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.
No comments:
Post a Comment