulation. Moreover, assume there is no increase in costs/values, but that wages rise, for example, because the demand for labour rises relative to supply. The consequence should be that, because the given amount of labour produces no additional value, the higher wages cause profits to fall. If the amount of currency in circulation remains constant, then prices could not rise, and so this fall in profits would ensue. However, because the state, and so central banks, are there to serve the interests of capital, which does not like to see its profits fall, when costs rise, as a result of rising wages, the central bank responds by issuing additional currency, which depreciates it, and so enables prices to rise. In fact, central banks do this also so that money wages rise, when otherwise they should fall due to rising productivity, because they know wages are sticky downwards.  Firms increase their prices to cover the increased costs of wages, whilst maintaining their profit margins. The consequence is then that this further increases the value of labour-power, so now wages must rise again, which would squeeze profits unless prices rise, and so more currency is issued, and so on, in what becomes the familiar price-wage spiral seen in the 1970's.

• Roberts theory of demand is also hopelessly wrong, as he says that demand comes from the new value created by labour during the year. That is the error made by Sismondi, Malthus and the Narodniks, and by Keynes, which leads to theories of under-consumption. Roberts version is essentially a rehash of Keynes modification of the erroneous Say's Law, which stems from what Marx called Adam Smith's "absurd dogma" that the value of output resolves entirely into revenues.  Roberts simply repeats Smith's absurd dogma.  The new value created during the year is equal to v + s, whereas the value of output during the year is equal to c + v + s. If demand, is only equal to v + s (i.e. revenues), its clear that it could not possibly be equal to c + v + s the value of output, and so there would necessarily be a crisis of under-consumption! But, as Marx makes clear demand is not, as Roberts claims, equal only to the new value created during the year (GDP) or v + s, but is equal to c + v + s, with the demand for c coming from capital not revenue.

• At the end of his article, Roberts contradicts everything he had said at the start in relation to Monetarism, by saying that if the US Federal Reserve sees inflation rising too fast it will act to raise interest rates and reduce money supply!

• His model predicts that US inflation could rise to over 3% by the end of the year, but its already at 4.2%!

Forward To Part 1

The Economic Content of Narodism, Chapter 4 - Part 34

VI 

In this final section, Lenin briefly examines some comments made by Struve in relation to Narodnik economic policies. These comments make clear that Struve is talking about his attitude to polices within the context of a continued capitalist development, and, on that basis, he discusses polices in terms of their rationality, progressiveness and intelligence. He compares the liberal economic policies with those of the Narodniks. 

“The author evidently wanted to contrast two policies that keep to the existing relations—and in this sense he quite rightly pointed out that a policy is “intelligent” if it develops and does not retard capitalism, and it is “intelligent” not because it serves the bourgeoisie by increasingly subordinating the producer to them [the way in which various “simpletons” and “acrobats” try to explain it], but because, by accentuating and refining capitalist relations, it brings clarity to the mind of the one on whom alone change depends, and gives him a free hand.” (p 501) 

But, because Struve approaches matters abstractly on the basis of objectivism, he fails to identify the fact that the policies proposed by the liberals on the one hand, and the Narodniks on the other, cannot be considered from the perspective of rationality or intelligence, but only from the perspective that each represent the different class interests. The liberals put forward the interests of the bourgeoisie, of big capital, whereas the Narodniks put forward the interests of the petty-bourgeoisie. They are both intelligent and rational from the perspective of these different classes. 

“In this way he would have used the Russian example to show the connection between social ideas and economic development, something he tried to prove in the first chapters and that can only be fully established by a materialist analysis of Russian data. In this way he would have shown, secondly, how naive the Narodniks are when they combat bourgeois theories in their publications, and do so as though these theories are merely mistaken reasoning, and do not represent the interests of a powerful class which it is foolish to admonish, and which can only be “convinced” by the imposing force of another class. In this way he would have shown, thirdly, which class actually determines “urgent needs” and “progress” in this country, and how ridiculous the Narodniks are when they argue about which “path” “to choose.”” (p 502) 

Talk about potential future paths of development simply acts as a means of the Narodniks promoting policies in the interests of the petty-bourgeoisie – in the same way that Brexit as an alternative path represents the interest of the petty-bourgeoisie. Those policies do not lead to a different future, i.e. a non-capitalist path of development, but only to a capitalist development geared to the interests of the petty-bourgeoisie rather than big capital. This is the same in relation to Brexit, or to the “anti-imperialists” proposals in relation to developing economies. It is a proposal for a more backward form of capitalist development, and, thereby, reactionary. 

“That is why the Narodnik, in matters of theory, is just as much a Janus, looking with one face to the past and the other to the future, as in real life the small producer is, who looks with one face to the past, wishing to strengthen his small farm without knowing or wishing to know anything about the general economic system and about the need to reckon with the class that controls it—and with the other face to the future, adopting a hostile attitude to the capitalism that is ruining him.” (p 503)

Back To Part 33

Forward To Part 35

The Popular Front - Part 7 of 7

The fascists are the vehicle for this fight. On the one hand, the fascists ideology is one based upon the mobilisation of the petty-bourgeoisie. It is “anti-capitalist”, in the sense of being superficially hostile to large-scale monopoly capital; it is nationalistic in outlook, and able to rally the lumpen elements around racist and conspiracist tropes; and its methods are based upon a violent break-up and suppression of the organised labour movement, which forms the immediate concern of the ruling class. The liberal-bourgeois representatives, i.e. the conservative social-democratic politicians within the conservative and social-democratic parties, may look on aghast at the growth of such forces, but, as seen in Italy, Germany, Spain and elsewhere, in the 1920's, and 30's, these liberal-bourgeois politicians have already been abandoned by the class they seek to represent. The petty-bourgeoisie, already in the camp of the reactionaries, is joined by the bourgeoisie itself, i.e. by the ruling class owners of fictitious-capital, and the forces of its state.

As Trotsky points out, therefore, the attempt to create a popular front, to oppose the fascists, in such conditions is pointless, because such a popular front can only be with the liberal bourgeois politicians who no longer represent anything other than a ghost class. A popular front only allows these politicians to obtain seats in parliament on the back of the workers parties in the alliance, but the workers themselves must abandon their own independence in order solely to obtain this mirage of broad support. Such popular fronts insist on the workers remaining inside the remit of bourgeois-democracy, and because they confuse the winning of elections, and governmental office with state power, they inevitably demobilise and disorient the working-class, when that state, as the state of the ruling-class, then turns on them, and sides with the fascists, as happened in Spain in 1936, Chile in 1973 and so on. The workers could only have been prepared for such events had they been warned of them in advance, and had a revolutionary party began to organise them in defence squads and workers militia.

Fascism, however, is to be understood as conservative rather than reactionary. Unlike the reactionaries who represent the interests of the petty-bourgeoisie, fascism represents, in these specific historical conditions, the interests of the owners of fictitious-capital. It represents the same interests as the conservative social-democrats, interests which those politicians cannot represent, within the confines of bourgeois-democracy, in these specific historical conditions. Once having seized power, the fascists set about utilising the state power to destroy the petty-bourgeois and lumpen elements within their ranks; in Germany those elements were represented by the Strasserites.

The fascists then set about the use of the state to reorganise the economy in the interests of large scale socialised capital. The owners of fictitious capital see increased revenues in the form of interest on the loans they provide to the state to undertake such infrastructure spending, and as the profits of large-scale industry increases, they see their dividends increase too. Superficially, national socialism under fascism appears identical to national socialism under Stalinism, and its no wonder that an enthusiastic supporter of the Moseley Memorandum of the 1930's, setting out such policies, was Nye Bevan and other statist social-democrats.

A range of organisations are described as popular fronts, which aren't, but which are popular frontist in nature, i.e. they are cross class organisations. Stalinists have been the biggest force behind such organisations, in line with the adoption of the popular front, as the principle tactic of Stalinism since the 1930's. The development of “anti-imperialist alliances” and “anti-monopoly alliances” are typical of such cross class organisations. They are thoroughly reactionary in nature, for the reasons that Lenin describes in relation to the same kinds of populism put forward by the Sismondists and Narodniks. Rather than seeking the further development of capitalism, and of the revolutionary elements within it, such movements seek to hold back the development of the most advanced elements of capitalism, and to align with and foster the less mature, reactionary forms of capital. So called “Anti-Capitalist” movements are usually of this type too, their aim being to hold back or turn back capitalist development, rather than to push forward through it to Socialism.

As an indication of the deterioration of the Left in general, it is not just the Stalinists that have been the driving force of such cross class movements, and popular fronts. The SWP in the 1970's, became a major force in such developments through things such as the Anti-Nazi League, but also most Left groups fell into similar cross-class alliances, such as CND, the Anti-Apartheid Movement and so on, which itself reflected the weakness of many of those smaller organisations, who criticised the nature of these organisations, but were unable to avoid their gravitational pull. In the last two decades, the SWP and its splinters became inseparable from such popular frontist, cross-class alliances, and the unprincipled politics that goes with them.

Although, such organisations are not themselves popular fronts, because they do not represent electoral alliances, and so do not require an abandonment of socialist ideas and programmes, the reality of these organisations is that that is what happens, because those that create them, in order to attract and retain the wider political representation they crave, are forced to limit the platform of the organisation itself to the bland, bourgeois politics that the liberal politicians, religious leaders and so on will accept. Indeed, in the case of the SWP, and its Respect abomination, it is not even just liberal politicians whose support is sought, but that of outright reactionaries such as George Galloway and Islamic religious leaders. In all these cases, as with the experience of popular fronts throughout history, when the liberal and other bourgeois political representatives have obtained what they require, and at a time of their choosing, they cut free from the workers' representatives, and turn against them.

The lesson of history taught by Marxist analysis is to avoid popular fronts like the plague. The weakness of revolutionary socialism means that, as with Marx and Engels in 1848, we are forced into an undeclared popular front inside the social-democratic parties, in order to obtain the ear of workers, via their mass organisations. The alternative is the sterility of sectarianism of all those that seek to build their own alternative in splendid isolation. But, as Marx and Engels did, we have to recognise the nature of our position within these parties, and protect against the danger of opportunism. It is necessary to see our sojourn as a temporary tactic as a means of building the mass revolutionary Workers' Party as a real alternative. It is necessary to see ourselves in Engels' words, as a wing of those bourgeois parties, and to act to defend our own political and organisational independence within them.

Back To Part 6

The Economic Content of Narodism, Chapter 4 - Part 33

Marx demonstrated, in Volume II, that the expansion of wealth, production and capital is quite possible without resort to foreign markets, or third persons to absorb any supposed surplus production. Of course, having done so, Marx also sets out why the existence of foreign markets facilitates such expansion, because it brings with it a wider range of commodities that can be exchanged, thereby broadening the market and enabling its more rapid development. And, in Theories of Surplus Value, Chapter 17, he sets out how, in practice, a surplus of goods not only can but inevitably does arise, because of overproduction, under-consumption and disproportion, as well as crises of overproduction of capital, where capital accumulates faster than labour supply/social working-day. 

That Struve falls into this error is surprising Lenin says, because he points to the overwhelming significance of the home market in Russia himself. He also notes the development of a strong, i.e. bourgeois peasantry, in Russia, which is an indication of the development of capital in agriculture, and along with it the consequent proletarianisation of the mass of peasants, which is the basis of the growth of the home market, as those workers now had to meet their needs from the market rather than their own production. 

In his concluding remarks, Lenin returns to the points raised at the beginning, in relation to what exactly was it of Marxism that Struve adopts, and what that he rejects. The main feature, Lenin repeats, is Struve's objectivism rather than materialism, which leads him to argue at the level of abstraction rather than an analysis of the facts. In attempting to demonstrate inevitability in this way, he fails to identify the creation of actual social classes, and the antagonistic relations between them. The Marxists too, Lenin says, sometimes argue with the Narodniks at the level of objective principles but always in the context of a different understanding of the available known facts. Struve, by arguing at the level of abstraction, put forward propositions that were open to misunderstanding and framed the argument in the way the Narodniks and Legal Marxists did, in terms of an academic debate about the future, rather than an analysis of current reality, and the existing classes, and class struggle taking place. It was on that basis, Lenin says, that a critique of his work and the provision of this additional analysis was required.

Back To Part 32

The Popular Front - Part 6 of 7

The owners of fictitious-capital have two contradictory sources of revenue upon which their wealth and power is based. On the one hand, they can obtain large revenues in the form of interest/dividends on their shares, bonds and other financial assets. On the other they can obtain large capital gains as a result of significant rises in the prices of these assets, and they can then convert these capital gains into revenues, by selling a proportion of those assets. A rise in the price of assets, unless it is a reflection of the increased revenue produced by the asset, results in a lower yield, i.e. ratio of the revenue to the price of the asset. If yields fall, the owners of shares can compensate, by having their representatives on company boards increase the proportion of profits going to dividends, but this then reduces the amount going to real capital accumulation, and so undermines revenues and fictitious capital in the longer-term.

If interest rates rise, then asset prices fall, and so yields also rise. The owners of revenue producing assets see their revenues rise, but they see the price of their assets fall. The total return might then also fall, as the capital loss outweighs any increase in revenue. But, ultimately, it is the real productive capital that dominates, because it is the source of profits, and thereby of these other revenues and capital gains. The owners of fictitious-capital, as ruling-class, seek to protect themselves from this contradiction. They have central banks print money tokens to buy up assets, to reflate their prices, when they crash and so on. They seek to have the state regulate the economy to a greater extent and on a wider geographical basis, so that the profits that are accumulated as real capital, can be more effective and produce greater profits and so on, But, eventually, the prices of assets cannot continue to rise at a faster pace than the growth of revenues, and revenues can only grow if surplus value grows, which requires the accumulation of real capital, and so the employment of additional labour.

Ultimately, this question of the accumulation of real capital has to be addressed. That was the property question that imposed itself in the 1920's, and again in the 1930's. It requires a restructuring of real capital on the basis of a technological revolution that qualitatively raises productivity, and, thereby, the rate of surplus value and rate of profit. The owners of fictitious-capital are forced to accept a large-scale write down of their paper wealth, as interest rates rise, and financial and property markets crash, but their main concern then becomes to retain control over the real socialised capital, which now becomes the focus of their wealth and power.

In the 1920's and 30's, it is when they see a threat to this control, as workers and sections of the professional middle-class, who are the personification of this large-scale socialised capital, begin to rationally demand control over it that the ruling class now turns to the fascists to protect its interests. The ruling-class is tiny. To protect its interests as against the old landlord class it looked to the proletariat. To protect its interests against a revolutionary proletariat it can only look to the petty-bourgeoisie, and lumpen proletariat in addition to its state. The interests of these elements are contradictory to the interests of large-scale socialised capital, and so, therefore, the long-term interests of the ruling class, but the ruling class is immediately concerned with its own survival, and is forced to think about its longer-term interests only after having dealt with the proletariat.

Back To Part 5

Forward To Part 7

The Economic Content of Narodism, Chapter 4 - Part 32

Vorontsov himself puts forward an essentially Malthusian/Sismondist theory of overproduction as under-consumption. He says that capitalist production inevitably leads to a “surplus of goods” in the home market that then requires foreign markets to absorb it. Malthus' solution to the problem was that the landed aristocracy could simply consume the surplus, and Keynes puts forward essentially the same solution a century later. But, the idea of this surplus of goods is based on an error, that flows from Adam Smith's “absurd dogma” that the value of commodities resolves entirely into revenues, which is also the basis of Say's Law; it fails to distinguish between productive and personal consumption, and between the new value created by labour, and the value of congealed labour preserved in the value of the commodity. 

Its true that the value of output is greater than the value of income/revenues, and, thereby, personal consumption. Total income/revenue is equal to the new value created by labour during the year. This equals National Income/GDP. The new value created by labour divides into v + s, i.e. one part reproduces the variable capital consumed during production, and the other constitutes surplus value, divided into profits, rent and interest. The variable-capital is the wages paid to workers out of the new value they have created, and enables them to reproduce their labour-power for the year ahead. The surplus value divides into profit of enterprise, interest, rent and taxes, each of which provides revenues so that landlords, money-lenders, capitalists and the state can consume during the year. However, the total value of output is not just v + s, but c + v + s. On this basis, it appears that consumption can never be equal to production, so that there must be a surplus of goods. But, this fails to notice that not all consumption is personal consumption. Industry itself, in the shape of Department I, must also productively consume output in the process of producing means of production, if reproduction is to occur on the same scale. The surplus of goods, therefore, does not exist. 

This is clear in Marx's examples of simple reproduction, but, as Marx demonstrates it is also true in relation to expanded reproduction, where a portion of surplus value, instead of being used for personal consumption, is used to buy additional labour-power and means of production. Its in this latter regard that Vorontsov, and thereby Struve, falls into his Malthusian error. Struve writes, 

““Each worker,” says Mr. V. V. in his article “The Excess in the Market Supply of Commodities,” “produces more than he consumes himself, and all these surpluses accumulate in few hands; the owners of these surpluses consume them themselves, for which purpose they exchange them within the country and abroad for the most varied objects of necessity and comforts; but however much they eat, drink or dance (sic!!)—they cannot dispose of the whole of the surplus-value” (Otechestvenniye Zapiski, 1883, No. 5, p. 14), and “to be more convincing” the author “examines the chief expenditures” of the capitalist, such as dinners, travelling, etc. We get it still more vividly in the article “Militarism and Capitalism”: “The Achilles’ heel of the capitalist organisation of industry is the impossibility of the employers consuming the whole of their income” (Russkaya Mysl, 1889, No.9, p.80). “Rothschild could not consume the entire increment to his income ... for the simple reason that this ... increment constitutes such a considerable mass of articles of consumption that Rothschild, whose every whim is satisfied as it is, would find himself in very great difficulties,” etc.” (p 498) 

That particular variant of the Malthusian argument also found expression in the so called Permanent Arms Economy Thesis. The whole argument is nonsense, because it assumes that the whole of the capitalists' consumption is personal consumption, whereas an increasing proportion of surplus value goes instead to accumulation, whilst an increasing proportion of total output goes to productive consumption, i.e. to the replacement, on a like for like basis, of the means of production consumed in production. This productive consumption/accumulation is required not only because the population increases each year, which itself requires output to expand, but also because living standards themselves increase, which requires output to increase further. Moreover, this rise in living standards is manifest not simply in an increase in the quantity of commodities consumed, but by a continual expansion in the range of commodities produced, and range of new industries created for their production, each of which absorbs vast amounts of this surplus value – the civilising mission of capital. 

“All these arguments, as you see, are based on the naïve view that the capitalist’s purpose is only personal consumption and not the accumulation of surplus-value, on the mistaken idea that the social product splits up into v+s (variable capital+surplus-value) as was taught by Adam Smith and all the political economists before Marx, and not into c+v+s (constant capital, means of production, and then into wages and surplus-value), as was shown by Marx. Once these errors are corrected and attention is paid to the circumstance that in capitalist society an enormous and ever-growing part is played by the means of production (the part of the social products that is used for productive and not personal consumption, not for consumption by people but by capital) the whole of the notorious “theory” collapses completely.” (p 498)

Back To Part 31

Forward To Part 33

Northern Soul Classics - The World Column - So Is The Sun

 

Friday Night Disco - I've Been Born Again - Johnnie Taylor

 

What An Idiot!

Here is an example of just what idiots the Tory Brexiters are, and why its no wonder they came to support such a ridiculous policy of Brexit.  I couldn't believe it when I read it.

Talking about the proposed tariff free deal between the UK and Australia, under which British livestock farmers will be wiped out by the much larger-scale, and so lower cost Australian producers,

"Conservative MP Neil Parish, chairman of the Commons Environment, Food and Rural Affairs Committee, said UK farmers could succeed in the beef market by exporting more "higher-end" cuts, such as sirloin, to Australia."

(BBC)

Now, of course, small economies, like Britain, can attempt to offset some of the disadvantages of their size, and inability to obtain the benefits of economies of scale that comes to producers based in large single markets, like the EU, by shifting their production into high-value areas of production, into niches in which price becomes less important than quality, perceived or real, in being able to capture markets.  For example, an economy might focus on the production of high-value sports cars, or luxury cars that might be produced in relatively low volumes, but find ample markets, for their production, even at high prices, as a result of consumers being concerned to buy a high quality, luxury product.

The problem of that, for a country like Britain, is that although its a minnow compared to the EU, US or China, nor is it a Norway or Finland, able to sustain all of its population in employment in such niche industries.  The idea of employing Britain's 30 million workers producing Aston Martins, or Rolls Royces is not viable, for example, and even these companies are now foreign owned, with the brand and technology easily being transferred overseas, when those owners choose to do so.

But, the idiocy of Parish's comment is even more obvious than that.  For the Chair of a food and agricultural committee, he doesn't seem to understand even the basics of the subject.  He doesn't seem to understand that you can't simply grow high end cuts, like sirloin, or at least you can, but only artificially, now, in a laboratory.  producing sirloin, or any other cut of meat, involves producing all of the rest of the cow too!

The Popular Front - Part 5 of 7

Meanwhile, the development of that large scale socialised capital, which eclipsed the monopoly of private capital that preceded it, had also brought another transformation with it, which was that the former owners of that private capital had been transformed into a class of rentiers, coupon clippers, whose wealth was held in the form of fictitious capital, of shares and bonds. As Marx describes in Capital III, and Theories of Surplus Value, the objective interests of this class now diverge from the objective interests of industrial capital.

Their immediate interests depend not upon the accumulation of real capital, but on the appropriation of interest/dividends out of the profits produced by industrial capital. In order to ensure that, they made sure to use their political power to pass corporate governance legislation, when limited liability companies were made possible, that gave shareholders control over those companies, and their capital, even though they were mere creditors of those companies. The old alliance between the landed aristocracy, and the financial oligarchy that was represented by the Tory Party, and which is increasingly manifest in the merging and intermarriage of these exploiting classes, emerges in a new form. These conservative parties, which can be seen across the world, become the representative of that ruling class, whose actual objective interest is now at odds with the interests of the dominant form of property, large-scale socialised capital, whose accumulation is the determinant of the fortunes of the state itself. In other words, this represents a transitional state, in which the contradictions have been sharpened and raised to a new height.

The heightened contradiction is manifest in the fact that, the short-term interest of this fictitious-capital, the property form of the ruling-class, is contradictory to the interests of the real socialised capital, and, thereby, the long-term interest of the state itself. But, the long-term interest of the fictitious-capital, and of the ruling class is itself dependent upon the development of the real socialised capital, which is the source of profits, and thereby of the interest/dividends and rent that provides the revenues, and underpins the capital gains on the fictitious capital. The long-term interest of fictitious capital, is only possible on the basis of the continued development of large-scale socialised capital, and so the interests of the ruling class are only furthered, by the continued advance of the socialised property, and development of the new ruling class – the working-class and middle class collective owners of that socialised capital. The ruling class's short-term interest contradicts its own long-term interest!

Social-democracy, thereby, reflects this contradiction. The social-democratic parties represent a popular front in which the owners of these two contradictory forms of capitalist property are combined. On the one hand, they contain the conservative social-democrats who represent the interests of large-scale fictitious-capital, and, thereby, its owners, the top 0.01% of the population that owns and controls the majority of fictitious-capital. On the other hand, they contain the progressive social-democrats who represent the interests of the large-scale socialised capital itself, and, thereby, the professional middle class that is its personification. And, they contain the reformist socialist representatives of the working-class, whose own interests are tied to the development of this large-scale socialised capital, so long as they are not able to go beyond it to their own direct control over the means of production.

The conservative parties, as opposed to the conservative wings of the social-democratic parties, then become not conservative at all, but reactionary. That is best seen with the Tory Party in Britain, and the Republicans in the US. Their membership becomes dominated by the most numerous components of the bourgeoisie, which increasingly becomes indistinguishable from the petty-bourgeoisie. In other words, it is dominated by the plethora of small private capitalists which linger on as a relic of capitalism's earlier development, prior to the development of socialised capital, and also of all those new small private capitals that are constantly being brought into existence, and as constantly going out of existence, unable to compete with large scale socialised capital.

As parties seeking governmental office, these conservative parties, however, are forced to recognise the reality that the fortunes of the state itself depends upon the fortunes of large-scale socialised capital. The conservative parties themselves, therefore, are racked by their own internal contradiction. In their ideology and programmes they must reflect the interests of their own core membership and voter base amongst the petty-bourgeoisie, in opposition to large scale socialised capital, whilst, in government, they have to act in the interests of that large-scale socialised capital, because on it depends the future of the state.

In the end, the social-democratic elements of these conservative parties, together with the conservative wings of the social-democratic parties are led to the same position of seeking to protect the interests of the owners of fictitious-capital, but, in the longer-term that can only be done by advancing the interests of large-scale socialised capital itself. That requires that greater regulation and planning occurs, to ensure that capital accumulation can take place in a more secure environment; it requires that larger single markets be developed, as the minimum size of operations of these larger capitals and so on. But, what the owners of that fictitious-capital cannot allow is that this occurs, on any meaningful basis, outside their own continued control of the real socialised capital.

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