As I have described, elsewhere, whilst economic stagnation produces rising rates of profit, greater supply of money-capital, falling interest rates, and rising asset prices, economic booms produce the opposite effect, and eventually crises. But, at the start of this latter process, the liquidity previously tied up in speculative asset purchases is released.
If the price of land rises, with other assets, from £1,000 per hectare to £2,000 per hectare, a farmer buying land to farm ties up an additional £1,000 of their capital unproductively. This is £1,000 that adds nothing to the value of their output, and is £1,000 that, otherwise, could have been used to buy seed, chemicals, equipment and labour-power. But, when, instead, rates rise, and asset prices, correspondingly, fall, the reverse is true. The farmer has £1,000 of capital released, when they buy land, and so their real capital accumulation, also, finds this flow of additional liquidity to fund it, irrespective of any change in currency supply by the central bank.
The same is true with the fall in other asset prices. As house prices fall, the cost of workers' shelter falls, reducing the value of labour-power, and so wages, releasing variable capital, but also releasing revenue previously expended, unproductively, on inflated house prices (rents), and now available for consumption of actual commodities.
As workers' pensions are funded from the revenues produced by bonds and shares, purchased by workers' and employers contributions, to buy the same quantity of bonds/shares, requires higher contributions, which raises the value of labour-power, reducing profits and diverting revenue and capital unproductively. But, as interest rates rise, and asset prices fall, the opposite occurs. Workers' and employers' contributions buy more bonds and shares, so funding pensions is cheaper. The revenues previously diverted into that unproductive activity are then released to fund consumption and real capital accumulation.
So, at the start of a new period of boom, for example, as occurred from around 1902 or 1962, (and from around 2012, but slowed as a result of austerity etc.), as the economy goes from simply utilising the excess supplies of labour created during the period of stagnation, to one in which relative labour shortages begin to develop, and nominal wages rise, firms are able to pass on the cost of these higher wages in higher prices, as liquidity increases via these various means – commercial credit expands, the velocity of transactions/circulation rises, liquidity is released from falling asset prices. But, again, it is not that rising wages, or other costs, are the cause of those rising prices. If central banks compensated for all of these other forms of additional liquidity, prices could not rise, the standard of prices would not be devalued.
If wages rise, as Marx shows, this does not increase the value of commodities, it simply reduces profit. The value of commodities only rises if productivity falls. If the value of constant capital (materials, fixed capital) rises, that does raise the value of commodities, but, generally, when output expands, this produces economies of scale and so higher, not lower levels of productivity, and so also a reduction not rise in the value of constant capital. The higher prices are not a consequence of higher wages or other input costs, but of inflation, of a fall in the value of the standard of prices due to excess liquidity in circulation.
In fact, just as the error, in 1847, was curtailing the currency supply, at a time when crop failures caused a rise in commodity values, so too, when economic activity expands rapidly, central banks should increase currency supply at a proportionally slower rate, or even curtail it, to compensate for this increase in liquidity from commercial credit, and so on, if they seek to maintain price stability. But, of course, they do not. At all times, when rising social productivity means that the unit values of commodities are falling, and so should result in falling prices, they inflate the currency supply to ensure rising prices, because, otherwise, nominal wages would also have to fall, provoking a backlash from workers. When relative labour shortages begin to cause not only nominal wages to rise, but also relative wages, central banks, even more, have to accommodate rising prices, to cushion the falls in relative profits, by allowing an inflation of the currency supply.
No comments:
Post a Comment