The Illiberal Left, Covid and China

Across China, millions of workers, particularly more radical, young workers, are rising up in rebellion against the repressive zero-Covid lockdowns being implemented by the Chinese Stalinists. Western media, which is the propaganda arm of US/NATO imperialism, has, of course, been covering these rebellions with glee, as the global economic war of NATO imperialism against China has been ramping up over recent months. In doing so, they have noted the idiocy and impossibility of the policy of zero-Covid, introduced by the Chinese state. That, of course, simply illustrates, again, their hypocrisy, because they, along with sections of the illiberal Left, in the West, were at the forefront of demanding, for two years, and with echoes of it still, that governments imposed strict lockdowns on populations, the supposed argument for which was/is to prevent the spread of infection, i.e. to achieve zero-Covid infection!

The way that any virus or other pathogen is defeated is always via the establishment of herd immunity. That herd immunity might arise as a result of natural infection, or by vaccination. In the absence of vaccines, only natural infection is a means of producing herd immunity. Whether such a strategy is adopted or not, depends upon the virulence of the pathogen, and how contagious it is, though, fortunately, these two things tend to be inversely correlated. It would be stupid to try to eradicate a virus like Ebola by allowing natural infection to let rip, because, it is extremely virulent, leading to a mortality rate of around 50% of those infected.

The development of natural herd immunity relies upon those infected living, having developed a natural resistance to the disease. One reason that the contagiousness of pathogens is inversely related to their virulence is that very virulent pathogens quickly kill their hosts, who then do not act as transmission mechanisms to other hosts, so pathogens evolve by natural selection, into those that do not kill their hosts, enabling the pathogen to survive and be passed on to other hosts.

Pathogens that are not so virulent, but which are more contagious have a natural evolutionary advantage. Hosts that, then, develop an immune resistance to these less virulent strains, also gain an immune response to more virulent strains. Ebola is not highly contagious, so the requirement to defeat the virus via herd immunity does not exist, though that means that the virus continues to exist, unlike other viruses such as smallpox that have been eradicated, by widespread herd immunity from vaccination. Illustrating the above point, the smallpox vaccine developed by Jenner, was first produced by using the less virulent, but related, cow-pox virus, after he noticed that those infected with the latter had resistance to the former.

But, Covid never was anything like Ebola, despite all of the hype produced by the media that spread panic across the globe, and fuelled the idiotic demands for the global economy to be locked down. From the start, looking at the data coming out of China, where the first cases had been discovered, it was obvious that, not only was this a highly selective virus, only seriously affecting the elderly or those with other forms of compromised immune systems, but, also, it had a mortality rate only like that of flu, not like that of Ebola.

Yet, the data was being presented as though a mortality rate of more like 10% was possible, with forecasts that anything between half a million and five million would die in Britain, and Imperial College again forecasting – as it had years earlier with Swine Flu – that 45 million would die globally. In fact, even now, the total global deaths of people with, rather than from Covid only amount to 6 million, meaning that the number dying actually from COVID is just a fraction of that. One reason was that the Chinese authorities, themselves, from the beginning, doctored the data, for example, by removing from the number of people infected and tested, those that had already recovered. Add in the fact that huge numbers of people were already infected, but not tested, and the mortality rate was bound to have been massively inflated from the real figure.

Moreover, unlike flu, which is less selective, and, in fact, tends to be more virulent for younger rather than older people, Covid was asymptomatic for around 80% of the population, in these younger age groups, who, of course, form the bulk of the active population both in terms of employment and other social interaction. If ever there was a virus ideally suited for the development of herd immunity by means of natural infection, Covid was it. It meant that 80% of the population could go about their business as normal, knowing that, yes, they would be likely to contract the virus, but they would probably never know it. Indeed, the only reason that millions of people in Britain ever got to know they had ever had Covid is because, as now in China, they were encouraged, and even required, to undergo frequent testing whether they felt ill or not.

As I wrote at the time, prior to the development of vaccines, a rapid spread of the virus amongst the 80% of the population not at risk from it, would have been advantageous. That was also the view initially of government scientific advisors, before the moral panic whipped up in the media made anyone arguing such a rational position into a pariah. It was the rational solution, because, whilst nearly all of those infected would not even know they had had it, they would develop natural immunity against it, and that immunity itself would have quickly killed off the spread of the virus.

Moreover, in doing so, it would have restricted the mutation of the virus into ever more contagious strains. It is the fact that the virus was allowed to remain in circulation for so long, having not been killed off by herd immunity that gave it time to mutate. Moreover, the measures introduced to try to prevent its spread – lockdowns, use of masks and so on – gave an evolutionary advantage to those strains of the virus best suited to those conditions. Strains that were longer lived, and more easily transmitted, and so could overcome the restrictions of lockdowns, masks, hygiene measures, and so on, were given an evolutionary boost, and, of course, it is those strains that have flourished in the subsequent period, as with Omicron.

As Professor Woolhouse has stated, it was an example of collective madness. The Guardian in its review of his book “The Year the World Went Mad: A Scientific Memoir” says,

"There was a distinctive moment, at the start of the Covid-19 pandemic, that neatly encapsulated the mistakes and confusion of Britain’s early efforts to tackle the disease, says Mark Woolhouse. At a No 10 briefing in March 2020, cabinet minister Michael Gove warned the virus did not discriminate. “Everyone is at risk,” he announced.

And nothing could be further from the truth, argues Professor Woolhouse, an expert on infectious diseases at Edinburgh University. “I am afraid Gove’s statement was simply not true,” he says. “In fact, this is a very discriminatory virus. Some people are much more at risk from it than others. People over 75 are an astonishing 10,000 times more at risk than those who are under 15....

“We did serious harm to our children and young adults who were robbed of their education, jobs and normal existence, as well as suffering damage to their future prospects, while they were left to inherit a record-breaking mountain of public debt. All this to protect the NHS from a disease that is a far, far greater threat to the elderly, frail and infirm than to the young and healthy.”

“We were mesmerised by the once-in-a-century scale of the emergency and succeeded only in making a crisis even worse. In short, we panicked. This was an epidemic crying out for a precision public health approach and it got the opposite.”

Yet, large sections of the illiberal Left, always tinged with statism, and increasingly keen to have the capitalist state impose solutions, rather than have workers develop their own independent activity and self-government, were at the forefront of goading on that madness, and demanding the state impose harsher lockdowns, and clampdown on any dissent from them. They encouraged the development of authoritarianism as an inevitable consequence of their statism, which was also coupled with their crippling catastrophism, which requires them to see disaster affecting capitalist society at every turn, and to encourage it as a means of seeking its collapse.

Such collapse, itself, would, of course, be disastrous for workers, just as the consequence of the effects of lockdowns on the economy is already proving, with rampant inflation, and astronomical debt, being the legacy of all of those lockdowns that the illiberal Left insisted on having. And, of course, for sections of that Left, it was also accompanied by a large dose of opportunism, as they saw it as a short-term means of attacking incumbent, right-wing governments, even though they had no real alternative to put in place of them.

Yet, it was obvious, even from the data that initially came out of China, from Wuhan, and was the basis of the claims by Imperial College, that what was being said about Covid was a lie. It was clear, as Woolhouse says, that it is highly selective, and, also, taking into consideration that selectivity, its virulence, in other sections of the population, was being grossly exaggerated. Indeed, even amongst those at risk from it, the virulence was overstated, as the ONS data I have referenced previously shows that only about 10% of those dying with COVID, actually died from it, the other 90% dying from other primary causes such as Alzheimer's, dementia, heart failure, stroke, pneumonia and so on. The rational response, as Woolhouse says, was not blanket lockdowns, but targeted protection of those actually at risk, i.e. the elderly and immune compromised.

The Guardian review goes on,

“Instead, the country should have put far more effort into protecting the vulnerable. Well over 30,000 people died of Covid-19 in Britain’s care homes. On average, each home got an extra £250,000 from the government to protect against the virus, he calculates. “Much more should have been spent on providing protection for care homes,” says Woolhouse, who also castigates the government for offering nothing more than a letter telling those shielding elderly parents and other vulnerable individuals in their own homes to take precautions.

The nation could have spent several thousand pounds per household on provision of routine testing and in helping to implement Covid-safe measures for those shielding others and that would still have amounted to a small fraction of the £300bn we eventually spent on our pandemic response, he argues. Indeed, Woolhouse is particularly disdainful of the neglect of “shielders”, such as care home workers and informal carers. “These people stood between the vulnerable and the virus but, for most of 2020, they got minimal recognition and received no help.”

Britain spent a fortune on suppressing the virus and will still be servicing the debt incurred for generations to come, he adds. “By contrast, we spent almost nothing on protecting the vulnerable in the community. We should and could have invested in both suppression and protection. We effectively chose just one.”

This was precisely the strategy that I had set out at the start of the pandemic. Moreover, as against the statist solution that the illiberal Left supported of blanket lockdowns, it was a solution that the labour movement could have mobilised behind to implement and control. And, so, devoid of any independent working-class solutions to put forward, and left merely as cheerleaders of the capitalist state – just as many of them, now, are cheerleaders for NATO imperialism and the corrupt capitalist state of Zelensky in Ukraine – the illiberal and statist Left, were also put in the position of opposing any actual opposition to those lockdowns and other restrictions of workers' liberty.

That left the field wide open to other reactionary forces to seize that ground, such as the anti-vaxxers, and conspiracy theorists, as well as the assorted fascists. Having cleared the ground for such forces to occupy, the illiberal Left then used the fact that it was such forces involved in those protests to deny their legitimacy, just as, today, they do the same with opposition across Europe to the effects of NATO/EU sanctions on Russian energy supplies, which has caused energy prices to soar, and threatens recession across the EU. Such a position, by which the so called Left finds itself as nothing more than the apologist of imperialism and the capitalist state, inevitably forces workers into the camp of those reactionary forces, as they seek to oppose the effects of these policies on their lives and living standards.

And, just as they have to perform acrobatics to justify their position of supporting NATO imperialism, and the reactionary and corrupt capitalist state in Ukraine, so they have to do the same thing, now, as they seek to support the opposition to lockdowns in China, having supported them in the West! The Chinese Stalinists claim that zero-Covid is necessary to prevent the spread of the virus and the deaths of large numbers, which, of course, was the argument for blanket lockdowns in the West too. Its nonsense, but because the illiberal Left supported that argument in the West, they find it hard to deny it in relation to China, and so are left as apologists for the line of the same Chinese Stalinists that Chinese workers are opposing, and whose actions they now seek to support!

So, for example, Andrew Coates, whilst writing a post entitled “Solidarity With The China Protests. Down With The Campists” (itself odd given the outright campist position he has adopted in support of the camp of NATO imperialism and the capitalist state in Ukraine), is also led to write the following bit of nonsense that simply parrots the propaganda of the Chinese Stalinists.

“Through its zero-Covid policy, China has a managed to keep the death toll from the virus down to 5,233 in total – four per million of the population compared with the British total of 2,873 deaths per million.”

The claim is ridiculous. Its true that if you look on some of the sites that provide official data on COVID deaths and infections that is what it says about China, but that is because these sites only report the official statistics. In China those statistics are unbelievable. As a number of journals have described, China is massively under-reporting the actual number of deaths from COVID. According to The Economist, the real figure, even back in January, was more than 1.7 million. If the claim were true, of course, then, logically it would mean that those protesting against what would have been a most effective means of preventing large-scale deaths were being irrational and could not be supported, though that would not mean, then, supporting the violent suppression of their protests either.

But, its clear that blanket lockdowns have not been successful in saving lives in China, any more than they were in the West. In both cases, it is the elderly, i.e. those actually at risk from the virus, that have died in large numbers, not only despite the lockdowns, but, in many ways, because of them. Blanket lockdowns distracted from the actual requirement to protect the elderly. In both cases that comes down to a failure to have adequately isolated them from potential infection, and, in China, it is compounded by a failure to vaccinate them, when vaccines became available. Western propaganda claims that the Chinese vaccine is not as effective as those produced in the West, but the real issue is that, only around 70% of the elderly population has been vaccinated, which raises further questions, in such a regimented society as to why that is.

The truth is that a continuation of blanket lockdowns, under cover of the zero-Covid policy, rather than extensive and effective vaccination, has suited the Chinese authorities, and for similar reasons as to why governments in the West also sought to impose lockdowns, and to focus on infections rather than serious illness and death as their metric of choice. When lockdowns, in China, were relaxed, its GDP rose by more than 18%, in the first quarter of 2021. Such a surge, strengthened the position of Chinese workers, but it also led to sharply rising inflation, as the massive amount of liquidity pumped into its economy flooded into the real economy, whereas, in the previous periods, it had been flowing into the same kind of asset price inflation seen in the West. That asset price inflation was already set to wreck the Chinese economy, most visible in relation to its property market, where the massive Evergrande empire was already collapsing.

China faces the same problem that western economies face. As the economy expands rapidly, the demand for capital rises, pushing interest rates higher, causing asset prices to crash, asset prices that are at even more astronomical levels than they were at the time just before the 2008 global financial meltdown (in 2008, the Dow stood at 14,000, and is now at 34,000; S & P 500 was 1500, and is now at 4000), and which have been pushed to those levels on nothing more than an ocean of central bank provision of liquidity. In China, even more liquidity has been pumped into the system to try to keep those bubbles from bursting, so that, any sharp rise in economic activity threatens to overwhelm it, bringing a combination of a huge financial crisis with also a hyperinflation of commodity prices as all that liquidity flows into the real economy.

In the West, lockdowns provided the same function of holding back economic growth, and so preventing interest rates rising and asset prices crashing. The logic of lockdowns was never supportable, and still less was it supportable once vaccines became available. Yet, states were able to keep them in place for two years, and still the media carries stories about rising infections, the effects of so called “long Covid”, as potential bases for the reintroduction of some measures, just as it has tried to hype up Monkey Pox and other possible alternative panics after COVID lost its appeal in that regard.

The illiberal Left that supported the idiotic blanket lockdowns in the West is, thereby, left in a quandary. It seeks to cover its arse for having backed such an authoritarian and irrational measure in the West, and so, like Andrew Coates, is left parroting the Chinese Stalinist propaganda that its lockdowns reduced deaths to only 5,000, and, yet, seeing massive protests in China against those lockdowns, it also wants to support those protests too, even though it opposed protests against the same policy in the West!

How does it seek to square that circle? It is doing so by not dealing with the issue of the protests against the lockdowns itself, but instead of focusing on the repression of the protests. For example, in the same thread referred to above, Jim Denham of the pro-imperialist AWL, writes, that I,

“just don’t seem to understand the fundamental political difference between covid-deniars (sic) and the pathetic anti-mask brigarde (sic) in the West and the heroic dissidents risking their lives and liberty in China, who are linking opposition to the extended and unnecessary lockdowns with a broader campaign for political freedom. There is simply no comparison to be made!”

And, this is the way this section of the Left frequently tries to argue on the basis of the old Stalinist amalgam, whereby, instead of dealing with the actual issue and argument, they try to muddy the water by associating you with some bogey, here the COVID-deniers, anti-mask brigade and so on. In fact, as I'd set out, no attempt at such a comparison was made, on my part. The issue is not whether there is a comparison between the protests of various reactionary elements in the West – who were allowed to occupy that space because of the dereliction of duty by the Left itself to oppose lockdowns – and the protests of Chinese workers currently, but the hypocrisy of sections of the Left in having advocated and supported “ extended and unnecessary lockdowns” in the West, and their opposition to them in China.

Once again, it is a reflection of the opportunist nature of large sections of the Left, and its campist approach of determining its position not on he basis of the independent interest of the working-class, but of "my enemy's enemy is my friend".

Chapter 2.2 – Medium of Exchange, b) The Circulation of Money - Part 2 of 4

This is where confusion arises, as illustrated by the Keynesians and post-Keynesians. Suppose that 2,000 such notes are put into circulation, i.e. £2,000, with each circulating ten times, representing £20,000, or twice as much as the value of gold that would have circulated, and representing 2 million hours of labour-time. They do this, because, nominally, each note represents £1, the standard of prices. However, in reality, that is impossible. They continue to represent the money equivalent to only 1 million labour hours. Each note is then, in practice, devalued by 50%, so that, in total, they represent only this 1 million hours of money equivalent. The notes themselves are not changed to read, £0.50, but continue to circulate as £1 notes, the devaluation of the standard of price is manifest in the only way it can be, which is by nominal prices of commodities themselves doubling. The Keynesians and post-Keynesians fail to grasp this, because they confuse money tokens with money itself.  An example of this confusion is also given in this article by Martin Thomas.

Some coins will circulate faster and some slower, because some coins, for example, of lower denomination, will be involved in the purchase of commodities of lower value, of which the number and speed of transactions is itself much faster. A penny coin handed to a shopkeeper for a small quantity of sweets, is rapidly passed back to another customer in change, for example, and this customer then soon uses it for some other small purchase. As Marx describes, this is why it is the volume and speed of transactions that is the main determinant of the velocity of circulation of currency.

“Since moreover money always confronts commodities as a means of purchase and as such causes commodities to move merely by realising their prices, the entire movement of circulation appears to consist of money changing places with commodities by realising their prices either in separate transactions which occur simultaneously, side by side, or successively when the same coin realises the prices of different commodities one after another.” (p 100)

For the commodity owner, it represents exchange-value and this exchange-value is realised by sale in money. The commodity they have sold only becomes a use-value for the buyer, realised in their consumption of it. But, the money obtained by the seller does not have use-value as a commodity. They do not acquire it to consume it, but solely because it represents universal labour, exchange-value incarnate. Its use-value to them is that it can be immediately exchanged for any other commodity, to an equal amount of value. By having no use-value of its own, it has the use value of every other commodity, for which it can be exchanged. Unlike commodities, it remains in circulation, fulfilling this function.

“Money starts its circuit from an endless multitude of points and returns to an endless multitude of points, but the coincidence of the point of departure and the point of return is fortuitous, because the movement C—M—C does not necessarily imply that the buyer becomes a seller again. It would be even less correct to depict the circulation of money as a movement which radiates from one centre to all points of the periphery and returns from all the peripheral points to the same centre. The so-called circuit of money, as people imagine it, simply amounts to the fact that the appearance of money and its disappearance, its perpetual movement from one place to another, is everywhere visible.” (p 102)

Back To Part 1

Forward To Part 3

How Liquidity Flows From Asset Markets Into The Real Economy - Part 11 of 17

So, taking land as an asset whose price has been inflated, as a result of liquidity that has flowed into it speculatively, out of the real economy, how could this liquidity flow back into the real economy, as land prices fell? Firstly, we could take Marx's example of the farmer who finds that they, now only have to pay £1 million for land, rather than £2 million.

From their perspective, they had a £1 million release of capital, which can now be used for additional capital accumulation, and all of that capital accumulation itself feeds into the real economy, also producing surplus value, and, thereby, making possible further capital accumulation and an expansion of the economy, employment and so on. It should be noted that this also contradicts the notions concerning the so called wealth effect, whereby, rising asset prices cause households to feel “wealthier”, and so spend more, the converse of which also underpins the Federal Reserve's current thinking that moderately falling asset prices, will create a moderate negative wealth effect, causing households to slow spending, which the Fed hopes will cause inflation to fall – a hope that is forlorn on so many counts.

Its only in the conditions of inflating asset prices, as discussed earlier, where this does not happen. In other words, the farmer does not, now, use the released capital to buy additional land, speculatively, in the expectation of a capital gain from higher land prices. They would only buy additional land if it was necessary for increased production, but, in the expectation of further falls in land prices, they would tend to delay that purchase, and instead attempt to cultivate their existing land more intensively, thereby, employing more capital on it to obtain higher levels of output. That, in itself, would further depress land prices. This is a significant difference between behaviour driven by the logic of real capital, and the production of surplus value, as against behaviour driven by the logic of fictitious capital, and speculation to produce capital gains.

What drives the rent/price of this agricultural land higher, as Marx sets out, is, in fact, the ability of the landlord to sit on it, or rent it/sell it for other purposes. The ability to extract rent depends upon the ability to obtain surplus profits from the use of the land, which depends upon the market prices of the commodities produced using the land. The prices of agricultural products may not be high enough to produce such surplus profits (especially if those prices are depressed by cheap imports of food), but, if the available land is not cultivated, or is used for, say, cattle rearing, grouse moors, or, indeed, house building, the prices that can be charged for these commodities may indeed, produce surplus profits, and so rent. By making this land unavailable for agricultural production, it reduces the level of agricultural output, and so as supply is reduced, relative to demand, the market prices of agricultural products, themselves, rise to a level at which, surplus profits exist, and so make possible the payment of absolute rent, without which the landlord would not make the land available to farmers. This is the pernicious role that rent plays in preventing the fall in food prices, Marx explains.

Back To Part 10

Forward To Part 12

Chapter 2.2 – Medium of Exchange, b) The Circulation of Money - Part 1 of 4

b) The Circulation of Money

“In the first instance real circulation consists of a mass of random purchases and sales taking place simultaneously.” (p 98)

Unlike barter, where commodities exchange as a series of simultaneous bilateral trades, with commodity circulation there is a series of simultaneous bilateral exchanges of commodity for money. This circulation does not consist of a circle of payments, such as A-B-C-D-A, nor of a series of payments such as A-B, B-A, A-C, C-A, and so on, with A sitting at the centre of a hub, with money going out from, and flowing back to it. A given coin may pass in payment sequentially from A to B, to C, to D, but, also, at the same time, that these transactions are occurring, E is making payment to F, who pays G, who pays H, and so these payments require a completely different coin. This is one of the limitations on the extent to which the velocity of circulation can reduce the amount of currency required in circulation.

“Commodity and money thus move in opposite directions, and this change of places – in the course of which the commodity crosses over to one side and money to the other – occurs simultaneously at an indefinite number of points along the entire surface of bourgeois society. But the first move of the commodity in the sphere of circulation is also its last move.” (p 98)

This is true, at least, for simple commodity circulation. The wine producer sells wine to a buyer, C-M, and the buyer then consumes the wine, so that is the end of it. The money, however, in the hands of the wine producer, can now go on to act as means of circulation in any number of transactions. If we are dealing not with simple commodity circulation, but with more developed forms, the wine might have been bought by a merchant, who sells it to a merchant in another country, who sells it to a restaurant, who, in turn, sells it to a consumer.

Consequently, the second phase of the circulation of any commodity is always undertaken by its metamorphosed form as money.

“The movement of the metamorphosed commodity is thus the movement of gold. The same coin or the identical bit of gold which in the transaction C—M changed places with a commodity becomes in turn the starting point of M—C, and thus for the second time changes places with another commodity.” (p 99)

In this section, we will learn how it is the prices of commodities, the number of transactions, the value of gold (money commodity), and its velocity of circulation, which determines how much gold is required in circulation, as represented by the equation MV = PT, where M is the quantity of money, V is the velocity of circulation, P is the average price of commodities, as determined by the standard of prices, and T is the number of transactions.

As Marx has already described, because money is the equivalent form of value, the money equivalent of the value of all commodities to be circulated is already determined, by P x T. If the total value of commodities is 1 million labour hours, then the money equivalent must also be 1 million labour hours. If the standard of prices is 1 gram of gold, given the name £1, and is equal to 100 labour hours, then the money equivalent is 10,000 grams of gold = £10,000. But, if each gram of gold circulates 10 times, only 1,000 grams of gold (£1,000) is actually required as currency.

If more than this is put into circulation, it will not increase the total value of commodities, or their prices. It will be driven out of circulation. It is PT that determines the amount of money required, not vice versa. However, as Marx describes, money, here, must not be confused with money tokens, be they precious metal tokens, base metal tokens or paper notes. The laws set out above remain intact, but suppose the £1,000 of gold is now represented by £1,000 in paper notes/money tokens. They will continue to perform the required function, because they still represent 1 million hours of social labour-time.

Back To a) The Metamorphosis of Commodities

Forward To Part 2

Time Preference and The Rate of Interest

Bourgeois economics describes the rate of interest as the price of money. That is clearly nonsense, because money is the measure of value, which takes the form of price. To say that the rate of interest is the price of money, is equivalent to saying that it is the price of the measure of prices. If gold is the money commodity, and a gram of gold is the standard of price, it would be like saying that the price of a gram of gold (standard of prices), is a gram of gold, which is tautologically true, but meaningless, or else to claim that the price of a gram of gold is not a gram of gold, but something more, which is irrational. If the name given to the standard of prices is £, it would be like saying that the price of £1, is, say, £1.10!

Bourgeois economics attempts to get around this irrationality, by claiming that the reason that £1 can have a price of £1.10, is due to time preference. In other words, because I prefer to have £1, now, rather than at some point in the future, it is the price I pay to borrow the £1, now, from someone who has it, rather than wait until the future to obtain it. But, that is also irrational, because, in the same way that I have a time preference to have the £1, now, the person, who currently has it, must equally have a time preference, not to have it now, but to have it at some point in the future, instead. Both represent different use values, which is the basis of all exchange, and maximisation of welfare/utility, based upon equal values.

Let us take a normal exchange of commodities, say a litre of wine, and a metre of linen. Both commodities have a value equal to, say, 10 hours of universal labour. It is this common value that makes them exchangeable in this proportion. So, what then makes these two commodity owners exchange these commodities? It is that the owner of wine obtains greater use value/utility from a metre of linen than they do from the litre of wine in their possession, and vice versa. If a litre of wine has a value, instead, of 12 hours, but its owner is prepared to exchange it for a metre of linen, because of this greater use value/utility, the owner of linen would obviously oblige, and that may happen if they are the only supplier of linen. They then obtain 12 hours labour in exchange for just 10 hours labour, which is a good deal for them, but a bad deal for the owner of wine.  Though, by the same token, if the owner of linen, places a similar higher preference for the utility of wine over linen, it would be expected they would then, similarly exchange 1.2 metres of linen, with a value of 12 hours labour, for the litre of wine!

However, in the real world, there is more than one producer and supplier of linen, and of wine and all other commodities. All producers of linen, seeing the possibility of exchanging 10 hours of labour, in the form of a metre of linen, for 12 hours labour, in the form of wine, would compete to exchange with the wine owner, and this competition would then force down the exchange rate (exchange-value of linen expressed in wine) of linen and wine, to their equal value, so that 1 litre of wine with a value of 12 hours labour, exchanges for 1.2 metres of linen, also with a value of 12 hours labour.

The basis of exchange is not that participants in the exchange obtain greater value than they give away, which is the basis of unequal exchange of the type the Mercantilsts theorised as being the source of surplus value (what Steuart called profit on alienation), but that, in exchanging equal values, both parties increase their level of utility/welfare, because both obtain a commodity that has greater utility/use value for them than the one they give up in exchange. Indeed, as Marx points out, when we move from commodity exchange between simple commodity producers to generalised commodity production, let alone capitalism, the producer of commodities specifically for the market, obtains no use value from the commodities they produce, because they are never produced for their own consumption, but precisely to be exchanged, for money of equal value. They exchange, say, 1 litre of wine, with a value of 10 hours labour, for £1, also with a value of 10 hours labour.

The litre of wine, out of the hundreds of litres they produce, has no use value for them, other than that it has an exchange-value/price of £1, which does have use value for them, because this £1 can be used to buy linen, food, and other commodities they require, and so obtain the use value of all these other commodities. The wine producer, alienates the use value of the litre of wine, but retains its value, now in a different form, i.e. that of £1. When they exchange the £1 for a metre of linen, they, thereby, complete the process, by which they metamorphose the litre of wine, which had no use value for them, into a metre of linen, which does have use value for them. As Marx points out, in The Grundrisse, and in Theories of Surplus Value, supply is a function of value, but demand is a function of use value. Value determines the rate of exchange between commodities, use value determines the quantities demanded, and exchanged, at these given values.

So, now let's apply this to money itself, and time preference. We could, in the above example, label wine as t, and linen as t + 1, which is also the labels that can be applied to the preference to have money now (t), as opposed to at some point in the future (t + 1). In other words, there is an exchange between two commodity owners, who exchange equal values, on the basis that they have different preferences, expressed as different levels of utility. One prefers to have £1 now, and the other to have £1 at some point in the future. But, as described above, what these different levels of utility/use value cannot justify is unequal exchange, the exchange of one commodity (money) with a value of 10 hours, for another commodity (also money) with a value of 12 hours, because competition between commodity owners and producers would reduce this rate of exchange down to equal amounts of value.  Assuming no inflation, there is no cost or value added to t+1, as opposed to t, so free competition  should should equalise their prices.

So, how do we explain the existence of interest and the rate of interest? Firstly, its necessary to understand that, just as there is a difference between capitalist rent, and feudal rent, so there is a difference between capitalist interest, and interest in previous modes of production, i.e. usury. In setting out, the examples above, I noted that, if the producer of linen was a monopolist, so that the producer of wine, who is prepared to exchange 12 hours of labour in the form of a litre of wine for 10 hours of labour in the form of a metre of linen, that is possible, because the monopoly position of the latter prevents any other suppliers forcing the price of linen down to its value. The resulting unequal exchange, means that the 2 hours of labour that the linen producer obtains represents a rent.

That is the case with usury. It is not a case of time preference, but of absolute necessity for the borrower to obtain money to pay bills, and, in conditions where the monopoly owners of money are then able to charge almost any amount of interest. It is why, those desperate for money to pay bills are charged 4000% p.a. by pay day lenders, and why, as Marx says, it is at times of crisis, when firms demand money, not as money-capital for investment, but purely out of desperation to pay bills and stay afloat, that interest rates reach their highest level. So, this does not represent a free and equal exchange, but, on the contrary, a condition of necessity on the part of the borrower, and monopoly on the part of the lender, so that the rate of interest is not, then, some free market price of money, but simply a monopoly rent.

But, capitalist interest is different from this condition, because it does involve a free and equal choice by the borrower to have money, now, rather than later, and of the lender to have money later, rather than now. As described above, however, this condition, of itself, provides no basis for the existence of interest, or a rate of interest, as some form of price for money. The basis of capitalist interest, however, as Marx describes, is not as a price for money, which is meaningless or irrational, but as a price for money-capital. A price for money-capital, as against a price for money, is not meaningless or irrational, precisely because the value of £100 of money-capital is greater than the value of £100 of money. Capital is self-expanding value, and the value of £100 of capital, then, depends upon the average rate of industrial profit.

If the average rate of profit is 25%, so that £100 of capital, in the form of say a machine, has the potential, on average, to produce £25 of profit, the value of £100 of capital is actually £125. The use value of capital is this facility of self expansion, and it is this use value that is paid for, when that capital (as against a commodity such as a machine or money) is itself sold as a commodity.

It can then, be seen why someone would have a time preference for £100, as money-capital, now, as against £100 of money at some point in the future, because £100 of capital has a value not of £100, but of £125. It is precisely, this fact that means that the rate of interest exists not as a price of money, but as a price of money-capital. Clearly, the borrower would still not pay more than £25 (25%) interest to borrow this money-capital, because that would eliminate their profit, and reason for borrowing, but similarly, the lender would not lend the money without receiving some interest, because they could instead use the money to fund consumption, themselves, either productive or unproductive, i.e. they could employ £100 of industrial capital and obtain £25 profit from it. The rate of interest, then, does become a matter, not of desperate borrowers and monopoly suppliers, but of a free and equal battle between the demand for, and supply of, not money, but money-capital.

Northern Soul Classics - Name It You Got It - Mickey Moonshine

 

Friday Night Disco - We're Having A Party - Sam Cooke

 Yes, we're having the monthly party tonight at Soulville.

How Liquidity Flows From Asset Markets Into The Real Economy - Part 10 of 17

Going back to land used for agricultural/primary production, the demand for this land depends upon the amount of such production to be undertaken, and that depends not only on the demand for such production, but the amount of that demand satisfied by other producers, i.e. the import of cheaper agricultural/primary products. If market prices fall, because cheap imported agricultural/primary products are available, then surplus profits/rent on domestic production will fall, and land prices will fall along with it. That is why landlords opposed the Repeal of The Corn Laws.

Land prices have risen astronomically, along with the prices of other assets, over the last 40 years, but the cause has not been increased surplus profit/rent, but falling interest rates, leading to higher capitalised values of those rents. But, that is not the only, or main, cause. As Marx points out, landowners do not have to rent out the land they own, or sell it, for agricultural/primary production purposes. They can sit on it, or rent it, or sell it for other purposes, where a higher rent or price can be obtained. So, when property prices soared, beginning in the 1980's, and then again in the late 90's, the surplus profit available to builders rose sharply, but this surplus profit, was then absorbed as rent/land prices appropriated by landlords. After WWII, in Britain, land accounted for about 10% of the cost of building a house, whereas, today, it accounts for around 70% of the cost.

If the average price of a new house is £300,000, then £210,000 of this is accounted for by the price of the land, and the other £90,000 by the cost of production, and profit. Assume the rate of profit is 100%, so that it is equal to £45,000, and represents an annual rate of profit of 30%, on advanced capital of £150,000. If land fell back to being just 10% of the cost, that would be only £10,000, reducing the cost of the house to £100,000, assuming £45,000 profit. But, for the builder, before they start building, and commit capital, they must also consider the price of the land, which appears to them as much a cost of their production, as the bricks and other materials, and labour-power they must employ. The actual capital they had to advance, to build the house was, then, originally, £360,000, including the price of the land, giving an annual rate of profit of 12.5%, which we will take as being the average annual rate of industrial profit.

So, now, to make this average rate of profit, on advanced capital of £160,000, the profit falls to just £20,000, so that the price of the house falls to just (45,000 + 10,000 + 20,000) = £75,000, or a quarter of its current price. Of course, at this much lower price, the demand for houses would increase substantially, because all of those millions of people who cannot, now, afford to buy, or even to raise a sufficient deposit, would be enabled to do so. All those who seek to solve the housing crisis on the basis of increasing supply, must, first, address this question of land prices, so that builders can produce many more houses at prices that would still enable them to make the average annual rate of profit on their advanced capital. And, to address the question of land prices it is necessary to burst the existing property bubble inflated on the back of artificially low bond yields, caused by inflated bond prices from QE, and to end the absurdity of large amounts of land that could be used for development, in the Green Belt, being sterilised from such use.

A builder will be prepared to buy land at these inflated prices, if they know that they can sell the houses they build on it at £300,000, because that is what existing houses of that type are selling for, and it is these sales of existing houses that determine the market price. Sales of new houses, account for only about a seventh of total house sales, each year. To reduce the price of new houses, its necessary to reduce the price of land, and to reduce the price of land its necessary to reverse the inflation of the price of existing houses, which arose on the back of excess liquidity directed into that sphere.

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Chapter 2.2 – Medium of Exchange a) The Metamorphosis of Commodities - Part 8 of 8

Marx quotes James Mill, setting out his Law of Markets, which, today, is known as Say's Law, after J.B. Say, who plagiarised and popularised it.

“"Whatever... be the amount of the annual produce, it never can exceed the amount of the annual demand.... Of two men who perform an exchange, the one does not come with only a supply, the other with only a demand; each of them comes with both a demand and a supply.... The supply which he brings is the instrument of his demand and his demand and supply are of course exactly equal to one another. It is, therefore, impossible that there should ever be in any country a commodity or commodities in quantity greater than the demand, without there being, to an equal amount, some other commodity or commodities in quantity less than the demand.”” (p 96-7)

As I have described elsewhere, the basis of Mill's law is Adam Smith's “absurd dogma”, that the value of commodities resolves entirely into revenues. But, as Marx sets out, both Smith's absurd dogma and Say's Law are false. The value of commodities does not resolve entirely into revenues (v + s), but into revenues and constant capital (c + v + s). Say's Law is false because money, as general commodity, is not demanded to be consumed, as with other commodities, and need not be exchanged for other commodities either, but may, instead, simply be hoarded for longer or shorter periods of time, so that, as Marx puts it, the demand for this general commodity exceeds that for all other commodities, leaving them overproduced.

“Mill establishes equilibrium by reducing the process of circulation to direct barter, but on the other hand he insinuates buyer and seller, figures derived from the process of circulation, – into direct barter. Using Mill's confusing language one may say that there are times when it is impossible to sell all commodities, for instance in London and Hamburg during certain stages of the commercial crisis of 1857/58 there were indeed more buyers than sellers of one commodity, i.e., money, and more sellers than buyers as regards all other forms of money, i.e. commodities. The metaphysical equilibrium of purchases and sales is confined to the fact that every purchase is a sale and every sale a purchase, but this gives poor comfort to the possessors of commodities who unable to make a sale cannot accordingly make a purchase either.” (p 97)

Mill wrote his “Defence of Commerce” in response to a pamphlet by William Spence entitled “Britain Independent of Commerce”, published in 1807, and a more militant version of it published by Cobbett, in his Political Register, entitled “Perish Commerce”. The ideas are essentially reactionary, reflecting the interests of the independent small producers/petty-bourgeois, who saw themselves being overwhelmed by capitalist production. The same reactionary, petty-bourgeois ideas are promoted today by “anti-capitalists” and “anti-imperialists”, as I have described in my series, “Lenin on Economic Romanticism”, describing Lenin's response to the same ideas put forward by the Narodniks.

As Marx points out in Theories of Surplus Value, Chapter 9, Sismondi was right in pointing out the possibility of generalised overproduction, arising from commodity production and exchange, his ideas being plagiarised by Malthus, in the interests of the old landlord class. In this, Sismondi was correct, and Say, Ricardo and Mill were wrong, a point that Lenin fails to acknowledge. Its not Sismondi's insight into the possibility of overproduction that Marx takes issue with, but his attempt to avoid it by seeking to hold back capitalist development itself.

“The separation of sale and purchase makes possible not only commerce proper, but also numerous pro forma transactions, before the final exchange of commodities between producer and consumer takes place. It thus enables large numbers of parasites to invade the process of production and to take advantage of this separation. But this again means only that money, the universal form of labour in bourgeois society, makes the development of the inherent contradictions possible.” (p 98)

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Forward To b) The Circulation of Money

How Liquidity Flows From Asset Markets Into The Real Economy - Part 9 of 17

Let us begin with agricultural/primary production on land. The rent charged consists of absolute rent and differential rent. Both arise on the basis of surplus profits on this production compared to the average annual industrial rate of profit. The former arises because, on average, all such production produces these surplus profits, i.e. market prices exceed price of production, the latter because certain lands produce even greater surplus profits than others. Having thus determined the amount of rent, the price of land is only the capitalised value of the rent. If the amount of rent rises, the price of the land rises, and vice versa, and, similarly, if interest rates fall, the price of the land rises, and vice versa.

There are a variety of reasons as to why rent might rise. The average industrial rate of profit may fall, so that surplus profit in agriculture/primary production rises relative to it. That would tend to cause industrial capital to seek to migrate to agricultural/primary production in search of these surplus profits, raising the demand for land, and enabling landlords to charge higher rents. Agricultural/primary product prices might rise, due to an increase in demand, causing surplus profit to rise, and an increased demand for land. Assuming interest rates remain constant, this would result in higher land prices.

Its worth restating what Marx says about these higher (or lower) land prices, in Capital and Theories of Surplus Value, as its also important when considering house and other property prices, as part of analysing these other types of asset. Marx notes that if rent on land that is being cultivated rises (and consequently the price of that land also rises), this does not only affect that cultivated land. It also determines the rent (price) of equivalent land not currently being cultivated. In other words, if there are two adjacent pieces of land A and B, each with the same level of fertility, and A is cultivated but B is not, then, if the price of A is £1,000, the price of B will also be £1,000, or put another way, if the owner of B were to let it, the rent would be the same as that on A. 

That is because the rent is determined by the amount of surplus profit. If agricultural productivity remains constant, but the demand for agricultural products increases, so that a sufficient demand for production requires land B to be brought into cultivation, the surplus profit on this land B will be the same as on land A, and so the actual rent charged for land B, will also be the same, the difference now being that although the rate of rent remains constant, the amount of rent obtained by the landlord will double, because twice the amount of land produces rent.

If you look at house prices, estate agents, when valuing a house, start from the prices that identical, or similar, houses have actually sold for. That is why, at a time like this, when mortgage rates are rising, as a result of rising interest rates, the amount that buyers are prepared to pay for a house falls sharply, because what they can pay, each month, is more or less fixed, and it now represents a much lower value of mortgage. So, the selling price of houses falls, but its not only the houses that are sold that falls, but also that of all similar houses, whether their owners seek to sell them or not.

That is why, as I have set out, elsewhere, the argument that its only when mortgage rates reach levels that cause forced selling that house prices fall, significantly, is wrong. If buyers can only offer 50% of current prices, so that the prices of sold houses drops significantly, this will also be reflected in the valuation of all other similar houses, and, when the owners of those houses come to re-mortgage, or negotiate new fixed rate mortgages for their houses, they will find that it is these new, much reduced valuations they will be presented with, often requiring them to significantly increase the amount they must contribute in cash themselves. In other words, if someone had a £100,000 mortgage on a £100,000 house, when it comes up for negotiation of a new mortgage, and the house is now valued at only £80,000, whilst the outstanding mortgage remains £100,000, they will be required to put in £20,000 of cash, themselves, with the bank giving them a mortgage of just £80,000.

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Chapter 2.2 – Medium of Exchange a) The Metamorphosis of Commodities - Part 7 of 8

This development of commodity production and exchange, as a form of social organisation, is different to the conditions that existed in the primitive commune, or under direct production, in the peasant household. It is commodity production and exchange that creates the categories of buyer and seller, unknown to these other forms of organisation. It is the antagonism between buyer and seller, which then determines the antagonistic and contradictory interests of the human beings caught up in these historically specific social conditions.

“It is therefore as absurd to regard buyer and seller, these bourgeois economic types, as eternal social forms of human individuality, as it is preposterous to weep over them as signifying the abolition of individuality. They are an essential expression of individuality arising at a particular stage of the social process of production. The antagonistic nature of bourgeois production is, moreover, expressed in the antithesis of buyer and seller in such a superficial and formal manner that this antithesis exists already in pre-bourgeois social formations, for it requires merely that the relations of individuals to one another should be those of commodity-owners.” (p 95)

In C – M – C, we have the condition of barter, C – C, with money acting as intermediary “not however as a medium of exchange in general, but a medium of exchange adapted to the process of circulation, i.e., a medium of circulation.” (p 96) However, as illustrated previously, this idealised circuit of money and commodity does not mean that it is realised, because, at every stage, every transaction, the contradiction, inherent in the commodity, between use value and exchange-value, and, in money, as measure of value and means of circulation, threatens to blow it apart.

“If, because the process of circulation of commodities ends in C—C and therefore appears as barter merely mediated by money, or because C—M—C in general does not only fall apart into two isolated cycles but is simultaneously their dynamic unity, the conclusion were to be drawn that only the unity and not the separation of purchase and sale exists, this would display a manner of thinking the criticism of which belongs to the sphere of logic and not of economics.” (p 96)

This was precisely the error of Mill, Say and Ricardo, who saw only the unity between production and consumption, supply and demand, value and use value, and so failed to see that, with commodity production, this is a contradictory unity. Commodity production and exchange itself explodes the limitations of direct production. In fact, we know that from early in Man's history, this commodity production and exchange existed, and expanded horizons. Thousands of years ago, trade existed between the Middle East and South America, making the existence of pyramids, in both societies, not such a coincidence. The Bible story of the journey of the Magi is simply testament of the existence of trade along the Silk Road.

But, all of these are relatively minor, compared to the explosion of trade and rapid adoption of commodity production that arises when the towns expanded in the Middle Ages, let alone when this development of commerce leads to the voyages of the merchant adventurers, such as Columbus, Magellan, and so on. Now, all of the restrictions on diet, fashion, and so on are swept away, as trade expands.

“The division of exchange into purchase and sale not only destroys locally evolved primitive, traditionally pious and sentimentally absurd obstacles standing in the way of social metabolism, but it also represents the general fragmentation of the associated factors of this process and their constant confrontation, in short it contains the general possibility of commercial crises, essentially because the contradiction of commodity and money is the abstract and general form of all contradictions inherent in the bourgeois mode of labour. Although circulation of money can occur therefore without crises, crises cannot occur without circulation of money.” (p 97)

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How Liquidity Flows From Asset Markets Into The Real Economy - Part 8 of 17

So, now, how is this process reversed, and liquidity released from the sphere of assets into the real economy? It cannot simply arise from a general fall in asset prices, which is, itself, the effect rather than the cause. Asset price bubbles stop inflating because the number of buyers stops exceeding the number of sellers, and, as is the nature of all bubbles, such a condition rapidly leads to a sharp increase in the number of sellers, and sharp decrease in the number of buyers, leading to the bubble bursting. But, even this cannot explain how this results in liquidity, tied up in assets, washing into the real economy.

Take the situation of house prices, and two buyers and sellers, A and B. Both have houses with a current price of £100,000. If each decide they prefer the others house (A prefers the use value provided by B's house and vice versa, so an exchange increases the welfare of both), they could exchange on this basis. This is like products of equal value exchanging for other products of equal value, in a condition of barter, as described by Marx in Theories of Surplus Value. Here, commodities are bought with commodities. But, no change, then, arises if the price of both houses is £200,000, or conversely, if the price is £50,000. It is the difference between money as measure of value/unit of account, and money as means of circulation. The price of the houses is an “ideal price”, but no money is required to effect the exchange, i.e. as means of circulation. Both parties could put whatever identical price tickets on the houses they liked.  

This also highlights the delusion of all those convinced that, because the price of their house has risen, they have somehow become wealthier. For so long as this additional “wealth” remains tied up in the house (whose use value remains exactly as it was before), it is only an increased paper or notional wealth, of no use to them whatsoever. They could use it as additional collateral, in order to borrow more, but the additional borrowing means a reduction in wealth, not an increase, not to mention an increase in costs, in the form of interest on the borrowing, thereby, not only reducing wealth (stock of assets), but also affluence (flow of revenue). If they realise the capital gain by selling the house, they are faced with the question of where to live, unlike the seller of shares or bonds, for instance. And, now, they find that the price of the house they seek to buy has also risen wiping out the paper capital gain.

The “ideal price” of commodities is determined by the amount of universal labour they represent, as measured by money/standard of prices. That price moves up or down dependent upon the amount of universal labour required for their production, on the one hand, and the value of money/standard of price, on the other. Market prices, however, depend also upon the relation of demand and supply, causing a fluctuation around this ideal price, or, under capitalism, the price of production. If market prices of commodities exceed this ideal price/price of production for any length of time, then producers of these commodities, will make surplus profits, inducing them to increase supply, so as to make more of that profit, and capture more of the increased demand, or else, new producers will enter this sphere, in search of these surplus profits. Supply will rise, and market prices will fall to the ideal price/price of production.

But assets are distinguished from commodities by the fact that their supply cannot be increased in this way, and increased supply is not induced by surplus profits. Assets may be bought and sold as commodities, but they are not like other commodities that are produced by labour, and which, therefore, have value. The most obvious example is land. Land is not produced by labour, and so has no value. Yet, land is bought and sold as a commodity and has a price. It is bought and sold as a commodity, because it is a use value, necessary in production, as a surface upon which buildings are erected, as instrument of labour for the production of agricultural products, as means of production, for agricultural products, and as the source of minerals. It has a price, despite having no value, precisely because this use value is in limited supply, and cannot be increased, so that its owners can charge a rent for it. The price of land is only the capitalised value of this rent. If land could be increased in supply, in the same way that ice-cream, or any other commodity, can be increased, its price would fall to zero.

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Chapter 2.2 – Medium of Exchange a) The Metamorphosis of Commodities - Part 6 of 8

Indeed, as Marx describes, in Theories of Surplus Value, Chapter 20, in a money economy, it is possible for all commodities to be so overproduced. The manifestation is a crisis of overproduction, which is different to the small variations of market price above and below the “ideal” price, which cancel each other out. It represents a fundamental condition of overproduction, for example, as Marx describes in relation to yarn, following the introduction of spinning machines.

The immediate resolution of such a crisis comes in the form of a reduction of supply, as the least efficient producers go bust. As part of this process, the average labour-time required for production also falls, so that the market value/ideal price of yarn falls, which in itself acts to increase demand. But, it is the reduction in supply, mostly, that restores balance, and, at this new equilibrium, the price again reverts to the ideal price, determined by the new market value, itself determined by the labour-time now required for production.

But, this is never the case with money. The value of gold is determined by the labour-time required for its production, and, as commodity, gold can be overproduced as with any other commodity. For example, more gold can be produced than is required by jewellery makers, gilders, producers of electronic circuits and so on. But, as money, gold is never overproduced. It never lose utility, as being always exchangeable for other commodities. The value of gold, as with any other commodity, may fall, because less labour-time is required for its production, and that means more of it must be exchanged for those commodities, so that money prices rise, but that is because its value has changed, not because it has been unable to realise its use-value.

“Because commodity circulation presupposes an advanced division of labour and therefore also a diversity of wants on the part of the individual, a diversity bearing an inverse relation to the narrow scope of his own production, the purchase M—C will at times consist of an equation with one commodity as the equivalent, and at other times of a series of commodity equivalents determined by the buyer’s needs and the amount of money at his disposal.” (p 92)

So, as described above, the wine producer, having obtained money from the linen producer, C – M, may now use this same money to buy a range of commodities from the farmer, tailor, and so on, and each of these transactions has the same contradictions inherent within them, creating the potential for crisis. In C – M – C, we have, say, linen sold for money, and the linen producer uses the money to buy wine. The linen itself, having been bought, is consumed, and drops out of circulation. But, its metamorphosis into money means this value continues in circulation. The money is now metamorphosed into wine, and also is now consumed, so dropping out of circulation. The linen has, thereby, passed through its full circuit of metamorphosis. However, in buying wine, M – C, for the wine producer, this appears as C – M, so that, for the wine, it has only now undergone this first process of metamorphosis. For the wine producer, the metamorphosis of wine into other commodities lies ahead.

Looking ahead, the wine producer now exchanges the money they have received, C – M, for a suit from the tailor, so that the wine now completes its cycle of metamorphosis, but, now, this appears as C – M, for the tailor, and so on. Looking backwards, the linen producer sold linen to the tailor for money, C – M, which, for the tailor, appears as M – C, whilst the tailor obtained the money from selling a suit, C – M.

“Thus the total circuit C—M—C representing the complete metamorphosis of a commodity is simultaneously the end of a complete metamorphosis of a second commodity and the beginning of a complete metamorphosis of a third commodity; it is therefore a series without beginning or end.” (p 93)

This continuity, requiring simultaneity, also again illustrates the fallacy of the TSSI, which sees capitalist production in syllogistic terms, as simply a connected series of discrete events, rather than as a continuous process.

“In the real process of circulation C—M—C, therefore, represents an exceedingly haphazard coincidence and succession of motley phases of various complete metamorphoses. The actual process of circulation appears, therefore, not as a complete metamorphosis of the commodity, i.e., not as its movement through opposite phases, but as a mere accumulation of numerous purchases and sales which chance to occur simultaneously or successively. The process accordingly loses its distinct form, especially as each individual transaction, e.g., a sale, is simultaneously its opposite, a purchase, and vice versa. On the other hand, the metamorphoses in the world of commodities constitute the process of circulation and the former must therefore be reflected in the total movement of circulation.” (p 94)

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Forward To Part 7

The Worst Ever Drop In Disposable Income?

The UK media, always glad of some new sensationalist story, have been talking about recession, as speculators, and their representatives have been doing for some time, as they seek to create an atmosphere of gloom and fear, designed to persuade workers not to risk striking or demanding higher wages, and to save rather than spend, just as all of the Covid hysteria was previously designed to do. Now, we are told, in the world of the media's need for superlatives, that UK households are to face the biggest ever fall in their disposable income. Is that possible? Anything is possible, Is it likely? Probably not.

For it to be true, a whole host of variables have to come together, along with the acceptance of a lot of other assumptions. For one thing, the definition of what constitutes disposable income could be questioned. Its generally accepted as meaning the surplus income after necessary spending has been accounted for, but that then begs the question of what is necessary spending. It meant something completely different in the 1830's to what it meant in the 1880's, which was again different to what it was in the 1930's, or again in the 1980's. For one thing, in the 1980's, virtually no one had a mobile phone, yet, many, today, would see it as necessary spending. So, in real terms, its not comparing like with like.

The predictions also make assumptions about inflation, recession, and wages. Take the difference between the forecast of the Bank of England and that of the OBR. The Bank of England has forecast that Britain will have a fairly shallow, but prolonged recession, lasting up to 18 months, whilst the OBR, also forecast a shallow recession, but lasting perhaps only 6 months, and with faster growth thereafter. The reason for the difference is their assumptions about saving and spending. The Bank of England assumes that households will not use the large amount of savings built up during lockdowns, and, faced with the fear of recession, will, instead, add to those savings, thereby reducing spending, and so aggregate demand in the economy. The OBR assumes that households will continue to draw down on those savings, to supplement their wages, and so spending will fall less, leading to a smaller drop in aggregate demand.

The Bank of England's forecast, of course, is based upon what it hopes will happen as a consequence of its attempts to bring about a recession by raising its policy rates of interest, so as to, then, lead to higher unemployment and pressure on wages, which will enable profits to rise, at the same time as reducing the demand for money-capital (and increasing its supply from additional savings), thereby, halting the current rise in market rates of interest, which is causing asset prices to crash. The Bank of England, like all central banks, is the centralised representative of the speculators that comprise the ruling class, and of their interests as owners of fictitious-capital. So, its no surprise that this is what it hopes for, and that it comprises their central forecast.

But, in fact, the OBR's assumption, and so forecast, is more likely. Firstly, despite the repeated rises in its policy rates, the Bank of England, like other central banks, has not raised them, yet, until they become positive in real terms, i.e. Bank Rate is currently 2.25%, but inflation is running at 11.1% and rising, so the real rate of interest is minus 8.85%. If you are looking to save money, then variable rates (and no one wants to get locked into a fixed savings rate, now) are still around 1.8%. So, there is every reason to use your money to buy a new car, a new TV, kitchen, phone and so on, using your lockdown savings, because all those things are likely to cost you at least 10% more in a year's time, as against the measly 1.8% you can get on your money stuck in the bank.

And, the same applies to businesses. Borrowing costs are higher than deposit rates, but even still, if the annual rate of profit is, say, 30%, then £10,000 borrowed, today, at a rate of interest of, say, 6%, will produce £3,000 of profit in a year's time, as against the £600 of interest paid to borrow the capital to produce it. However, as a result of 10% inflation, when the firm comes to sell the output from that capital, it will sell at money prices 10% higher than today, and so producing money profits also 10% higher. Rather than £3,000 of profit, it will be £3,300, meaning that inflation would have reduced the amount of interest by half, leaving the firm with £2,700 of profit, as against £2,400. In other words, interest rates would have to rise significantly more to bring about the effect that the Bank of England, and other central banks seek to achieve, of slowing economic activity, and so leading to a fall in wages, and rise in profits, so as to boost asset prices.

That rate known as R* is much higher than the rate, known as R**, at which financial markets and asset prices suffer a crisis. The small absolute rises in global interest rates have already caused asset prices to fall by around 30%, and more like 40%, in real terms after inflation. The speculators are desperate for those rises to end, not be extended much further, and latch on to any sign of recession, or potential for central banks to “pivot”, and begin, reducing those rates, as justification to begin their gambling on stock and bond markets all over again.

But, what both the Bank of England and the OBR forecasts fail to take into consideration in their assumptions is what workers themselves might do, not as passive consumers and savers, but actually as workers. The social democrats who parrot these claims about falling real wages, and disposable incomes, because they seek to opportunistically attack the government, also make this assumption about workers being merely passive participants, having things done to, or for, them by government.

The reason for that is, also, because they really don't want wages to rise sharply squeezing profits, and threatening asset prices, because they have built their own agenda on a continuation of those speculative capital gains too. Moreover, it reflects the fact that most of these pundits and politicians are middle class in nature, largely outside the labour movement, and indeed dependent upon their own individual skills, or otherwise passive participants in events. The concept that workers might collectively, via their trades unions, respond to rising prices, by themselves demanding, and in conditions of labour shortages, obtaining, above inflation pay rises, is beyond their comprehension.

But, that is what workers have always done in conditions like those we have now. In that case, rather than household disposable income falling by the most on record, it would, in fact, rise, and, as in previous periods, such as the 1840's, 1890's, as well as in the 1960's, would result in significant real terms increases in workers' living standards. A look at the sharp growth in unionisation, across the globe, and of strikes of workers demanding and quickly obtaining large pay rises, shows that is the situation, now, and not one of the biggest ever fall in household disposable income.

Is that inevitable? Of course, not. Wages began to rise after 2000, as labour shortages began to emerge. Central banks, then, too, tried to halt it, with increases in their policy rates – actually to higher levels than currently exist, though with lower inflation, and so much, much higher real rates of interest – and the result was the crash in asset prices that occurred in 2008. But, states responded to that crash by introducing fiscal austerity to slow economic growth, as well as printing money tokens to inflate asset prices, a process, which has, now, also led to the high rates of commodity price inflation seen across the globe.

The purpose of all the talk about recession, the worst fall in disposable income and other such narratives, is, again, to try to frighten workers, and to, thereby, slow economic activity. Larry Summers has made clear what the ambition of the ruling class is, which is to increase the number of unemployed by around 50%, so as to discipline workers, reduce wages, and boost profits.

Yet, even that was not enough, after 2008, because the underlying dynamic of the long wave cycle continued to push its way through all these attempts to hold back the economy. To an extent, they worked. UK GDP growth was, on average, only 2% p.a., in the period after 2010, as against around 2.7%, in the period between 1997 and 2008. And, other means have been used to that effect.

In his Budget Speech last week, Jeremy Hunt tried to claim that the shoddy performance of the UK economy was nothing to do with him and the Brexitory Government, but that is clearly nonsense. When Labour left office in 2010, GDP was growing at 1% quarter on quarter, or about 4% p.a. It was halted overnight, by the incoming Tory-Liberal government talking about a debt crisis, and need for drastic austerity. It was the austerity introduced by that Liberal-Tory government that created an artificial recession, in the period up to 2014, despite historically low levels of interest rates, to finance government debt, and which also led to a renewed destruction of UK infrastructure and public services, inherited, today.

Another major factor damaging the UK economy is Brexit, again the policy introduced by the Tories, and now being implemented by a Brexitory government, aided and abetted by a Brexitory Blue Labour PLP. Brexit has drastically reduced UK trade with its major trading partner the EU. It has fallen by around 15%, with a consequent hit to the UK economy. But, it has also imposed much higher costs as a result of the red tape, and frictions on the remaining trade. One of those frictions is also in relation to a labour market that is already tight, resulting in firms being unable to recruit the required workers, even as they are forced to offer much higher wages. So, the Brexitories cannot complain about that hit to the economy that they have brought about themselves, and the Brexitories of the Blue Labour PLP are also in a bind on that, because they are as much to blame, as they continue to support a continuation of Brexit, as they search in vain after the votes of reactionaries.

Indeed, Starerm and Blue Labour's position on that looks increasingly insane even in electoral terms, because 66% of Labour voters support rejoining the EU. Why would you piss off two-thirds of your voters, simply to try to satisfy the other one-third? What is more, 57% of all voters, now support rejoining the EU. That is a 14% lead for rejoining, as against the 2% margin for leaving in the 2016 referendum. Clearly, if the Brexitories of Blue Labour do not respond to that by changing position, the field will be wide open for the Liberals, Greens, Plaid and SNP to steal huge numbers of Labour votes, by campaigning for re-joining, ahead of the next election. 

Hunt, also referred to the effects of lockdowns, but, again, lockdowns were not something that occurred outside the government's control. They were a deliberate and, again, insane decision by the Brexitory government, again backed by the Brexitories of the Blue Labour PLP. Lockdowns seriously damaged the economy, by physically preventing both prouction and consumption, and were compounded by the fact that the government borrowed money to pay out in income replacement schemes, causing its finances to be cratered, and borrowing costs to rise, as well as by having the Bank of England print even more money tokens to finance that spending, which has now created the high levels of inflation seen in the economy. The economy is also suffering from shortages of skilled workers, and also has a problem with kids leaving school with inadequate education, but that again was compounded by ridiculous lockdowns of schools for two years, which denied kids of two years of education, unnecessarily, given that kids are not at risk from COVID.

The decision to lockdown the economy was the government's decision, and it, along with the Brexitories of Blue Labour that also backed it, and wanted more, is responsible for it! In fact, Sweden, which did not lock down has had per capita death rates, and rates for hospitalisation and serious illness much lower than Britain and other countries that did.

Hunt also complained about the high cost of energy hitting the UK economy. High energy prices are indeed affecting the UK economy, as well as the EU and US economy, because energy forms a part of constant capital, and the sharp rise in price has led to a tie-up of capital, which otherwise would have gone to either additional revenues and consumption or investment. But, again, those high energy prices are not an accident, nor the fault of Putin. It is NATO that imposed sanctions on Russian exports, reducing the global supplies not only of energy, but also of grain, and fertiliser that has pushed up global food prices. It is the EU, and UK, which, in support of those sanctions, has boycotted Russian oil and gas, pushing the price of those commodities much higher, and it is NATO that blew up the Nordstream pipelines to try to prevent a change of heart on that score by EU governments!

So, yes, all of those things act to depress economic activity, and may yet lead to a recession, which would lead to wages falling, as prices continue to rise, but it is not at all as though those things are outside the control or responsibility of the government. The cause of inflation is a devaluation of the currency/standard of prices, caused by excessive liquidity, and the government could end that, now, by removing the independence of the Bank of England, and introducing QT, rather than raising official interest rates.

It won't do that, because the effect would be to prevent price rises, which in conditions of rising wages, would squeeze profits. The government could respond to the wishes of the large majority of the electorate by scrapping its insane Brexit, and applying for a rapid re-entry into the EU. The government, and those of other EU countries, could end the high energy prices by ending their sanctions against Russian oil and gas supplies, paying for those supplies in Roubles, and so on. They could also reduce global food prices by removing the sanctions on Russian grain and fertiliser exports, and allowing Russia to receive payments via the SWIFT international payments system.

The concern from Brexitories, including the Brexitories of Blue Labour, is phoney, because, if they were really worried about there being the worst ever fall in household disposable income they would change their stance on all of the above, which are causing living costs to rise sharply. But, of course, they won't because they all want to cow workers, so as to reduce their wage demands, boost profits, reduce interest rates, and so enable asset prices to rise once more. They have no other solution than that, which has been their policy for the last thirty years. Workers cannot be taken in by it, and instead must continue to rely on their own strength and ability to win higher wages, as they are already doing.

The reality is that many workers are able to simply shift from their existing jobs to better, higher paid, jobs. On average that brings a 15% increase in pay, which is not reflected in the average pay increase figures. Nor is the fact that a worker who goes from working part-time to full-time, gets a much bigger increase in their income than the average hourly pay rise data indicates. Similarly, a household which goes from having one income earner to two, or more, has a much bigger increase in income than the data indicates, and so also an increase, rather than a decrease in its disposable income. Of course, if you are a single person household, and unable to take advantage of all the above, you will suffer in current conditions, especially as, if you are on Minimum Wage, the proposed increase does not actually match inflation. If you are a single-parent household, then, even more is that the case.

The media, of course, focus their vox pops and personal stories on these latter groups, rather than on the majority, and, as for the majority, they simply present the narrative of helpless, individuals, unable to affect their condition by collective action to raise wages. The last thing they want to suggest is that workers are active agents in history able to influence events themselves, by collective industrial and political action. But, the reality is that, just as in Marx's time the paupers represented a small minority, which, whilst growing in absolute numbers, at specific times, represented a smaller proportion of a generally more affluent and wealthier society, so that is true of their modern equivalents.

Its true that, compared to the 1970's, the number of single person households has risen significantly. Then, it was around 21%, as against 41% today, but, the majority of households are still comprised of married or cohabiting couples, and families, 52%, as against 70% in the 1970's. The increase in single person households, is itself a consequence of asset price inflation, as people sought to buy a property to avoid future price rises, and often to try to obtain, for themselves, a capital gain from such rises. As such, it is equally susceptible to being reversed, as property prices crash along with the prices of other assets. That, in itself, would create conditions of lower living costs, and a consequent rise in household disposable income.

The majority of households, single or multi-occupancy, are able to increase their wages, either by taking advantage of labour shortages to move to higher paid jobs, or else by joining with other workers in trades unions to demand higher wages in their existing job. That is what happened in all such previous periods, such as in the 1950's and 60's, and into the early 1970's. In 1973, I doubled my wages, simply by moving from my existing job to another paying much higher wages, and a few months after that, I moved jobs again, to one paying higher wages, and with shorter hours. I remember my dad doing similar things in the early 1960's, around the same time that many workers began to reject the idea of having to work overtime so as to boost their pay, and, instead, demanded higher hourly rates, as labour shortages became apparent. That activity is already apparent, in the US, as indicated by the continued rise in its Quit Rate.

The main problem with workers obtaining higher wages, without moving jobs, is in the state sector. There, the capitalist state is using its power, and fact it does not have to worry about shareholders complaining about loss of profits and reduced dividends and capital gains, to try to strong arm workers into taking real terms pay cuts. All of the sanctimonious talk about NHS workers is shown for what it was as the government demands they accept such cuts in living standards. So, its no wonder that, whilst, in the non-state sector, many workers have obtained large pay rises without the need for industrial action, or with just short strikes, its in the state and near state sectors, like the railways, post office and so on, still significantly tied to the state, although with the profits going largely in dividends to shareholders, that workers are being forced into strikes to avoid their pay being cut.

But, ultimately, the state itself will have to concede. Even Tories have recently admitted what I wrote recently, which is that the consequence of ten years of austerity is that there is nothing left of public services left to cut, other than by shutting them down altogether, and so, the burden of austerity, then falls on its workers. But, in conditions of labour shortages, and rapidly rising wages in the non-state sector compared to the state sector, workers can again simply move into those higher paid, non-state jobs, meaning that the existing huge vacancies in the state sector get even bigger, meaning that it, again, effectively collapses. Either, to avoid that, government is forced to pay the higher wages, or else, the state sector does collapse in many sectors, and new non-state providers emerge to take its place, paying the higher wages that the state would not pay.

The continued rise in employment, and falls in unemployment indicate that the economy is not in recession or even close to recession, despite what GDP might imply. Capitalists do not employ additional workers to sit on their hands producing no additional value and surplus value. Even less do they employ them to reduce the amount of value and surplus value being created, so the continued rise in employment, and of hours worked, means that new value and surplus value creation continues to rise. That is reflected, across the globe in continued rises in sales. UK Retail sales rose by 0.6% in October, which if carried forward, means a rise of 7.5% in the year ahead.

So despite all of the doom mongering by the media, as well as by opportunists and catastrophists, it is not at all a foregone conclusion that there will either be a recession or the greatest ever fall in household disposable income. If the former arises it will be because governments and central banks have deliberately caused it, and workers failed to prevent them imposing it on them, via austerity, and if the latter occurs, it will only be because workers failed to take advantage of another historic opportunity, in conditions of large and widespread labour shortages to mobilise to raise their wages. One factor that would affect that would be if they allowed themselves to be distracted by calls for a general election, during which Labour politicians and trades union bureaucrats would no doubt call on them to call off strikes – as they did during the Queen's funeral – which would lead to demobilisation and demoralisation, with the incoming reactionary Labour government pressing home its advantage to make workers, again, pay, so as to raise profits.

But, absent that, as many workers get large pay rises even without the need for strikes, and as millions of state employed workers strike for those higher wages, and eventually get them, that will not only mean that rather than household disposable income falling, it will rise, and as household spending, fuelled by those higher wages, and supplemented by existing savings, rises, so that rise in aggregate demand will cause firms to have to accumulate additional capital, employing even more workers, especially in service industry, so that all talk of recession will again prove to be wrong.