Inflation - Keynesians, Wages and the Phillips Curve, and Demand-pull - Part 3 of 3

It is when the long wave moves from its Winter/stagnation phase to its Spring/prosperity phase that the larger profit share leads to an increased demand for productive consumption/constant and variable-capital, as economic activity begins to increase, and gross output expand at a faster pace. For the reasons already outlined, this increased demand is readily met in relation to fixed capital. At this stage of the cycle, capital has no problems finding additional workers, because a relative surplus population still exists, and as output expands, now on the basis of adding additional new machines (extensive accumulation), rather than just replacing existing old machines with new, more efficient machines (intensive accumulation) this still means that output expands using less additional labour than would previously have been the case. It has the option of drawing in latent reserves of labour, and immigration and so on, as well as a natural increase in population. It can increase overtime working etc., and so increase the social working-day.

But, it is now this same increase in productivity that means that, as economic activity expands, the demand for raw materials expands at a faster pace. As set out earlier, during the stagnation phase of the cycle, low prices discourage exploration and development, and existing mines etc., are worked to exhaustion, but that means that, as demand for these materials rises rapidly, output of them cannot be increased rapidly, and the marginal cost of production from existing sources rises sharply, causing primary product prices to rise sharply. As this phase continues, and more workers are employed, the demand for food, also rises sharply, and for the same reasons, food prices rise sharply. The chart for copper prices, provided earlier, illustrates this increase in prices following the onset of the long wave uptrend in 1999, and the effects in relation to food prices were seen in the food shortages and riots that occurred in 2008.

The demand-pull effect from profits on primary product prices, therefore, at this phase of the cycle is real, but for the reasons described earlier, this increase in prices, in one sphere, is not the same as an increase in the general price level itself, separated from the role of increased liquidity. Marx describes this in Capital III, Chapter 6, and also in Theories of Surplus Value, Chapter 9. Firstly, the increase in the price of primary products, is a consequence of rapidly rising demand for them, resulting from the use of new more productive fixed capital. But, that more productive fixed capital, similarly brings about a fall in the value of the end products it is used to produce. Its true that the value of, say, cotton is transferred to the price of yarn, and as Marx describes in Capital III, Chapter 6, here, it makes no difference whether this is an actual rise in its value, or simply an increase in its market price, as far as the yarn producer is concerned. But, if the increased productivity that brings this about, also reduces the value of labour, and of wear and tear, in each metre of yarn, by a sufficient degree, then, despite the higher price of cotton, the value of yarn will fall.

Moreover, even if the fall in the value of yarn from these other effects does not offset the rise in the price of cotton, so that its value rises, this rise in its value will be proportionately less than the rise in the price of cotton, because it forms only a fraction of the production cost. But, then, when the weaver buys the yarn from the spinner, this higher priced yarn, becomes an added cost for their own production. However, like the spinner, increased productivity means that their own costs of production are reduced, and so the increased value of yarn forms an even smaller increment of additional cost for them, than it does for the spinner. That is even more the case, when the weaver sells their cloth to the garment manufacturer, so that, in terms of end production, the higher level of social productivity will lead to lower, not higher prices, despite the higher material costs.

In some cases, that may not be true, but then consumers will have the choice of continuing to buy them at these higher prices, reducing their demand for other commodities accordingly, or else they will reduce their consumption of the higher priced commodities. In the former instance, the reduced demand leads to lower prices for these other areas of consumption, so that no increase in the general price level ensues. In the latter instance, where demand falls as a result of higher prices, then, as Marx sets out in Capital III, in order to prevent this fall in demand, producers reduce their prices, and absorb the increased material cost out of their profits.

In all cases, manufacturers look for alternative, cheaper sources of supply of primary products, they look to reduce waste in the use of materials, to introduce alternative types of materials, and so on. But, the higher prices of primary products, leads to higher profits for primary product producers, now stimulating exploration and development of new areas of cultivation, new mines and so on, and, these are usually more naturally productive than the old sources of supply, requiring only the same level of fixed capital, and development of infrastructure for that to be manifest. As Marx sets out in Theories of Surplus Value, Chapter 9, this takes around 10 years to achieve, at which point, it is not only that this naturally lower individual value of production, from these new sources that reduces the market value of these primary products, but the fact that a large new supply of them hits the market removing the previous imbalance of demand and supply that had caused market prices for them to rise. It leads to a significant fall in their prices, a feature that I predicted, and that became manifest in the large falls in primary product prices that occurred in 2014.

That deals with the demand-pull arguments that seek to explain inflation.

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Next Keynesians and Cost-push

Chapter 1A – Historical Notes On The Analysis of Commodities - Part 2 of 8

Petty, however, as an English/Irish economist was constrained within the ideas of the Mercantilist/Monetary School. So, he took exchange-value as it appears as money prices, and money being the only given money commodity of the time – gold or silver.

“... he asserts that the labour which determines exchange-value is the particular kind of concrete labour by which gold and silver is extracted. What he really has in mind is that in bourgeois economy labour does not directly produce use-values but commodities, use-values which, in consequence of their alienation in exchange, are capable of assuming the form of gold and silver, i.e., of money, i.e., of exchange-value, i.e., of materialised universal labour. His case is a striking proof that recognition of labour as the source of material wealth by no means precludes misapprehension of the specific social form in which labour constitutes the source of exchange-value.” (p 54)

In other words, this was a kind of commodity fetishism, but fetishising the precious metal constituting the money commodity. Its quite true, as Marx later describes, that the specific concrete labour used in the production of the money commodity comes to act as the proxy for universal labour, but jumping straight into this assumption, on the basis of superficial appearances misses out several required steps of analysis. The same is true of taking the superficial appearance of prices, as cost of production plus average profit, without first analysing profit as derived from surplus value.

Boisguillebert reduces exchange value to labour-time, but confuses abstract and concrete labour. He eulogises commodity exchange, but wages a fanatical struggle against money, much as later Sismondi waged a struggle against capital. Boisgillebert's la juste valeur (true value) is determined “according to the correct proportion in which the labour-time of the individual producers is divided between the different branches of industry, and declaring that free competition is the social process by which this correct proportion is established.” (p 54) In part, his campaign against money was driven by opposition to the need for gold of Louis XIV. By contrast, Petty “acclaims the greed for gold as a vigorous force which spurs a nation to industrial progress and to the conquest of the world market”. (p 54-5)

This inevitably leads to the encouragement of industrial production, as the means of ensuring that exports exceed imports, and it is the specific material advantages that Britain enjoyed, in that regard, that enabled it to become the premier industrial power. Similarly, it is Ricardo who sees this development of industrial capital, as an end in itself, whereas it is Sismondi that seeks to hold back the development of capital.

Petty can also be contrasted in his materialist analysis of this development with much later writers such as Max Weber. Even at the time that Holland was the leading trading nation, and France was on the rise, Petty argued that it was the specific material conditions and advantages that Britain enjoyed that would enable it to conquer the world market. This is in contrast to Weber's Protestant Ethic, in which he argued that it was the adoption of the ascetic prescriptions of Protestantism that enabled the development of capitalism.

“Thus he shows for example that the conquest of the world market by Holland, which was then regarded as the model country by English economists just as Britain is now regarded as the model country by continental economists, was brought about by perfectly natural causes “without such Angelical Wits and Judgments, as some attribute to the Hollanders” (op. cit., pp. 175-16). He champions freedom of conscience as a condition of trade, because the poor are diligent and “believe that Labour and Industry is their Duty towards God” so long as they are permitted “to think they have the more Wit and Understanding, especially of the things of God, which they think chiefly belong to the Poor.” “From whence it follows that Trade is not fixt to any Species of Religion as such; but rather ... to the Heterodox part of the whole” (op. cit., pp. 183-86).” (Note **, p 52)

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Northern Soul Classics - Baby Don't You Weep - Edward Hamilton & The Arabians

 

Friday Night Disco - I'll Be Good - Rene and Angela

 

Distribution and Demand

In an article in Moneyweek, John Stepek writes,

“As a consumer, if your electricity bill goes up (and I’m sure we’re all only too aware that this is exactly what’s about to happen for most of us in the UK) then you have to either cut back elsewhere, or you have to ask your employer to increase your wages, in which case the money comes out of your employer’s profits (and thus decreases the amount going to shareholders).”

His point is that rising energy prices act like a rise in interest rates, or in taxes that reduce disposable income, and so reduce demand, which has a contractionary impact on economic activity. But, what this fails to take into account is the different effect of a drop in wages, as against a drop in dividends/interest payments.

The whole perspective of the speculators who have seen rising energy and food prices, along with rising interest rates and taxes acting to reduce disposable income is that it results in this fall in demand, leading to a fall in economic activity, and so reduces the pressure on the demand for labour, causing wages to fall, and on the demand for capital so causing interest rates to fall, and so making it possible for asset prices to rise once more. Its what has led to stock and bond markets rising sharply in the last couple of days following US GDP data. In fact, as I wrote earlier, that GDP data does not at all show what it is being presented as showing, and that was illustrated further by the US data on wages, spending and inflation released this afternoon.

The latest US data shows wages continuing to rise, along with household spending. In fact, wages are rising fastest for the lowest paid workers, and that is significant, because the marginal propensity to consume is higher for lower paid workers than it is for higher paid workers, who tend to save a greater proportion of income, just as the marginal propensity to consume is higher for workers, in total, compared to the bourgeoisie that saves a much larger proportion of income, and, more importantly, uses a large portion to gamble on stock, bond and property markets.

As Marx notes,

“The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits. It is furthermore restricted by the tendency to accumulate, the drive to expand capital and produce surplus-value on an extended scale. This is law for capitalist production, imposed by incessant revolutions in the methods of production themselves, by the depreciation of existing capital always bound up with them, by the general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin. The market must, therefore, be continually extended, so that its interrelations and the conditions regulating them assume more and more the form of a natural law working independently of the producer, and become ever more uncontrollable.”

(Capital III, Chapter 15)

So, Stepek is quite right to note that, in response to rising energy, food and other prices, workers can, and indeed, as the mass of strikes across the globe demonstrates, are demanding higher wages. With those higher wages, which again today's US data indicates, workers can, then continue to demand goods and services as before, so that capital must, in turn, continue to accumulate additional capital, because, as Marx notes, as a result of competition, this “drive to expand capital and produce surplus-value on an extended scale. This is law for capitalist production, imposed by incessant revolutions in the methods of production themselves, by the depreciation of existing capital always bound up with them, by the general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin.”

The flip side of this, as Stepek also notes, is that, in paying higher wages, profits are reduced, but because this “law for capitalist production” of the need to accumulate, under the whip of competition, as rising wages drives rising demand for wage goods, the other consequence, as Stepek says, is that less of that profit is available to pay out as interest/dividends. But, then the question is what were those interest/dividends used for? It is, of course, the case that some of them are used to fund the consumption of their recipients. The tacit assumption of Stepek is that they go to normal households, including as pensions and so on, and so have much the same effect as changes in wages, but that is far from the truth. The largest amounts go to the ruling class, providing them with vast revenues, far in excess of what they can use, even for their most extravagant lifestyles.

The consequence is that vast amounts of those revenues from dividends/interest – including those received by investment banks, pension fund managers etc. - then goes into further gambling on stock, bond and property markets, and, again, not to buy new stocks and bonds, but simply to bid up the prices of existing assets. As a consequence none of that goes into financing additional capital accumulation, and so increased economic activity. It is like a farmer, who finds that the price of the land they intended to buy has risen from £1 million to £2 million, leaving them with £1 million less to actually advance as capital to buy machines, seed, labour-power and so on, and so which acts to reduce economic activity.

Marx is quite right that for real capital, the drive of competition and the need for capital accumulation, continues to operate, but that is not at all true for shareholders and bondholders, i.e. fictitious capital. They are interested only in maximising their payment of interest/dividends, and, now, with maximising the amount of capital gain they can obtain from a rising price of their assets. That requires, if possible, that a smaller proportion of profits go to capital accumulation, so that a larger proportion goes to their interest/dividends, to buying back shares so as to inflate their prices and so on. It is why these speculators are desperate for a recession, for a slackening of demand, and of the competition that arises from it, which forces the companies in which they hold shares to have to accumulate additional capital from profits.

For the last 30 years and more, those shareholders have been able to draw an increasing proportion of profits as dividends/interest, at the same time that interest rates fell, causing asset prices to rise, and more and more revenues drawn into speculation in those assets, rather than into stimulating aggregate demand for goods and services. With workers in a weak bargaining position, profits continued to rise, but instead of going into additional consumption, or into financing additional capital accumulation, it went into speculation, driving up share, bond and property prices, in a never ending spiral. Indeed, it sucked workers into it as well, as they used any surplus income to also engage in such speculation.

But, rising wages, feeding into increased demand for wage goods and services, now reverses that condition. It starts to at least restrict the growth of profits if not yet to squeeze them. It means that a larger proportion of those profits must now go to capital accumulation, driven on by “law”, by the competition between firms, for fear of “ruin”, if they do not. A smaller proportion goes to interest/dividends, but, as the demand for this capital rises, at the same time that the supply of it from profits falls, so the inevitable result is higher interest rates. Higher interest rates, can only, then, be manifest, in the form of falling asset prices. In other words, a firm might pay, £0.80 dividend on a share, rather than £1 previously, but the fact that the price of the share has fallen from £10 to £5, means that this represents a yield of 16%, as against the yield of 10% previously.

But, now, this sharp drop in asset prices means that the urge created over the last 30 years or so, to engage in this speculation, itself is ended. Those in receipt of these revenues no longer use them simply to bid up the prices of shares, bonds and property. As their income falls, the portion they previously spent on consumption hardly budges, as they seek to maintain their extravagant lifestyle, whilst the rising wages of workers does lead to rising consumption, stimulating further demand. Instead of seeking capital gains from inflating asset prices, in conditions where asset prices are instead falling, the owners of loanable money-capital, instead seek revenues from it, including using it to finance additional capital accumulation, and an increase in production, so that the result is an increase in both personal and productive consumption.

The speculators have failed to recognise that material conditions have fundamentally changed. Its not only that the demand for labour itself has risen to a point at which firms compete against each other for labour, bidding up wages, but that, sensing this change, workers themselves are demanding wage rises, strengthening their organisations, and being confident to assert their interests. Rising prices for food and energy and so on are not going to force workers to accept a cut in their living standards, but will simply be passed on into higher wages, enabling consumption to be maintained and extended. The consequence will be a constraint on profits, felt in a squeeze on dividends/interest, leading to a crash in asset prices, bringing to an end the period of madness of asset price inflation, and speculation of the last 30 years.

As profits are squeezed by rising wages, central banks will seek to enable firms to raise prices to protect profits, and the natural extension of commercial credit between firms will facilitate that, whatever central banks do. So prices will continue to rise, preventing central banks from being able to pause their hikes in policy rates, but as the demand for capital rises faster than its supply, so those increased policy rates will only tail the secular rise in market rates of interest that must result from the increased demand for capital. Inflation is here to stay for some time, and so are rises in interest rates, and a prolonged fall in asset prices.

Inflation - Keynesians, Wages and the Phillips Curve, and Demand-pull - Part 2 of 3

The rise in profit share, but relatively slower rate of growth of real capital/capital accumulation, during such periods is what creates a rise in the supply of money-capital, relative to the demand for it, and so leads to a fall in the rate of interest. The fall in the rate of interest leads to rising asset prices, which, leads to encouragement of speculation/gambling on stock, bond and property markets.

As Marx points out, in Capital III, Chapter 27, by the latter half of the 19th century, the social function of the private capitalist had ended, as the monopoly of private capital was replaced by the development of socialised capital in the form of the cooperative and joint stock company, and the replacement of the private capitalist by the functioning capitalist, who owns no capital, but undertakes the role of professional manager, in organising production. The private capitalists – as indeed was the case with Engels – retire from production to become mere money-lending capitalists, coupon clippers living off the interest from their capital.

In such periods, speculation and gambling by the ruling-class is just one form of the increase in their unproductive consumption, made possible by the increased share of profits. Such gambling in financial and property markets, rather like gambling in a casino, or on the race track, simply means that the winners, are matched by the losers, apart from the house, which is always a winner. In so far as increases in such asset prices are simply an expression of a speculative bubble, rather than arising from an increase in profits, they are inevitably cancelled by subsequent crashes. The nature of inflation as a monetary phenomenon, is, however, manifest again, here, in looking at the way serial bubbles in asset prices have been created, since the 1980's, because each time, a bubble has burst, central banks stepped in to print additional money tokens/credit, thereby, devaluing the currency, and subsequently causing a new inflation of those asset prices, including by the central bank directly buying those assets itself (QE).

Such gambling had always occurred, as manifest in the Tulipmania, the South Sea Bubble, John Law's Mississippi Scheme, and the Railwaymania, but in 1855, the passing of the Limited Liabilities Act, made its extension into the stock market much greater. The Act limited the financial liability of shareholders to only the money they spent to buy shares in a company, no matter what level of debts the company itself might incur. That would be fine, if the shareholders were treated, as they should be, as merely creditors of the company, but, company law treats them as though they are the owners of the company itself, enabling them to control its capital, rather than just their shares.

But, the inflation of asset prices does not lead to an inflation of commodity prices. On the contrary, as I have described in many previous posts, by sucking liquidity out of the real economy, it leads to, if anything, a deflation of commodity prices.

The other form of unproductive consumption in such periods, as Marx sets out, is the employment of domestic servants. The relative surplus population, leading to lower wages, combined with increased profits at a time of slower capital accumulation, leaves increased disposable incomes for capitalists to use to employ such domestic servants. But, the demand for such workers does not lead to higher prices/wages either, precisely because labour is, then in excess supply.

Capitalists and landlords can also increase their luxury consumption, and as the opposite to the argument in relation to rising wages, this does not lead to an excess of aggregate demand over aggregate supply, because, now, the reduced wage share reduces demand for wage goods. Moreover, in such periods, an increasing portion of this luxury consumption goes into demand for new types of commodity that the technological revolution makes available. The demand for these new types of commodity is relatively limited, and, in fact, to the extent that additional demand for these commodities spurs additional production and supply, this larger-scale production then rapidly brings economies of scale, which acts to reduce, rather than increase the prices of these commodities, some of which, then, become cheap enough for workers to buy, as the long wave moves into its later phases.

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US Data Shows Why GDP Is Not a Measure of Output

The latest data, out from the US, indicates that its GDP fell for a second quarter. On some definitions, that makes it a “technical recession”. That is how all of the speculators who see bad news as good news – stock markets again soared on the news – want to portray it, as well as all of the catastrophists who continually predict the next recession as evidence of the unviable nature of capitalism. But, in fact, what these negative GDP numbers show, is simply that GDP is not a measure of output, for the reasons Marx describes in demolishing Adam Smith's absurd dogma, and also in explaining the role of a tie-up of capital.

GDP is not a measure of output (c + v + s), but only of new value created during the current year (v + s). As Wikipedia describes it, it is the value added at each stage of production, or if calculated on an income basis “This method measures GDP by adding incomes that firms pay households for factors of production they hire - wages for labour, interest for capital, rent for land and profits for entrepreneurship.” This latter definition is a perfect reflection of Adam Smith's absurd dogma that the value of output resolves entirely into revenues (v + s), whereas, as Marx describes, that is impossible, because the value of output resolves into c + v + s, and the value of c, represents an income for no one, it is merely the value of constant capital (raw materials, wear and tear of fixed capital produced in previous years) that is transferred to the value of current production, and is directly replaced out of that current production on a like for like basis. The equivalent value, and demand for this constant capital comes not from revenues, but from capital itself.

In Marx's schemas of reproduction, in Capital Volume II, he has total output value at 9,000 comprised as follows:

Department I

c 4000 + v 1000 + s 1000 = 6000

Department II

c 2000 + v 500 + s 500 = 3000

In other words, total incomes (National Income) is 3000, comprising 1000 wages in Department I, 500 wages in Department II, and 1000 profits in Department I, and 500 profits in Department II. Using the definitions used by Wikipedia above, and taken from the OECD, its clear that this is the equivalent of National Income, and of the value added by labour. It is equal to the value of final output for consumption of 3000. But, its equally clear that this 3000 is not the value of output, which is 9000.

As Marx puts it, in Capital II, this value created in the current year is equal to 1 labour year – it couldn't amount to any more, because that is tautologically true – whereas the total value of output for the year is equal to 3 labour years. The other 2 labour years comes not from current labour, but from the value of constant capital produced in previous years and merely transferred to the value of current output. The value of GDP is only the value of the consumption fund, i.e. of revenues (v + s), and not of the constant capital consumed in production, (c). In fact, the GDP is only a small proportion of the value of total output, and a declining proportion of it at that.

So, GDP data is not a measure of output, and changes in GDP are not a measure of changes in output. In fact, a look at the US economy shows this clearly. GDP is a measure of new value created in the current year. Value is labour, and new value is new labour performed. So, if additional labour is being employed, it follows that additional new value is being created. That new value divides into v + s, wages and profits, with profits itself being divided into profit of enterprise, interest/dividends, rent and taxes.

But, we know that additional labour is being employed in the US. Around 9 million new jobs have been created, around 400,000 new jobs are being created each month, on average, and workers are working additional hours as overtime, and moving from part-time and temporary work to full-time permanent employment. So, its clear that a huge amount of new value is being created in the US, as a result of all of this new labour performed, on the basis of Marx's theory.

The fact of how this new value is divided between wages, profits, interest, rent and taxes, on one level, is irrelevant, because it doesn't change the amount of new value created in total, and how it is resolved into incomes. So, how then can the fall in total incomes/GDP be explained? It would appear, on the surface, that Marx's theory must be wrong. But, it isn't, precisely because of the fact that GDP is not a measure of output, and because of another element of Marx's analysis of the process of reproduction, which is the question of the tie-up and release of capital.

As Marx describes in various places (Capital II, Capital III, Chapters 6, 49 et al, and in Theories of Surplus Value, Chapter 22) the process of reproduction is one in which the physical components of capital must be continually replaced “on a like for like basis”. That is, if a million tons of seed is planted and turned into grain, a million tons of seed must be taken from current production to replace it, for reproduction to take place on at least the same scale. But, if the value of this seed (constant capital changes), then either more of current production (tie-up of capital), or less of current production (release of capital) occurs. The effect of this, in the first case is to make it appear that less profit has been produced, and in the second that more profit has been produced.

So, its clear that, if the value of constant capital rises, to replace it on a “like for like basis” a portion of profit has to be used for that purpose. To take the case of a farmer, if they produce a surplus of grain of 100 tons, this year, as last year, but, last year they only needed to plant 10 tons of grain, but this year must plant 12 tons to get the same yield, the amount of their usable surplus falls from 100 tons to 98 tons, even though their actually produced surplus remained 100 tons.

And the same applies with GDP. Over the last year, a number of frictions have arisen, as the global economy expanded. The savings from globalisation have reached a plateau, and might even have declined, as a result of lockdowns, economic wars and so on, and this reduces social productivity, increasing the value of constant capital, so that, in order to reproduce itself on the same scale, a greater proportion of current production has to go to replacing the consumed constant capital, resulting in a tie-up of capital.

But, also, in the last year, there has been rampant inflation, and that inflation has been most marked in relation to Producer Prices, i.e. the prices of elements of constant capital from fixed capital, to raw materials, energy and so on. US Producer Prices are rising at over 11% a year, and yet US Consumer Prices are rising at only 9.4%, meaning that US companies have absorbed some of that increased price of constant capital out of profits, rather than passing it on into final consumer prices. As a result, the element passed into National Income, and into GDP from profits is accordingly reduced, even though that does not represent any actual reduction in output. And, that reality is shown in the fact that company results, overall, continue to show increasing output and demand.  This is actually a reverse of what happened in the 1980's and 1990's.

During that time, a technological revolution significantly reduced the value of constant capital. Moral depreciation reduced the value of fixed capital by huge amounts, whilst rising productivity from the use of the new technology also reduced the value of materials, improved ways of using them more efficiently, and so on. The result was a huge release of capital that also went along with a large rise in the rate of profit. I will look at other aspects of this in another post next Tuesday.

Chapter 1A – Historical Notes On The Analysis of Commodities - Part 1 of 8

Chapter 1A – Historical Notes OnThe Analysis of Commodities

Much of the contents of this section are covered in greater detail in Theories of Surplus Value, Part 1. Marx, also, here, sets out, briefly, the effect of other material conditions in affecting the specifics of historical development and forms, and their reflection in ideas. The reason that political economy, in Britain, first takes the form of Mercantilism, but, in France, Physiocracy, is that Britain succeeded Holland as being the premier merchant nation, whereas France's development proceeded on the basis of its agricultural production.

“A comparative study of Petty’s and Boisguillebert’s writings and characters – apart from illuminating the social divergence between Britain and France at the close of the seventeenth century and the beginning of the eighteenth – would explain the origins of those national contrasts that exist between British and French political economy. The same contrast reappears in Ricardo and Sismondi.” (Note *, p 52)

The study of political economy over 150 years, starting with Petty and Boisgillebert, and ending with Ricardo and Sismondi, “is an analysis of the aspects of the commodity into two forms of labour – use-value is reduced to concrete labour or purposive productive activity, exchange-value to labour-time or homogeneous social labour.” (p 52)

Petty is, as Marx describes, “the Father of English political economy”. His method follows that of Descartes in Philosophy. The mathematician Descartes, in his “Discourse on Method”, and in his “Meditations”, set out to construct a philosophical method based upon the same principles as mathematics, in which nothing could be assumed unless verifiable and quantifiable. It was on that basis that he famously discounted the assumption of his own existence, only resolving it in his dictum Cogito Ergo Sum – I think, therefore, I am. In his “Political Arithmetick”, Petty says, “he proposes to speak “in Terms of Number, Weight or Measure; to use only Arguments of Sense, and to consider only such Causes, as have visible Foundations in Nature; leaving those that depend upon the mutable Minds, Opinions, Appetites, and Passions of particular Men, to the Consideration of others” (Note **, p 52)

Petty, writing well before Smith, describes the division of labour and does so, Marx says, on a much grander scale.

“... he shows the advantages which division of labour has for production not only with the example of the manufacture of a watch – as Adam Smith did later with the example of the manufacture of a pin – but considers also a town and a whole country as large-scale industrial establishments.” (Note **, p 52)

On the basis of this understanding of division of labour, i.e. of a production of different use values by different types of concrete labour, Petty is able to discern the formation of a nation's material wealth as arising from this concrete labour, in conjunction with Nature.

“This conception of the source of material wealth does not remain more or less sterile as with his contemporary Hobbes, but leads to the political arithmetic, the first form in which political economy is treated as a separate science.” (p 52-4)

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Forward To Part 2

Support Sam Tarry - Down With The Capitalist Shadow Ministers

Starmer has sacked Shadow Transport Minister, Sam Tarry, for performing the basic act of anyone who claims to be a supporter of workers - showing solidarity with them on the picket line.  But, anyone who has followed the progress of Blue Labour under Starmer, into the camp of petty-bourgeois reactionary nationalism, cannot be surprised at it.

Contrary to what John McDonnell has said, keeping a distance from trades unions and industrial disputes is not uncommon for Labour Leaders.  Kinnock famously did it during the 1984-5 miners' strike, and, of course, it was Callaghan's decision to take on low paid public sector workers and their unions, in 1978, combined with his decision to delay calling a general election until the following year, that led to the Winter of Discontent, and the election of Thatcher.

The Labour Party is not a socialist party.  It has always been a social-democratic party, and the role of social-democracy is to try to reconcile the interests of capital and labour, which always means in the end prioritising the interests of capital rather than labour.  Its why, in times of inflation, as in 2008, Labour Ministers, like Darkling, then, or Callaghan in 1978, can tell workers not to try to have their wages keep up with prices - meaning that profits rise faster than prices - for the greater good of "the economy".

But, that shows why socialists should never join such a Cabinet or Shadow Cabinet, because they will always, thereby, be constrained by the pro-capitalist ideology, and policies it will pursue.  In 1917, following the February Revolution, when the Provisional Government that came to power, was a Popular Front government, comprising representatives of the liberal bourgeoisie (Cadets et al), as well as parties representing workers and peasants (Mensheviks, SR's et al), Lenin and the Bolsheviks, raised the demand "Down With The Capitalist Ministers".

In other words, it was a propagandist demand aimed at the representatives of the workers and peasants in the Provisional Government, to break from the representatives of the bourgeoisie.  It was a demand for them to establish a Workers and Peasants' Government, knowing full well that they would not do so, and, in the process that would strengthen the position of the Boskheviks, as well as the actual Dictatorship of The Proletariat supported by the Peasantry that was being formed in the Workers and Soldiers Soviets.

But, the reality of the Labour Party is that, politically and ideologically, it has always been the equivalent of those very capitalist ministers that Lenin demanded the Russian workers parties throw out of the Provisional Government.  It has never been possible to raise a similar demand in relation to it, so that those left represented some kind of Workers Government.  But, now, under Starmer, it is even worse than that.

At least, under Blair, the ideology was that of the liberal bourgeoisie, it was forward looking, seeking a further rational development of large-scale capital, inside the EU, and global economy, even if driven by he interests of the shareholders in those companies.  The same was true under Attlee, Wilson and Callaghan.  Not so under Starmer.  Starmer has adopted all of the reactionary ideas of Blue Labour, based upon petty-bourgeois, reactionary nationalism, symbolised by his support for Brexit.  It is not even a progressive liberalism, but a reactionary nationalism, aimed opportunistically at merely winning the votes of the petty-bourgeois and lumpen elements that voted for Brexit, and gave Boris Johnson a majority.

In that alone its short-sighted, because, at best, it means competing for that vote with the Tories, who historically have it sewn up.  And, Starmr's action against Tarry, along with all of his other anti-working class positions, is fully consistent with that.  The liberal bourgeoisie, resting upon large-scale socialised capital has never had a fundamental problem with trades unions, because they understand that the role of those unions is itself, mediating and managerial, i.e. social-democratic.  The trades union ideology is bargaining within the system, which means never demanding more than is compatible with the system itself, and having trades union leaders that managers can deal with as managers and mediators, is far more rational than having a thousand points of conflict to resolve.

But, that is not the outlook of the petty-bourgeoisie.  It is based upon small scale private property.  Not only does it employ few people per establishment, who can be ruled over oppressively, and who can be replaced on a whim, but its ability to make even small profits depends upon it being able to treat workers in this repressive fashion, to pay them minimal wages, to provide poor conditions and so on, because other wise it cannot compete with large scale, more efficient capital.  So, given that it is to that reactionary section of capital, and to all those with that same reactionary mindset, that Starmer has set his cap, its no wonder that he can have no truck with support for workers and their trades unions.

Starmer and his Blue Labour, are not just "capitalist ministers", but unlike those that Lenin directed his demand in 2017, they are capitalist ministers whose ideology and positions are determined by the most reactionary sections of small capital, and so even against the interests of the large-scale, more progressive sections of capital, let alone of the working-class.

Truss Will Be A Gift To The Liberals

As I've set out before, whoever succeeds Johnson will be worse. All the candidates have had to move sharply Right, in order to secure the votes of the Tory membership, which itself represents that large reactionary, petty-bourgeois mass that got the Tories elected, and that secured a majority of votes (though not of the electorate) in the referendum. Of the two remaining, Truss best fits that description. But, Truss is a gift for the Liberals, though not for Labour.

Liz Truss began her political career – and for these bourgeois politicians it is a career, like being a lawyer, rather than an ideological commitment – as a Liberal Democrat. She was President of the Liberal Democrats at Oxford University, as well as being a staunch proponent of abolishing the Monarchy. Having joined the Tories in the 1990's, she obviously saw her career moving forward faster on a blue rather than a yellow bus. She continued to move Right, although, in 2016, she did support Remain, in the referendum. Since then, she has moved further Right, and is now not only a firm proponent of Brexit, supported by the likes of Rees-Mogg, but a war-monger, who has rattled her sabre, ridiculously, in the direction of the EU over Northern Ireland, as well as over Ukraine, as she attempts to secure the support of the Tory, hard right, reactionary nationalists.

What makes this such a boon for the Liberals is the remarkable similarity of this transition and duplicity of Truss, with that of the journey of Starmer. True, he did not start out as a Liberal student, but rather as a Pabloite, but it didn't take long, after his student days, to move quickly rightwards, into the camp of the Blair-rights. Like Truss, he dutifully supported Remain in 2016, when that looked like the safest bet in town, and continued to push that line when Corbyn began to slip back into his old economic nationalism. Of course, despite his ephemeral time spent in the ranks of Pabloism, Starmer never did argue the case against Brexit in the terms of socialist internationalism, but, like Cameron and Blair, on the grounds of Neoliberalism, and British national self-interest, i.e. the interests of specifically British capital, which makes the transition to Brexit nationalism that much easier. In fact, Starmer's commitment to a second referendum, at that time, mirrors Johnson's advocacy of Brexit, as he attempted to provide himself with a fulcrum of support, for his leadership bid.

Not, only did Starmer switch overnight from being a fervent Remainer to being an ardent Brexiter, when he became Leader, but all of the promises he gave to party members, to get elected, about continuing with the policy direction of the party, established in the Corbyn years, were summarily ditched without trace.

Again, what makes this such manna for the Liberals is precisely that similarity, also, with Johnson, the similarity that they have all been prepared to say anything in order to further their own careers, even if the next minute they say the complete opposite, when they think that is more opportune. If voters really want something different from Johnson's lying and deception, then they certainly can't look to either Truss or Starmer for it. Not, of course, that the Liberals are any different, but as far as the voters are concerned, its been ten years since the Liberals promised to oppose increased Tuition Fees, and then dropped it, in order to get seats in a coalition government. No one has heard of Ed Davey, which, in these conditions, is a bonus, because he's not going to be tainted with all of the lies and deception of the other party Leaders.

The Tories will undoubtedly get a bounce, when they choose their next Leader, but, the reality is that the Tories woes are a continued manifestation that, as a potential ruling bourgeois party, it is conflicted in, on the one hand, trying to represent the interests of its petty-bourgeois members and voters, and, on the other, also representing the interests of the ruling class, and its state. The two class interests are antagonistic and that antagonism has continually erupted since the 1990's.

A large section of the professional middle class will be unable to vote for a Tory Party headed in the direction of nationalistic Brexit reaction, and, as the damage from Brexit continues to snowball, will see no reason to vote for the same policies advocated by a Brexit supporting Blue Labour. The Tory bounce amongst its reactionary core that turned away, given all of the negative media coverage against Bojo, will evaporate the small lead that Blue Labour enjoyed during that period, but those votes that continue to drain away from the Tories, as they head further Right, will now wash even more decisively towards the Liberals, driving forward the momentum they have obtained in all of the recent by-elections, local elections and so on, in which Labour has performed miserably.

At the moment, Labour is seen as the natural alternative to the Tories, simply because that has been the case for most of the last century, and its recent opinion poll lead reaffirms that. However, the by-elections show that, when it comes to actual elections, the overall opinion polls are highly misleading, because, in each of those elections, not only have the Liberals massively outperformed a struggling Blue Labour, but, in several, the Liberals came from third place, behind Labour, to overhaul them, and win the seat from the Tories. As the Tories get a bounce, and Labour's poll lead disappears, that will even more make the Liberals look like the obvious alternative, in many seats across the country, not just in marginal Tory seats, where the Labour vote will collapse and go over wholesale to a Liberal party offering Labour's core progressive vote a real alternative, but also in Labour marginals, where the Liberals will pick up both progressive Labour and middle class Tory votes.

The Liberals will have an endless supply of past quotes from both Truss and Starmer to use to demolish their current reactionary, nationalist positions on Brexit, and at the same time to hammer home the point that, just like Boris Johnson, their whole political career has been marked by a willingness to say anything, to lie through their teeth, whilst actually believing nothing of what they say. The Liberals have at least a year before the next election, in which they will be aided and abetted by the unfolding chaos caused by Brexit to hammer home that message, and to make it the clear flag around which they muster the forces of progress in Britain, whilst the Tories and Blue Labour squabble over who will get the biggest share of the votes of the reactionary petty-bourgeoisie. It will put the Liberals in the mirror image position that the Tories enjoyed when they were able to consolidate the reactionary nationalist vote around them whilst, Labour, Liberals and others divided up the progressive anti-Brexit vote.

The tragedy is that it should have been Labour that was able to have occupied that progressive position within the political battlefield, but once again snatched defeat from the jaws of victory.

A Contribution To The Critique of Political Economy, Chapter 1 - Part 29 of 29

The desire of existing ruling classes and castes for money rents and taxes, further stimulates commodity production and exchange, as its only by this means that the individual commodity producers can obtain money. The more favoured producers with larger families become wealthier and acquire better equipment and so on. They access more distant markets and become buyers up and merchants. So sets in the process of differentiation of the mass into bourgeois and proletarians in the towns, as described by Marx, Engels and Lenin, a process which, then, subsequently, is transferred into rural areas, as the subsidiary industrial production undertaken by peasants, in addition to their agricultural production, is undermined. The peasant, unable to compete with the capitalist industrial production in the towns must themselves, increasingly, become a wage worker, initially via The Putting Out System, as Lenin describes in “On The So Called Market Question”, and later in “The Development of Capitalism In Russia”,

Fully engaged in this industrial production, the peasants themselves are no longer able to be self-sufficient in food, and, now, creating the conditions for the expansion of the market for agricultural commodities, and so, at last, for capitalist production to enter agricultural production. Now, as Lenin describes, the same process of the more favoured peasants being able to engage in capitalist production of agricultural commodities occurs that previously happened in the towns, with industrial production, creating the same process of differentiation into agricultural capitalists and proletarians, and a new set of social relations along with it.

“The exchange of commodities is the process in which the social metabolism, in other words the exchange of particular products of private individuals, simultaneously gives rise to definite social relations of production, into which individuals enter in the course of this metabolism. As they develop, the interrelations of commodities crystallise into distinct aspects of the universal equivalent, and thus the exchange process becomes at the same time the process of formation of money. This process as a whole, which comprises several processes, constitutes circulation.” (p 51-2)

Back To Part 28

Forward To Chapter 1 A - Historical Notes on the Analysis of Commodities

Inflation - Keynesians, Wages and the Phillips Curve, and Demand-pull - Part 1 of 3

Keynesians, Wages and the Phillips Curve, and Demand-pull

What the Keynesian argument actually comes down to is an argument in which demand-pull is a consequence of rising wages, in conditions of a shortage of labour, as the economy expands and uses up the relative surplus population – The Phillips Curve – and, in which, firms attempt to counter the squeeze on profits, by increasing prices, which they can only do if central banks increase liquidity to facilitate it, which then sets in place a wage-price spiral. But, it is this increase in liquidity, created by central banks, though also by an expansion of commercial credit, in periods of expansion, that is the cause of the inflation, not the higher wages nor their effect on aggregate demand.

There, is, of course, the converse of this argument, which is that the increased demand comes not from rising wages, relative to profits, but from rising profits relative to wages. Again to analyse this, its necessary to consider the matter in terms of different phases of the long wave cycle. Wage share rises, and squeezes profits in the second half (Summer or Boom) of the uptrend phase of the cycle, and the first half (Autumn or Crisis) of the downtrend phase of the cycle. The resulting crises of overproduction lead to capital engaging in a new period of technological innovation, that introduces new labour-saving technologies that creates a relative surplus population, and falling wages/rising profits. However, its not just a falling wage share that enables capital to increase its rate of profit. The technological revolution also massively depreciates fixed capital as a consequence of moral depreciation, and both cheapens and utilises more efficiently materials, thus bringing about a significant fall in the value composition of capital.

I have described this on numerous occasions, in considering both the long wave, and the Law of the Tendency for the Rate of Profit to Fall. In the Autumn/Crisis phase of the cycle, as these new technologies are introduced, gross output starts to stagnate, because crises of overproduction result in sudden sharp stops in production, as the circuit of industrial capital is broken. Even as the profit share begins to rise, therefore, it does not go to increased capital accumulation (demand for additional constant and variable-capital). The portion of value in output that represents wear and tear of fixed capital, now gets used, when fixed capital is replaced, to buy new forms of technology that are more productive than the fixed capital they replace. That is one means by which the existing fixed capital stock is significantly morally depreciated. This is a period and process of intensive rather than extensive accumulation.

As with the other side of rising wages leading to demand-pull inflation, being rising wage costs leading to cost-push inflation, I will deal with the other side of demand-pull from rising profits, and increased demand for constant capital leading to higher materials and machinery costs, when I examine cost-push inflation. But, its clear that this technological revolution cheapens fixed capital, whilst the slower pace of increase in gross output, does not lead to a significant increase in the demand for it.

The same technological development means that the value of materials is also reduced, and, although, increased productivity means that the share of raw materials as a proportion of output value rises, relative to labour and wear and tear of fixed capital, the same slower pace of growth in gross output means that, the demand for materials also does not rise substantially. On the contrary, technological developments also means that greater efficiency in production enables a relative reduction in the quantity of materials/energy consumed. Waste is reduced, and utilised as bi-products, machines become more energy efficient, new more durable and cheaper synthetic materials are introduced.

That is why, in all periods of long wave Winter/stagnation, such as during the later 1980's, and 1990's, the prices of primary products tend to fall, and investment in exploration and development of new lands, mines and so on declines. Copper is a proxy for all these primary products and the chart of its price movement over that period illustrates the point. 

Back To Value, Exchange-Value and Price

Forward To Part 2

Britain's Big Brexit Border Chaos

Well what a surprise! Britain's borders are choked, as a result of Brexit. The Tories act as though its all something unexpected, rather than the inevitable result of the crazy Brexit nonsense they have been pushing for the last few years, just like they acted as though the problems caused on the Northern Ireland border had not been explained to them at the time they were promoting Brexit. But, this is only the foothills of the chaos that Brexit is going to continue to impose on Britain's borders, not to mention the snowballing economic damage that will result from it. The queues and delays are just the start and the outward manifestation of all of the costs, delays, inconvenience, and other damage that a stupid policy will continue to inflict on Britain.

The whole point of Brexit was to establish borders where none previously existed, to separate off island Britain from the European mainland, and, thereby, to make transit between the two more difficult. It imposed restrictions, delays, checks and other frictions where none had previously existed for more than 40 years. The Tories and other proponents of Brexit pretended that all of that could be done with no costs or inconveniences to Britons. It was an obvious lie, but as with others of Boris Johnson's lies they got away with it. In part, they got away with it, because the Labour Party itself was arguing that there could be some kind of “soft Brexit” or “Labour Brexit” in which Britain could have some kind of arrangement with the EU, in which it had all the benefits of membership, but without any of the costs and obligations. That was a lie too, and its one that Starmer's Blue Labour continue to peddle.

Anyone who took the trouble to think about it knew that this was impossible, and that its only con artists, who play on the greed of people who think they can get something for nothing, who peddle those kinds of schemes. Brexit's whole point, in putting borders and barriers around Britain, was to establish all of these protective walls for Britain, but by the same token put up even bigger protective walls around the EU, separating it from Britain. That is the nature of a border, it works both ways, and it isolates the small component, not the larger, and that is all the more the case when the smaller part is a small island like Britain stuck, off the coast, in the Atlantic Ocean. It wasn't the EU that put up those barriers that isolates Britain, but Britain itself. That was the purpose of Brexit, and now Britain is starting to pay the cost of it. Its a cost that will continue to grow.

The government, of course, knew that Brexit would cause this chaos. That is why they undertook planning to set up huge lorry parks in Kent, and plans that effectively also require passes for traffic to get into Kent itself, to prevent it from drowning under a weight of incoming traffic that can't get out of it. So, now, not only does Brexit isolate Britain from its main trading partner, the EU, and main destination for most Briton's foreign holidays, not only has it isolated Northern Ireland from the rest of Britain, as a result of Boris's “oven ready” Brexit deals, and its Northern Ireland Protocol, but it has also led to Kent itself, being separated from the rest of Britain, as a result of the requirement for these passes. That is on top of the effect of breaking up Britain, as Scotland seeks to escape Britain, in order to re-join the EU, and Northern Ireland is being drawn ever closer to the Irish Republic, and a Border Poll, to unify the island.

But, as with the Northern Ireland border, the government lied about the problems and chaos that would ensue, in order to push through its Brexit madness, to assuage the interests of several million jingoistic petty-bourgeois and other reactionaries that form its core membership and support. Now, in order to try to whip up that nationalistic sentiment once more, instead of accepting responsibility themselves, they want to blame France. That is, of course, ridiculous. The Tories are saying that to reduce the chaos at Dover, France should bail out Britain by employing more border control staff! But, the additional red tape at Dover is not a product of France and the EU, it is a direct consequence of Brexit, a consequence the Tories knew full well would result when they pushed for it. The checks and so on, now required at Dover, or other British ports and airports, are a consequence of Brexit, because, with Britain outside the EU, it has become a third country, like the US or Australia. Its not up to France to bail-out Britain for the additional costs and delays that Britain has inflicted on itself by Brexit!

And, those delays are nothing compared to those coming. Later this year, Britain is introducing a new system, in which people need to be fingerprinted and provide other biometric data. If you think having your passport stamped now is an imposition, wait until you have to get out of your car, or wait in queues at the airport, and so on, to have your fingerprints taken, and all of your biometric details checked!

Britain's demand that France bail it out from the consequences of Brexit, by employing more border staff, is all the more ludicrous given that, more than a year and a half after the Tories claimed to have “got Brexit Done”, they still have not employed the staff required to undertake its own checks of goods coming into Britain, and have completely failed to put in place either the staff or the infrastructure required in Northern Ireland to check goods coming from the mainland. The Tories and DUP complain about the delays and so on for goods entering Northern Ireland, as a result of Boris's “oven ready deal”, and its Protocol, but those delays are not just a direct result of Brexit, and that deal, but also of the Tories and DUP failure to put in place the staff and infrastructure required for those checks!

This chaos is going to get worse and worse, and Labour should be hammering the Tories over it, day in day out, but, of course, they can't, because they, now, own Brexit as much as do the Tories. Starmer's Blue Labour has become as big a proponent of Brexit as Boris Johnson, and with all of the same lies and deception that goes with it. Indeed, Starmer, and Blue Labour has been characterised only by egging on the Tories to an even faster implementation of that Brexit madness, just as they urged an even more insane application of the lockdowns that have decimated output, created huge supply bottlenecks and frictions, as well as requiring huge amounts of debt, and money printing to finance it that has led to the huge levels of inflation that are now damaging workers' living standards.

Labour is lucky that, currently, although the Liberals and Greens still oppose Brexit, and argue for re-joining the EU, they have not been shouting about it, as they have been able to focus on the travails of Boris Johnson. But, a look at the performance of the SNP against Labour, or of Sinn Fein and the Alliance in Northern Ireland, shows that any parties that offer a clear progressive line on Brexit can rally votes around them. The performance of the Liberals, in recent by-elections and the local elections, even without shouting about their pro-Europe position, have massively outperformed a Blue Labour that has sunk into jingoism and reactionary nationalism. Labour can hardly, now, ditch its reactionary nationalism, and pro-Brexit stance without looking even more lying and duplicitous than it already does, as a result of Starmer's lies to get himself elected Leader. But, its attempts to justify its reactionary Brexit stance also just make it look ridiculous and duplicitous too.

Labour could go full Moseley and take its reactionary stance to its logical conclusion, as Labour Minister, Oswald Moseley did, in the 1930's, when he set up the New Party. They could argue that Britain should be more effectively isolated from Europe, a clear and rational Brexit. There are undoubtedly some that would go along with that, including all of those Labour MP's that were part of the Leave campaign, and wanted such a hard Brexit. But, they will not do that, because they know it would be suicidal. So, they are left arguing a half way house position that is completely untenable, and worse than that of the Tories. They are left scrabbling for the same pool of reactionary, petty-bourgeois votes that the Tories have already, largely, sown up. It means that they will attack the Tories on questions of competence and management not matters of politics and principle. In other words a continuation of the same non-political politics they have pursued over the last two and a half years, with abysmal results. It means they can offer no real political solutions to the chaos and damage that Brexit is going to continue to inflict, as its effects continue to mount.

Inflation - Value, Exchange-Value and Price - Part 4 of 4

And, in Value, Price and Profit, Marx gives, evidence of this from the real economy. He takes the example of the rise in British agricultural wages between 1849 and 1859, a period of long wave upturn, in which the demand for labour rose strongly, and, in particular, a lot of rural workers went to work in the booming industrial towns, and on rapidly expanding railway and infrastructure construction.

“What was its consequence? The farmers could not, as our friend Weston would have advised them, raise the value of wheat, nor even its market prices. They had, on the contrary, to submit to their fall.”

(Value, Price and Profit, Chapter 14)

One reason for that was that the industrial capitalists had managed to repeal the Corn Laws, so that cheaper imported food, pushed British agricultural prices down.

The consequence was that British capitalist farmers faced squeezed profits on their output. The same happens when capital in general faces a squeeze on its profits from rising wages. In such conditions, those same rising wages, as Marx had set out in Chapter 2, cause the demand for wage goods to rise, and may, as a result of rising prices in that sector, cause profits to rise too. With or without those rising profits, competition amongst the producers of wage goods, leads them to expand their production in order to grab their share of the rising market. Its only when those rising wages reach such a level that they squeeze profits out of existence, causing a crisis of overproduction of capital, as Marx sets out in Capital III, Chapter 15, that it leads to a sharp cessation of production.

But, Marx, in Chapter 15, and in Value, Price and Profit, Chapter 14, describes how capital responds to such conditions, engaging in a search for new technological solutions to replace labour, and so reduce wages, and restore profits.

“But during these eleven years they introduced machinery of all sorts, adopted more scientific methods, converted part of arable land into pasture, increased the size of farms, and with this the scale of production, and by these and other processes diminishing the demand for labour by increasing its productive power, made the agricultural population again relatively redundant. This is the general method in which a reaction, quicker or slower, of capital against a rise of wages takes place in old, settled countries. Ricardo has justly remarked that machinery is in constant competition with labour, and can often be only introduced when the price of labour has reached a certain height, but the appliance of machinery is but one of the many methods for increasing the productive powers of labour. The very same development which makes common labour relatively redundant simplifies, on the other hand, skilled labour, and thus depreciates it.”

(Value, Price and Profit, Chapter 14)

And, also disproving the idea that higher wages lead to higher prices, Marx sets out the other role of this investment in labour-saving technology that higher wages provokes. Britain, Marx sets out, had wages some 50% higher than those in Europe, at the time, and yet, Britain undercut all of its European competitors on prices, as well as, at the same time, making higher rates and volumes of profit. The explanation was precisely the greater productivity of the British labour resulting from the higher level of fixed capital standing behind them.

If a British worker works for 10 hours producing linen, and a European worker does the same, they both produce the same amount of new value. But, during this period the British worker produces 100 metres of cloth, whereas the European worker produces only 10 metres, because the British worker operates a power loom that is ten times as efficient as the loom used by the European worker. In that case, the amount of new value per metre is 1 hour for the European worker, but only 0.10 hours for the British worker, so the British linen undercuts the European linen, enabling them to make both bigger profits, and to grab market share.

Back To Part 3

Next Keynesians, Wages and the Phillips' Curve, and Demand-pull

Northern Soul Classics - I Can't Escape From You Baby - Richie Adams

Looking forward to the All-Nighter at King's Hall tonight!  It's been a while, but to paraphrase the Ronnie Milsap Wheel and Torch classic, there's plenty of soul left in these ole shoes.

Friday Night Disco - When My Little Girl Is Smiling - The Drifters

 

A Contribution To The Critique of Political Economy, Chapter 1 - Part 28 of 29

Individual value is the manifestation of The Law of Value, in respect of direct production of products, whereas exchange value is its manifestation in respect of generalised commodity production and exchange, as Marx describes in his Letter to Kugelmann.

“It is self-evident that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.”

Likewise, when society moved on from generalised commodity production and exchange by individual producers, to capitalist production, around the 15th century, exchange-value itself ceases to be the form of its manifestation, as The Law of Value now operates via prices of production. As Engels says,

“In a word: the Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity production — that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production. Up to that time, prices gravitate towards the values fixed according to the Marxian law and oscillate around those values, so that the more fully simple commodity production develops, the more the average prices over long periods uninterrupted by external violent disturbances coincide with values within a negligible margin. Thus, the Marxian law of value has general economic validity for a period lasting from the beginning of exchange, which transforms products into commodities, down to the 15th century of the present era.”

(Capital III, Supplement, The Law of Value and Rate of Profit)

In systems of direct production, certain social relations also arise upon them. Direct production, in the primitive commune, is collective, giving rise to solidaristic, egalitarian and democratic social relations within it. When it dissolves it is because the very process of raising labour productivity, driven by The Law of Value, begins to make possible social surpluses, growing in size. That means that some individuals are able to consume without engaging in labour. They are able to devote time to study, to perform functions of leadership, or administration, to act as religious leaders and so on. They acquire slaves and servants, and where they engage in production, they can do so on a larger scale using more effective instruments of labour. As Marx says in Theories of Surplus Value, Chapter 9,

“although at first the development of the capacities of the human species takes place at the cost of the majority of human individuals and even classes, in the end it breaks through this contradiction and coincides with the development of the individual; the higher development of individuality is thus only achieved by a historical process during which individuals are sacrificed for the interests of the species in the human kingdom, as in the animal and plant kingdoms, always assert themselves at the cost of the interests of individuals, because these interests of the species coincide only with the interests of certain individuals, and it is this coincidence which constitutes the strength of these privileged individuals.” (p 117-8)

Yet, in such societies where direct production and consumption still predominate, exchange continues to be predominantly between communities not within them. The mass of society continues to engage in direct production for its own consumption, handing over any surplus of its own to the rulers in various forms of tribute, depending upon the historically determined, specific, political forms such societies take, which itself is a function of specific material conditions.

As Engels put it in his Letter to Bloch,

“We make our history ourselves, but, in the first place, under very definite assumptions and conditions. Among these the economic ones are ultimately decisive. But the political ones, etc., and indeed even the traditions which haunt human minds also play a part, although not the decisive one. The Prussian state also arose and developed from historical, ultimately economic, causes. But it could scarcely be maintained without pedantry that among the many small states of North Germany, Brandenburg was specifically determined by economic necessity to become the great power embodying the economic, linguistic and, after the Reformation, also the religious difference between North and South, and not by other elements as well (above all by its entanglement with Poland, owing to the possession of Prussia, and hence with international political relations — which were indeed also decisive in the formation of the Austrian dynastic power). Without making oneself ridiculous it would be a difficult thing to explain in terms of economics the existence of every small state in Germany, past and present, or the origin of the High German consonant permutations, which widened the geographic partition wall formed by the mountains from the Sudetic range to the Taunus to form a regular fissure across all Germany.”

Some of these socio-economic systems, such as the Asiatic Mode of Production, become stagnant. They remain stuck in a regime of direct communal production, with surpluses handed over to a bureaucratic ruling caste. There is no competitive whip driving forward increased commodity production and exchange. It is only where these old communal relations dissolve that individual production and exchange develops, and begins, inevitably, to result in increased commodity production and exchange within the community. In place of the old solidaristic and egalitarian societies, and relations, now arises increased competition and inequality.

Back To Part 27

Forward To Part 29