So, Roberts' analysis is not just crude, but wrong, and based upon a misunderstanding of basic Marxist theory, when it comes to the questions of value, money, money tokens, money capital, inflation and interest rates, as well as the Marxist theory of demand. He fails to distinguish between money as the universal equivalent form of value, and money tokens as currency, whose value is determined by the quantity of them put into circulation in relation to the money/social labour-time they represent; he fails to take account of the time required for liquidity put into circulation to flow out into the real economy, and so have any effect on economic activity or prices; and he fails to recognise that, in the previous period, liquidity was directed into an hyper inflation of asset prices, thereby, preventing it flowing into the prices of commodities. Rather, he does recognise this latter fact, but presents it simply as a slow down in the velocity of circulation, increase in savings, rather than what it actually is, as a speculative increase in asset prices.
The Keynesians are theoretically wrong to see inflation as a consequence of increased costs, particularly rising wage costs, but, in practice, increased costs do lead to the state increasing liquidity, so that capital can raise prices, so as not to have its profits squeezed, at least up to that point, at which this leads to inflation at such a level that it threatens to destabilise the system. Usually, by that time, capital has already responded to rising wages, by engaging in technological revolutions to replace labour with capital, so as to create a relative surplus population. As in the 1920's, and in 1970's that creates conditions in which capital begins to respond to wage demands more aggressively, during the crisis phase, and as the stagnation phase is entered, in the 1930's and 1980's, the position of labour has already been undermined by this process, so that wages begin to fall, and profits rise. This illustrates that economic phenomenon cannot be analysed in isolation from politics, hence the term political-economy.
Roberts says,
“The demand for goods and services in a capitalist economy depends on the new value created by labour and appropriated by capital. Capital appropriates surplus value by exploiting labour-power and buys capital goods with that surplus value. Labour gets wages and buys necessities with those wages. Thus it is wages plus profits that determine demand (investment and consumption).”
This is not just fundamentally wrong, it is so wrong that I find it hard to understand how any serious Marxist economist could make such a mistake. In essence, what Roberts gives, here, is not the Marxist Labour Theory of Value, but the Smithian cost of production theory of value, in which the value of commodities resolves entirely into revenues. Marx describes the view that Roberts gives here, almost word for word from Adam Smith, as Smith's "absurd dogma". As Marx describes, this is the basis of the errors of Say's Law, as put forward by Mill, Say and Ricardo. It is also what leads to the under-consumptionist theory of Sismondi and Malthus. Lenin had to address this same error when put forward by the Narodniks, and the same error exists in the work of Keynes.
As Marx and Lenin point out, if the demand for all goods and services produced in the economy comes just from the new value produced by labour, which constitutes revenues – wages, profits, interest, rent and taxes – what about all of the value of output that does not resolve into such revenues. The value of national output consists of c + v + s. That is it consists of the value of raw materials (constant capital) produced in previous years, but consumed in this year's production, along with the value of wear and tear of fixed capital, which is value produced in previous year's but consumed in this year's production, some of which has to be physically replaced, as a proportion of machines and so on wear out, and it also consists of the new value created by labour in this year's production process, value which itself then resolves into revenues. As Marx puts it succinctly,
“...therefore, the “annual labour,” while it created value, did not create all the value of the products fabricated by it; that the value newly produced is smaller than the value of the product.” (p 381-2)
If the total value of output is c + v + s, then it is quite obvious that the demand for all of this output cannot come from just v + s, or else there would be, every year, under-consumption equal to the value of c, or what amounts to the same thing, an overproduction equal to the value of c. Where then is the demand for c to come from? Well, it is quite obvious, also, that all of those consumed raw materials, and the fixed capital that has worn out also needs to be replaced. As Marx sets out in Capital II, Chapter 19, the demand for these commodities cannot come from revenues, which, at least in conditions of simple reproduction, all goes to provide the demand for consumption goods.
But, not all demand is demand for consumption goods, and so does not need to be demand funded from revenues. There is also demand for all all of that constant capital, for the replacement of all that raw material that has been consumed, for all of the worn out fixed capital that must be replaced on a like for like basis. All of this is bought out of capital, not revenue and the fund for its replacement is the element of c, the value of this constant capital that is the equal component in the value of output, but which does not appear in the GDP or National Income and Expenditure figures, for the simple reason that it does not constitute a revenue for anyone.
Marx quotes Smith to set out this “absurd dogma”.
“"In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts [viz., wages, profits, rent] ... A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer or for compensating the wear and tear of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer, who advances both the rent of his land and the wages of his labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour [meaning wages] and profit." (Adam Smith.) — We shall show later on how Adam Smith himself feels the inconsistency and insufficiency of this subterfuge, for it is nothing but a subterfuge on his part to send us from Pontius to Pilate while nowhere does he indicate the real investment of capital, in which case the price of the product resolves itself ultimately into these three parts, without any further progressus.)
That proposition was also carried forward by Ricardo, Say, and every other bourgeois economist after them, except for Ramsay and Jones, down to Keynes.
“On the other hand, the fantasy of men like Say, to the effect that the entire yield, the entire gross output, resolves itself into the net income of the nation or cannot be distinguished from it, that this distinction therefore disappears from the national viewpoint, is but the inevitable and ultimate expression of the absurd dogma pervading political economy since Adam Smith, that in the final analysis the value of commodities resolves itself completely into income, into wages, profit and rent.”
(Capital III, Chapter 49)
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