Masters Of Money - Marx - Part 3

In Part 1 I demonstrated that it was no part of Marx's argument that Capitalism immiserates workers. That idea put forward by the Lassalleans - “The Iron Law of Wages” - was opposed by Marx. In fact, consistent with Marx's views set out as early as in The Communist Manifesto, and elaborated in more detail in Capital, about the historically progressive and revolutionary role of capitalism in transforming the means of production, Marx saw it as inevitable that workers real living standards would rise under capitalism. In order to continue expanding production, and selling commodities to workers, who were Marx said increasingly becoming the vast majority of consumers, capital would be forced to continually introduce new types of use value, new commodities that could be sold to workers, when their demand for previous types of commodities had been largely satisfied. Some of these commodities sold to workers would also be in the form of education and culture. In The Grundrisse, Marx describes this tendency as the “Civilising Mission of Capitalism”, and he links it to the changes in the nature of the working class, that would make it fit to become the new ruling class.

In Part 2, I argued that Marx's view of crises of overproduction is not at all premised on the notion of under consumption by workers based upon their low level of wages, or the need of capital to continually immiserate workers, driving them to some subsistence level in order to maximise profits. The crisis can be seen as deriving from two related factors. On the one hand, capital expands rapidly, its productive capacity rises sharply, producing masses of commodities, all of the same type, looking for a buyer. The same expansion of capital creates a rising demand for labour-power, which pushes wages higher. The latter has two effects. Firstly, it means that workers' demand for the main commodities they consume is largely satisfied, so getting them to buy more of these commodities, requires their prices to be lowered by larger and larger amounts, which squeezes profitability. At the same time, the demand for labour-power, pushing wages higher, makes it more difficult for capital to extract either absolute or relative surplus value, which squeezes profits from the other direction. Both these tendencies could be witnessed in the late 1960's as the post war Long Wave Boom began to falter.

In Capital, Marx and Engels describe this situation in terms of the capitalism of their day, which was still largely based on a large number of small to medium sized firms. Seeing, their profits being squeezed, each firm attempts to secure its own position, by accelerating those tendencies, which have created that very condition, but which, from the perspective of each individual firm, seem to be the means of increasing its own profitability and market share. That is they seek to expand their production even further, in order to obtain the benefits of economies of scale, which reduce unit costs. Each firm attempts to increase its output and thereby reduce its costs, but, because all or most firms attempt that same solution, the result is that the overproduction becomes even greater. It causes a sudden collapse in the rate of profit. Firms go bust, and even when they don't they lay off workers, they stop or severely reduce their purchases of machines, and materials, which in turn causes the markets for those companies to collapse. Where commercial credit has become established, this might delay the onset of such a crisis – and where the crisis is only partial or only limited, it may even prevent such a crisis breaking out altogether – but, the consequence is that the underlying over production is allowed to become even worse before it becomes manifest, and so when it does, it is even more pronounced. As demand for all these commodities not only ceases to rise fast enough, but actually collapses, it gives the appearance that its cause is insufficient demand, insufficient money in the economy.

To be clear, in saying that the workers demand for these commodities is relatively sated, its important to note that this is only a relative not an absolute condition. It is not that workers overall needs are met, on the contrary, they may be at a relatively low level of living standards. All that is relatively satisfied is the workers existing, limited range of consumption. There are always other commodities that workers could or may want to consume. But, once again, it is not the workers low level of wages, which prevents a resolution of this situation. For example, every worker might want to own a Rolls Royce, but if their wages were high enough to enable them to buy one, then that would mean that no capitalists employing masses of workers would be able to make profits. In the end, this comes down again to The Law of Value, that is given existing productive conditions, society does not have sufficient available social labour-time, to enable everyone to buy a Rolls Royce. But, this changes over time. At one time, it was only the rich who could afford to buy any kind of car, to have foreign holidays etc.

Consider Robinson Crusoe again on his island. He has to allocate a certain proportion of his available labour-time to producing as a priority those things which are vital to his survival, such as food and shelter. Having produced shelter, he may only need to allocate time for its maintenance or improvement, but each day he has to produce the food he requires. He may want to provide himself with a heated swimming pool, but the labour-time required for its production is simply too great given the hours he has available in the day. It is not that all his wants are satisfied, then, but the ones that make up his current range of consumption may well be. If, he finds a means of satisfying his need for food more easily, he may then have hours left over in the day. But, still unable to meet his need for a swimming pool, he may decide to use most of the saved hours to rest rather than increase his production of food much. In other words, the amount he is prepared to pay in terms of his increased expenditure of his labour-time for more food diminishes. This does not mean that he is in any way affluent or wealthy! In order that he might decide to allocate his newly available labour-time to producing something else, it has to be something that can practically be produced in that available time, and the utility from which is such as to persuade him that it is worth the expenditure of his time.

For an entire society, with gradations of wealth and income, however, it is clearly the case that the demands of the wealthier and more affluent people for commodities that require the expenditure of large amounts of labour-time can be met, even though they cannot be met for everyone. It is only when the productive forces have been developed further, so that the labour-time required for the production of these commodities has fallen significantly, and when the total labour-time available to society has expanded further, that these commodities can be sold to workers en mass. Although, a crisis of overproduction is then an absolute over production in capitalist terms, it is not absolute in the sense that the forces of production have been developed too far, or that society has become too wealthy. On the contrary, such a crisis occurs even though the needs of the masses of the population remain unmet, for a whole range of commodities, and when from an absolute standpoint, in order to meet those needs, the forces of production have not been developed enough!

As Marx points out the fact that there are some very wealthy, very affluent people in society is not an accident, but is itself a function of the way society goes about producing the goods it needs, and allocating the available labour-time. Capitalists have lots of money because they own the means of production, and are able to exploit labour. Workers do not for the opposite reason. Because, capitalists have lots of money, they can also have a disproportionate effect in a market economy based on monetary demand, on what activities labour-time is devoted to, because it will be devoted to those things for which there is sufficient monetary demand. But, we should not fool ourselves into thinking that it is solely the wealth and affluence of capitalists or the rich that cause all of what we see as inequitable, or irrational allocations of labour-time, or that this could be resolved by some kind of democratic planning.

That is because any kind of democratic planning depends on people voicing their preferences rather than expressing those preferences in the market, by how they spend their money. A simple example is the payment for different types of workers, which in turn determines the prices of different types of products. In numerous surveys, when asked who they think should be paid most money nurses tend to come near the top. If we were to democratically plan an economy, then the result would be to allocate a high proportion of available labour-time to be able to pay nurses high salaries i.e. enable them to buy or receive a high proportion of society's output. In these surveys, they frequently come above footballers. Yet, this is very far from the reality of today. But, as Marx says the value created by the labour of skilled, complex workers, such as footballers, is itself a function of how consumers – which today is mainly us as workers – value the product of that labour compared to the products of simple, unskilled labour. It is a function of how we decide in reality to spend our money. The reality is that whatever they say, taken as a whole, consumers value the product of footballers, and pop stars and other such highly paid labour, much, much higher than they do that of nurses.

In practice, then, its likely that if resources were actually allocated in line with people's voiced preferences rather than their actual preferences there would be a misallocation of resources. That is why, wherever resources have been allocated by such methods, for example under rationing, or according to some other form of plan, consumers actual demands fail to be met, and so black markets arise. Another example is the way allocation of tickets for events always leads to a thriving black market for tickets, which sell at prices way above their face value.

In the BBC programme, Madsen Pirie, of the Adam Smith Institute, argued that the current Debt Crisis had nothing to do with the low wages of workers, or any crisis caused by the inability of workers to consume. Fundamentally, he is right. Fundamentally, when he says that the cause of that crisis was that governments printed way too many money tokens, which enabled banks and finance houses to lend recklessly, which blew up bubbles in property, and financial markets, which are in the process of bursting, and which has left a huge overhang of debt, because the assets are no longer worth as much as the debt used to purchase them, he is again right. But, he misses one important point, which is why governments, going back at least to Thatcher and Reagan, decided to print all those money tokens, and to encourage the banks to lend recklessly and so on!

In fact, all that this amounts to is swapping one form of crisis – an economic crisis in the 1980's/90's – for another – the debt crisis of the noughties through to today. In the 1980's and 90's, as the global economy suffered a long wave downturn, following the long wave, post war boom, that crisis in the West could have taken the same form as that of the 1920's/30's. Its possible to argue that western governments, having learned the lessons of the 1920's and 30's, and still facing, in the early 1980's at least, powerful labour movements, as well as the USSR, developed a strategy to avoid it. I think that is too conspiratorial.

By the mid 1980's, the economic downturn, and the fact that none of the labour movements were provided with any practical ideas about how to deal with it, had meant that the working class were largely defeated. By the late 1980's, when the turn to Monetarism was made, and the monetary spigots were opened wide, to stimulate economies, not only were workers defeated, but the USSR and its satellites were also in rapid economic decline. Capital and its representatives did not need to rescue capitalism to prevent revolution, nor did they need to turn to fascism, as they did in the 1930's. Rather they sought to create the conditions for increasing the rate of profit, and that is what the loose money policies did.

But, there was another aspect to this. In the 1920's and 30's, workers had very little in the way of savings or assets. Few people owned homes, had pensions, or savings, let alone money in mutual funds, shares and other forms of investments. Consequently, there was little or nothing for them to borrow against. Although people did borrow money from the tally man and so on, it was small scale compared with recent decades, and being in rented accommodation, people who got into too much debt resorted to the moonlight flit. There was no way then that workers consumption could be sustained by borrowing. But, by the 1980's that was not the case. During the post war boom workers had bought houses, some who bought in the early 1960's did so at prices that were quickly inflated away as wages rose in the 1960's and 70's. But, even those who bought in the 1970's benefited in this way to a great extent. In addition, large numbers of people, particularly in the state capitalist sector, acquired pensions, and were able to save money in a range of products.

So, in the late 1980's and through to the credit crunch, people were encouraged to see these reserves they had built up as means of maintaining their consumption, whilst their actual real wages remained flat or even falling. They were encouraged to take out second mortgages, to re-mortgage if their house was paid for, in order to be able to buy all those things they had always wanted, to engage in the Equity Release scam, whereby they effectively give their house away to financial shysters in return for an annual income to top up their pension. Where they were moving house, they were encouraged to take out the maximum mortgage and even 125% mortgages, in order to provide themselves with what was almost presented as “free” money, to spend as they liked. And, this was extended not just to people who had equity in their existing houses, who had savings, and so on, but was applied to people who already had debts but no savings, who were buying their first homes, and who frequently had insufficient income even to make the repayments.

When unemployment rose again, as well as interest rates in 1990, house prices collapsed by 40%, and tens of thousands of people lost their homes. But, then the money printing continued once again under Nigel Lawson and other Tory Chancellors, as well as under Alan Greenspan in the United States, and the bubbles were blown up once again, but this time even bigger than before.

But, the effect of all this borrowing, which indeed created the current Debt Crisis, and which will cause, another huge crash of property and stock markets, did have the effect of preventing the long wave downturn of the 1980's/90's from turning into the kind of depression of the 1920's/30's. It did so whilst having other consequences. The credit taken out on the back of these assets enabled consumption spending to largely be maintained even though wages were falling, but the spending did not go to sustain production in the US, UK etc. On the contrary, the process of de-industrialisation continued apace. But, capital was able to take advantage of this.

Merchant Capital makes profits as a consequence of buying commodities below their price of production from the producer, and then selling them at the price of production. The producer is prepared to do this, because it saves them the costs involved in selling their commodities. The fact that merchants specialise in this, means they can do it cheaper, so the producer's net profit is greater than if they took on the costs of selling themselves. So, when masses of production moved to China, and Chinese producers were able to make huge profits, from exploiting cheap Chinese labour-power, merchant capitalists, in the UK and US, were able to get their share of these huge profits by selling Chinese products in their home markets.

British and US workers were thrown out of many manufacturing industries, as the products they previously produced were now made in China. The US and UK workers (or frequently, in the case of the largely male, manual workers, from coal mining and steel production etc., their wives or children) exchanged their higher paid jobs, for low paid jobs in retail palaces established around the country – often on former collieries and steel works – to sell the mass of, now much cheaper, manufactured goods coming in from China. The difference in wages was made up through borrowing – either against their accumulated assets, or else against the paper, and grossly fictitious, value of houses they had only recently taken out mortgages on.

On this basis, the influence of productive capital was gradually weakened, whilst that of merchant and money capital rose. What was really going on was that workers, who had built up real property, in the post war period, were being robbed of it, by being persuaded to borrow money against it. It was a similar kind of robbery as that which robbed the peasants of their property via the Enclosure Acts, or the French peasants in the 19^th century, via taxes and high interest rates. Nick Clegg's proposal to get parents and grand parents to put up their own houses as security, in order that young people can continue to buy grossly inflated property, and so keep the banks afloat, is a continuation of that scam.

At the same time as merchant capital was able to prosper, under this arrangement, so too was money capital. It did so in two different ways. On the one hand, money dealing capital derives profits in a similar way that merchant capital does. It saves industrial capital the costs in holding capital in its unproductive money form. On that basis, it is able to charge industrial capital for doing so. Secondly, money capital operates as interest-bearing capital, lending money to industrial capitalists at interest.  Even where interest-bearing capital lends to consumers, rather than producers, it is a deduction from the surplus value of productive capital, because the money the consumer pays to the money lender is money that otherwise could have gone to the producer, as part of the price of the commodity they have bought. Because London and New York are the global centres of finance, money capitalists, in these countries, were also able to make profits and obtain interest by lending to producers in China and elsewhere, and by acting as the main centres of money dealing and movement of payments.

The third way in which the money capitalists and Financial Services Industry was able to make profits was as productive capitalists themselves. Marx describes productive labour as that which exchanges with capital, and produces surplus value. Suppose I employ a gardener to do my gardening. He does not exchange his labour with capital, but with revenue i.e. money from my income, and so he is not a productive labourer. However, if I engage a gardening firm to do my gardening, and the firm employ the same gardener he then does become a productive labourer, because he exchanges his labour with capital and, because his wages will be less than the value he creates, and the price I am charged by the firm, for the gardening service, he will produce surplus value.

One of the consequences of the Financial Big Bang of the 1980's, was that there was an explosion of financial products that were created, and sold both to individuals and to companies as commodities. A service to tend and cultivate your finances, is just as much a commodity as is a service to tend and cultivate your garden. Consequently, these activities constitute productive activities from the standpoint of capital, and those workers employed in producing these commodities, even, or especially those that are very highly paid, are just as much productive labourers as is the gardener. In fact, just as the highly complex labour of a David Beckham is capable of producing huge profits for the capitalists that employ him, so the highly complex labour of a financial analyst etc., in producing high value financial commodities is able to produce large amounts of surplus value for the capitalists that employ him/her. After, the Big Bang the massive growth of these financial commodities created scope for huge profits in selling them across the globe for the capitalists in London and New York where these industries were based.

The fact that there was massive speculation in some of these commodities after they had been created does not change the fact that they are commodities, any more than the fact that there is speculation in corn, oil etc., on commodities markets, changes the fact that these are commodities, or that speculation in houses means that a house is not a commodity, or the builder who built it in the first place was not a productive capitalist!

So, there were very good reasons why capitalist governments in the UK and US would print money to reflate their economies, and thereby facilitate an increase in the rate of profit. There were very good reasons why, as the process of de-industrialisation proceeded, merchant capital was able to grow like Topsy, as new cathedrals to consumerism sprang up around the country, selling cheap Chinese manufactures, sold to workers who maintained, or even extended their consumption, on the back of vast amounts of cheap credit. And, there were good reasons why money capital was also able to grow rapidly on the back of these same conditions. It is also why these sections of capital have dominated over productive capital for the last 25 years or so, reflected in the ideology of Neo-Liberalism, and why they still hold sway in political circles, despite those conditions having ended.

But, Pirie is correct that the current Debt Crisis is precisely that, and not a crisis of overproduction as described by Marx. If we look at the capitalist system as it must be viewed as a global economy, none of the aspects of overproduction described by Marx and Engels are visible. In the last ten years, capital has certainly expanded rapidly. Global GDP has doubled, global fixed capital formation (fixed capital accumulation) has also doubled. At the same time, this huge accumulation of capital has seen the size of the global workforce rise by around a third, equivalent to 500 million workers drawn into the sphere of capital, and to quote Marx in The Communist Manifesto, “rescued from the idiocy of rural life.” Yet, there is no sign that this growth and accumulation of capital has reached anything like a condition of over accumulation. Nor should we expect it to do so, because typically a long wave boom lasts for around 25 years, and we are only 12 years into this boom.

Outside, Europe and North America, growth, although having recently slowed as part of a cyclical slowdown, continues at a rapid pace, considerably above the average of the previous 25 years. Moreover, company profits continue to grow, whilst increasing demand for commodities as that growing, global working-class rapidly raises its living standards in Asia, Latin America and Africa, means that far from falling and squeezing profits, prices are rising. At the same time, profits are being enhanced as the introduction of vast new swathes of new technology raises productivity levels, thereby facilitating an increase in relative surplus value. Finally, that same technology is bringing forward, on an almost daily basis, whole new ranges of commodities, that are encompassed into workers consumption patterns, and as rapidly creating not just new firms, but whole new industries.

The Debt Crisis, is essentially a North Atlantic crisis, though if it is not resolved, and certainly if it is exacerbated by wrong headed decisions by politicians, still following a Neo-Liberal mantra, the crisis that could result from it, would inevitably affect other parts of the world. In Volume I of Capital, Marx describes the difference between these two types of crisis, one a real economic crisis caused by an overproduction of capital, the other a purely financial crisis, whose origins arise in the financial world, and whose real effects are played out there, and affect the real economy only indirectly.

“Herrenschwand’s fanciful notions amount merely to this, that the antagonism, which has its origin in the nature of commodities, and is reproduced in their circulation, can be removed by increasing the circulating medium. But if, on the one hand, it is a popular delusion to ascribe stagnation in production and circulation to insufficiency of the circulating medium, it by no means follows, on the other hand, that an actual paucity of the medium in consequence, e.g., of bungling legislative interference with the regulation of currency, may not give rise to such stagnation.” (Note 1 p 122)

“The monetary crisis referred to in the text, being a phase of every crisis, must be clearly distinguished from that particular form of crisis, which also is called a monetary crisis, but which may be produced by itself as an independent phenomenon in such a way as to react only indirectly on industry and commerce. The pivot of these crises is to be found in moneyed capital, and their sphere of direct action is therefore the sphere of that capital, viz., banking, the stock exchange, and finance.” (note 1 p 137)

The debt crisis afflicting Europe, the US and the US is definitely of this latter variety. It is not a crisis of overproduction. Its roots lie in the build up of debt during the period of long wave downturn of the 1980's and 90's – and, contrary to all the media reports, this is largely private debt not public debt – and the attempts to prevent the bubbles created by that debt in property, stock and bond markets from bursting, in order to protect money capital, by the continuation of similar methods to those which created those bubbles in the first place i.e. unsustainably low interest rates, huge money printing, attempts to maintain unsustainably high property and other prices by government, and other state intervention.

In the US and Ireland, the property bubbles have burst with house prices falling by around 60-70%. And now, those property markets are stabilising, and even showing signs of recovery. In the UK, Spain, and other parts of Europe, where property prices have bubbled up, that crash is yet to happen, but inevitably will. On CNBC the other day, one analyst said property prices in Spain probably have to fall another 50% from current levels – which will mean that the latest stress tests on Spanish Banks will way underestimate how much of a bail out they require. In the UK, the IMF and OECD say that house prices are 40% above historic levels, and on any metric they are grossly over priced. In the past, any correction has been double what the over pricing was. In 1990, for example, they were overpriced by 20%, but fell by 40%. On that basis UK house prices need to fall by 80%, before they will stabilise at sustainable levels.

In the US, UK, Germany and Japan, the search for safe havens, as well as the actions of central banks in printing money, have sent bond prices to record highs, causing yields on those bonds to fall to levels that have not been seen in three hundred years. That is as much of a bubble as the bubble in house prices. Sooner or later, that bubble will burst too, causing all interest rates to jump sharply, which if it hasn't already happened by then, will certainly cause the property market to collapse. I am in the process of analysing the performance of global stock markets in comparison to GDP growth, on a cursory view, it appears that despite all of the money printing stock markets may not have risen disproportionately in the last ten years. That is not surprising given the crash of 2000. It appears that the greatest excess of stock markets, however, against GDP was during the 1980's and 90's, which means that those markets too may be over valued on a longer term historical basis.

But, all of these things are aspects of that latter kind of crisis described by Marx, a financial crisis rather than an economic crisis.

 

Back To Part 2

Masters Of Money - Marx - Part 2

But, the claim, put forward by the Left Keynesians, under the guise of Marxism, that crises are caused by this low level of wages, or under consumption caused by them, is equally false, equally remote from what Marx actually said. The argument they put forward is essentially this. Capitalism is forced to keep workers wages low, and to reduce them where possible, in order to maximise profits. But, that means that workers do not have enough money to buy the things that they, as workers, produce for the capitalist, and which he seeks to sell. Marx never made this argument. What Marx and Engels actually said was,

“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC.”

Capital III, Chapter 15

Orthodox economics describes this as a situation where the Marginal Cost of Production i.e. the cost of producing 1 additional unit of output, is greater than the Marginal Revenue (price) obtained by selling that additional unit. In other words, it is not a matter that workers do not have enough wages to buy the available commodities. In fact, as can be seen from the above, the situation that is being described is one where Capital has expanded i.e. large numbers of the available workforce have been employed, even to the point whereby wages have risen significantly. The problem is that they do not have sufficient funds, or else choose not, to buy the available commodities, at prices that will enable Capital to replace the capital consumed in their production. In fact, it is quite possible that it is because wages and living standards have risen, that workers decide not to spend more of their money on simply buying more of the commodities that make up their normal consumption. If Capital wants to persuade them to buy more of these commodities, it may have to reduce their prices, even below their values. In other words, Marx understood clearly the principle of price elasticity of demand. That is that at different levels of demand, the amount by which price has to be reduced, to bring about a given increase in demand, varies. It also varies from one type of commodity to another. Marx writes,

“It would seem, then, that there is on the side of demand a certain magnitude of definite social wants which require for their satisfaction a definite quantity of a commodity on the market. But quantitatively, the definite social wants are very elastic and changing. Their fixedness is only apparent. If the means of subsistence were cheaper, or money-wages higher, the labourers would buy more of them, and a greater social need would arise for them, leaving aside the paupers, etc., whose demand is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, for example, the capitalists' demand for it would increase, more additional capital would be thrown into the cotton industry, etc.” (Capital Vol III p188)

Elsewhere, Marx points out that where workers wages rise, they may buy more Sheffield cutlery, but he says, their demand for such cutlery will not rise in the same proportion as their wages, because each workers' family only requires a certain amount of cutlery, however cheap it might be, or however well paid they are!

Suppose, workers' consumption of food is relatively high, as is their consumption of motor cars. If the price of food falls by 10%, workers' might increase their demand for food by 8%, because food is a basic requirement for consumption. However, if the price of cars falls by 10%, workers' demand for cars might only increase by 2%. In either case, the higher workers' existing living standards, the more they already consume of these commodities, the more likely they are to require prices to be reduced by greater percentages to encourage them to spend their wages, than if their wages and living standards are low. The more Capital expands, the higher its demand for labour-power, and the higher tends to be the level of wages and living standards.

This is completely different to workers not having high enough wages to buy the available goods on the market. Its possible that if prices fell far enough, Capitalists could sell all of their surplus production. The point is, however, having done so, could they then buy in all of the necessary materials and so on, to continue production at the same level!

This can be seen quite easily. Take the example, of the Sinclair C5. The company built a number of these vehicles, which consumed a certain quantity of Constant capital in the form of materials required to produce it, machines required to process that materials, buildings in which these activities were undertaken, and in Variable Capital, in the shape of assorted workers who performed the necessary labour. Having done so, they found that they could not sell them. It wasn't because workers wages were to low to buy them. It was because no one really wanted them! The company possibly could have got rid of them if it reduced the price enough, but that does not solve the problem.

Suppose, the costs of the Constant Capital comes to £10,000, whilst the cost of Variable Capital comes to £5,000, in order to produce 15 C5's. That means the Cost of producing each machine is £1,000. Normally, the capitalist would expect to make a profit on top of this. However, suppose that having put them on sale at £1,000, there are no takers. The company reduces the price to £800, and manage to sell 3 of them. They reduce the price further to £700 and sell another 4. In order to sell the rest they have to reduce the price to £400. They have made £8,400 from the sale. But, in order to produce another 15, they are still faced with having to pay out £10,000 for Constant Capital, because there is no reason their suppliers will sell their commodities to them for less than their value, and similarly they will still have to pay out £5,000 in wages.

Marx describes this kind of situation. The Exchange Value of commodities is determined by the socially necessary labour-time required for their production. But, this is not just a question of the commodity being produced using the average productivity of labour, and the average level of machinery etc. it also requires that there is sufficient demand for all of the output produced at this average level of efficiency. This is an application of the Law of Value, which has operated throughout Man's History, whereby available social labour-time is allocated according to what society determines as being its requirements. Under capitalism, because this is done via the market, and involves Capitalists producing commodities ahead of them being consumed, the question of whether social labour-time has been so allocated can only be determined after the event i.e. if these produced commodities find a market.

If they do not, then Marx says, the labour-time used in their production was not socially necessary. The labour-time used in the production of the Constant Capital, which was used in the production of these commodities, along with the labour-power that was used to transform this Constant Capital into the end commodity, was wasted. It has to be subtracted from the labour-time actually used up, in calculating the actual value of the commodities produced. Because, Capitalism, unlike every other form of production in Man's history produces commodities without knowing if they are wanted or not, it inevitably leads to a perpetual overproduction and under production of commodities, which means that market prices for these commodities are perpetually either above or below their Price of Production (Price of production is the Cost of production of the commodity plus the average rate of profit). By this means, the perpetual shortages and gluts that Capitalism entails, for different commodities, are rationed out.

Marx calls these crises, which affect individual Capitals, partial crises of overproduction. But, for the same reasons such crises can break out as general crises of overproduction. That is not a crisis caused, as in the case of the C5's, because workers/consumers simply do not want a particular commodity at all, but because they do not want to buy any more, of a range of these commodities, at prices that enable Capital to increase profits. Yet, this is an inevitable consequence of each Capital trying to revolutionise production to reduce its costs, and in consequence of Capital as a whole massively expanding production. Think of Marx's example of the Sheffield Cutlery. The Sheffield manufacturers each wanted to reduce their costs, because in doing so, they could make bigger profits, and grab a bigger market share. So, they introduced new machines, and techniques that could double or treble their output, and reduce the individual cost of each knife, fork and spoon. But, because they all did this, the output of cutlery doubled and trebled, and the Price of Production of cutlery fell along with it, so the advantage that each firm thought it was gaining was lost anyway. But, with the output of cutlery now trebled and even with more workers employed in the economy, at higher wages, there is only so much of this cutlery that the workers want to buy. The raising in productivity that increased the output might have reduced the Price of Production of the cutlery by half, which reduces the market price by the same amount. Yet, even at this lower price, there might only be a demand for twice the previous output. So, the market price has to fall below the price of production to clear the market.

So long as this applies only to one or a few industries such situations are only a problem for the Capitalists that own those firms. But, if that industry dominates the economy as textiles did in the early part of the 19^th Century in Britain, or if this situation affects a large number of industries, then instead of the crisis being a partial crisis of overproduction, it becomes a generalised crisis of overproduction. Marx describes precisely that condition of the textile industry in Britain in the 1840's. The first economic crisis of Capitalism occurred in 1825. It was no coincidence that it happened then, because it coincided with the application on a large scale of machine industry, and of steam power. In the 1840's, however, this was magnified. As the productive power of the British textile industry soared, its ability to produce vast amounts of cheap cloth soared with it. On the back of that, Britain flooded the world market with its textiles, and the glut was such that it took three years to clear. British textile manufacturers could not sell their output on global markets at any price. As a consequence, they saw no point in employing workers, or buying cotton and wool to produce cloth they could not sell.

Workers were thrown out of work, and starved in their tens of thousands. Far more than the Depression of the 1930's, it demonstrated the falsity of the ideas of market economics, and of Say's Law, that markets clear if left to their own devices. Faced with starvation, workers were prepared to work at any wage, but, even so, employers were not prepared to pay them even those wages, when they had no possibility of selling their output on world markets. As with Irish workers and peasants during the famine, workers sought to emigrate, whilst employers, worried about a shortage of Labour, when the crisis ended, tried to prevent them. The employers brought the dragoons and military into northern towns and cities to put down demonstrations by starving workers.

So, the crisis of overproduction has nothing to do with under consumption by workers. Even Marxists misinterpret what Marx and Engels said in this regard. They said,

“Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore simply over-accumulation of capital...

The same occurs when there is an over-production of commodities, when markets are overstocked. Since the aim of capital is not to minister to certain wants, but to produce profit, and since it accomplishes this purpose by methods which adapt the mass of production to the scale of production, not vice versa, a rift must continually ensue between the limited dimensions of consumption under capitalism and a production which forever tends to exceed this immanent barrier. Furthermore, capital consists of commodities, and therefore over-production of capital implies over-production of commodities. Hence the peculiar phenomenon of economists who deny over-production of commodities, admitting over-production of capital.”

Capital III, Chapter 15

The under consumptionists, and the opponents of the under consumptionists interpret this as meaning that the market is limited in its dimensions because of the limited means of workers. But, that is not what it means. In principle, the market could be expanded whatever the level of wages and consumption of workers. For example, Capitalists could simply increase their own consumption out of their increased profits. In practice, that is not a solution, because the tiny number of Capitalists even with their grossly exaggerated forms of consumption cannot continue to consume more and more of society's output. More importantly, such unproductive consumption is at odds with the very nature of Capitalism. As Marx puts it,

“It will never do, therefore, to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence.”

Moreover, the other form of expenditure by Capitalists – Productive Consumption – itself is constrained within limits determined by the level of final demand. Huge increases in productivity in cotton production, might reduce its price significantly, and encourage textile manufacturers to buy more of it. But, if those textile manufacturers feel that there is a limit to how much cloth they can sell, there is no reason why they will buy more cotton, or machines to spin it etc.

In other words, what Marx and Engels are saying is not that the market is limited by the available money in workers pockets to spend, but that it is limited by how much of any of these things people actually want to buy. You can persuade them to buy more, but only reducing the price by bigger and bigger amounts. There is a simple solution to this. Again, it involves the application of the Law of Value. Marx in Capital describes the application of the Law of Value in relation to Robinson Crusoe,

“Moderate though he be, yet some few wants he has to satisfy, and must therefore do a little useful work of various sorts, such as making tools and furniture, taming goats, fishing and hunting... In spite of the variety of his work, he knows that his labour, whatever its form, is but the activity of one and the same Robinson, and consequently, that it consists of nothing but different modes of human labour. Necessity itself compels him to apportion his time accurately between his different kinds of work. Whether one kind occupies a greater space in his general activity than another, depends on the difficulties, greater or less as the case may be, to be overcome in attaining the useful effect aimed at. This our friend Robinson soon learns by experience, and having rescued a watch, ledger, and pen and ink from the wreck, commences, like a true-born Briton, to keep a set of books. His stock-book contains a list of the objects of utility that belong to him, of the operations necessary for their production; and lastly, of the labour time that definite quantities of those objects have, on an average, cost him. All the relations between Robinson and the objects that form this wealth of his own creation, are here so simple and clear as to be intelligible without exertion, even to Mr. Sedley Taylor. And yet those relations contain all that is essential to the determination of value.”

This is what all societies do in one form or another. Capitalism does it via the market, and for the reasons set out above, it only knows whether it has allocated the available labour-time appropriately if the commodities produced can be sold at their prices of production. Where they cannot, it means that some resources have to be withdrawn from producing those commodities, and diverted to producing some other type of commodity, the demand for which has not been satisfied. Assuming that is, that any such commodity, or set of commodities exists! At certain times, society has little problem in this regard. New inventions, or new applications of old inventions not only create new ways of producing – creating a demand from manufacturers for these new machines etc – but also lead to the development of whole ranges of new types of commodities, and even industries based upon them. So, when massively increased output has satisfied the demand for many of the established range of commodities, and Capital cannot employ more workers, more capital in this production profitably, it is able to continue expanding, continue creating additional Surplus Value, by instead investing in production of these new types of commodity.

Provided there are enough of these new commodities, and new industries to soak up the surplus capital, then the problem of overproduction disappears. Consumption of the old commodities continues, but instead of continually expanding beyond what can be consumed at prices that create profits, it remains at lower levels. Meanwhile, the production of the new commodities, employs workers, creates a demand for new types of machines, for raw materials, and so on. The incomes generated, in turn create demand both for the new commodities, and for the old commodities.

These periods where Capital is able to move into these new types of production are those periods of Long Wave Boom. In each of these periods, such as towards the end of the 19^th Century, when whole new industries developed that employed masses of unskilled and semi-skilled workers, or in the post-war period when new industries in chemicals, electronics and automobiles developed, or like now when whole new industries in micro-electronics, bio-technology, space science, genetics and so on are developing, not only do we see a growth of these new industries, but we see a growth also of trade on the back of it, an expansion of the employment of labour, and frequently the development of whole new geographic areas, as the leading edge of where this development occurs.

But, by the same token, it is those periods outside the Long Wave Boom, the periods of Long Wave downturn, where there is a shortage of new types of commodities, new types of industries to be developed, which mean that this overproduction cannot be resolved by Capital expanding into new areas. It is then that the crisis of overproduction becomes chronic, and leads to high and persistent levels of unemployment, which in turn reduces the demand for commodities, and which creates the impression of under consumption.

In Part 3, I will look at how all of this relates to the current situation.

 

Back To Part 1

Forward To Part 3

Masters of Money - Marx - Part 1

Last night I watched the last in the BBC's series Masters Of Money which has looked at the lives and ideas of three economists – Keynes, Hayek, and Marx, and how they relate to current conditions. It wasn't as bad as I thought it might have been, but, as was almost inevitable, it failed to actually present us with Marx's ideas, and his explanation of crises. Instead, as is almost equally as inevitable, what we were given was just a Left Keynesian explanation of crisis.

That explanation given a veneer of Marxism by comments from Left Keynesians like Martin Jacques of Marxism Today, hinges upon the notion that crises are caused because of the limited ability of workers to spend and consume. The answer then seems simple. Increase workers wages, so they can spend more. But, the argument then goes, Capitalists will not and cannot do that, because they are forced by competition to reduce workers wages to the bare minimum needed for them to survive. Of course, the attraction of this explanation to Left Keynesians and reformists is fairly obvious. Given their idealisation of the role of the State, it is not a big step from here, to argue that the Capitalist State should do things to redress this situation by introducing things like a Minimum Wage, or redistributive taxation, or that the State should take over the role of Capitalist etc.

Its not just because Marxists do not share this idealisation and faith in the State, particularly the Capitalist State, in resolving either workers problems, or the contradictions of Capitalism, however, that they disagree with this analysis. It is that it is simply wrong. Far from Marx putting forward this idea about the cause of Capitalist Crises, he specifically argued against it. The notion that Marx believed that Capitalism forces wages down to a bare minimum of subsistence is one that has been purveyed by enemies of Marxism for most of the twentieth century. It was put forward by Stalinists, who basing themselves on Lenin's statement that Capitalism was in decay, closed their eyes to all reality, and tried by one convoluted method or another to claim that workers living standards were really falling even during the 1950's and 60's, when it was clear they were rising sharply.

But, it has also been put forward by his opponents on the Right, including some of those in this programme, who point to this claim as proof that Marx was completely wrong in his analysis. Some years ago, when I was debating with a range of supporters of the Misean, Neo-Austrian School I was repeatedly confronted with this claim confidently asserted that Marx's “Iron Law of Wages”, had been massively disproved. The problem is that Marx said no such thing. The Iron Law of Wages, was put forward not by Marx, but by Ferdinand Lassalle, and Marx dismantled it!

In his critique of Lassalleans – whose Statism along with Fabianism is the basis of the reformism of most of the Labour Movement (including most of those that call themselves Marxists) – in the Critique Of The Gotha Programme.

“Since Lassalle's death, there has asserted itself in our party the scientific understanding that wages are not what they appear to be -- namely, the value, or price, of labour—but only a masked form for the value, or price, of labour power. Thereby, the whole bourgeois conception of wages hitherto, as well as all the criticism hitherto directed against this conception, was thrown overboard once and for all. It was made clear that the wage worker has permission to work for his own subsistence—that is, to live, only insofar as he works for a certain time gratis for the capitalist (and hence also for the latter's co-consumers of surplus value); that the whole capitalist system of production turns on the increase of this gratis labour by extending the working day, or by developing the productivity—that is, increasing the intensity or labour power, etc.; that, consequently, the system of wage labour is a system of slavery, and indeed of a slavery which becomes more severe in proportion as the social productive forces of labour develop, whether the worker receives better or worse payment. And after this understanding has gained more and more ground in our party, some return to Lassalle's dogma although they must have known that Lassalle did not know what wages were, but, following in the wake of the bourgeois economists, took the appearance for the essence of the matter.

It is as if, among slaves who have at last got behind the secret of slavery and broken out in rebellion, a slave still in thrall to obsolete notions were to inscribe on the program of the rebellion: Slavery must be abolished because the feeding of slaves in the system of slavery cannot exceed a certain low maximum!”

The important phrase here is “and indeed of a slavery which becomes more severe in proportion as the social productive forces of labour develop, whether the worker receives better or worse payment.”

It is not at all Marx's argument that capital is forced to reduce wages to some bare subsistence minimum. On the contrary, in Capital Volume I, Marx sets out that wages are the price for labour-power as stated above. Labour-power is a commodity like other commodities sold in the market, and as such, Marx's assumption is that it is sold at its Exchange Value, that is its current cost of reproduction. That is comprised of all those things that the particular Labour-power requires such as food, clothing, shelter, education, health provision, entertainment etc. It is clear that all of these things change over time, and Marx says that the Value of Labour-power, necessarily contains within it, therefore, an historical or cultural component. But, more than this. With every commodity, there are two opposing forces at work.

On the one hand, the perpetual increase in productivity means that the labour-time required for production falls, and so the Value of every commodity falls over-time. That may not mean that its Exchange Value or price falls, because Exchange Value reflects how much one commodity exchanges for another. It is a relation of the Value of one commodity to the Value of another. If the labour-time required for the production of apples and oranges falls by the same amount, the Value of both apples and oranges falls, but the Exchange Value of one measured in the other remains constant. The same is true with Labour-power. As productivity rises, the labour-time required to produce all of the wage goods the worker needs for their reproduction falls, and with it the Value of Labour-Power, and, therefore wages also falls.

At the same time, and this is particularly true of modern Capitalism, one of the ways in which Capitalists can persuade consumers to part with their money, especially to buy their commodities rather than someone else's, is to offer something new, something, better, a higher quality. So competition, drives producers to improve the quality of products, and to produce new kinds of commodities. These new commodities, these better versions of existing commodities, may well require more not less labour-time for their production, and so their Exchange Value, their price is increased. The same is true with labour-power. A worker who can produce a more valuable commodity, that a capitalist can sell at a higher price, is worth more to a capitalist than is a run of the mill worker, who can only do unskilled work. The capitalist can both pay the former a higher wage, and at the same time extract more surplus value from their labour than from that of the latter.

As capitalism develops machine industry from handicraft industry, it needs more skilled workers to produce the machines. It may require more educated workers even to be able to use the machines, because they may need at least to be able to read, to understand basic maths etc. So, capital's own needs mean that the kind of labour-power it requires changes, and so the basic things needed to reproduce this labour-power, and consequently the cost of reproducing it, the Value of Labour Power rises. As with every commodity there is a continual battle going on between the rising cost of production due to improvements in quality, and falling costs due to rises in productivity. But, the overall effect is that in terms of real wages, the standard of living of workers rises. On the one hand, the costs of producing the wage goods they need falls, on the other the range and quality of those wage goods available to them, increases.

So, Marx's theory is far from saying that workers have to be immiserated, or that some “Iron Law of Wages” forces them down to some bare subsistence minimum. What Marx actually argues is that, again as with all other commodities, although the market price can vary above or below the Exchange Value (or later Price of Production) of the particular commodity, due to temporary imbalances of Demand and Supply, wages will be equal to the Value of Labour Power. That Value may be high or low, workers might have good conditions or bad conditions, high wages or low wages, depending upon what is required for the reproduction of labour-power, but whatever it is will determine the level of wages. Even if wages are high, and workers conditions good by historical standards, or compared with other countries, if those wages are below the Value of Labour Power i.e. do not meet the level required to produce sufficient workers, of sufficient quality, to meet the needs of Capital, then an insufficient number of workers will be produced, and the basic law of supply and demand will push wages even higher, until they do reach the Value of Labour Power.

That can perhaps be seen in the US at the moment. One of the fastest growing, most profitable sectors has been in high value, high-tech production, in Silicon Valley, for example. But, the US education system is quite poor. It has a range of very expensive, select Universities such as Harvard, which charge exorbitant fees, and pump out a number of students each year who earn huge salaries. But, the rest of its schools and colleges fail to produce enough high quality workers to meet the needs of US capitalism for well educated, highly skilled workers. It was a fact that Alan Greenspan referred to many times in his Congressional testimonies. So, despite high wages for such workers, wages for them, are perhaps still not high enough to create the conditions that bring forward sufficient supply to meet that demand.

Capital has an incentive to introduce machines
like surgical robots to replace, high value,
high wage labour power.

In contrast, if wages rise above the Value of Labour Power, then Supply will exceed demand. Again, this has nothing to do with the actual level of wages, whether they are high or low, but only whether they are above or below the Value of Labour Power. If wages are above the Value of Labour Power, then competition amongst workers for available jobs will push them down again. In addition, Capital will always be able to find ways of reducing wages in such conditions. For example, Capital will look to introduce machines that will replace labour-power. This increases the relative over supply of workers, increasing competition between them, and again forcing wages down. And, in a globalised economy, Capital can simply relocate its production from one country to another where wages are at or below the Value of Labour Power.

In short, Marx does not argue that Capitalism is forced to reduce wages to a subsistence level. He argues the opposite, that the continual growth of productivity, the growth of an increasing range and quality of Use Values, which it seeks to sell to workers, its changing needs for labour-power lead rather to a steady rise over time of workers living standards, what he calls the Civilising Mission Of Capitalism, which he saw as necessary for workers developing sufficiently to become the new ruling class. All of this happens at the same time, however, as the amount of time that workers have to hand over free to Capital, as Surplus Value, grows even more in proportion, thereby enslaving the worker even more.

“that, consequently, the system of wage labour is a system of slavery, and indeed of a slavery which becomes more severe in proportion as the social productive forces of labour develop, whether the worker receives better or worse payment.”

Forward To Part 2

Capital I, Chapter 13 - Part 1

Co-operation

“A greater number of labourers working together, at the same time, in one place (or, if you will, in the same field of labour), in order to produce the same sort of commodity under the mastership of one capitalist, constitutes, both historically and logically, the starting-point of capitalist production.” (p 305)

At first, capitalist production varies only quantitatively from handicraft production. A number of workers are employed by a single capitalist, first through the putting-out system, whereby material is provided to workers to work up in their cottages, and then by bringing them together in factories. The mass of surplus value increases because it is extracted from a greater number of workers. But, the labour-power of workers is not homogeneous. Taken as a whole, an average can be calculated, but this implies that some workers will be more productive than the average, and others less.

If a group of workers is taken as the basis, these differences are averaged out, so that any one group will be much the same as another. Marx quotes Edmund Burke on this point.

"“Unquestionably, there is a good deal of difference between the value of one man’s labour and that of another from strength, dexterity, and honest application. But I am quite sure, from my best observation, that any given five men will, in their total, afford a proportion of labour equal to any other five within the periods of life I have stated; that is, that among such five men there will be one possessing all the qualifications of a good workman, one bad, and the other three middling, and approximating to the first, and the last. So that in so small a platoon as that of even five, you will find the full complement of all that five men can earn.” (E. Burke, 1. c., pp. 15, 16.)” (Note 1, p 306)

If say 12 workers are employed by a single capitalist, then by definition, taken as a whole, they produce at the average level, because the average is their total output divided by 12. The differences between them are cancelled out. But, if the same 12 were employed by 6 capitalists, employing 2 workers each, it would be surprising were that to be the case. One capitalist might employ the 2 most productive workers, and another the 2 least productive workers.

The total product of these 12 workers would still have its value determined by the average of the socially necessary labour-time required for its production (i.e. the time taken by all 12, divided by 12), but the individual value of the production of capitalist 1, would be below this level, and that of Capitalist 2 above it.

“If one workman required considerably more time for the production of a commodity than is socially necessary, the duration of the necessary labour-time would, in his case, sensibly deviate from the labour-time socially necessary on an average; and consequently his labour would not count as average labour, nor his labour-power as average labour-power. It would either be not saleable at all, or only at something below the average value of labour-power. A fixed minimum of efficiency in all labour is therefore assumed, and we shall see, later on, that capitalist production provides the means of fixing this minimum. Nevertheless, this minimum deviates from the average, although on the other hand the capitalist has to pay the average value of labour-power. Of the six small masters, one would therefore squeeze out more than the average rate of surplus-value, another less. The inequalities would be compensated for the society at large, but not for the individual masters. Thus the laws of the production of value are only fully realised for the individual producer, when he produces as a capitalist, and employs a number of workmen together, whose labour, by its collective nature, is at once stamped as average social labour.” (p 306-7)

Capitalist production brings other changes as a consequence of bringing larger numbers of workers together. Buildings, stores, and tools are now shared for the total production, and therefore, used more efficiently, what orthodox economics calls “Economies of Scale”.

“A room where twenty weavers work at twenty looms must be larger than the room of a single weaver with two assistants. But it costs less labour to build one workshop for twenty persons than to build ten to accommodate two weavers each; thus the value of the means of production that are concentrated for use in common on a large scale does not increase in direct proportion to the expansion and to the increased useful effect of those means. When consumed in common, they give up a smaller part of their value to each single product; partly because the total value they part with is spread over a greater quantity of products, and partly because their value, though absolutely greater, is, having regard to their sphere of action in the process, relatively less than the value of isolated means of production.” (p 306-7)

So, the value of Constant Capital in the product falls, and the value of the product itself falls. This is before any further advantages arising from large numbers of workers assisting in each others production. It provides capitalist production with a huge advantage over handicraft production, spelling the end of the latter.

There are many tasks which can only be done if a large number of workers combine their efforts. For example, lifting some heavy or large object. Moreover, it is apparent that, in co-operating, to achieve this task the combined power of all these workers is greater than the sum of their individual efforts. This fact has meant that co-operative labour has been a feature of human activity from the beginning of Man's history. I have described some examples of this elsewhere – The Economics Of Co-operation.

In orthodox economics, this feature is known as Increasing Returns To Scale.

“In such cases the effect of the combined labour could either not be produced at all by isolated individual labour, or it could only be produced by a great expenditure of time, or on a very dwarfed scale. Not only have we here an increase in the productive power of the individual, by means of co-operation, but the creation of a new power, namely, the collective power of masses.” (p 308-9)

“Hence it is that a dozen persons working together will, in their collective working-day of 144 hours, produce far more than twelve isolated men each working 12 hours, or than one man who works twelve days in succession. The reason of this is that man is, if not as Aristotle contends, a political, at all events a social animal.” (p 309)

The natural extension of this principle of co-operative labour is the division of labour, so that one overall task is divided into a series of subordinate tasks, which different workers or groups of workers perform.

“For instance, if a dozen masons place themselves in a row, so as to pass stones from the foot of a ladder to its summit, each of them does the same thing; nevertheless, their separate acts form connected parts of one total operation; they are particular phases, which must be gone through by each stone; and the stones are thus carried up quicker by the 24 hands of the row of men than they could be if each man went separately up and down the ladder with his burden.” (p 309)

Here, each worker performs the same task in sequence, thereby reducing the time required, which means reducing the value of the end product. But, the division of the task could also mean its division into different tasks.

“It is owing to the absence of this kind of co-operation that, in the western part of the United States, quantities of corn, and in those parts of East India where English rule has destroyed the old communities, quantities of cotton, are yearly wasted.” (p 310-11)

The irony is that in the USSR, which was supposed to be a highly planned economy, where, therefore, such co-operation should have been highly developed, such wastage was massive. In agriculture, huge quantities rotted for lack of adequate storage, or transport to take it to market at the right time. In fact, the market proved far better at organising such co-operation than did attempts at detailed planning.

“On the one hand, co-operation allows of the work being carried on over an extended space; it is consequently imperatively called for in certain undertakings, such as draining, constructing dykes, irrigation works, and the making of canals, roads and railways. On the other hand, while extending the scale of production, it renders possible a relative contraction of the arena. This contraction of arena simultaneous with, and arising from, extension of scale, whereby a number of useless expenses are cut down, is owing to the conglomeration of labourers, to the aggregation of various processes, and to the concentration of the means of production.” (p 311)

This is one reason why, early on, when small capitals are inadequate to take on the scale of such undertakings effectively, it is the State which does so. It is one reason, as Marx and Engels described, for the development of the bureaucratic-collectivist state of the Asiatic Mode Of Production, which arises to undertake huge hydraulic and irrigation works. Similarly, the State took responsibility at the outset of the Industrial Revolution for road building. It has done so for the Space Industry, for Nuclear Power etc.

“Whether the combined working-day, in a given case, acquires this increased productive power, because it heightens the mechanical force of labour, or extends its sphere of action over a greater space, or contracts the field of production relatively to the scale of production, or at the critical moment sets large masses of labour to work, or excites emulation between individuals and raises their animal spirits, or impresses on the similar operations carried on by a number of men the stamp of continuity and many-sidedness, or performs simultaneously different operations, or economises the means of production by use in common, or lends to individual labour the character of average social labour whichever of these be the cause of the increase, the special productive power of the combined working-day is, under all circumstances, the social productive power of labour, or the productive power of social labour. This power is due to co-operation itself. When the labourer co-operates systematically with others, he strips off the fetters of his individuality, and develops the capabilities of his species.” (p 311-12)

 

Back To Chapter 12

Forward To Part 2