Tuesday, 31 August 2021

Michael Roberts, The Rate of Interest and Booms and Slumps - Part 5 of 12 - Yield, The Rate of Interest and Inflation

Yield, The Rate of Interest and Inflation

But, that reduction in yields on these assets is not the same as a fall in market rates of interest. As Marx says,

“For instance, if we wish to compare the English interest rate with the Indian, we should not take the interest rate of the Bank of England, but rather, e.g., that charged by lenders of small machinery to small producers in domestic industry.”

(Capital III, Chapter 36)

Still less should we take the yields on the highly manipulated, revenue producing assets as representing the rate of interest.

If market rates of interest, defined as above, are low, it is because the supply of money-capital is high relative to the demand for it, and that is because rates of profit are high, compared to capital accumulation. Both are consequences of real capital accumulation being held back, as a result of austerity, and because of the diversion of potential money-capital into financial and property speculation, i.e. the deliberate manipulation of asset prices, by the state.

Roberts repeats an argument he has, now, put forward several times. He says,

“The primary flaw in the Austrian view of the central bank has been most obvious since quantitative easing started in 2008. Austrian economists came out at the time saying that the increase in reserves in the banking system was the equivalent of ‘money printing’ and that this would ‘devalue the dollar’, crash T-bonds and cause hyperinflation. None of this came about.”

But that isn't true. Marx notes,

“The idea of converting all the capital into money-capital, without there being people who buy and put to use means of production, which make up the total capital outside of a relatively small portion of it existing in money, is, of course, sheer nonsense. It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.”

(Capital III, Chapter 23)

What we have seen is precisely such a “frightful depreciation of money-capital” in relation to asset prices! Money-capital necessarily takes the form of money/tokens/credit, and $100 of money-capital today, buys only a 40th of the shares it did in 1980, precisely because that frightful depreciation of money-capital has taken the form of a hyper inflation of asset prices! Roberts wants to ignore this hyper-inflation of asset prices, and define inflation only in terms of commodity prices.

In fact, even in terms of commodity prices, it means, for example, that the price of houses, required for shelter, has risen astronomically, with a consequent effect also on rents, though this is not reflected in indices of inflation. Similarly, the cost of pension provision has risen astronomically, though wages and pension contributions have not risen correspondingly, witnessed by the huge black holes in company pension funds. The reason that the money printing has not manifested itself in commodity price inflation, is because a) large parts of the cost of living are not included in those indices, and b) the imposition of austerity alongside other measures by states have held back economic growth, and diverted potential money-capital instead into that gambling on asset price inflation, and c) the unit values of commodities fell massively as social productivity rose.

In fact, as the last few months have demonstrated, as soon as conditions emerge in which the real economy begins to grow, and all of that liquidity begins to wash out into it, inflation rises sharply. 2008 was a stark illustration of what happens when that hyper-inflation of asset prices reaches a point when the bubble bursts, and so when the prices of government bonds, and other financial assets, as well as property, crash. That Roberts argues against the Austrians' prediction of that is odd, because he, like me, believes that such a further such crash is inevitable, and is probably imminent!

When Will Asset prices Crash? - Part 7

Even after the financial meltdown of 2008 caused western economies to freeze, the economy in China continued to grow at around 8-10%, and many of the other BRIC economies, as well as the economies in Latin America, Africa, and Central Asia, providing them with foodstuffs and raw materials, continued to grow strongly too. Those economies that adopted Keynesian stimulus measures quickly recovered from the financial meltdown, as the banks were nationalised, and liquidity put into the system. The US, at one point, was growing at an annualised rate of 5%. It was still growing at around 2% p.a., prior to the lockouts and lock downs, and its growth rate since has rocketed, now forecast for 2021 at around 6.5%.

The UK was growing at around 2.5% p.a. before the Liberal-Tories crashed the economy with their Austerian economic madness, in 2010. In fact, in the quarter before the Liberal-Tories took over in 2010, it was growing at 1%, quarter on quarter, or 4% p.a. if projected forward. Even with the Eurozone Debt Crisis, the Eurozone, and the EU, as a whole, largely did not fall back into recession. Some of its economies grew rapidly. Germany was growing at around 3% p.a., whilst Sweden was growing even faster. World GDP rose from around $41 trillion in 2000, to around $70 trillion in 2011. The leading economies in Africa, which had been growing at around 10% p.a. since 2000, continued to grow at that rate after 2008, making them the fastest growing economies since 2000.

But, it was precisely that growth that was the problem, and the basis of the financial meltdown, and that necessitated the policies of austerity, alongside QE that followed, in 2010, the stabilisation of the global system. The same can be seen today. The central bankers, and financial pundits continue to promote the idea that QE is required to stimulate the real economy, whereas its purpose is to reflate asset prices, whilst diverting money and money-capital away from the real economy into such guaranteed speculation on asset prices. If the purpose were actually to stimulate the real economy, then, why, after 2010, impose stringent measures of fiscal austerity?

QE clearly did not act to stimulate economic activity in the real economy, or even to promote inflation of commodity prices, in a generally deflationary environment, as large rises in productivity had massively reduced the unit value of commodities. Instead, QE by massively inflating asset prices, diverted money from the real economy, and into financial speculation. In doing so it was deflationary, rather than inflationary, in respect of those commodity prices. If it had any economic stimulatory effect it was that, as asset price inflation enabled greater levels of borrowing, and conversion of capital gains into revenues, it fuelled increased consumption of commodities that were now being increasingly produced in newly industrialising economies such as China, Vietnam, Brazil, and increasingly African economies, where, rising demand for commodities translated more readily into real capital accumulation, as capital in these places filled the gaps that capitals in developed economies were failing to respond to, as they focused instead on inflating share prices, and handing money to shareholders. The more the developed economies consumed their seed corn, by converting paper capital gains into revenues, and borrowed against it, the more they became indebted to those newly industrialising economies, like China, who now not only produced the commodities sold to them, but also loaned the money to them for them to continue consuming.

Today, financial pundits point to rising economic activity and profits as the basis for potentially rising stock markets. Undoubtedly, as speculators see inflation eroding the real value of bonds, and see rising masses of money profits, they will be attracted towards stocks as against bonds and other assets. However, a rising mass of profit, is not the same as a rising rate of profit, or potential for rising dividend yields. If increased economic activity sees the mass of profits double, but to get those profits turnover has to treble, meaning proportionally more capital is laid-out, then the rate of profit will fall. If with a fall in the rate of profit, but an increased demand for money-capital to fund the expansion, interest rates rise, then the capitalised value of revenue producing assets will fall. Instead of stock markets rising on the back of increased profits, they would inevitably fall.

That was the position that arose prior to 2007/8, and which sparked the financial meltdown. The fact that the policy of QE, and of repeated liquidity injections, after 1987, had pushed up asset prices to astronomical and unsustainable levels, and had, thereby, depressed yields on those assets to even more unsustainable levels, meant that even the tiniest absolute rise in interest rates, pushing through into yields, represented a huge relative increase, bringing with it an equally large fall in capitalised asset prices. The fact that it manifested itself, first, in a fall in property prices, and then via the sub-prime mortgages into the banking system, was merely the differentia specifica of this particular financial crisis.

What followed, was determined by that. The first thing that had to be done, in conditions where even bourgeois economists, and economic commentators were rushing to read and quote Marx, and where a general panic gripped the ranks of the ruling class, was to stabilise the system. As Samuel Brittain wrote, “We are all Keynesians now.” But, of course, that did not last long. With the system stabilised, and, as described above, growing fairly robustly again, attention turned to addressing what had caused the crash in the first place. That did not mean the over-inflated asset prices, or the fact that the global economy was now run in the interests of a tiny group of money-lenders and speculators, owners of fictitious-capital, rather than even by a small group of industrial capitalists, but rather the opposite. It meant dealing with the fact that, despite all of that, the economic growth had started to cause both wages and interest rates to rise, with a consequent squeeze on profits, and a fall in the capitalised value of assets - the main, if not the only, consideration of the ruling class and its state.

A look at the comparative charts for the US, UK, and EU after 2008 illustrates the point. The US, even under Bush, had begun a huge fiscal expansion, and Obama continued it, although, increasingly, the Republicans tried to thwart his fiscal stimuli, both in Congress, and in state legislatures. The better growth of the US, shows that, in terms of economic policy, aimed at the health of the economy itself, and accumulation of real capital, that was the appropriate response, compared to the fiscal austerity imposed in Britain and the EU, which quickly brought the economic recovery to a halt, and introduced a period of slow growth, if not stagnation. But, that was its intention!

The US, given its size and global power, much like it did in the 1960's, was able to plough its own furrow and expand its economy, throwing some of the consequences on to other countries. It offset the effects of the economic expansion on interest rates, and, thereby, asset prices by engaging in an even larger experiment in money printing, under its new Fed Chairman, Ben Bernanke, a student of the 1930's Depression, and who earned the name “Helicopter Ben”, because of his comment that the Federal Reserve can always inflate prices, because it can, if need be, simply print billions of Dollar bills, and throw them into the hands of citizens, out of helicopters. In fact, during the lockouts and lock downs, central banks and states have done, more or less precisely that, but by the much easier method simply sending cheques out to citizens through the post, and depositing money directly into their accounts.

As described earlier, the interest rate cycle follows the path of the long wave cycle. Interest rates are lowest during the stagnation phase (1987-99), as the rate of profit rises, and there is intensive accumulation meaning the supply of money-capital exceeds the demand for accumulation; they remain low in the prosperity phase (1999-), because the increased accumulation does not exceed the increased supply, and commercial credit expands to meet the requirements for working-capital, reducing the need for cash or bank credit; rates rise when the boom phase takes over, and the demand for money-capital to finance increased accumulation meets squeezed profits, reducing relatively, the supply of money-capital from realised profits; it reaches its height when the squeeze on profits reaches a point at which capital is overproduced.

The prosperity phase of the long wave cycle, should have ended some time between 2012, and 2015, given the average duration of the long wave, and its phases. However, the 2008 financial meltdown, and more specifically, the response to it, by the state and central banks, meant that the processes of the cycle were placed in hibernation. From 2010, instead of the pace of economic expansion rising, which would normally be the case at that point of the cycle, economies across the globe, most notably in Europe, were subjected to harsh measures of fiscal austerity, even before they had recovered from the economic shock imposed by the financial meltdown. As asset prices, particularly property prices, had crashed, the state stepped in to bail-out banks and their shareholders and bondholders. To cover this state spending to bail out financial speculators, state budgets were slashed in Ireland, Spain, Portugal, Greece and so on. The liberal-Tory government, in the UK, also imposed harsh austerity that sent the rapidly growing UK economy back into recession, and stagnation.

Alongside, this austerity, used to slow economic growth, central banks continued to increase their programmes of QE, long after the credit crunch and collapse in asset prices had ended. The consequence of that was inevitable. Austerity slowed economic growth, and, thereby, the demand for labour and money-capital, so any squeeze on profits, and rise in interest rates that would be typical of that phase of the cycle was prevented. Increased money printing now, meant that asset prices inevitably began to rise again, and that meant that speculation in assets, underpinned by central banks, was again preferable to investing in the real economy. The Dow Jones, which had fallen to 6,500 in 2009, from its 2007 high of 14,000, rose again on the back of all this money printing. By 2013, it had already surpassed its 2007 peak. By the end of the decade, it had risen to 28,500, a rise of 174%. Since then, it has risen further still, now up to more than 34,000.

All of this can be attributed to the hibernation of the long wave cycle since 2010, as a result of the exceptional and extraordinary measures undertaken by states and central banks during that period. I will examine that further in Part 8.

Monday, 30 August 2021

A Characterisation of Economic Romanticism, Chapter 1 - Part 44

Lenin fails to distinguish between under-consumption arising from inadequate revenues to produce demand, and under-consumption arising from merely a choice to prefer to hold money over the purchase of some or all commodities, which is precisely the error that lies behind Say's Law, and its acceptance by Ricardo and others. 

“Moreover, all equalisations are accidental and although the proportion of capital employed in individual spheres is equalised by a continuous process, the continuity of this process itself equally presupposes the constant disproportion which it has continuously, often violently, to even out.” 

(Theories of Surplus Value 2, p 492) 

“The general possibility of crisis is given in the process of metamorphosis of capital itself, and in two ways: in so far as money functions as means of circulation, [the possibility of crisis lies in] the separation of purchase and sale; and in so far as money functions as means of payment, it has two different aspects, it acts as measure of value and as realisation of value.” 

(Theories of Surplus Value 2, p 513-4) 

“If even for only a limited period of time the commodity cannot be sold then, although its value has not altered, money cannot function as means of payment, since it must function as such in a definite given period of time. But as the same sum of money acts for a whole series of reciprocal transactions and obligations here, inability to pay occurs not only at one, but at many points, hence a crisis arises.” 

(Theories of Surplus Value 2, p 514) 

This second type of under-consumption, is a result of disproportion, i.e. the actual use values produced, in the quantities, and at the values, they are produced, do not meet the requirements of the potential consumers of those commodities. There is a huge range of possibilities of how such crises can erupt, as Marx sets out, and as I have discussed in my book – Marx and Engels' Theories of Crisis

Lenin says, actually illustrating this, 

“The scientific analysis of accumulation in capitalist society and of the realisation of the product undermined the whole basis of this theory, and also indicated that it is precisely in the periods which precede crises that the workers’ consumption rises...” (p 167) 

The fact that its at these points that workers' consumption (and indeed wages) rise, does not at all mean that there is no under-consumption at such points. What it means, as with Marx's examples of the under-consumption of fixed capital, or of yarn, is that it is under-consumption relative to increased output, i.e. as the other side of the coin to an overproduction of commodities, which may arise from disproportion, and may arise in relation to certain or to all commodities. If production is expanding rapidly, and more and more labour is employed, as suggested above, then more stable employment and rising wages means that workers living standards rise. As they rise, a number of things happen. 

Firstly, workers are able to stop working overtime, so that the production of absolute surplus value is reduced. This, along with higher wages, means that the rate of surplus value falls, and profits are squeezed, as Marx sets out in Theories of Surplus Value, Chapter 21, and Capital III, Chapter 15. This squeeze on profits, means that the rate of profit/profit margin falls to a level, whereby small variations in market conditions of demand, lead to losses, and the larger the scale of production, the more small losses per unit of output turn into large total losses. 

Secondly, squeezed profits occur at a time when each capital needs to devote a larger proportion of profits to accumulation, in order to obtain its share of the rising market. The share of profits going to capitalists unproductive consumption must then fall, which in itself has an effect on the demand for luxury goods, an effect that cannot be completely compensated by workers beginning to buy some of those goods. Workers begin to buy some of those products, but a large range of them remain beyond their budgets. 

Thirdly, as wages rise, workers satisfy their demand for a range of wage goods, and in order to persuade them to buy more, firms must sell them at lower and lower prices, which with squeezed profit margins, means that losses become more and more inevitable. To overcome this problem, capital must a) revolutionise production of a range of luxury consumption goods to bring them within the budget of workers, b) revolutionise production so as to reduce the value of labour-power, so as to raise the rate of surplus value, c) revolutionise production so as to introduce labour-saving technologies that create a relative surplus population, so that wages are reduced, d) introduce whole new ranges of consumer goods for which new markets can then be created, and via which the value of the existing production is realised. 

“For example, if, through a doubling of productive force, a capital of 50 can now do what a capital of 100 did before, so that a capital of 50 and the necessary labour corresponding to it become free, then, for the capital and labour which have been set free, a new, qualitatively different branch of production must be created, which satisfies and brings forth a new need. The value of the old industry is preserved by the creation of the fund for a new one in which the relation of capital and labour posits itself in a new form.” 

(Grundrisse, Chapter 8)

Sunday, 29 August 2021

Michael Roberts, The Rate of Interest and Booms and Slumps - Part 4 of 12 - Fictitious Capital v Real Capital

Fictitious Capital v Real Capital

What is specific about the role of central banks, particularly over the last 30 years, is not that they have been able to use increases in liquidity to reduce interest rates, below some “natural rate”, but that they have been able to massively inflate asset prices, by printing money tokens, and using them to buy assets, be they commercial and government bonds, mortgage bonds, or in some cases shares. Because the yield on revenue producing assets moves in inverse relation to the price of the asset, the action of central banks to provide this additional demand for these assets, most certainly does, thereby, reduce those yields, compared to what they otherwise would have been. In fact, reducing that yield, which is frequently presented as being a reduction in the rate of interest, which it is not, is not the primary objective of the central bank in undertaking such actions. Its primary objective is to reflate those asset prices following financial crises, and to further inflate them, having done so.

The reason it does that is two-fold. Firstly, these financial assets, what Marx calls fictitious capital, are the form in which the ruling-class now owns all of its wealth. It derives its power from that wealth. It does so not only as a result of its general standing in society, but because, currently, the ownership of fictitious capital, in the form of shares, gives control over real capital. The higher share prices are, the fewer of them workers and the middle class can obtain, via their pension funds, mutual funds and so on. The central bank acts to protect that wealth and power of the ruling class, by inflating these asset prices. It has shown that it is prepared to do that, even at the cost of wrecking the real economy, by the imposition of austerity, and measures to divert money-capital into such speculation, and away from real investment, and to divert money from the real economy, also, into such financial and property speculation.

“The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it. The Acts of 1844 and 1845 are proof of the growing power of these bandits, who are augmented by financiers and stock-jobbers.”

(Capital III, Chapter 33)

The second reason the central banks do this is that they have become trapped by their own previous actions. The very act of inflating asset prices acted to reduce yields. At the same time, by diverting potential money-capital from real capital accumulation, it acted to slow economic growth, and the growth of profits that would result from the additional capital. Instead of growing revenues, therefore, at least in relative terms, it created conditions in which a growing dependence upon the realisation of capital gains, became a necessary alternative.

In other words, if we take pension funds as an example, the huge rise in asset prices, meant that the monthly pension contribution of workers and companies, bought less and less shares and bonds, required to produce a revenue stream to cover future pension liabilities. The Dow Jones, today, is 40 times (4000%) higher than it was in 1980, meaning that a $100 pension contribution buys only a 40th of the shares and bonds it did in 1980. Neither wages, nor pension contributions have increased 40 fold since 1980.  In the UK, the average wage in 1980 was £6,000, as against £31,000 today, i.e. only a five fold increase, meaning share prices rising 8 times faster.

The same can be seen with the relation of wages to house prices.  In fact, the long-run average shown is only over that period, but in 1980, UK house prices had already become inflated, as a result of the Barber Boom in 1970.  The actual long-run average is somewhere between 2.5 and 3, and that was where households predominantly had two incomes to pay for it, rather than today where there is a large proportion of single person households.  The average wage today of £31,000 on a multiple of 3 would give an average house price of around £90,000 (even based on a two person household), as against the actual average house price of around £270,000, i.e. 3 times the average, requiring a price fall of around 70%!

On its own that would mean that the capital base of such a pension fund would have been undermined to provide the revenue stream to cover future pension liabilities. However, add in the huge fall in yields on the actual assets held in the fund, and the extent of the problem becomes clear. The way around this was to take the paper capital gains on the assets held in the funds, arising from the inflation of asset prices, and to realise those gains, by selling some of the assets, thereby, converting capital into revenue.

But, this simply turns the pension fund into a Bernie Madoff style Ponzi Scheme. The more some of the assets are sold to realise paper capital gains, the more the capital base of the fund is itself undermined. It only continues to be possible to maintain this scam so long as the paper capital gains continue to rise on a larger and larger scale, which requires that the underlying asset prices have to be raised by ever larger amounts.

But its not just pension funds drawn into this Alice in Wonderland scenario. Firms themselves find that they can make more money using realised profits to also engage in such speculation, buying back their own shares, or those of other companies, even borrowing money by issuing bonds to do so. Speculators find that the main reason for buying property is no longer to obtain a revenue from rent, but is to make large capital gains from rising property prices, underwritten by the actions of central banks and governments. As they do so, the astronomical prices of property disenfranchises large sections of the population from owning their own home, forcing them to become tenants, and as property prices rise, so landlords also raise rents, which become only sustainable if the state also steps in to subsidise those rents. In Britain, more than £30 billion a year goes straight into the pockets of landlords via Housing Benefit, an amount that is a direct deduction from the surplus value appropriated by industrial capital.

Saturday, 28 August 2021

A Characterisation of Economic Romanticism, Chapter 1 - Part 43

Lenin is right to say that this under-consumptionist theory is wrong, because it fails to account for the role of productive consumption. However, just because the additional consumption requirement can be filled by productive consumption does not mean that it is. Indeed, just because the value of consumer goods equals the value of v + s, i.e. can find its value equivalent in demand, produced by the revenues represented by v + s, does not at all mean that it will. It depends on the owners of those revenues being prepared to spend them on the purchase of the actual use values that make up that component of total output, and there is no reason why that has to be the case. That is exactly why Marx rejects Say's Law, as propounded by Ricardo, Say and Mill

Indeed, as Marx sets out in Capital II, Chapter 20, there is no reason why this should be true in relation to means of production either. The introduction of spinning-machines led to an overproduction of yarn, not because the value equivalent, required as demand, for this yarn was absent, but because the weavers simply could not use the new volume of yarn produced for their own production. When power looms were introduced, they could absorb this volume of yarn, the rise in their own production, reduced the value of cloth, enabling the market for that cloth to expand.

But, also, as Marx sets out, in Capital II, the value of wear and tear of fixed capital is realised in the value of commodities produced by Department II capitalists, some of which are bought by Department I capitalists and workers. However, if this fixed capital has a lifespan of ten years, this value, realised by Department II capitalists does not automatically get thrown back into circulation to buy means of production from Department I. If Department II capitalists simply hoard this value in amortisation funds for ten years, then there would necessarily arise a disproportion between Department I and II, as a result of the under-consumption by Department II capitalists. 

As Marx says, this inherent contradiction is resolved, in practice, by the fact that Department II use some of this amortisation fund, in addition to profits, to finance accumulation, and by the fact that different capitals, in Department II, replace their fixed capital at different times. But, as Marx points out, any equality between demand and supply, here, is purely accidental. As he points out, it requires only that the lifespan of the fixed capital stock be slightly longer than its average anticipated lifespan for it to result in such under-consumption by Department II

The consequence is that, on the basis of the same level of production, fixed capital is over produced. As Marx puts it, 

“There would be a crisis — a crisis of over-production — in spite of reproduction on an unchanging scale.” 

He continues, 

“This illustration of fixed capital, on the basis of an unchanged scale of reproduction, is striking. A disproportion of the production of fixed and circulating capital is one of the favourite arguments of the economists in explaining crises. That such a disproportion can and must arise even when the fixed capital is merely preserved, that it can and must do so on the assumption of ideal normal production on the basis of simple reproduction of the already functioning social capital is something new to them.”

Northern Soul Classics - Baby Please Come Back Home - J.J. Barnes


Friday, 27 August 2021

Friday Night Disco - Hurt So Bad - Little Anthony & The Imperials


Michael Roberts, The Rate of Interest and Booms and Slumps - Part 3 of 12 - The Crack-Up Boom (and Bust)

The Crack-Up Boom (and Bust)

Roberts says,

“But without one natural rate of interest, you cannot claim the government is forcing rates too low - and therefore the theory crumbles. Yes, the central bank controls a component of the interest rate that helps determine the spread at which banks can lend, but the central bank does not determine the rates at which banks lend to customers. It merely influences the spread.”

This is both somewhat naïve, and besides the point. Firstly, when Marx says that there is no “natural rate of interest”, what he means by that is that there is no natural price for capital as a commodity in the same way that there is a “natural price” for any other commodity, determined by its price of production. In other words, the natural price for other commodities is objectively determined, and it is that which stands behind the determination of supply. But, Marx certainly argues that the market price for capital is the result of a similar struggle between demand and supply for money-capital, which results in the establishment of an equilibrium price for that capital, determined, at any time, by the amount of supply and demand for that capital. Indeed, he sets out at length in Capital and in Theories of Surplus Value that, unlike the average rate of profit, this market price for capital, can be seen each day, in the published rates of interest in the financial press and elsewhere!  So, whatever that equilibrium price would be can certainly be influenced by the actions of the central bank, if it puts its own thumb on the scales on one side or the other.

Where the Austrians are wrong, as Marx's analysis above shows, is thinking that such periods of speculation, gambling and over-exertion are only the result of action by the state. The actions of the capitalist economy itself, via the economic cycle, create the conditions in which interest rates fall to very low levels, and so encourage that gambling, asset price bubbles and busts, as well as overexertion, maverick activity and overproduction.

The central bank has far more influence in being able to raise that market rate of interest than it does in being able to lower it. Loanable money-capital, necessarily takes the form of money, money tokens or bank credit. By reducing the amount of currency in circulation, a central bank can cause businesses to reduce their own provision of commercial credit, so as to preserve their own cash balances, required for payments. In other words, it creates a demand for both money/tokens, and for bank credit. In doing so, it raises the demand for loanable money-capital, causing interest rates to rise. This is what happened in 1847, as a result of the Bank Act, when the Bank of England reduced the amount of currency in circulation.

“The power of the Bank of England is revealed by its regulation of the market rate of interest. In times of normal activity, it may happen that the Bank cannot prevent a moderate drain of gold from its bullion reserve by raising the discount rate because the demand for means of payment is satisfied by private banks, stock banks and bill-brokers, who have gained considerably in capital power during the last thirty years. In such case, the Bank of England must have recourse to other means...

But it is a serious event in business life nevertheless when, in time of stringency, the Bank of England puts on the screw, as the saying goes, that is, when it raises still higher the interest rate which is already above average.”

(Capital III, Chapter 33)

But, money is not money-capital, less still are money tokens or credit money-capital. And, so this relation between the amount of currency and interest rates is not symmetrical. The restriction of liquidity may be offset in periods of strong economic activity by an increase in commercial credit, and in highly banked economies, a restriction on the issue of actual notes and coins may have little effect. But, there will be some effect, because balances still have to be paid. An increase in liquidity, however, does not result in a fall in interest rates. Rather, what it causes is an inflation of prices.

But, Roberts' account is naïve, because, in reality, what the Austrians describe, in relation to the crack up boom, is indeed such an inflation of prices, but of specific prices, i.e. asset prices. They equate the financial markets with the real economy, and, their analysis is essentially that easy money leads to a misallocation of capital, via speculation in stock and bond markets. As such, this description is not, in itself, wrong. Marx and Engels described the same phenomenon in relation to the financial bubbles that were the cause of financial crashes in previous times, as well as resulting in the stock market bubble of 1847. These financial crashes can then affect the real economy, but there is no necessary reason why they should.

“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.”

(Theories of Surplus Value, Chapter 17)

Thursday, 26 August 2021

A Characterisation of Economic Romanticism, Chapter 1 - Part 42

Indeed, it is the overproduction of commodities by individual producers, and their ruin which led to their descent into slavery, serfdom or debt bondage. It is also what, when the conditions were right, made it possible for those ruined producers to become employed as wage labourers, and their means of production turned into capital. Mill, Say and Ricardo argued, when pushed, that such overproduction of commodities, by some producers, might be possible, but not by all. But, Marx replies that what is true for one applies equally to all. 

“If the relation of demand and supply is taken in a wider and more concrete sense, then it comprises the relation of production and consumption as well. Here again, the unity of these two phases, which does exist and which forcibly asserts itself during the crisis, must be seen as opposed to the separation and antagonism of these two phases, separation and antagonism which exist just as much, and are moreover typical of bourgeois production. 

With regard to the contradiction between partial and universal over-production, in so far as the existence of the former is affirmed in order to evade the latter, the following observation may be made: 

Firstly: Crises are usually preceded by a general inflation in prices of all articles of capitalist production. All of them therefore participate in the subsequent crash and at their former prices they cause a glut in the market. The market can absorb a larger volume of commodities at falling prices, at prices which have fallen below their cost-prices, than it could absorb at their former prices. The excess of commodities is always relative; in other words it is an excess at particular prices. The prices at which the commodities are then absorbed are ruinous for the producer or merchant. 


For a crisis (and therefore also for over-production) to be general, it suffices for it to affect the principal commercial goods.” 


Unfortunately, Lenin lines himself up with Ricardo, Mill and Say behind Say's Law, against Marx, in the claim that supply creates its own demand, or production creates its own market. In doing so, he limits himself to explaining crises only in terms of an over accumulation of capital

Lenin describes the theory of under-consumption as set out by Sismondi, Malthus and Rodbertus as the cause of crises. This theory is based on the acceptance of Smith's absurd dogma that the value of the social product resolves entirely into revenueswages, profits, rent, interest. Given that, in fact, it resolves not only into revenues but also into the value of constant capital – material, wear and tear of fixed capital – produced in previous years, which must also be replaced out of current production, its clear that revenues, themselves, cannot account for the total value of output or total demand for that output. It would always appear that there must be under-consumption, because revenues, and so demand for total output must always be insufficient. 

Output must always outstrip consumption, if consumption is viewed only as personal consumption, and excludes productive consumption. And, as accumulation proceeds, and the technical composition of capital rises, with increased social productivity, the organic composition of capital c:v, and more importantly c:v + s, means that this discrepancy must grow wider.

Wednesday, 25 August 2021

Zero Covid, Inflation and Interest Rates

Many governments across the world have moved surreptitiously to a zero COVID strategy. They have been able to do so, because from Day One, the emphasis of reporting on the pandemic was on the number of infections, rather than the number of people actually made seriously ill, hospitalised, or dying from the virus. In terms of the latter, the numbers were inflated, by counting anyone who died within 28 days of having had a positive COVID test, whether they actually died from COVID, or as a result of being knocked down by a bus! The data provided by the ONS, which I have discussed previously, shows that, in fact, the number of people dying FROM Covid, rather than WITH Covid, is only a tenth of this latter number. In other words, out of the 130,000 reported deaths, only around 13,000 are people who died FROM Covid, or less than the 18,000 people who die from flu in a bad year.

But, at least, in the period prior to widespread vaccinations, there was some logic to looking at the number of infections, alongside the number suffering serious illness, hospitalisation and death. Because the state failed to lock-down and shield the vulnerable 20% of the population. i.e. mostly the elderly and sick in hospitals and care homes, or receiving health and social care in the home, any increase in the number of infections, inevitably, put all of these unshielded individuals at greater risk, unless they were able to undertake such shielding on their own initiative, as I and my family did. The obvious solution to that was to provide such shielding, rather than trying, or at least pretending to be trying, to lock down the whole of society, including locking out tens of thousands of workers from their jobs.

But, with the majority of the population now vaccinated – and that is the case in most developed economies – even that link between the number of infections, serious illness, hospitalisation and death no longer exists to any relevant degree. Even taking into consideration the Delta variant of the virus, the proportion of people becoming seriously ill, hospitalised or dying to the number of infections has fallen to a small fraction of that prior to widespread vaccination, which itself was not a large number, if the actual number of infections was considered, as against the number of reported infections, i.e. only those who had been tested. From the start of the pandemic, it was known that the number of actual infections was around ten times the number of such reported infections.

Moreover, of those actually vaccinated, the largest proportion is amongst those in the groups actually at serious risk from the virus, i.e. the elderly and those suffering from some underlying condition. So, all of the arguments previously used for justifying lock downs and lockouts no longer stand up, even to the extent they did prior to widespread vaccination. True, some groups of younger people have not been provided with vaccines, but the risk of serious illness amongst these groups is virtually nil anyway, vaccinated or not. The main argument for vaccination amongst those groups today, is that entry to various facilities and so on, is being limited to those who can demonstrate vaccination, an unnecessary measure of itself. Its not those vaccinated at risk, in such cases, but the unvaccinated in the at risk groups. If anyone in such a group – all of which have the ability to get vaccinated – chooses not to do so, then that is their choice, and no reason to close down the rest of society. If someone with a serious nut allergy decides to ignore all the advice and warnings, and eats nuts, that is their choice, and no reason why society should have a zero nut strategy!

Previously, we were told that the reason for lock-downs and lockouts was to stop the number of deaths, serious illness, and hospitalisations from rising “exponentially”. That argument was bogus, as I have set out many times previously. The actual numbers of deaths FROM COVID is no greater than the number of deaths from flu in a bad year, but even if the headline deaths number is taken, we can see that 95% of those deaths are of people over 60, and the majority over 80. The way to have avoided that was not to lock down the rest of society, but to shield those in that section of the population. What is worse, and unforgivable is that, not only was that not done, but a large proportion of those that died were people who were already in hospital or care homes for other reasons. About a quarter of the people the NHS treated for COVID, were people who became infected with it, after they had gone into hospital! Then we had the scandal of the negligence of the NHS in knowingly sending old people infected with COVID back to care homes, where the virus again then spread like wildfire. None of that had anything to do with the number of infections or activity of the general population, but is solely the responsibility of the NHS, and its reckless endangerment of those in its care, including its own workers.

We were told that the reason for lock downs and lockouts was to protect this NHS which was simultaneously not only failing in its function to protect us, but was actively putting us at risk by its reckless actions. The narrative was provided that the NHS was in danger of being overrun by COVID patients. Yet, tens of millions was spent in creating the so called Nightingale Hospitals, like that in the Excel Centre in London, capable of taking in 5,000 patients, but, which, in reality never had more than a couple of dozen patients filling its beds! During 2020, most hospitals across Britain were reduced to just 40% bed occupancy rates, because not only were they not flooded with COVID patients, but those suffering from other serious illnesses like cancer were either told not to come to hospital for treatment, or else chose not to do so for fear of becoming infected there with COVID. The truth is that the NHS in a normal year has 16 millions patients admitted to hospital.  As I wrote a year ago, if then even several tens of thousands of COVID patients were actually to put it at risk that says more about the state of the NHS itself than it does about the threat from COVID.

But, even that spurious argument has less validity now. The number of hospitalisations is about a tenth of what it was when COVID was at its height last year. The number of deaths of people even WITH COVID, as against those dying FROM Covid, is down to an average of less than 100 per day. The arguments for restrictions let alone lockouts and lock-downs have no foundation. The only argument now being presented is that the number of infections is rising, but that metric is even more meaningless than it has always been. The fact that you have been vaccinated, and so have antibodies against COVID – more than 90% of people in Britain are reported to have antibodies either from vaccination or from natural infection – does not mean that you cannot be subsequently infected. That is not how vaccination or immunity works. Immunity works by preventing any subsequent infection from being able to overwhelm your body's resistance to infection. It works, because your body already has the antibodies and other immune methods for the given pathogen, and so is able to mobilise them immediately against the pathogen, stopping it from multiplying inside your body and attacking your cells. So, it is no surprise that the number of infections might rise, in conditions where, as seen with the pingdemic, lots of people are being contacted to go for a test.

What it does not mean is that any of those people are going to become seriously ill, or even moderately ill, let alone place a burden on the NHS, and even less be likely to die. Moreover, we saw last year that the actual COVID tests are not capable of distinguishing between live COVID viruses and dead ones. There are likely to be millions of people walking around with dead COVID virus cells in their nasal and throat cavities, as a result of previous infection. If we are to wait until all such “infections” reach zero, then society would never be free of some kind of restriction.

So, why then has this surreptitious shift to a zero COVID strategy been developed. Part may be that politicians are now wary of doing anything that can be thrown at them as being a danger to the public. The media has gorged at the trough of COVID paranoia for over a year, and has every incentive to want to keep it going for as long as possible, by presenting an ongoing existential threat where none existed, and exists even less today. But, states too have been keen to maintain levels of caution if not paranoia. Again, the medical industrial complex, which is a powerful lobby within the state, has every reason for maintaining that, and, thereby, pushing its own empire building. But, other sections of the state have another motivation, as I also set out some weeks ago.

As soon as restrictions on societies have been lifted, economic activity ramped up extremely quickly. With vast oceans of liquidity pumped into circulation by central banks, that sharp rise in economic activity fed through into rapidly rising inflation that shocked the central bankers, who have been fighting a rear-guard action to convince everyone that it is merely “transitory”. It clearly isn't. Primary product prices, which leapt over the last year, in a similar manner to how they did in 1999, when the new long wave uptrend got underway, began to moderate and fall back slightly over the last month or so. That is because some of those that process those materials were no longer able to pass on the higher prices in their own final output, and so curtailed their demand. Its also because, this is not 1999, and since then huge amounts of additional lower cost production has come on stream. The rise in prices over the last year reflects a short-term imbalance of supply against sharply higher demand, and also the effect of devalued currencies, resulting from QE programmes.

But, its not just supply shortages for materials that is at issue. The rapid increase in monetary demand meant that, in labour-intensive, service based economies the demand for labour rose quickly, and labour shortages began to arise. The inevitable consequence was a rise in wages, particularly in those sectors where these labour shortages were most acute. In Britain that has been exacerbated by the effects of Brexit. Britain has a shortage of 100,000 lorry drivers, a fact that is also impacting supply chains for the rest of the economy. To deal with it, the government is reducing working conditions, so that lorry drivers are expected to work longer hours, driving.  In the longer-term, its likely to speed-up development of self-driving trucks, but with such a shortage, in the immediate future, its going to mean drivers demand higher rates for longer hours, and then firms have to offer higher wages to attract the drivers they need. It has a shortage of 180,000 workers in the hospitality sector, where wages have risen by around 18%. A new report shows shortages in the construction sector, with advertised wages rising by 6.7%. The data for last month showed UK wages rising by 8.8% over the last year, and the forward projections mean even higher levels of inflation and wages.

Higher inflation means that firms, government and households need to borrow more in nominal money terms to cover their expenditures. That higher borrowing means that interest rates must rise unless the supply of money-capital also increases to meet it. But, the supply of new money-capital comes from realised money profits, and, over the last year, they have been crushed, itself one reason why firms have needed to borrow more to cover their own expansion to meet the needs of rising demand. Rising interest rates ultimately impacts the highly manipulated bond markets, where bond prices have been artificially inflated by QE, and encouragement of financial gambling, with guarantees against losses provided by the central bank. Within weeks, of the rising economic activity, and rising interest rates, and inflation, bond prices began to fall sharply, and yields on those bonds rise. The top 0.01% hold a large portion of their wealth in such bonds.

When bond prices fall, part of the reason is that speculators move their money into other assets, particularly shares. With rising inflation, the real value of bonds falls. Because companies money profits tend to rise with inflation, and given rising economic activity, profits themselves are likely to rise, moving from bonds to shares, becomes a rational choice. But, as I've described before, even sharply rising amounts of profit do not mean rising rates of profit, quite often quite the opposite. A company might see the amount of profit it makes double, but if, in order to achieve that, it has had to treble its turnover, its rate of profit will fall. The effect of rising interest rates is to reduce all asset prices, via the process of capitalisation.

In other words, the same conditions that led to the financial crash of 2008 were being constructed, and, with asset prices that much more inflated than in 2008, with yields on assets even more depressed than they were in 2008, and with the amount of liquidity pumped into circulation, by central banks, even greater than it was in 2008, the potential for this causing an even bigger crash than 2008 is fairly obvious. So, the motivation for elements of the state to seek to slow the process of economic expansion, in the same way they did, after 2010, via austerity and other such measures, is just as obvious. Indeed, alongside all of the renewed talk about the pandemic continuing to be a threat to an extent that further restrictions are required, economic activity has slowed, central banks have again used that as justification for more dovish comments, as against the narrative that further QE would have to cease, and policy rates begin to rise. On cue, bond prices rose, as did stock markets.

But, the reality has changed. Both business and households have adapted to the restrictions that have been in place for over a year. It speeded up processes and changes in behaviour that were already underway. In a service based economy, where services take the form not only of fast food, now delivered direct to your door, but also of online gaming and gambling, of video and music streaming, and so on, and where all sorts of purchases can be made online, the effect of continued restrictions was always likely to be that it was supply that ended up being curtailed more than demand, especially in conditions where furlough and other income replacement schemes have muted the revenue effects of lockouts. The consequence now, therefore, is merely to cause money demand to rise further ahead of supply, causing yet further inflationary pressures. That was seen with the pingdemic, which led to the amount of pinging having to be curtailed, and then isolation being cancelled after pinging, because the consequent labour shortages were starting to threaten even vital services.

We have car companies now cutting back production by up to 40%, not because of any lack of demand, or profitability, but simply because of a shortage of computer chips. That is partly a consequence of rising demand for chips itself, not just for cars but for all of the other vast range of products that today use computer chips, but also because restrictions imposed on the grounds of COVID have created labour shortages either in production, or in distribution. In Britain, that means things from the trivial such as McDonalds, and other fast food outlets not being able to supply milk shakes, to the more serious. Retail stocks are said to be at their lowest levels in Britain since 1983, again not just a result of these blockages caused by COVID restrictions, but also by the effects of Brexit.

The attempts to slow economic growth, so as to restrict the demand for labour, and the rise in interest rates, which threatens to crash financial markets are simply delaying the inevitable, and creating even bigger problems, as demand rushes ahead of supply. Firms under pressure of competition, will always seek to capture a bigger share of the market, especially a rapidly expanding market, in conditions of rapidly rising prices. This is again an example of the interests of real industrial capital conflicting with the interests of the owners of fictitious-capital, whose only concern, now is to prevent a sharp crash in asset prices, and so of their paper wealth, which is the basis of their power in society. In the end, the former will always win, because it is on the basis of the real industrial capital that the future of the state itself depends, however, much the delusion of paper wealth from rising asset prices may disguise that.

The argument for continuing restrictions simply on the spurious grounds of infections will not hold. When the dam bursts, and economies open up, holding it back will have simply enhanced the deluge.

Michael Roberts, The Rate of Interest and Booms and Slumps - Part 2 of 12 - Movement and Determination of The Rate of Interest

Movement and Determination of The Rate of Interest

Marx describes how the movement of the rate of interest in these different phases of the cycle is far more complex than the picture presented by Roberts.

“If we observe the cycles in which modern industry moves — state of inactivity, mounting revival, prosperity, over-production, crisis, stagnation, state of inactivity, etc., which fall beyond the scope of our analysis — we shall find that a low rate of interest generally corresponds to periods of prosperity or extra profit, a rise in interest separates prosperity and its reverse, and a maximum of interest up to a point of extreme usury corresponds to the period of crisis. The summer of 1843 ushered in a period of remarkable prosperity; the rate of interest, still 4½% in the spring of 1842, fell to 2% in the spring and summer of 1843; in September it fell as low as 1½% (Gilbart, I, p. 166); whereupon it rose to 8% and higher during the crisis of 1847.

It is possible, however, for low interest to go along with stagnation, and for moderately rising interest to go along with revived activity.

The rate of interest reaches its peak during crises, when money is borrowed at any cost to meet payments. Since a rise in interest implies a fall in the price of securities, this simultaneously offers a fine opportunity to people with available money-capital, to acquire at ridiculously low prices such interest-bearing securities as must, in the course of things, at least regain their average price as soon as the rate of interest falls again.

However, the rate of interest also has a tendency to fall quite independently of the fluctuations in the rate of profit.”

(Capital III, Chapter 22)

Marx explains the reason for this. In a period of prosperity, as the economy expands, a higher rate of profit means that the main source of the supply of new money-capital, i.e. realised profits, expands at a faster rate. This increased supply of loanable money-capital, thereby, offsets the increased demand for money-capital created by the needs of capital accumulation in an expanding economy. But, also, in such a period of expansion, the capitalists themselves expand the mutual provision of commercial credit, which means they have less reliance on resort to either cash or bank credit. That reduced demand for bank credit, puts downward pressure on the market rate of interest.

"The low rate of interest that accompanies the "improvement" shows that the commercial credit requires bank credit only to a slight extent because it is still self-supporting.”

“When we examine this credit detached from banker’s credit, it is evident that it grows with an increasing volume of industrial capital itself. Loan capital and industrial capital are identical here.”

“A large quantity of credit within the reproductive circuit (banker’s credit excepted) does not signify a large quantity of idle capital, which is being offered for loan and is seeking profitable investment. It means rather a large employment of capital in the reproduction process. Credit, then, promotes here 1) as far as the industrial capitalists are concerned, the transition of industrial capital from one phase into another, the connection of related and dovetailing spheres of production; 2) as far as the merchants are concerned, the transportation and transition of commodities from one person to another until their definite sale for money or their exchange for other commodities.”

“As long as the reproduction process is continuous and, therefore, the return flow assured, this credit exists and expands, and its expansion is based upon the expansion of the reproduction process itself.”

(Capital III, Chapter 30)

The movement of the economy from the Prosperity phase, or the Spring Phase of the Long Wave cycle, to the Boom or Summer Phase of the Long Wave, is the point where the rate of interest rises to its average level, and that because, at this point, the demand for money-capital, to finance accumulation, begins to rise, relative to the supply of loanable money-capital, derived, primarily, from realised profits, but also from mobilised savings, the use of other money reserves for replacement of fixed capital, and so on.

“After the reproduction process has again reached that state of prosperity which precedes that of over-exertion, commercial credit becomes very much extended; this forms, indeed, the "sound" basis again for a ready flow of returns and extended production. In this state the rate of interest is still low, although it rises above its minimum. This is, in fact, the only time that it can be said a low rate of interest, and consequently a relative abundance of loanable capital, coincides with a real expansion of industrial capital. The ready flow and regularity of the returns, linked with extensive commercial credit, ensures the supply of loan capital in spite of the increased demand for it, and prevents the level of the rate of interest from rising. On the other hand, those cavaliers who work without any reserve capital or without any capital at all and who thus operate completely on a money credit basis begin to appear for the first time in considerable numbers. To this is now added the great expansion of fixed capital in all forms, and the opening of new enterprises on a vast and far-reaching scale. The interest now rises to its average level. It reaches its maximum again as soon as the new crisis sets in. Credit suddenly stops then, payments are suspended, the reproduction process is paralysed, and with the previously mentioned exceptions, a superabundance of idle industrial capital appears side by side with an almost absolute absence of loan capital.

On the whole, then, the movement of loan capital, as expressed in the rate of interest, is in the opposite direction to that of industrial capital. The phase wherein a low rate of interest, but above the minimum, coincides with the "improvement" and growing confidence after a crisis, and particularly the phase wherein the rate of interest reaches its average level, exactly midway between its minimum and maximum, are the only two periods during which an abundance of loan capital is available simultaneously with a great expansion of industrial capital. But at the beginning of the industrial cycle, a low rate of interest coincides with a contraction, and at the end of the industrial cycle, a high rate of interest coincides with a superabundance of industrial capital. The low rate of interest that accompanies the "improvement" shows that the commercial credit requires bank credit only to a slight extent because it is still self-supporting.”

(Capital III, Chapter 30)

Tuesday, 24 August 2021

A Characterisation of Economic Romanticism, Chapter 1 - Part 41

Lenin fails to distinguish between such crises of overproduction of capital, which as Marx says always involve an overproduction of commodities, because capital is composed of commodities, and any overproduction of commodities in its own right. The former necessitates an overproduction of commodities, but the same is not true in reverse. For one thing, not all commodities are produced capitalistically. In Theories of Surplus Value, Chapter 17, Marx sets out that, as soon as money arises, production and consumption, demand and supply, use value and exchange-value are separated. Production and consumption, demand and supply form opposing poles of a contradictory whole with no reason why they must remain united, but may fall apart, resulting in a crisis that is merely the means by which the contradiction resolves itself. 

“If, for example, purchase and sale—or the metamorphosis of commodities—represent the unity of two processes, or rather the movement of one process through two opposite phases, and thus essentially the unity of the two phases, the movement is essentially just as much the separation of these two phases and their becoming independent of each other. Since, however, they belong together, the independence of the two correlated aspects can only show itself forcibly, as a destructive process. It is just the crisis in which they assert their unity, the unity of the different aspects. The independence which these two linked and complimentary phases assume in relation to each other is forcibly destroyed. Thus the crisis manifests the unity of the two phases that have become independent of each other. There would be no crisis without this inner unity of factors that are apparently indifferent to each other. But no, says the apologetic economist. Because there is this unity, there can be no crises. Which in turn means nothing but that the unity of contradictory factors excludes contradiction.” 

(Theories of Surplus Value, Chapter 17, Section 8) 

But, as Marx sets out, money and commodity production and exchange has existed for thousands of years, and consequently, so has the potential for such crises of overproduction. Say's Law means treating commodities as mere products, and implies conditions not just preceding capitalism, but going back to barter. 

“Following Say, Ricardo writes: “Productions are always bought by productions, or by services; money is only the medium by which the exchange is effected” (l.c., p. 341). 

Here, therefore, firstly commodity, in which the contradiction between exchange-value and use-value exists, becomes mere product (use-value) and therefore the exchange of commodities is transformed into mere barter of products, of simple use-values. This is a return not only to the time before capitalist production, but even to the time before there was simple commodity production; and the most complicated phenomenon of capitalist production—the world market crisis—is flatly denied, by denying the first condition of capitalist production, namely, that the product must be a commodity and therefore express itself as money and undergo the process of metamorphosis... 

Ricardo says: “No man produces, but with a view to consume or sell, and he never sells, but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some person. It is not to be supposed that be should, for any length of time, be ill-informed of the commodities which he can most advantageously produce, to attain the object which he has in view, namely, the possession of other goods; and, therefore, it is not probable that he will continually produce a commodity for which there is no demand” [l.c., pp. 339-40]. 

This is the childish babble of a Say, but it is not worthy of Ricardo. In the first place, no capitalist produces in order to consume his product. And when speaking of capitalist production, it is right to say that: “no man produces with a view to consume his own product”, even if he uses portions of his product for industrial consumption. But here the point in question is private consumption. Previously it was forgotten that the product is a commodity. Now even the social division of labour is forgotten. In a situation where men produce for themselves, there are indeed no crises, but neither is there capitalist production. Nor have we ever heard that the ancients, with their slave production ever knew crises, although individual producers among the ancients too, did go bankrupt. The first part of the alternative is nonsense. The second as well. A man who has produced, does not have the choice of selling or not selling. He must sell. In the crisis there arises the very situation in which he cannot sell or can only sell below the cost-price or must even sell at a positive loss. What difference does it make, therefore, to him or to us that he has produced in order to sell? The very question we want to solve is what has thwarted this good intention of his?”