In his latest article in the Weekly Worker, Michael Roberts channels the arguments of John Weston, dismantled by Marx, in Value, Price and Profit. Weston, argued a cost of production theory of value, similar to that advanced by Adam Smith, and others, which they “had spurned in the really scientific parts of their researches, but which they reproduced in their more exoterical and vulgarizing chapters”.
(Marx – Value, Price and Profit)
For Weston, prices were determined by wages, because capitalists simply added a percentage of markup on to wages. If wages were £100, and the profit margin was 10%, then profits would be £10, giving a price of £110. If wages doubled, profits would double to £20, giving a price of £220, again having doubled. This assumed prices are, then, simply subjective, and determined on the whim and will of the capitalist, who is able to raise prices. Weston argued, therefore, that there was no point in workers seeking higher wages, because capitalists would simply raise prices wiping out the benefit. The same argument is frequently put by bourgeois politicians and economists. But, rather than arguing that the cause of inflation is higher wages, Roberts simply inverts the argument to blame higher profits, saying,
“it was excessive profit rises that contributed, as companies with any ‘market power’ - ie, a monopolistic position - took advantage of rising input costs to raise their ‘mark-ups’.”
But, a fundamental aspect of Marx's analysis, in Capital III, of the determination of prices of production, and of the average rate of profit, is that there is a total amount of surplus value created, which is shared out by capitals in proportion to the amount advanced. This average profit is added to their costs of production (c + v), and determines the price of production. Its true, as Marx says, that this is modified by the existence of monopoly and other factors, so that capitals with monopoly power secure a greater share of this total surplus value, but the consequence of that is that there is less profit to be shared by other capitals, less average profit to be added to their particular costs of production, and consequently lower prices of production, for these other capitals.
Roberts' argument implies that the monopolists, and those with market power can increase their own profits, by raising their particular prices, without that impacting the total surplus value/profit to be shared by other capitals, who continue, thereby, to add the same markup as before, and so charge the same prices. That is directly contrary to Marx's analysis, and his theory of the determination of prices of production.
But, Roberts' statement is almost a direct copy of the argument put by Weston, except that where Weston blamed wages, Roberts' blames profits. Weston talked about wages being “high”, but as Marx sets out, that has no meaning. High compared to what? What Weston failed to consider was that the result of higher wages, is not higher prices, but lower profits, as the new value created by labour is simply resolved differently into those wages and profits, i.e. one rises relative to the other. Roberts puts exactly the same argument, but uses profits, as the vehicle for the higher prices rather than wages. For Marx, if relative profits rise, the concomitant is lower relative wages, not higher prices, just as higher relative wages, results in lower relative profits.
Moreover, Weston and Roberts make these higher wages, or higher profits, which then lead to higher prices, purely subjective, a matter of will on the part of workers and capitalists, rather than the consequence of objective economic laws. Wages are the price of labour-power, and like any other commodity, the value of labour-power is determined by its cost of production, the value of all those goods and services required for its reproduction. If the value of labour-power rises, being the objective basis of a rise in wages, it is because social productivity has fallen, causing the value of all those wage goods to have risen.
As Marx shows, however, overall, the opposite is true. Social productivity rises, and so the value of wage goods fall, causing the value of labour-power to fall, which, even allowing for some rise in real wages/living standards of workers, would result in also, falling money wages. That is why central banks were created to create an average, annual 2% inflation of prices, by continually devaluing the currency/standard of prices, so that money wages did not have to be reduced, which workers have always resisted, even when real wages rose.
But, as Marx and Engels also demonstrate, at times, as with any other commodity wages, as the market price of labour-power, moves above or below that value, as a result of the interaction of demand and supply. As capital expands, and the demand for labour begins to eat into the supply, so wages rise, as firms compete for the available labour.
“The relations between the supply and demand of labour undergo perpetual change, and with them the market prices of labour. If the demand overshoots the supply wages rise; if the supply overshoots the demand wages sink, although it might in such circumstances be necessary to test the real state of demand and supply by a strike, for example, or any other method.”
(Marx – Value, Price and Profit)
It does not matter whether wages rise, because the value of labour-power has risen, due to a fall in social productivity, or because the demand for labour overshoots its supply, the consequence is the same, i.e. not a rise in prices, but a fall in profits. But, the reverse is also true. In other words, if profits rise, it is because wages have fallen, whether because the supply of labour has exceeded the demand, or because the value of labour-power has fallen, or both. According to Marx, it cannot be the case, as Roberts claims, that profits have risen, because firms have simply raised prices! If that were possible, firms would continually raise their profits, by simply raising prices.
What is possible, of course, is that those higher money prices are simply a reflection of the fact, as Marx describes, that the currency/standard of prices has been devalued. But, that, which is the real basis of inflation, as described by Marx, is denied by Roberts, who in opposing Monetarism, is led also, to oppose the Marxist analysis, in favour of the arguments of Weston, Proudhon and the Keynesians.
Of course, Roberts does not solely blame inflation on “high” profits, particularly as, at the end of his article he reverses himself and talks not about high profits, but says “that profitability of capital currently remains low”! Roberts also claims that the inflation seen over the last three years, is the result of basically falling social productivity, arising from the fallout from lockdowns, and the curtailment of globalisation and break-down in supply chains, Ukraine War etc.
Now, its true that, according to Marx's theory, any fall in social productivity that raises the value of constant capital, causes a rise in the value of the commodities produced using it, provided that the rise in the productivity of labour, in this latter production, does not outweigh it. In other words, a rise in the value of cotton would pass in to a higher value of yarn, provided that the productivity of spinning labour did not rise sufficiently to offset it. Generally, of course, as Marx sets out, this latter is the case, i.e. social productivity rises, each year, sufficiently to offset any rise in primary product prices, arising from some specific crop failure, and so on.
So, a rise in energy prices, resulting from the boycott of Russian oil and gas by NATO and its supporters, would indeed pass on into a higher cost of production for all companies, particularly in Europe, where that energy is used. But, that energy comprises only a small part of their total costs of production. A car company uses energy, but also steel and other materials. If the normal rise in social productivity, reduces the value of these other inputs, that alone could offset the effect of rising energy costs. Moreover, the rise in productivity of the labour used in car making, itself reduces the value of cars. And, Roberts does not claim that social productivity is actually falling, only growing slowly.
But, Roberts claims that the inflation was not only due to this rise in energy prices.
“It was caused by a sharp fall in the supply of basic commodities and intermediate products, which drove up prices of these suddenly scarce goods. This was compounded by a breakdown in the global supply chain of goods transported and trade internationally.”
But, to say that these goods were scarce begs the question scarce compared to what, just as with Weston's talk about “high wages” begging the question high compared to what? It can only mean compared to the demand for them! But, where does that demand come from? It is a monetary demand. Why had the supply of these basic commodities suddenly been reduced? It was because, around the globe, governments – supported by Michael Roberts – had introduced lockdowns in response to COVID. Those lockdowns meant that for many of these commodities production ceased or was severely curtailed, meaning that labour was not undertaken, so new value was not created, and so that new value could not be resolved into revenues – wages, profits, interest, rent and taxes. So, that should have created a reduction in monetary demand, as all of these revenues that comprise that demand no longer existed. But, that did not happen, because governments stepped in to provide those revenues with furlough and other income replacement schemes, and funded it by printing additional money tokens, i.e. by depreciating the currency/standard of prices!
As with Weston and the Keynesians, Roberts has basically a theory of prices, and so of inflation that amounts to nothing more than a reliance on supply and demand, and, in Roberts' case, specifically on the role of supply, and so of cost-push. But, as Marx sets out, in relation to that argument put by Weston, in that case, if those conditions of supply and demand that you claim are the reason for prices rising, then, reverse that should result not just in prices (inflation) rising more slowly, but in deflation, i.e. in prices actually falling. Well, of course, if we look at Europe, which was most affected by rising energy prices, resulting from its boycott of Russian oil and gas, those energy prices have subsequently fallen. In addition, many of the basic commodities that became “scarce”, no longer are, as all of those supply chains disrupted during lockdowns have been re-established, or new ones developed in their place. As all of these prices fell, which Roberts claims were the cause of the general rise in prices (inflation), the result should equally have been a fall in the general level of prices, and not just a slow down in the rate of their increase!
So, if the “inflation” in the period between the end of lockdowns and 2022 was caused by this imbalance of aggregate demand and supply, resulting from a curtailment of supply, which resulted in overall price levels rising by around 10% a year, the reverse of that condition, should now be seeing those general price levels revert to their previous levels, with similar falls in consumer prices of around 10%. Is that what we see? Clearly not. We see falls in the prices of some commodities, mostly those that Roberts claims became scarce, and whose effect, he says, was to cause prices to rise in general, but we do not see that, equally, resulting in a fall in general price levels. On the contrary, those general price levels continue to rise by around 4%, in Europe and North America. Indeed, if we take services prices, they are generally rising by around 6%, and a look at core prices, and other measures, shows that rather than falling, in recent months the trend is one again rising!
The following Chart shows that not only is US Services Inflation still much higher than the general measure, but in recent months it has been rising at a much faster pace, which flatly contradicts Roberts' argument.
But, even that Services inflation does not show the real situation, as the chart for the super core services inflation shows.
In fact, a look at the monthly data shows that, even in relation to the general price level, the data is likely to have reached, perhaps, the best it will get for a while, as the slower goods price inflation drops out of the comparison.
And the same picture emerges from a look at sticky prices, i.e. those whose prices are not so subject to quick movement in either direction.
It is always the case that the general level of prices is a compendium of all of these different prices, with some rising more quickly than others, and some even falling. But the rise in the general level of prices, as Marx describes in A Contribution To The Critique of Political Economy, The Poverty of Philosophy, Wage Labour and Capital, and Value, Price and Profit, is a consequence of a devaluation of the currency/standard of prices.
No comments:
Post a Comment