Productivity, Pensions and Profits

Last Saturday, when we were out dancing, my sister asked me a question, which was “With all of the self-checkouts in supermarkets, replacing workers, who is gong to pay the taxes to cover pensions?”. I've dealt with this question before, including recently, but given that I had to keep the answer as brief and as simple as possible, given the conditions of my reply, and competing with the backbeat of Northern Soul, and, given that my sister quickly grasped the gist of that reply, I thought it worthwhile, basically, setting it out, here.

The first thing, which most people don't easily grasp, is its not a question of “money”, and so, also, not a question of people paying taxes or National Insurance. You don't eat, drink, wear or live in money, but the things that money buys – food, clothes, houses. The same cause of the checkout workers losing their jobs, the introduction of technology to replace them, in other words a rise in productivity – more things being produced for any given amount of labour – is the same cause of the unit value of all those things being reduced, and, also, thereby, means that society is able to produce all those things that its members need to consume – whether they are working, retired, still at school, or sick – with fewer of them actually producing those things. Its why, today, workers across the world produce far more “things”, including services such as education, health and social care, entertainment and so on, than is proportional to the increase in the global workforce.

Its also why, the first groups of people in society to realise this fact, were the ruling-class. As soon as the labourers in any society are able to produce more “stuff” than they require for their own necessary consumption, it means that a small group in society – the ruling-class – can consume that surplus of “stuff” without themselves working. These ruling-classes – at different times, slave-owners, feudal landowners, and now capitalists – over the millennia, have been able to appropriate ever vaster amounts of this “stuff”. At one time, it was the building of pyramids stuffed with gold, and, today, its capitalists with several multi-million pound yachts, jets, private islands, spacecraft and so on, not to mention trillions of Dollars of fictitious wealth in the form of shares, bonds and so on.

As I recently noted, in relation to the attacks on pensions in France, and as explained by Robert Owen, 200 years ago, its not a question of workers not being able to produce all of the increase in the quantity of goods and services required to enable them to have higher living standards, including retiring earlier, having shorter working weeks, more holidays and so on, because the rise in labour productivity has, already been far in excess of what is required for that.

Owen realised, at his factory,

“... the working part of this population of 2,500 persons was producing as much real wealth for society, as, less than half a century before, it would have required the working part of a population of 600,000 to create. I asked myself what became of the difference between the wealth consumed by 2,500 persons and that which would have been consumed by 600,000.”

The answer was that, the workers producing all of that increase in real wealth – in that case textiles – was not being used to benefit the workers producing it – although he did provide his workers with better wages, conditions, places to live, schools and so on – but was going to the capitalists who loaned the money to the business. There's two ways that can become manifest. Firstly, the capitalists can just consume more of those additional “things”, including all those things required to produce more “things”. In other words, they can increase their own standard of living, and they can increase the size of their capital, the size of their business, or, in the case of money lending capitalists, the amount of money they have available to lend out, and so obtain interest/dividends and so on.

In that earlier post, I set out the rise in productivity in recent times, which shows the same thing that Owen described, and extent to which workers have already covered, by it, the fact that they are living slightly longer, to be able to enjoy their retirement. Think about something like the Channel Tunnel. If it had to be dug by navvies using picks and shovels, it would never have been built, it was the use of tunnel boring machines that made it economic to undertake. The problem is not that workers are living longer, nor that workers are being replaced by machines, leaving fewer of them to pay taxes to cover spending on pensions.

The problem is that the distribution of the real wealth – all of the actual “stuff” - created by workers, is skewed in favour of a tiny number of very rich capitalists, and their states, who also waste large amounts of it in the form of arms spending, fighting wars and so on. The global ruling class, comprises less than 0.1% of the population. This 0.1% has more net wealth than the bottom 50% of the population, and yet it is this bottom 50%, along with much of the remaining 49.9%, that actually produces all of the wealth in the first place, including all of the machines and other technology that is used to replace them!

Elon Musk has net wealth of $450 billion. If he just gets 1% a year interest on that wealth, it gives him $4.5 billion each and every year, with no need to work or do anything else. That rather puts into perspective the claims about the problem being workers living longer, by a few years, or a few of them claiming a few quid of benefits, let alone a few thousand desperate refugees risking their lives in boats to cross the English Channel. For the ruling-class who appropriate billions each year, it is, of course, very useful for their media to talk every day about a handful of desperate migrants rather than the parasites of the ruling class. Far better to have daily news reports about a migrant who tried to kiss a girl than continued discussion of Prince Andrew and his friends such as Epstein, Trump etc., and their activities.

When the economy was characterised by private capitalists who owned firms, they got their revenues in the form of profits. Because each firm has to compete to stay in business, and because the best way to compete is to operate on a larger scale, to get economies of scale, each capitalist was led to plough their profits back into the business. But, that is no longer the case. The economy is no longer characterised by such privately owned capital, despite the fact that there are around 5 million privately owned small businesses, and self-employed.

The economy is dominated by huge corporations, and these corporations are not privately owned capitals. They, in fact, belong, collectively, to the workers within them. They are socialised capitals. But, those workers are not allowed to control them, just as workers are not allowed to control the money in their own pension funds, whether their company pension funds, or the state pension fund. (In fact, Rachel Reeves wants to use the latter to pump more money into risky ventures, currently, so as to inflate share prices once more, much as has happened in the past, in 1929, 1987, and 2008 ahead of big stock market crashes, as Andrew Ross Sorkin has described.

Instead, control is given to shareholders, which is like giving control of your house to a mortgage lender just because they gave you a mortgage! So, these shareholders, unlike the private industrial capitalists of the 18th and 19th century, have no such objective requirement to plough profits back into the company, to expand it. The company itself still has such a requirement. The workers in the company, including the workers who, nowadays, perform all the functions of the old private capitalists, that is the production managers, sales managers, purchasing managers, administrators, technicians and so on, still have an interest in such expansion, but, not, necessarily, the shareholders, which is why the shareholders have made sure they keep control, and, also, that they appoint boards of directors whose job it is to protect their interests, rather than the interest of the company.

Unlike the old private industrial capitalists, the shareholders have an interest in draining out as much in interest/dividends as possible, and, also, of inflating the share price, which has become the basis of their paper wealth over the last 40 years. This is important in, also, answering the question, asked by Owen, when applied to today, of where has all of the increased wealth gone? If there has been all of the increase in productivity mentioned earlier, where has all of the resultant “stuff” produced gone? Why has it not shown up as an increased ability to produce all of the schools, hospitals, roads and so on that was seen in past times when productivity rose significantly, such as after WWII? Why, instead, do we have roads reverting back to the potholed dirt tracks of the pre-industrial age, schools and hospitals falling into ruins and so on?

In fact, for the last 200 or so years, whenever there has been a big rise in productivity, it first goes along with a period of relative stagnation, of the economy growing at a slower pace than average. The reason is simple. Capitalists introduce labour-saving technology, because a relative shortage of labour had arisen that caused wages to rise, squeezing profits – an overproduction of capital relative to labour supply. By successfully replacing workers with machines, firms can produce the same amount of “stuff” with fewer workers, but, then, also, with wages falling, and fewer workers employed, all of their previous demand for that “stuff” falls. The capitalists grab back their share of all of that surplus “stuff”. That is the point my sister had, also, been making.

In the past, for example, in the 19th century, the capitalists took the opportunity to, also, employ domestic servants in their homes, as a result of their increased profits, and availability of workers, brought about by this rise in productivity from the introduction of machines etc. Even as the living standards of workers rise, and employment grows in such a period, firms can meet the increased demand by employing less workers than they would previously, precisely because of the rise in productivity. For example, they can decide to build a channel tunnel, because they don't need tens of thousands of navvies, but only a few thousand workers and a couple of tunnel boring machines. The point, here, though is that they do decide to build the tunnel, where previously they would not.  But, firms especially, now, very large corporations that plan their investments over many years, do not willy-nilly increase their production above what they see in the market, as the demand for their products.

So, the reason we have not had a huge rise in the quantity of “stuff” to meet the modest needs of workers who live a few more years into retirement, despite the fact that productivity has risen more than enough to make that possible, and even to allow workers to retire earlier rather than later, is because those money-lending capitalists (shareholders) who have control of large companies, have chosen not to do so, and capitalist states, also, chose not to invest in infrastructure, in the same way they did, for example, after WWII. Why? Because, from the 1980's, the technological revolution of that time made them strong, and workers weak, enabling Thatcher and Reagan to beat them down. They were able to reduce the share of wealth going to workers, wealth produced by those workers, and to distribute it, instead, to shareholders, bondholders and so on.

Profits of companies rose, and a smaller proportion of those profits went to investing in additional capital, expansion of production, even though the tremendous rise in productivity brought about by the microchip revolution, did mean more “stuff” than ever before did get produced, including “stuff” never seen before, such as video recorders, personal computers and so on. A larger proportion of the money profits, therefore, went in interest/dividend payments to shareholders and bondholders. They used this money, now not needed for capital investment, to just buy up existing shares and bonds, as well as property. It caused asset prices to inflate into astronomical bubbles.

Between 1980, and 2000, the Dow Jones rose by 1300%, although US GDP rose by only 250%, and the same thing was seen in stock markets across the globe. In the 1980's, in Britain, house prices quadrupled. I bought my first house, in 1977, for cash, costing me £5,500. In 1988, I sold it for £22,500, and if I had held on to it, for another 18 months, I could have sold it for £39,000, which would have been more than the £32,000 I paid for the detached house I bought in 1988! In turn, by the time I sold that in 2010, its price had, again, quadrupled to £150,000. This was all part of a crazy asset price inflation, as all of this money went after existing assets, rather than being used to invest in real capital, and so expand production.

The extent of the craziness was shown, in 1987, when global stock markets crashed by 25%, and in 1990, when UK house prices crashed by 40%, and in Japan, property prices crashed by up to 90%, all sparked by rises in interest rates. The same was true of the crash in 2000, when technology shares dropped 75%, and, of course, in 2008 with the global financial crisis. If, instead of simply using the increased profits of companies, during that period, wastefully, to speculate in existing stock, bond and property markets those profits had been used to accumulate capital, to expand production, to produce more stuff, including more houses – rather than building more houses, Thatcher, for example, sold off council houses, and prevented councils building more to replace them – the idea that we can't produce enough “stuff” to meet the needs of pensioners, and, indeed the rest of society for decent roads, schools, hospitals and so on, would be seen for the nonsense it is. But, the decision not to use those profits in that way was a logical decision of shareholders from their own selfish perspective. They do not invest to meet the needs of society, but to maximise their own wealth. When that wealth increasingly took the form of the paper wealth of inflated share, bond and property prices, they have had to do everything possible to keep them inflated.

That is why, rather than using the vast profits they appropriated over the last forty years to invest in increased production to meet he needs of society, and to lighten the burden of labour, they have used it for speculation, and to increase their own lavish consumption. Its why shareholders should have no right to control companies they do not own, and why workers who are the real, collective owners of those companies should have that control.

Blue Labour Political Incompetence Stirs Up A WASPI's Nest

In the latest instalment of the political incompetence of Blue Labour, having withdrawn the Pensioner's Winter Fuel Allowance, they have now again hit the working-class, by refusing to compensate WASPI women, for having lost out as a result of changes made to their pension age. The average payment would have been around £30,000, being the amount by which they have previously lost out. Who is now likely to immediately seize that gift horse presented to him? Nigel Farage. Expect a statement from him in the next 24 to 48 hours, after he gets back from hobnobbing with his billionaire friend Elon Musk.

Of course, if they have any sense, the Liberals, Greens, and others will seize on this opportunity to press home the advantage, at a time when the disastrous policies being pursued by Blue Labour has reduced the party to the ranks of the also rans, according to the latest polls. The total cost of the compensation would be a one-off £10 billion, so, besides the fundamental issue of fairness involved in compensating these women, its not as if the cost of doing so would break the bank. At a time when the rest of Blue Labour's policies have sent the economy into recession, not to mention the £40 billion a year cost of their continued pursuit of the nightmare that is Brexit is inflicting on the economy, a £10 billion boost into the households of these pensioners, especially had they organised it to occur before Christmas, would not only have removed the bitter taste from their Winter Fuel fiasco, but would have seen much of that money fed straight back into the economy, in immediate spending, boosting aggregate demand.

Much of that spending (about 20% of it, in fact), would have gone back into government coffers in VAT receipts, and another large part would have gone back to the government in the form of corporation and income taxes. Rather like the failure to immediately spend some money by giving Councils up front funding to fix the potholes that are causing the country's road system to collapse, the supposed economic genius, Rachel Reeves, doesn't seem to be able to even score in an open goal, and pick the low hanging fruit in front of her eyes. Why?

James O'Brien asked a similar question in relation to Brexit, and basically acted as apologist for Starmer's government by saying he didn't know what else he could do, given that any concession given to the EU would cause the right-wing media to go into full furious rants about treason. 

But, they will do that anyway, and so what if they do? O'Brien claims that Starmer does not have “front page o phobia”, so, in that case, why would he care if they rant even more? The real reason that Starmer can't say anything about the catastrophe of Brexit is that for the last 5 years, he has himself embraced it! Long before becoming Prime Minister, Starmer was selling the bullshit about the possibility of negotiating a beneficial “Labour Brexit”. Starmer has stolen all the clothes of the Tories, not just on Brexit, but in his own full English jingoism, flag-waving, xenophobia, immigrant bashing and so on.

Starmer gambled that core, progressive Labour voters would vote for him anyway, despite all of the reactionary, nationalist, Tory agenda, and so he only had his eyes on the mirage of winning over Brexit voters in the “Red Wall”, most of whom were never Labour voters to begin with, and few of whom would be won over by his late conversion. The General Election proved that as those reactionary Brexit voters, deserted the Tories, not for Blue Labour, but Reform, and in the meantime, Starmer's reactionary agenda drove away progressive Labour voters in their tens of thousands to the Liberals, Greens, Independents and others, a tidal wave that is set to grow even more dramatically in the coming months.

No Money For Poor Pensioners, Another £600 million For Zelensky

Starmer and Blue Labour lie as readily, and as frequently, as they breathe. On the same day that they used their fraudulent parliamentary majority to push through a vicious attack on some of the poorest, most vulnerable households, by withdrawing the Winter Fuel Allowance from those not in receipt of Pension Credit, claiming “they had to do it”, because there was no money for it, they also found another £600 million to send to Zelensky's corrupt, oligarchical regime in Ukraine, to continue the war against Russia!

Since 2022, the UK has pledged £12.5 billion in aid for Ukraine, of which £7.6 billion is military aid, with £3 billion in military aid, pledged for this year, alone, and now with this additional £600 million. So, what was that again about there being no money to give a few quid to poor, vulnerable pensioners, in Britain? If we believed Blue Labour, which would be a very silly thing to do given their proclivity to continually lie, the expected savings from depriving pensioner households of vital Winter Fuel payments, would be £1.5 billion, just half of the amount they are sending, this year alone to fund the war being fought by Ukrainian workers, on their behalf against Russia. In fact, as Martin Lewis has set out, if we believed Blue Labour's argument and justification for cutting the payments that they want the 800,000 pensioners not claiming Pension Credit, to claim it, that would also cost around £3.5 billion, wiping out the proposed savings! This is typical of the lies, and just general bullshit that comes out of the mouths of these career politicians, whenever they speak.

In the 19th century, in the days before nations turned towards conscript armies, to fight their wars, they used paid mercenaries. In effect, what we have is a return to those days, at least in part, as wars between imperialist states and blocs, are being fought out as proxy wars, using paid mercenaries. Its not just the role of The Wagner Group in various places across the globe, but also, for example, Ukraine sending troops to fight on behalf of the Sudanese government, the channelling of funds to various jihadist and other terrorist organisations to fight in theatres of war across the globe. The US, UK and EU know that, if they asked their own citizens to go and fight against Russia, in Ukraine, they would rapidly face a rebellion against such a proposal, not to mention that any such action would quickly lead to WWIII, and nuclear extermination of Mankind.

So, they are paying Ukrainian workers to fight as mercenaries on their behalf, subordinated via the hierarchy and discipline of the Ukrainian army, and the Ukrainian imperialist state, with small numbers of British, US, and other European Special Forces, also fighting secretly, as disclosed in the leak of US Defence Department papers. At the start of the last century, the distinction between the revolutionary socialists and the social-patriots was the refusal to vote for war credits to fight such imperialist wars, but, today, we have some who claim to be revolutionary socialists, falling over themselves to demand billions be sent to the corrupt regime in Ukraine to fight such an imperialist war!

At the same time, the imperialists of Blue Labour, who are at the forefront of promoting such wars, and who continue to back, and arm the genocide committed by the Bonapartist, Zionist state in Israel, against Palestinians, claim that there is no money for poor pensioner households, here, and similarly, no money to enable them to remove the two-child limit on Child Benefit, or to finance even a continuation of vital public services at the current abominably low levels! As in Ukraine, the imperialists of Blue Labour, supported by some of the social imperialists that demand more WMD for Ukraine, lyingly talk Israel's right to defend itself, even as its huge military machine literally rolls over the bones of Palestinians, and increasingly attacks its neighbours, in what appears to be a deliberate strategy of annexation, and the provocation of a regional war.

Blue Labour politicians come on TV and claim that the decision to cut the Winter Fuel Payment was “difficult”, but difficult for who? It will certainly be difficult for around 1 million of those deprived of it, who Blue Labour's own figures have previously shown will result in around 4,000 of them dying this Winter! But, it clearly isn't difficult for those Blue Labour politicians that voted for it, or they wouldn't have done so. They are not the ones, with their comfy positions and large salaries and other incomes that will be struggling to pay the bills, heating or otherwise. Even less will all those billionaires and multimillionaires that, now, provide funds to Blue Labour, and gain access to the corridors of power, have any such difficulty. Blue Labour could, if it found the decision so “difficult” have introduced a wealth tax, on such billionaires instead.

Yet, the reality is that once again Blue Labour lies about this “difficult decision”. In 2014, Rachel Reeves stated openly, in the Commons that she wanted to means test the Winter Fuel Allowance, and when the government won the vote on Tuesday, Blue Labour MP's were seen giving double fist celebrations at their victory over the poor, some of whom would have voted for them, but who may not be around next time to do so, as they will have died, even if, at that stage, they would have been so lavish with their vote.

Inflation Surges, Wages Are Next

US Consumer price inflation has spiked higher again. The headline rate rose in January to 7.5% compared to 7% in December. It was also higher than the predicted figure of 7.3%. The figure is the highest since 1982, showing that, contrary to the predictions of central bankers, and others, this inflation is not transitory, but is heading firmly back to the conditions last seen in the 1970's. Its also clear that this inflation is not some temporary phenomenon driven by supply bottlenecks, as some on the Left, like Michael Roberts, have suggested. Roberts wrote this week in the Weekly Worker,

“inflation rates are rising in all the major economies, driven partly by increased consumer demand, but mostly by supply-chain bottlenecks, particularly in fossil fuel, energy and food commodities.”

Well, its good to see Roberts acknowledging that consumer demand is rising sharply, because its only a few weeks ago that he was repeating his old tune that, falling profits were going to result in yet another recession, to add to the dozen or so others he has been predicting each year for the last decade, at least. In fact, rising demand does not lead to higher prices unless surplus money tokens or credit are put into circulation. And, it clearly is not supply chain bottlenecks that are responsible either. In his Bloomberg Letter, John Authers notes that services inflation is also at a 30 year high, and services does not process materials, so is not affected by such bottlenecks. What services do rely upon is lots of labour, and it is, now, labour that is in short supply, causing wage costs to rise.

Roberts argument is essentially the Keynesian view of inflation, as being caused by either demand pull, or cost-push inflation. As Marx describes, neither of these can cause inflation. If demand rises, but no additional money is put into circulation, prices will remain the same, because the demand for money will also rise, causing the same effect on the money commodity. Nor does rising costs lead to higher prices, unless additional currency is put into circulation. If productivity falls, causing costs to rise, so that the value of materials rises, then this passes through into the value of commodities. If the quantity of commodities in circulation remains the same, whilst their value increases, this necessitates more money being put into circulation, and on this basis, the price of commodities – their exchange value against money – rises, but that is not inflation.

Moreover, as Marx sets out, in Value, Price and Profit, if wages rise, this does not lead to inflation. The value of commodities is comprised as follows. Firstly there is the value of the constant capital, consisting of congealed labour, and in addition there is the new value created by current labour in processing this constant capital. If the value of the former rises, then this passes through directly into the value of the commodity, because this represents an increase in the labour required for its production. But, in respect of the latter, its only if productivity falls, and more of this current labour is required that this leads to an increase in the value of the commodity. For example, if 10 hours labour is required to produce the constant capital consumed in a commodity, and 10 hours of current labour process it, the value of the commodity is equal to 20 hours. If the former rises to 12 hours, the value of the commodity rises to 22 hours, and if the labour required in processing rises to 12 hours, it rises to 24 hours. But, a rise in wages, is not a rise in the amount of labour required to produce this commodity, it is only a rise in the value of labour-power, or in the market price of labour.

Suppose, that the 10 hours of labour required for production divides into 5 hours of necessary labour, equal to wages, and 5 hours of surplus labour, equal to profits. If wages rise to be equal to 6 hours of labour, this does not change the labour required to produce this commodity, which is still 10. It simply means that, now, out of that 10 hours, 6 is paid as wages, leaving only 4 to be paid as profits. It represents a fall in the rate of surplus value. Similarly, in other periods, capital may be able to extend the working-day to say 12 hours, whilst keeping wages at 5 hours, so that profits would rise to be equal to 7 hours. It would not affect the price of the commodity itself.

However, in practice, central banks, because they are there to protect the interests of capital, respond to such situations where wages are rising, and so threatening to squeeze profits as described above. They print additional money tokens, so that they are devalued as against commodities, which results in inflation. The inflation enables firms to raise prices to compensate themselves for their rising costs, which, for them amounts to not just the costs of materials, but also the cost of wages. They seek to maintain their money profits, and rate of profit, by raising prices. They can only do so, if the currency supply is increased appropriately, and central banks oblige them in that respect. That is what leads to a price-wage spiral such as was seen in the 1970's and early 1980's.

It becomes an exercise in leapfrogging as workers seek to raise their wages to compensate for rising prices, whilst firms then try to compensate for rising costs, by raising prices, and the central bank is left enabling the process, by putting increasing amounts of currency into circulation. At some points, wages will leapfrog over the higher prices, as workers, seeing where inflation is going, try to get ahead of it by demanding above inflation pay rises, at other times, in between wage negotiations, for example, prices will leapfrog back over wages. In order to try to protect workers living standards in such periods, the demand for a sliding scale of wages has been raised, so that each month, as workers calculate the rise in their living costs, they demand at least the same increase in wages. In the 1970's, in an attempt to prevent workers taking such measures into their own hands, the Heath Government, in Britain, introduced such a scheme, implemented by the state.  In Italy, which had a perennial problem with inflation, unions negotiated the Scala Mobile.

But, any such situation, threatens to simply escalate out of control, because it necessitates a ratchet effect of ever higher prices, resulting in ever higher wages, causing ever higher costs, and so on. In certain times, workers will inevitably lose out, and at all times those on fixed incomes will lose out, because they have no means of ensuring that their pensions, benefits and so on rise in line with prices. In the 1920's, as a period of long wave crisis that was turning into a period of stagnation that ran into the mid 1930's, workers inevitably lost out, as seen with the Weimar inflation, but also in the falls in wages in Britain that provoked the action of the Triple Alliance, and the 1926 General Strike.

Similarly, in the early 1980's, as capital responded to the crisis of overproduction, by introducing new labour-saving technologies, workers again found themselves on the defensive, and wages failed to keep pace with rising prices. But, at other times, conditions favour labour, not capital. In Value, Price and Profit, for example, Marx describes the conditions in the USA, where there was a shortage of labour. It meant that wages were high, and, in addition, many of the workers, who were immigrants, used these wages to save money to buy land, and so turn themselves again into independent peasant producers, so that capital continually found itself with labour being in short supply. It was why US capital, needed, from the beginning, to use machines wherever possible in place of labour, as well as continuing to draw in immigrants.

A similar thing is described by Marx in relation to the situation between 1849-59 in Britain, where large numbers of agricultural workers left the land to take up jobs in industry, as well as in railway and other construction. The capitalist farmers facing rising wages, could not pass on these higher costs in higher prices, because, after 1848, the Corn Laws had been abolished, and British agriculture faced competition from cheaper continental production. They had to simply accept the squeeze on their profits that resulted, but again showing the fallacy of Michael Roberts arguments in relation to profits and investment, what the farmers did in response to these squeezed profits was precisely to invest more! They invested more in machines, so that they required less labour, and could then reduce wages, and they sought to maximise the effectiveness of those machines, by amalgamating farms so as to produce on a larger scale, taking advantage of economies of scale.

A similar thing happened in the 1960's. By the 1960's, many of the productivity benefits resulting from the technological revolution of the 1920/30's, had started to wane. But, the economy was booming, and one reason it was booming was that more workers were being employed, and as productivity no longer increased so fast, proportionately more workers had to be employed to achieve any given increase in output. More workers employed, meant more wages, meaning more demand for wage goods, meaning capital needed to expand further, and so employ more workers. By the 1960's, even with all of the additions to the workforce resulting from married women joining the workforce, from an increased population from the Baby Boom, and from immigration, the demand for labour was such that unemployment fell to between 1-2%.  Calculated on the current basis, that would be more like 0.5%. In effect, it was full employment with only the frictional unemployment of people moving from one job to another making up the numbers. And, that meant that people could move almost at will from one job to another, in search of better wages and so on. Where, in the 1950's workers had responded to improved economic conditions by accepting offers from employers to work overtime, now the conditions meant that they could demand to work fewer hours, to have more holidays, but without any loss of pay, as they demanded better hourly wages, and better holiday pay.

In addition, they demanded improvements in the social wage, the payment of their wages in truck by the state in the form of better education, healthcare and so on. That was noticeable in the US, with the Great Society project of LBJ, for example. All of that increase in the wage share, caused a squeeze on profits, and it was possible, because of this relative shortage of labour. And, today, unlike the 1920's and 1980's, we have the same kinds of conditions that existed in the 1960's. We have an increasing relative shortage of labour, and that in itself is causing wages to rise. As wages rise, again, that feeds through into an increased demand for wage goods, requiring firms to expand and so take on additional workers – particularly in the labour intensive services industries – which feeds into higher wages, and so on.

The truth is that the lockdowns and lockouts have simply speeded up processes that were already underway. Lockdowns did not cause the death of the High Street. That process was already well underway, because online retailing was already massively undercutting it, and providing a better, more modern alternative. Lockdowns simply speeded up that process as consumers, unable to go out to bricks and mortar retailers, turned to the available online alternatives. Having done so, and found it cheaper, and more convenient, they are not likely to go back. But, all of the talk about supply chains, is really also a manifestation of the fact that the productivity gains from globalisation are already mostly behind us, just as the productivity gains from the technological revolution of the 1980's, from the microchip are mostly behind us.

There is plenty of scope for those technological developments to find their way into new consumer products, just as has happened with every set of technological developments in past long wave cycles, but that is not the same as that technology now being able to bring about the kind of big reductions in costs it did in the past. We will have a big expansion in new consumer products in technology based healthcare, for example, and all of these will provide the basis for workers to spend their increased wages on these commodities, driving the economic expansion of the next 10-20 years, but it will take place in conditions of rising wage share, and, eventually, a squeeze on profits, similar to that which led to the crisis of the 1970's.

And, the same thing is being seen across the globe. Inflation in the EU has also surged forward, meaning that the ECB now has to consider raising its policy rates, just as the Bank of England has done, and as the Federal Reserve is about to do. In the UK, the Bank of England claims that inflation will peak at 7.25% in the Spring, but it is also assuming that workers will simply sit back and see their living standards cut as this goes on. Indeed, if we were to believe the line being given by many of the pundits, and by Labour politicians, workers have no say in this matter, and will just have to suck it up. For opportunists like Starmer and Reeves, that is the best outcome, because the last thing they want to see is a rise in workers militancy, let alone workers taking matters into their own hands. The idea of a failing Tory government, which simply enables them to argue for workers to vote for them as the alternative – an alternative, which on all past experience, and based on the identity of the positions being offered by the PLP and the Tories is no alternative at all – is the kind of facile approach we have come to expect.

But, there is no reason to expect that workers will do any such thing. Wages are rising fast, simply on the basis of a shortage of labour, which has required firms to offer much higher wages just to attract workers. Not only have haulage companies been led to increase wages by around 30%, but entire fleets of local council bin lorry drivers have been recruited by them. With wages in hospitality having risen by 18%, we can expect to see many public sector workers from social care, to school staff, to NHS workers doing the same, especially if the government tries to impose below inflation pay rises on them. But, such conditions make it inevitable that, as unions begin to undertake annual pay negotiations, in the Spring, any idea by Andrew Bailey, Rachel Reeves, or anyone else, that workers are going to moderate their claims, and accept a pay cut is ridiculous.

Workers are unlikely to strike in conditions where they think they will be unsuccessful, but those are not the conditions that exist today. In the US, last month, payrolls rose by nearly half a million, way above estimates, and what is more, the December jobs number was revised up from 150,000 to also about half a million, meaning the US has added 1 million jobs in the last 2 months alone.  That is before it properly comes out of its lockdowns.  Firms are not going to lose production, as a result of a strike, in conditions where that means losing large amounts of profits, and where surging demand means they will lose market share to their competitors. In conditions of rapidly rising money profits, and where they see demand continuing to rise sharply, and the ability to further recoup costs in higher prices, firms will simply pay up. That is what happened in 2008, when lorry divers got a 14% pay rise after just a 2 day strike, despite the fact that politicians and the media were claiming that the pay claim was ridiculously unachievable.

The reality, in the US and UK, is that workers real cost of living is already rising at over 10%, and that figure is going to go higher from here. In Britain, Brexit has considerably increased costs, and reduced the profitability of British business, which they will also try to recoup in higher prices. On top of all that, there are much higher energy prices on the way, increases in monthly mortgage payments, as well as much higher taxes, as National Insurance is increased. To compensate for that workers are going to need pay rises of 15-20%, and I can't believe, as a former union negotiator, that union officials, at rank and file level, are not already factoring that into their demands for the coming wage rounds.

Of course, when firms concede those pay claims, as they undoubtedly will, in current conditions, they will do so with one eye on the ability to recoup the cost in higher prices, as they see demand for their goods and services continuing to surge, as lockdowns are lifted. Central banks will no doubt facilitate that by making liquidity available, even as they continue to raise their policy rates. The consequence of that is going to be that large firms finance expansion out of profits, and additional share issues, whilst many smaller businesses – the so called zombie businesses – will go under, as they face higher interest charges. But, that, in turn, will bring about a further concentration and centralisation of capital. That will help to improve productivity as a lot of that capital tied up by inefficient small businesses is released, and will enable the workers tied into those low paying small firms to get jobs with larger, better paying businesses.

The period ahead is one of significantly rising economic growth, whilst higher interest rates, and a return to share issuance to finance capital accumulation, means that asset prices are set to crash, again releasing liquidity from unproductive speculation into the real economy.  As wages rise, and leapfrog over prices, firms will seek to recoup the costs in yet higher prices.  It means, we again need to demand a sliding scale of wages be negotiated as a class wide demand by the TUC, so as to protect all workers, including those on fixed incomes.  And, its clear that the official inflation data does not accurately reflect the real increase in workers' cost of living.  In the 1920's, Trades Councils, notably the London Trades Council, worked alongside the Co-ops, and Committees of housewives to monitor prices, and establish a workers cost of living index as the basis for their demands for pay rises.  Today, local TUC's should do the same working with local Co-ops, establishing committees of workers and pensioners, and socialist economists, to monitor price rises, and develop a workers' cost of living index, as the basis for demanding monthly wage, pensions and benefits rises, backed by the TUC in class wide industrial action if required.

For A Workers Cost of Living Index Calculated by Committees of Workers, Pensioners, Co-ops and Socialist Economists - For A Sliding Scale of Wages, Pensions and Benefits To Protect Workers Living Standards

Government Is Going To Renege On The Triple Lock

The government is preparing to renege on its triple lock guarantee to pensioners, as the consequences of its Brexit disaster, and money printing causes inflation to rocket.

The triple lock guarantees that pension will rise by whatever is the greatest of wage rises, inflation or 2.5%.  Inflation has been rising for months, as the economy reopens, and all of the money printing done by the Bank of England over the last few decades, and particularly over the last year, floods out to finance a rapid increase in monetary demand for goods and services whose supply has been reduced by the government imposed lockouts and lockdowns.  A similar thing has been happening across the globe, causing global inflation to rise sharply, including the prices of primary products, including food and energy, which also then passes through into further price rises of manufactured commodities, and higher wages, as workers seek to maintain their standard of living amidst the rises in their cost of living.

Governments and central banks have tried to sell the line over the last few months that inflation  was only temporary, and largely due to base line effects compared to falls in prices a year ago.  That became increasingly hard to sustain, as inflation not only continued to exceed estimates month after month, but every month was rising at a faster pace than the month before.  Those rising prices would undoubtedly pass through into subsequent waves of inflation, including higher wages to compensate, and then, as firms tried to avoid a squeeze on their profits from rising wages, central banks would print more money tokens to enable businesses to raise their prices once again.  But, they face another problem, and that is that Brexit had already caused rising costs, and a shortage of labour in various sectors of the economy.

Even before the government imposed lockouts and lockdown, there was a shortage of around 70,000 lorry drivers.  Brexit made that worse, as many EU lorry drivers no longer find it worthwhile completing all of the paperwork required to operate in the UK.  All of the red tape created by Brexit also means that the time taken for every lorry trip is much longer, which means both more lorries and more drivers are required to shift the same amount of freight.  A further problem in that area is likely to arise with the Channel Tunnel.  It has now passed into French hands, and is likely to need subsidy from either or both of the French government and EU.  There will be a strong incentive for them to ensure that freight moving from the EU to the UK pays lower fares than traffic in the other direction, so that UK exports to the EU will become less competitive, forcing UK companies to bear that cost from their profits.

The shortage of lorry drivers is now such that the British government has all but scrapped the safety standards for lorry drivers working hours.  That is just a taster of the kind of reductions in working conditions, that British workers can expect as a consequence of Brexit.  But, at the same time, even that is not enough to overcome the shortage of drivers, and so firms are having to pay higher wages.  Tesco is offering £1,00 to any lorry driver that comes to work for them, as the large increase in its online deliveries has led to an increase in its business.

There is also a shortage of around 180,000 workers in the leisure and hospitality sector.  A lot of that is because the workers in that industry, most of whom got furloughed, and many of whom came from the EU, actually left and went back to the EU, not to return.  Even with the existing limited reopening in that sector, the demand for workers has been such that wages rose by around 18%.  That also shows why one of the excuses used by governments and central banks over he latest figures for wage rises, are bunk.

According to the latest data, wages rose by 8.8% last month.  According to the triple lock, the government should increase pension by that amount.  But, its arguing that the figure is a freak number.  Actually, for the reasons cited above, the figure for future months could easily be even higher.  The government is arguing that its only the fact of low wages this time last year, as workers got furloughed, that explains the increase.  But, that is not what is being seen in terms of those wage rises for workers in the hospitality sector, for lorry drivers, and a range of other jobs.

For example, before lockdowns I had arranged for a plumber to come and do some work, but had to cancel it, due to the lockdowns.  Recently, I tried to get him to do the planned work, but he was fully booked up.  I tried a firm that I used to use to do my annual central heating service, but they told me they were not taking on new business till next year, because they could not cope with the work they already had.  They gave me the name of a plumber who used to work for them, but who had gone on his own, but he too was fully booked.  I have found the same thing with trying to get work done on my roof, and even a fencing company said they were not taking any new business till next year.

All of this is confirmed in the official data, which shows that there are now over 1 million job vacancies.  Its a similar picture to what is being seen in the US, where there is also an increase in the number of people quitting their existing jobs, because they can now get better paid jobs, just by moving to another company.  The government, and various pundits are claiming that the rise in wages is spurious, because, as well as these base effects from last year, there are also compositional effects.  That is that many of the jobs that have actually been lost over the last year are amongst those lower paid jobs, mostly occupied by young workers.  But, as was indicated above in relation to the hospitality sector, the shortage of workers there now means that wages have risen by 18%.

As furlough ends, there will undoubtedly be a rise in unemployment, as I have set out before.  In some sectors jobs will be lost.  In reality, we are likely to see they already have been lost, as workers in them left, and went to other jobs, or back to the EU, whilst employers continued to pocket the furlough money.  Many of those workers will not be in the right place, or have the required skills to fill the jobs where there is currently a large shortage.  You can't become a plumber or a roofer overnight, and now, unlike the early 2000's, when such a situation arose, we do not have the possibility of quickly obtaining a large number of skilled workers from the EU to fill the gap.

The government is blaming the rise in wages on a statistical freak and on COVID, but the real basis of the problem is a combination of Brexit and the excessive money printing that the Bank of England has been engaged in.  The problem lies with the government and its policies, and now it is trying to make pensioners pay the price for its Brexit disaster.

Tata Steelworkers Pensions

Workers at Tata's Port Talbot steelworks have voted to accept a reduction in their pension entitlements, as part of a plan to save the steelworks.. It amounts to Port Talbot workers handing over a large chunk of capital to Tata for nothing. The workers essentially made the decision with a gun held to their head. They were faced with a choice of either handing over this large chunk of their pensions to Tata, or face the possibility of the steelworks closing, thereby not only losing their jobs, but also seeing a chunk of their pension entitlement disappear anyway, as the pension fund is unable to meet its commitments. There are a number of lessons from the experience.

Firstly, the situation that the steelworkers find themselves in is a consequence of not themselves owning and controlling their pension fund. Company pension funds, and this applies to those funds run by local and central government for their workers, as well as nationalised industries, are legally owned and controlled by the company, despite the fact that the money paid into the fund comes from the workers. Who can be surprised that where workers do not have ownership and control of their own pension funds that they will end up being screwed by those that do exercise such ownership and control?

Anyone who has simply followed the news over the years will have seen the experience workers had with their pension funds in the hands of people like Robert Maxwell or Phillip Green. But, even where such funds are not simply taken from the workers or mishandled, BBC's Panorama some years ago showed that the very structure of such funds amounts to workers more or less simply throwing away a large part of the money they pay into their pension funds. Panorama showed that often more than 60%, and sometimes as much as 80% of the money that workers pay into these company pension funds, simply gets swallowed up in various commissions, fees and other costs of the pension fund managers, and others along the way, rather than actually going into buying financial assets to provide the future revenues workers require to cover their pensions.

Workers are often again faced with a choice with a gun to their head. The incentive to join such a company pension scheme is that the company also puts money into it alongside the worker. But, this is really an illusion. Pensions are deferred wages. In order for workers', for labour-power, to be reproduced, workers, as a class, have to be paid wages that are, on average, sufficient for them to live for their entire life, not just their working life. As a class, workers must be able to cover the costs of raising their children prior to those children starting work, and they must be able to cover their own needs, when they have retired, via some form of pensions or savings.

So, if workers simply were paid wages that enabled them to make these provisions for themselves, whether individually via their own savings, or collectively by setting up their own social insurance schemes such as they used to have via their own Friendly Societies, Co-operatives and Trades Unions, that wage would itself incorporate the contribution that the employer currently makes into such funds, be they company pension funds, or state run National Insurance.

But, worse than that, over the last thirty years, employers, including state employers, notably in relation to the Local Government Pension Scheme, took a contributions holiday. In other words, they did not make their contribution into the fund, arguing that the funds were adequate to cover future pension liabilities. For private companies such pension holidays went straight to the bottom line of the company's profits, and was paid out to shareholders. For the state and local state, it went to keep down tax and Council Tax bills, at the workers' expense. A similar thing applies to all of those company pension schemes run by the old nationalised industries during that time. It is part of the reason for there being huge black holes in such company pension funds, now unable to meet their liabilities. It is not as the Tory media would have you believe because workers have dared to live a few years longer!

But, its not just these company pension schemes that this applies to. As I set out some time ago, it applies to the state pension too. For the first fifty years of the state pension, the majority of workers did not live long enough to enjoy more than two or three years of the pension they had paid a lifetime to create. Many did not live long enough to draw any pension, and the workers worst affected by that were all those that had the heaviest, dirtiest jobs, and whose lives were blighted by a range of industrial injuries and diseases.

Workers have had no more ownership or control over the state pension than they have had over the company pension funds, and both have been operated not for the benefit of workers, but for the benefit of capital. In recent years, the state pension has risen, and been given the protection of the “triple lock”, but that comes after all those decades when workers paid into the state pension fund without living long enough to take out of it; it comes after years of the state pension being a paltry amount; and even now the state seeing workers living a few years long – again only on average, because the workers in the heaviest jobs still lag behind in life expectancy – has unilaterally changed the terms, demanding that workers work until 66 and above, rather than 65, before they can even begin to draw that pension. In a rich country, with all of the advantages that the technological revolution has brought in raising productivity, workers should be retiring earlier, not later.

But, there is another reason that the company pension schemes, and people's private pension funds, have failed to meet current pension needs, as I have set out before. The media still talks about rises in stock markets as being beneficial for pensions, when, in fact, the opposite is the case. In the 1990's, when stock and bond markets rose sharply, pension contributions should have also risen sharply, so that those contributions could continue to buy the same quantity of shares and bonds. Instead, companies used the inflated prices of those assets to justify taking pension holidays.

Suppose, workers pay £100 a month into their pension fund, and the average price of shares is £1. Each month, they buy 100 shares. If each share produces £0.10 of dividends, then the pension fund generates £10 of revenue each month, to cover pension payments. But, if the price of shares rockets to £10 per share, the same contributions now buy only 10 shares, and with each share producing the same £0.10 in dividends, the £100 of pension contributions, now only generates £1 of revenue each month to cover pensions.

Firms obviously did not want to increase workers' wages so as to enable them to make the much higher level of contributions required so as to buy the same number of shares and bonds, to fund their future pensions. Nor did the firms want to make additional payments into the fund themselves. Instead, they made the totally ridiculous assumption that the yield on the shares and bonds would remain the same, and that as the paper value of the assets in the fund had shot up, that would mean greater future revenues from it. In other words, if £1 million of shares was in the fund, and rose to £10 million, then these shares would continue producing a 10% return, so that instead of producing £100,000 of revenue, they would now produce £1 million of revenue.

That, of course is crazy, because it assumes that interest/dividends/yield are somehow a natural property of the financial asset, in the same way that apples are a natural property of an apple tree. There is no reason that because the price of a share rises ten fold, the dividend paid by such shares will rise ten fold, because that depends on the profits of the firm rising ten fold, so as to be able to pay these higher dividends. And, in fact, that has been seen, because the more the prices of these financial assets rose, the lower the yield on them became.

The pension funds, then compensated for that, by realising that instead of paying out pensions from the revenue obtained on these financial assets, they could instead simply sell some of these financial assets whose paper prices had been inflated. This is the basis upon which the media see such bubbles in asset prices as being good for pensions. But, this is just a repetition of what happened to the landed aristocracy in the 18th and 19th centuries. The landlords, borrowed money so as to sustain their lavish lifestyle, and paid off their debts by selling some of their land. But, as they sold land, even at higher prices, that meant their ability to obtain revenue from rent, was thereby undermined. 

By failing to increase the actual quantity of bonds and shares in pension funds, which would have required a huge rise in pension contributions, and by using the paper capital gains in the underlying assets to fund current liabilities, the pension funds, similarly eat their own capital, and so undermine their future revenue producing capacity, required to meet future pension liabilities. That is again a major cause of the current pension black holes.

So, when I heard Frank Field discussing the situation facing Tata workers the other day, it illustrated just how little such people actually understand the economic laws that determine pensions. Field talked about the possibility of the Tata workers' pensions being helped out in the future as interest rates rise. But, that is pretty impossible, and again shows that there is a total failure to understand the economic basis of such interest.

There are two ways that a rise in interest/yield on the underlying assets of pension funds might arise. The first way is that the general rate of profit in the economy might rise very sharply, so that every company produces much larger masses of profits, thereby facilitating the payment of much higher dividends. If company shares have risen ten fold from £1 to £10, then if profits rise by twelve fold, the amount that can be paid out in dividends can also rise twelve fold. Instead of each share producing £0.10 of dividends, it would then produce £1.20 in dividends, so the yield would rise from 10% to 12%.

Is that likely? No. The period of the sharp rise in the general rate of profit occurred from the late 1980's, through to around 1999, and continued at a slower rate of growth after that period. From around 2012, that increase in the general rate of profit has stalled, and from here on in the long wave cycle, the general rate of profit is likely to be squeezed – as also happened in the 1960's and 70's – as wages rise, whilst productivity slows. In the period when the general rate of profit was rising sharply from the late 1980's onwards, a growing portion of those profits went to finance speculation rather than productive investment, which is the basis of expanding future profits. According to Mark Carney, at the Bank of England, the share of profits going to dividends, in the 1970's was around 10%, whereas today it is around 70%. A similar picture exists in the US.

In other words, the sharp rise in asset prices, be it shares, bonds or property, caused the yields on those assets to fall. To compensate, and keep the yields up, a larger and larger portion of profits had to go to pay dividends. Its hard to see, how the portion of profits going to dividends could be increased from here, without bringing actual productive investment to a more or less complete halt, thereby creating a recession, and undermining future profits.

The only other way that yields can rise, from here, is if asset prices crash. In other words, if profits have risen not be twelve fold, but only by 1.2 fold, so that dividends might rise correspondingly from £0.10 per share to £0.12 per share, then if share prices fell back from £10 per share, to their original £1 per share, that would mean that the yield would rise from 10% to 12%. That of course, would be anathema to the Tory media who see high asset prices as a virility symbol of capitalism.  The Dow Jones Index has risen more than 20 fold since 1980, way ahead of economic growth.

But, of course, for all those workers who have paid in their contributions over the last thirty years, when asset prices were being astronomically inflated, and whose contributions thereby accumulated less and less capital, that will not change the revenue their pension fund now obtains. It will simply represent a higher yield on those assets, but in terms of the absolute amount of earnings available to pay out pensions it will be unchanged. The real benefit will be for those current workers whose pension contributions would then buy a larger quantity of shares and bonds to cover their future pensions.

The further point here then, is that if workers had had ownership and control of their pension funds in the last thirty years, they would have been able to use their contributions to invest in real productive-capital, which would have been producing real profits in the intervening period. They could have used their pension contributions to build up their own worker-owned co-operative businesses, rather than their contributions going to fund lavish lifestyles of bankers and fund managers, and to finance the unproductive speculation in shares, bonds and property that destructively created massive bubbles in those assets.

The answer lies in workers' hands for the future. But, they have to be prepared to take it, and to collectively take responsibility for their own future rather than subcontracting it to their enemies in the capitalist state.

How QE Killed Your Pension

I recently wrote about how the idea that rising house prices made people wealthier was baloney. But, a similar idea is put forward that the cause of black holes in pension funds has been the various crashes in stock markets over the last twenty years. It is equally baloney.

In the UK, the fact that millions of people cannot afford to buy a house, or to move to a better one, is itself proof that rising house prices make people poorer not richer. The same is true of the fact that these higher house prices have caused rents to rise. Latest data from the US, where house prices crashed by 60% in 2008/9, but have been rising again more recently, shows that there has been a marked slow down in people putting their houses up for sale, because they cannot now raise the additional funds to move up the housing ladder to a more expensive house, as those more expensive houses have become ever more out of reach.

The idea that pension funds have suffered because of stock market crashes is quite obviously false, because stock markets are currently near historic highs. The Dow Jones is 70% higher than in 2000, when it was 1300% higher than in 1980. The S&P 500 has trebled just since 2009. If high stock market valuations were what was needed for healthy pension funds, then those funds should be in rude health. But, they are not. The reason they are not healthy is not because stock markets have been low, but because they have been sky high!

To understand why its necessary to understand the point that Marx makes in Capital III, and in Theories of Surplus Value, that capital is not revenue. Capital is a source of revenue – profit and interest – but is not itself revenue.

If I own £1 million of productive or commercial capital, in the shape of buildings, machines, materials and labour-power, then, if the general annual rate of profit is 10%, I can obtain £100,000 of profit from this capital. If I do not have to share it with a money-lending capitalist, or a landlord, or the state, I will thereby obtain a revenue of £100,000. I can spend it to fund my own consumption, with no detriment to my capital, which will remain £1 million, and operate to produce £100,000 of profit again, next year.

On the other hand, if I sell 10% of the components of my capital, so that it now only has a value of £0.9 million, this capital will now only produce a revenue of £90,000, this year and every subsequent year.

If I own £1 million of money-capital, but have no desire to engage in production, I can lend this money-capital to an industrial capitalist who does want to engage in production or commerce. I might make a straightforward loan to them, or I might lend them money-capital in return for share certificates, or in return for bonds.

If the general annual rate of profit is 10%, the industrial capitalist will not be prepared to pay me 10% interest to borrow this money-capital, because that would wipe out their profit. How much they will pay, the rate of interest, is determined by competition, by the demand for and supply of this money-capital.

The interest I receive on this money-capital is again a revenue. If the rate of interest is 5%, I will obtain £50,000 p.a. in interest, and I can consume this revenue with no detriment to my capital. It remains £1 million, and will provide me with £50,000 of revenue again next year. But, again, if I consume £150,000, I will have consumed £100,000 of my capital. It is permanently reduced to £0.9 million, and so will then only produce a revenue of £45,000.

This is the difference between the consumption of revenue and the consumption of capital. Pensions are a form of revenue, and they are funded from the revenue produced by the pension fund. As illustrated above, that revenue comes in the form of dividends paid on the shares of companies held by the fund, and the interest paid on the corporate and government bonds held by the fund. If the fund owns land and property, which it leases, the revenue may also come from the rent it obtains from these leases.

There are regulations which determine what kind of financial assets pension funds can hold, and in what proportions, so that they can ensure over a forty year period, that they will obtain the revenues required to be able to pay out pensions to members of the fund over that period.

So, the important issue here is not whether stock, bond and property markets have soared to high levels, but whether those financial assets are able to produce sufficiently high revenues to be able to cover future and potentially rising pension payments. If stock markets double, and the nominal value of shares in the pension fund similarly double, this does not benefit the pensions of the members of the fund. The fund could increase its payments to pensioners by selling some of the shares or bonds it holds, and whose prices have risen, but, as described above, this would actually be to consume capital not revenue, and in doing so it would thereby permanently reduce the capital of the fund, and consequently reduce its ability to produce revenue. It would mean meeting the needs of current pensioners at the expense of future pensioners.

The reason it does so, is that set out earlier. If the fund currently owns 10 million shares, each paying an average dividend of £1, it produces a revenue of £10 million per year. If it sells 1 million of these shares, it will now only receive dividends on the remaining 9 million shares, i.e. £9 million, and it will receive this lower amount of revenue not just this year, but also for every subsequent year.

The 10 million shares may have been previously bought for £100 million (their historic cost), and this may double to £200 million, as share prices rise, so that, in selling the 1 million shares the fund obtains £20 million (representing a capital gain of £10 million) but, once consumed that one off capital gain has gone, whilst the reduced revenue from the capital continues year after year.

The fact that the share or bond price has risen has no bearing on the amount of dividend or interest that is paid, because that depends on how much profit the companies make whose shares are held in the fund. The interest on the bond is fixed in advance. So, not only does the price of the share or bond have no bearing on the payment of revenue produced by either, but, in terms of yield, or rate of interest, it has an inverse relation to it. As the price of a share or bond rises, so the yield falls.

Moreover, it makes no sense for a pension fund to cover its pension liabilities by consuming its capital, because it needs, over the longer term, to increase that capital, to increase the quantity of bonds and shares it holds, so that it obtains a larger mass of revenue from them. A pension fund may need to sell some shares that are not producing as much in dividends as others shares, or in companies that might go bust, but only to use that capital to acquire other shares in producing higher levels of dividends. Similarly, it may want to sell shares in order to buy bonds, or vice versa, depending on which offers the potential for higher yields.

But, it makes no sense to liquidate capital to cover revenue shortfalls, because that simply exacerbates the problem. (This is also what is wrong with the idea that lies behind historic cost pricing of productive-capital, for the basis of calculating the rate of profit.)

It can be seen then why QE, and other measures to pump liquidity into financial markets, has killed workers' pensions, and created the huge black holes in those funds' ability to cover future liabilities. As the number of people joining a pension scheme, and who are entitled to a pension from it, rises, so this additional revenue must be produced by the fund. Moreover, because the level of pensions will rise over time, the revenue required to cover these higher pensions will also increase. There are only two ways this can be achieved, in the long run.

Either companies become more profitable, so that the amount they pay out in dividends and bond interest can rise, without damaging the need to invest in additional capital to expand the business, or else pension funds have to accumulate additional shares and bonds. In the first case, the pension fund would increase its revenue, because each of its existing shares and bonds would pay more dividends and interest. In the second case, it would increase its revenue, because although each share and bond continued to pay the same amount, the fund would own more shares and bonds.

Provided the rate and mass of profit rises, therefore, and this is reflected in higher dividends and interest payments, a pension fund will see its revenue increase, even without increasing its capital. That happened in the 1990's, so that many pension funds had more than enough revenue to cover their pension liabilities. It meant that some employers took pension holidays from making their contributions into the schemes. For private sector companies, that also boosted their profits, as a result of these lower costs. Local Authorities, under pressure to cut spending, also took prolonged pension holidays. Its another reason that future funding shortfalls than resulted, along with the fact that capital gains made during the period were consumed, thereby undermining the capital base of the funds.

But, the higher profits that made possible these higher dividends and interest payments had another effect. They provided a basis for higher share and bond prices, which thereby acted to reduce yields. Lower interest rates themselves cause a rise in share, bond and property prices via the process of capitalisation. The problem then is fairly obvious. The pension funds need to increase their capital, in order to produce higher levels of future revenue, to cover increasing future pension payments. But, as the prices of bonds and shares rise, those funds can buy fewer and fewer of them, with the regular pension contributions made by their members.

A declining quantity of shares and bonds bought, and added to the fund's capital, therefore, means a declining rate of increase in the fund's revenue. As the prices of shares and bonds rise, so also the yield on them declines, for the reason set out earlier. The pension fund, therefore, suffers both because rising share and bond prices mean it can buy fewer and fewer of them, and because the yield on the shares and bonds it does buy is declining.

The answer to that should have been, during the 1990's and early 2000's, for pension contributions to rise proportionately so that the funds could then continue to buy the quantity of shares and bonds required to provide the necessary future revenue. But, either employers would have had to have funded that directly by much higher employer contributions (whereas they were, in fact taking contribution holidays), or else workers would have to increase their own pension contributions, which would have meant they needed higher wages to fund those contributions. In reality, what either option amounts to is the fact that much higher prices of stocks and bonds, caused the cost of pension provision to rise sharply, just as much higher property prices caused the cost of shelter to rise sharply, and this increased the value of labour-power accordingly.

However, this was a period when wages were being squeezed not raised. Workers were screwed both because house prices were rising sharply, also causing workers to have to borrow on ever more massive levels to cover mortgages, and because the funding of their pensions was being decimated by soaring bond and share prices. Their wages failed to rise to cover either additional cost.

I have not included here the additional costs that arose as a result of the financial deregulation introduced by Thatcher, which not only opened the door to the pension mis-selling scandal, but also created the conditions discussed previously whereby up to 60% of workers contributions were swallowed up in a variety of commissions, and back handers, given to people along the chain, prior to the contributions being invested. As financial bubbles were inflated, so too were all these commissions and back handers, which unlike all the other financial scandals have not yet been dealt with.

Whilst rising rates and masses of profit in the late 1980's, and through the 90's, provided a basis for rising stock markets, and falling interest rates, that was not the case with the subsequent inflation of asset price bubbles. Property bubbles had been inflated from as early as 1960, often for overtly political reasons, but the real inflation of the property bubble began in the 1980's, when prices quadrupled. They have been reflated on several occasions since then. Similarly, after the Stock Market Crash of 1987, the US Federal Reserve and other central banks have repeatedly pumped liquidity into financial markets to keep asset price bubbles inflated.

It has been that which has been the main factor in stock and bond and property market prices since 1987. It has driven those prices to ever higher levels, not only making property and pensions ever more out of reach of workers, but also increasingly diminishing yields on those assets, so that workers are now also unable even to obtain nominal amounts of interest on their savings. It has been a wholly pernicious activity.

In the recent scandal over tax avoidance, revealed in the Panama papers, the Tories, responded that many ordinary people have money invested in pension funds, which have money invested in offshore funds. That is undoubtedly true, and workers whose money that is have no more knowledge of it than they do about how the rest of their contributions are used. It is why we need to introduce the fundamental democratic right of workers to have direct, democratic control over their pension funds, and for that huge amount of money-capital to be taken out of the control of the bankers and financiers.