Gymnasium Farms and Corrective Gymnasia - Part 2 of 2

In this short article, Lenin discusses one of the similar Utopian schemes put forward by the Narodniks. It was for the establishment of schools combined with farms, providing secondary education. The proposal is similar to the kibbutzim created in Israel. The Narodniks, as seen in the previous articles, in this series, were petty-bourgeois, and the proposal is fully in keeping with that. Once again, there was no reason why the bourgeoisie and its state would adopt the Narodnik proposal, which amounts to the creation of large communal farms that would employ a considerable proportion of the working population. But, also, as Lenin sets out, there was little reason why workers would be attracted to the Narodnik proposals either.

As petty-bourgeois, the Narodniks had one foot in the future, and the other in the past. Their foot in the future led them towards bourgeois relations, but at a slower pace, and in a less mature form. Their foot in the past led them to relations that were the foundations of feudalism. Here, for example, not only do they propose compulsory unpaid labour, in exchange for education, but also the tying of the worker to the land, and even control over whether the workers – up to the age of 27 – were able to marry. In other words, many of the features of serfdom. 

““We must,” say the Narodniks, “choose different paths for the fatherland,” leave the capitalist path and “communalise” production, making use of the existing forces of the “whole” of “society,” which, so they say, is already beginning to be convinced that there is no basis for capitalism.” (p 73) 

This kind of Utopianism can be seen today amongst those who, whatever the particular problem, propose as their solution “Socialism Now”. For example, writing on Michael Roberts' Blog, on the question of COVID19, Brian Green (Ucanbpolitical) tells us that the situation shows that what we need is socialism. 

“In all ways, this plague has been visited upon a society and a world made sick by Capital, and kept sick by its pharmaceutical industry which has exploited chronic illness. Our slogan should be “Capitalism is making us sick, revolution will heal us”.” 

One is inclined to thank Green for this useful insight, and to enquire whether he thought that no one else had previously arrived at this miraculous conclusion that only his unique intellect and insight had just now uncovered? One is prompted to suggest to Green that he rush out immediately and proclaim this gospel in the streets, so that the world's unenlightened masses should have the scales lifted from their eyes, and join him in bringing about this transformation forthwith! On the other hand, we might refer Green to the words of Lenin, in response to the Narodniks' similar approach. 

“Obviously, if a different path may be chosen for the fatherland, if the whole of society is beginning to understand the need for this, then the “communalising” of production presents no great difficulties and requires no preparatory historical period. One has only to draw up a plan of such communalisation and to convince the appropriate persons of its feasibility–and the “fatherland” will turn from the mistaken path of capitalism to the road of socialisation.” (p 73) 

Lenin, of course, was also being sardonic in his response to the Narodniks, as is my response to Green. To attract society to such a plan, Lenin says, it must be extremely attractive. Indeed, one wonders why Green, and those who think like him, have also not provided such an extremely attractive proposition to society so that they would by now have flocked to their banner, and begun to construct the new Jerusalem. The Narodnik proposals were set out by Yuzhakov in Russkoye Bogatsvo. 

“The author plans to set up in every volost a gymnasium embracing the entire male and female population of school age (from 8 to 20 years, and to a maximum of 25 years). Such gymnasia should be productive associations that engage in farming and moral undertakings, that by their labour not only maintain the population of the gymnasia (which, according to Mr. Yuzhakov, constitutes a fifth of the entire population), but additionally provide resources for the maintenance of the entire child population. The detailed account made by the author for a typical volost gymnasium (or “gymnasium farm,” or “agricultural gymnasium”) shows that all in all the gymnasium will maintain over a half of the entire local population.” (p 74) 

To pay for setting up these gymnasia (schools), the Narodniks proposed selling government backed, 4½% Zemstvo bonds. 

“Production is socialised for a total of half the population. At one blow, then, a different path is chosen for the fatherland! And that is achieved “without any expenditure (sic!) on the part of the government, Zemstvo, or people.”” (p 74) 

It may appear a Utopia, at first sight, Yuzhakov proclaims, but is, he says, far more feasible than universal elementary education. The reason being that the proposal involves the young workers, in the gymnasia, providing compulsory, unpaid labour, in exchange for their education. Yuzhakov sets out details of the numbers involved, comprising 500 male and 500 female students per gymnasium, with 50 per class, as well as the numbers of teaching and other staff required. In all, 20,000 such gymnasia would be required. 

Such an enthralling plan, Lenin says, sarcastically, must have won the attention of the government, especially as it involves matters relating to the Ministry of Public Education, Ministry of Internal Affairs, Ministry of Finance, Ministry of Agriculture, and even the Ministry of War, as one proposal involves conscription of a third of the students. Lenin then examines the details of the scheme. In the Summer, there are no studies, as the students have to engage in agricultural work. Additionally, even after graduating students are still required to remain on the farm for some time. This is to cover the costs of other students, including those drafted into the military. These students are then also employed in Winter work, on the farm, and industrial work to supplement it. 

Even with all of this compulsory labour from students of working-age, additional workers are required. Yuzhavov sees the farms making a profit, and so he proposes that some labour could be hired, some of whom might get a share of any profits, but the other labour comes from students who have graduated, who have to remain tied to the farm for sufficient time to cover the costs of their own education in the years before they were of working-age. 

“It already enables us to see what sort of different path for the fatherland will be chosen. Wage-labour, which at the present time serves as the only source of livelihood for people who “cannot pay the cost of tuition” and living, is replaced by compulsory unpaid labour.” (p 77) 

Yuzhakov's proposal was also for separate male and female schools, rather than coeducation schools, which were more rational. 

A third of all graduating students would undertake military service, for three years, and again other graduating students have to cover the work they would otherwise have done. 

“The pattern of the new system, arranged for the fatherland that has chosen a different path, is assuming increasingly clear outlines. Now all Russian citizens are obliged to undergo military service and, since the number of persons of military age is larger than the number of soldiers required, the latter are chosen by lot. In communalised production the recruits will also be selected by lot, but as for the rest, it is proposed “to place them in the same conditions,” i.e., to make it obligatory for them to spend three years in service, not military, it is true, but doing work in the gymnasium. They have to work off the cost of keeping their comrades who have been called to the colours. Have all to do so? No. Only those who cannot pay the cost of the tuition.” (p 77) 

In other words, students from those more affluent families who could afford to pay the tuition fees were excused from such obligations. In fact, Yuzhakov proposed separate schools for all those who could pay tuition fees. The consequence of Yuzhakov's proposal was that the cost of supporting the military fell on those who could not afford to pay the tuition fees rather than those who could, because the latter had to perform no unpaid labour. 

“In what way is the new system different? In the fact that nowadays those who have no resources can sell their labour-power, while under the new system they will be obliged to work gratis (i.e., for their keep alone). There cannot be the slightest doubt that Russia will thus avoid all the vicissitudes of the capitalist system. Hired labour, which contains the threat of the “ulcer of the proletariat is driven out and makes way for ... unpaid compulsory labour.” (p 78-9) 

The Narodniks proposal was “anti-capitalist”, but its alternative was the continuation of the pre-capitalist forms of exploitation. 

“And there is nothing surprising in the fact that people placed in relationships in which labour is compulsory and unpaid should find themselves in conditions corresponding to these relationships.” (p 79) 

So, we then find the proposal that the gymnasium would have control over whether its students, who now, with additional required service, could be as old as 27, were to be allowed to marry. Lenin continues in sarcastic tone. 

“Is it not obvious that such advantageous conditions will impel the population to bend every effort to gain admittance to the gymnasia? Judge for yourselves: firstly, they will be permitted to marry. True, according to the now existing civil legislation such permission (from the authorities) is not required at all. But bear in mind that these will be gymnasium pupils, male and female, true, as old as 25 years, but still gymnasium pupils. If university students are not permitted to marry, could gymnasium pupils be permitted to do so? And what is more, the permission will depend on the school authorities, consequently, on people with a higher education: obviously, there are no grounds for fearing abuses. Those who graduate the gymnasium and remain as regular workers there, are, however, no longer pupils. Nevertheless, they too, people between 21 and 27 years of age, have to obtain permission to marry. We cannot but recognise that the new path selected by the fatherland involves some curtailment of the civil rights of Russian citizens, but, after all, it must be admitted that the blessings of universal secondary education cannot be acquired without sacrifices.” (p 79) 

Lenin mocks the miserable vision of the new society that, in fact, looks more like the conditions that existed before capitalism. It shouldn't be necessary to highlight this, and yet there are plenty today who proclaim themselves socialists, but whose “anti-capitalism” leads them to a vision of socialism not that different to that proposed here by the Narodniks. It is a vision based not on lifting everyone to unprecedented heights, but reducing everyone to the same miserable low levels, and that is all the more the case where such socialists align themselves with the Malthusians. Take this view expressed by “jm” on Coatesy's Blog  , where he would like to see cinemas and other such unnecessary things scrapped. 

“Which leaves that kind of suffering of the first hand: Those not earned wages can’t be used to buy the TV sets which weren’t produced either, and they can’t be used to go to the cinema which needs to be closed anyway.” 

Another poster, Rachel, commented, 

“Whether we like to admit it or not most of our jobs are non-essential, nay, most jobs are non-jobs. There are many people who work in what are effectively job creation schemes drawing large salaries. They are not missed. ‘Coronavirus’ has flushed out the parasites and passengers.” 

Now, its true that "jm" and "Rachel" are probably trolls, as with many more who put out such nonsense, but, unfortunately, there is increasingly little distance between the views expressed by trolls and the brain dead elements of many left sects. For example, how are we to understand the SWP's slogan that “We Are All Hezbollah Now” other than as support for such similar soulless, medievalism, and a vision of society closer to that of the Taliban than that of Marx? 

Lenin continuing his sarcastic response notes, 

“Undoubtedly, the population will prefer the advantages of a quiet life under the wing of the authorities to the turmoils of capitalism, will prefer them to such a degree that some workers will stay permanently at the gymnasium (very likely out of gratitude for being allowed to marry): “The small contingent of regular workers, who remain at the gymnasium altogether and associate (sic!!) themselves with it, supplements these labour forces of the gymnasium farm. Such are the possible and by no means utopian labour forces of our agricultural gymnasium. 

Have mercy on us! What is there “utopian” in all this? Regular unpaid workers, who have “associated themselves” with their masters, by whom they are permitted to marry—just ask any old peasant, and he will tell you from his own experience that all this is quite feasible.” (p 79-80)

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Huge UK House Price Bubble Inflates Further

The house price bubble in Britain began inflating in the 1980's, as Thatcher, having defeated the working-class, after the Miners' Strike of 1984-5, began to pump liquidity into the economy, to finance the growing debt economy, in which households were encouraged to borrow to finance consumption, as their wages stagnated. It was given a twist higher with the further encouragement of debt and speculation resulting from the deregulation of financial markets – the financial Big Bang of 1986 – which occurred in both Britain and the US. It was the start of the process that led to the global financial meltdown of 2008, and why Britain was one of the worst affected by it. UK house prices have been continually inflated since the 1980's, in the same manner as the prices of financial assets, suffering the same kinds of crashes along the way. According to Nationwide, the average house price is now 10.9% higher than a year ago.

The process, started in the mid 1980's, quickly led to the biggest ever one day crash in financial markets in 1987. That in turn led central banks to respond by printing even more money tokens so as to reflate those asset prices. The same financial markets that had fallen by more than 25%, were 50% higher a year later. 

The UK property market, which had seen prices more or less double in just over a year, after 1988, crashed by 40% in 1990, under a combination of rising unemployment, and rising interest rates. House prices did not recover their pre-crash prices until 1996, and a new round of global liquidity injections took place in response to further crashes, such as the 1994 Bond Market rout, the 1997 Asian Currency Crisis, the 1998 Ruble Crisis, the collapse of LTCM, as well as the provision of liquidity ahead of the Millennium and any potential Millennium Bug.

The huge amounts of liquidity not only fuelled property price inflation, but also fuelled speculation in technology stocks, and any small cap stocks that acted as proxies for them. Shares in these companies rose by huge amounts and, the leading funds speculating in these stocks saw gains in their unit prices of around 70% a year for several years. That was until, some of the Internet stocks that had soared were seen to have no material foundation, much as with crypto-currencies, or meme stocks today. That together with an attempt to rein in some of the huge ocean of liquidity that had been released, and rising interest rates, caused the NASDAQ to drop by 75% in a few weeks. It took more than 15 years to recover, but, in the meantime, central banks continued to pump liquidity into the system to try to reflate asset prices, especially after 9/11 caused another shock to the system.

All of this liquidity acted to inflate asset prices, which was its intention, as the global ruling class, the top 0.01%, owns all its wealth, nowadays, in this form. In those economies where home ownership was dominant, it meant that house prices were also inflated. As with meme stocks, this creates an inevitable dynamic that leads to bubbles, and the subsequent bursting of those bubbles. As George Soros says, for a speculator, when you see a bubble starting to inflate, the thing to do is to rush towards it, because that is the way to make money – provided that you then, make sure to get out well before that bubble inevitably bursts. In other words, it is the application of the bigger fool principle. For big speculators like Soros that is possible, but for the small retail speculator, its usually not, as they found a few weeks ago, when they found they could not sell out of their positions in Gamestop. For any illiquid asset, this problem is compounded, and property is probably the least liquid asset of all. Shares and bonds can usually be sold at the press of a button, if the market is falling, even if you take a loss on your position. If house prices are falling, even if you can find a buyer, the process takes months to complete, by which time, prices can have collapsed, buyers disappeared, pulled out, waiting in anticipation of even lower prices down the road.

The current rise in UK property prices is rational in the short term, for the reason Soros describes, but only just, because, given the illiquid nature of property, and given the background conditions, the likelihood of prices crashing in the near future is extremely high, meaning that anyone buying now will be unable to get back out again quickly. In other words, it is likely to be totally irrational tomorrow!

The reasons for the current pop in prices is fairly easy to see. Large numbers of people have been given cash by the government as replacement incomes during the period of the lockouts. Those furlough and other payments went on for much longer than was originally proposed. They should have ended last September, and are still in place. At the same time, households ability to consume was constrained, meaning that their disposable income rose, leading to some debt being paid down, and even saving being accrued. For months, due to the lock downs, house purchase itself was not possible, meaning that planned purchases were delayed. The government has also further fuelled demand with its Stamp Duty holiday, and with large areas of business closed down, the demand for capital was suspended, leading to falling interest rates. At the same time, central banks printed more money tokens and bought even more bonds, raising their prices and reducing their yields, which created a further puff into the inflating asset price bubbles over the last year.

There has been a further factor, which is that large numbers of people living in London, and other large cities have felt encouraged by COVID and by the lock downs to move into more rural areas. In part its a desire to obtain more living space, and, in part, a result of the shift to online home working. Someone who is able to sell a poky flat in London for £1 million, and instead buy a four bedroomed detached house and garden, for £250,000 somewhere in the sticks, is not likely to quibble over the odd ten or twenty thousand pounds, here or there, on the price, in the same way that someone local to the area would, and so that has an inevitable short-term upward effect on the prices of all these houses being bought in those areas. A similar thing can be seen with what has happened to house prices in Cornwall.

So far, the continuation of furlough and other payments means that the large expected rise in unemployment has not occurred. In fact, as I predicted, as economies open up, there has been a significant increase in the demand for labour, because the process involves a rapid change in pace of economic activity. But, it is a combined and uneven process. There is a shortage of 70,000 lorry drivers, 180,000 bar and restaurant workers and so on, but that does not mean that there will not still be large scale unemployment as the furlough scheme ends. The workers in demand will not necessarily meet with the supply of the right kinds of workers who are unemployed, they may be in the wrong place and so on. Furlough schemes encourage employers to retain workers, but employ them less efficiently, part-time and so on, but when they end, they will have an incentive to dismiss workers, and use a smaller number more extensively and intensively. Rising wages for those in employment can go hand in hand with rising unemployment, and deprivation for many, as they see inflation rapidly eroding their incomes.

More importantly, as firms do open up they will need to borrow on a large scale, at the same time that governments are borrowing on an astronomical scale to finance all of the unproductive consumption and handouts they have undertaken, and are committed to continue to undertake. When it comes to house prices, far more important than what happens to wages, is what happens to interest rates. Interest rates affect house prices in two different ways. Firstly, a rise in interest rates means that, mortgage rates rise. With rates very low, even a modest absolute increase can make a huge relative difference. For example, suppose someone has an interest only mortgage on a £200,000 house, at a rate of 1%. That is £2,000 a year in mortgage payments, or about £175 per month. If the mortgage rate rises to just 2%, this means that the annual mortgage payment also doubles to £4,000 a year, or around £350 per month. To compensate would require wages rising by £2,000 a year. Yet, those rates are historically low for mortgage rates. The historical typical rate is around 7%, which would mean the annual interest being £14,000, or around £1,175 per month. So, this kind of rise in mortgage rates acts as a big factor in determining demand, and so house prices.

But, interest rates affect house prices in a second, and more fundamental way, and that is as a result of the process of capitalisation. If interest rates rise, then the capitalised value of all revenues on assets falls. That means that asset prices fall, including land. If land prices fall, then a major factor in the price of houses also falls. Currently, land prices are about seven times as high as a proportion of house prices, as they are historically, as a result of this long-term asset price inflation that has been fuelled by central bank liquidity injections. Suppose the cost of building the average new house breaks down as follows Land £70,000, Labour and Materials £30,000, Profit £100,000. Builders will only build houses they know they can sell at the selling price of £200,000, so that they can make the average profit of £100,000. If they built more, then, to sell them, they would have to reduce the selling price to say £150,000, which would take away £50,000 of their profit, meaning their capital could have been better used elsewhere. However, if, as a result of rising interest rates, the capitalised value of assets falls, and the price of land falls to £10,000, the builders costs are significantly reduced. They can make the average £100,000 profit, now with a selling price of just £140,000, indeed, they can make the average rate of profit of 100%, with a selling price of just £80,000!

But, at a selling price of £140,000 the demand for new houses would increase substantially, so that builders would then have an incentive to build many more, thereby, increasing the supply, with a consequent knock on effect to all other house prices. Moreover, at £140,000 not only would builders make much more profit in total, because of their much increased production, but they would actually also make surplus profits, because their rate of profit would now be 250%, as against the average rate of profit of 100%. That, of itself, would encourage builders to build more, and others to enter the building industry so as to obtain these surplus profits, which would increase supply and push down house prices, thereby increasing demand, and output further. When pundits talk about the need to increase the supply of houses so as to reduce prices, they first need to look at the question of the need to reduce land prices, which requires a rise in interest rates, as well as breaking the feudalistic monopoly on land ownership, and monopolistic restrictions on supply imposed by measures such as The Green Belt.

The current pop in house prices is likely to be part of the closing scenes of the drama prior to the denouement. By all historical measurements UK house prices are in a huge and unsustainable bubble. Like all bubbles it must eventually burst. Historically, the average UK house price has been equal to around 2-3 times average earnings. Median average earnings are currently around £31,000, which means that the average house price should be around £90,000, whereas it is actually around £240,000. But, also, historically, homebuyers have, generally, been married couples, in their mid to late 20's, whereas, since the 1980's, and particularly in the last 20 years, as the bubble has inflated, every single adult has been encouraged to think they should have their own home, if not be a homebuyer.

In 1971, 79% of UK households were multi-occupancy, 70% were occupied by married couples. Only 19% were occupied by single people, with a further 2% occupied by lone parents. By 2011, those figures had changed drastically. Only 59% were multi-occupancy, the number of married couples had dropped to just 40% with a further 12% co-habiting, and another 7% other multi-occupants. By contrast, the number of homes occupied by one person had almost doubled to 33%, with 8% occupied by lone parents.

(Halifax)

So, the historic ratio gives an inflated figure for what current house prices should be. Its clearly more affordable for two people to be buying a house, particularly two people in their mid to late 20's, than it is for a single person still in their teens, or early twenties. Rather than 3 times average earnings, therefore, something like twice average earnings would be a more realistic figure, which would give an average house price today of around £60,000, or about a quarter of the actual current average house price. In fact, given that house prices have been so much inflated above their long-term average, for so long, a reversion to the mean would suggest that they would need to fall below that long-term average for some time, either as a result of a large drop, or as a result of a continual decline in real terms.

Michael Roberts and Inflation - Part 3 of 16

But, currency does not now, and has not, for a long time, taken the form of actual gold or precious metal, but takes the form of tokens, and Marx describes how this turns the relations described above on their heads. As Marx describes, if the value of gold rises or falls, then this will obviously change the amount of it required as currency. When gold rushes led to a large fall in the value of gold, for example, this meant that more gold must be used as currency, because its exchange value fell relative to all other commodities. Similarly, if some other commodity such as silver is used to replace gold as the measure of value, much more of this has to be put into circulation than gold.

“Thus, if the value of gold, i.e. the labour-time required for its production, were to increase or to decrease, then the prices of commodities would rise or fall in inverse proportion and, provided the velocity remained unchanged, this general rise or fall in prices would necessitate a larger or smaller amount of gold for the circulation of the same amount of commodities. The result would be similar if the previous standard of value were to be replaced by a more valuable or a less valuable metal. For instance, when, in deference to its creditors and impelled by fear of the effect the discovery of gold in California and Australia might have, Holland replaced gold currency by silver currency, 14 to 15 times more silver was required than formerly was required of gold to circulate the same volume of commodities.”

(ibid)

But, as Marx then also points out, if gold (or silver) is replaced by tokens (even tokens themselves consisting of gold or silver) then what has been stated above only applies if the quantity of these tokens put into circulation is limited to that which represents the amount of gold that would otherwise have circulated, which is itself simply a proxy for social-labour-time, equal to the value of commodities to be circulated. If too much gold is put into circulation, then it is simply withdrawn. It becomes again bullion, or else is used as a commodity, for jewellery and so on. This can happen, precisely because gold is a commodity in its own right, and has value. But, if we take a paper token, representing a given quantity of gold that would otherwise have circulated, it has no real value. If too many of these notes are in circulation, compared to the gold or social labour-time they are supposed to represent, it is not possible to take them out of circulation, and melt them down so as to obtain their intrinsic value. Only the monetary authorities can do that, by contracting the currency supply, which they can do via various measures. They can increase their policy rates, so as to encourage commercial banks to increase their deposits with the central bank, and to discourage further credit creation; they can sell Treasury Bills and then sterilise the money tokens they receive in exchange for them; and they can instruct commercial banks to increase their reserve asset ratios, which means they have to reduce their lending.

But, as Marx sets out in Capital III, although the central bank has considerable power in all of these things it is not omnipotent. For example, the bank can influence bank credit, but it cannot control commercial credit. If firm A sells commodities to firm B for £100, A may agree to do so on the basis of commercial credit, giving B, say, 90 days to pay. B also sells commodities to a range of other firms, and similarly gives them 90 days to pay. For all of these transactions, no currency is required, and so any attempt by the central bank to restrict economic activity by reducing the currency supply will be limited in its effect on such transactions. In effect firms create their own currency. At the end of 90 days, all of the various transactions between A, B and so on, can be simply netted off against each other, with only any outstanding balances needing to be paid in currency. Particularly in times of rapid economic activity, firms are likely to engage in the provision of such commercial credit, between each other, in order to get goods out of the door as quickly as possible. The bills of exchange, and other such instruments they use, nowadays simply via invoicing, and bank clearing, means that they provide their own means of currency in these transactions outside that controlled by the central bank.

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Eurozone Producer Prices Rocket

Adding further weight to the evidence that global inflation is no longer to be dismissed as "transitory", Eurozone producer Prices have rocketed, latest data shows.

Trading Economics notes,

"Annual producer inflation in the Euro Area jumped to 7.6% in April, the highest since September of 2008 and above forecasts of 7.3%, as energy cost soared 20%. Excluding energy, producer inflation was 3.5%. Ireland, Spain, Netherlands and Greece recorded double-digit rates and prices also accelerated in Germany, France and Italy. On a monthly basis, producer prices in the bloc went up 1%."

For the last year, prices for a whole range of goods and services have been depressed, because consumes were prevented by government diktat from buying them.  These were generally things that take up a large part of the basket of goods and services used to construct consumer price indices.  Meanwhile other goods and services, of the kinds consumers turned to over the period, rose sharply in price, but were not represented, or were underrepresented in those indices.  Now we have, as economies open up, sharp rises in prices of goods and services, including all of that manufacturing output, which is demanding raw materials and labour, and whose prices are rising sharply as a response to this rising demand, also fuelled by the large amounts of liquidity that central banks have, and continue to pump into the global economy, as it overheats.

A large part in the increase is accounted for by a rise in energy costs, but that is before the recent rise in oil prices has been taken into account.  Further increases in oil prices are likely to build in further price increases over coming months.  As i wrote yesterday, the oil price is a long way from the $147 it reached in 2007, and its unlikely to breach even $100, for the reasons given, but that still leaves up to another 50% of increase that could feed through into the costs of businesses and households.  Businesses will seek to recoup those costs in higher prices, including the costs of higher wages paid to workers, as workers face these higher costs of living, and as labour shortages also force firms to compete for available worker pushing up wages.  Central banks, anxious to enable firms to protect their profit margins, by raising prices, will provide the required liquidity to enable them to do so, thereby making the inflationary spiral not permanent, but certainly not transitory either.

As firms, households and governments across the globe try to finance their astronomically inflating debts, by yet more borrowing, central banks will also want to continue providing liquidity in the mistaken belief that they can control the price of capital, by such action, and the mistaken belief that interest rates are determined by the amount of liquidity (money tokens) they provide.  That will do nothing to prevent interest rates rising, which are determined by the demand and supply for money-capital, not money tokens, i.e. the ratio of realised profits and savings to the demand for money-capital to finance accumulation, and cover payments.  But, the attempt to portray inflation as transitory, in order to try to prevent "inflation expectations" rising, as well as the false theories on money and interest rates, held by central bankers, together with their desire, for as long as possible to keep yields low, and asset prices high, will lead them to continue flushing more and more liquidity into the global economy, thereby further stoking an inflationary spiral.  The demands of Erdogan in Turkey that his central bank cut its policy rates, even as Turkish inflation soars, and its currency is destroyed, is illustrative of the mindset.

Corn and Wheat Prices Rise By More Than 4% In A Day

Yesterday, the prices of both corn and wheat rose by more than 4%.  Corn prices rose by nearly 5%.  At the time of writing today, both have continued to rise by nearly another 1%.  It is part of the continued rise in global inflation fuelled by the excess liquidity that central banks have pumped into economies over the last year, which has fed out into unproductive consumption, as against the vast oceans of liquidity they have pumped into the global economy over the last thirty years, which was directed into inflating huge asset price bubbles in stock, bond and property markets, so as to protect the fictitious wealth of the global top 0.01%.

Wheat and corn prices rise as all that liquidity, finds its way into monetary demand, as the global economy opens up, after a year of it being artificially, and severely repressed due to the imposition of lockouts and lockdowns by governments across the globe.  The rapid increases in economic activity that is being seen, necessarily produces supply bottlenecks and shortages, as for example is most visibly seen with the global shortage of microchips.  Similarly, large rises in prices of some raw materials like copper has caused large consumers of copper in China to reduce outputs, as they could not yet pass on the higher costs of inputs into their final product, but as global inflation continues to rise, their own prices will rise, giving them headroom again, to pay the higher prices for their inputs.

One other symptom is the shortage of labour in various sectors.  Britain is more badly affected by that because of the idiocy of the Brexit decision.  Britain is short of around 70,000 lorry drivers, which hampers the movement of its goods within the country, as well as the further constraints the Brexit imposes on the movement of its goods and people across its borders.  It is also short of around 180,000 workers in the pub, restaurant and hotel business, as that opens up, despite the number of pubs and restaurants that have closed as a result of the economic effects of the lockouts over the last year.  Again, it is made worse by Brexit, as many of the casual workers in the sector were from the EU, and many of whom have now gone back to the EU.  Its hard to avoid some schadenfreude, in seeing the arch-Brexiter, and generally odious Tim Martin of Weatherspoons, now bemoaning the fact that he can't get the cheap labour he needs to produce profits in his pubs, and is appealing to his mate Boris to create a special EU visa scheme to allow EU workers to come to Britain to work in that sector.

Wheat prices, like many other primary product prices have been rising since last Summer.  In August last year, Wheat prices stood at around €177 per ton, whereas today, they are at €220, a rise of around 23%.  In fact, prices were higher earlier in the year, rising to €257, April.  A look at the price movement over the last 20 years, shows the familiar pattern of primary product prices that I have discussed before, in relation to the long wave cycle.  The price bottomed in 1999 at $218 per bushel.  Then, as the new long wave uptrend began, it rose steadily before spiking in 2007/8 to $1039 per bushel, as global food shortages across the globe erupted, as the long wave expansion saw large rises in the global workforce, and living standards, particularly amongst workers in less developed economies.  The 2008 global financial crash, and its impact on the real economy saw prices crash, but by 2010, prices had started to rise again.  Only, as with other primary product prices, when new production began to come on stream, in 2014, did prices start to fall.

But prices have been rising globally again since 2016, as the effects of that surge of new supply began to dissipate, and the continued slow expansion of the global economy, and of the global working class, began to stimulate further demand, and a steady rise in prices.  This is the same process that Marx describes in Theories of Surplus Value, Chapter 9, in his analysis of the long wave movement of primary product prices, and the effects of long-term, large scale capital investment.

A similar thing can be seen with Corn prices that have risen from $303 per bushel in August last year to $688 today, after a temporary pull back from $760 in May.  It shows the same steady rise, from $180, and then spike in prices up to $719, in 2008, with a sharp downturn in 2008/9, followed by a resumption of the rise to $803 in 2012, and then a steep fall to $304 in 2014, as again, all of that investment in new production, and infrastructure, brought new lower cost supplies on to the market.  Prices again bottomed in 2016, as the excess from this new supply was worked off, and prices rose modestly, but then have started to rise abruptly since August 2020.

The idea that these price rises are merely "transitory" is not sustainable.  The actual rise in prices has been taking place since 2016, as the global economy broke through the attempts to constrain it by austerity measures, and by attempts to drain money into asset markets, and away from the real economy.  It has been muted during that time, because of the effects of Brexit in Europe, and Trump's global trade war generally, but the underlying fundamentals have been there for anyone who was looking for them.  The effects of lockouts, and the pumping of vast amounts of liquidity into unproductive consumption, has simply pulled the cork that was gradually being pushed by internal pressure, well and truly out of the bottle.

Oil Price Goes Above $70

The price of a barrel of Brent Crude, today, went above $70.  It is another indication of rising global inflation, fuelled by oceans of liquidity that central banks have pumped into circulation over previous decades, and notably over the last year.  The previous liquidity injections were deliberate measures to inflate asset prices, and combined with fiscal austerity, to hold back economic growth, and so hold back increases in wages and interest rates, to the same end.  But, over the last year, the liquidity has been used to feed directly into consumers pockets as replacement incomes, as governments deliberately cratered economies with measures of lockout and lockdown.  The liquidity injections went along with huge fiscal stimulus into the economy, which itself brought an astronomical increase in debt, that will lead to sharply rising interest rates, and collapsing asset prices.

The rising price of oil is occurring, because all of that liquidity, and fiscal stimulus is now joining with the opening up of economies, as the lockouts and lockdowns are lifted.  Demand would have increased on that basis anyway, but now it is put on steroids by all of the liquidity, and fiscal stimulus that has been given to consumers, which has built up as a wall of cash waiting to be spent.  Households reduced their debt levels, in conditions where they were given these cash injections but has reduced opportunities to spend, but the consequence of that, is likely to be that as they now find themselves able to spend again, they will quickly run up those debt levels to at least their previous levels.  As they see inflation rising by the week, they are even more likely to want to buy now and pay later, so as to avoid having to buy at higher prices down the road.

Oil prices were particularly constrained because government imposed lockouts and lockdowns meant that not only car travel, but air travel was severely restricted, thereby reducing global demand for oil significantly.  But, OPEC plus Russia, were able to join together to restrict supply so as to prevent the oil price falling too far.  Now, demand is rising sharply, pushing the price up with it, even though OPEC+ are now likely to increase supply, and Iran is likely to bring additional supplies to market.  But, these measures, are only likely to prevent the price rising too fast, as global demand increases again.  As I wrote several years ago, the price is not likely to ever go above $100 (2015 Dollars), because although global demand is likely to continue to rise, the increase in demand will be limited as the world moves from fossil fuels to alternative energy, for example, the rapid replacement of petrol engine with electric, and because new supplies of oil, such as from shale, put a cap on the price.

Oil Prices 1960-2021

But, $100 still represents nearly 50% more on the price from here.  A move upwards from $70 to $80 looks quite possible in the coming months.  Oil still plays into large areas of the economy, not just in terms of transport costs that affect the prices of all commodities, but also in the production of petrochemicals, plastics, fertilisers and so on.  The increases in consumer price inflation over recent weeks, besides being understated, were also subdued because of lower energy prices in the period, but now that is reversing too, giving a further boost to costs that firms will pass on, given that all of the excess liquidity has provided a boost to monetary demand, giving them headroom to raise prices.  As central banks continue to pump liquidity into economies, and will do so so that firms can continue to raise prices, so as to protect their profit margins, the basis of the kind of price-wage spiral of the 1970's is again being created, but this time in the even more febrile conditions of a strongly growing global economy, bursting out of the hibernation of the long wave cycle that the measures taken after 2010 had placed it in.

That means that the inflation is likely to rise faster, and become entrenched far more readily than it did in the 1970's.  Oil is just one indication of that.

Gymnasium Farms and Corrective Gymnasia - Part 1 of 2

The Narodniks believed that capitalism, in Russia, was an accident, the result of the country going down a wrong path from which it must be returned to its natural path of development. To that end, they drew up a series of Utopian schemes, which they put forward in the hope that they could get the Russian intelligentsia and society to adopt them as policies to be pursued by the state. The problem, here, was quite simple, the dominant social class, in Russia, was now the bourgeoisie. It was bourgeois relations upon which the fortunes of the state depended. It was bourgeois ideas that dominated the intelligentsia and the state, because it was the children of the bourgeoisie that occupied the positions within these institutions, which were linked to the bourgeoisie by a thousand other social ties.

Russia had not, somehow, accidentally stumbled into capitalism, as the Narodniks claimed. Commodity production had come to dominate the economy, and, as a result, competition meant that some producers accumulated money, which became transformed into capital, because other producers were ruined, and became wage labourers employed by that capital. The Russian state did not pursue capitalist policies, because it was somehow confused, or acting against the interests of the nation, but because it was now a capitalist state; its personnel imbued with bourgeois ideas, and tied to the bourgeoisie by a myriad of social and other ties. It acted in the interest of the bourgeoisie, because, for it, the interests of the bourgeoisie were the interests of society. 

There was only one class, one social force that could put forward a different view of society, and that was the working-class, and specifically the industrial proletariat that had been completely severed from the roots of natural economy, and previous modes of production. It owned only its labour-power, which it now had to sell as a commodity. But, the industrial proletariat, in Russia, was very small – indeed, in much of Western Europe, it was only in the second half of the nineteenth century that it grows to a substantial size – and the working-class does not automatically, or quickly, arrive at this level of class consciousness; it has to go through a lengthy preparatory stage, during which it increases in size and solidarity, as a consequence of continued capitalist development. Capitalism itself must develop to a stage where not only has it socialised labour and production, but has also socialised capital itself, abolishing capital as private property, expropriated by socialised capital, which is the collective property of the associated producers, and over which it requires them only to wage a political struggle to demand they be granted their rightful control. 

But, the daily existence of the workers mitigates against them arriving at this class consciousness, because, as capital automatically reproduces itself, it also automatically reproduces the social relations on which it rests, and, thereby, the bourgeois ideas that flow from those relations. The workers require a revolutionary party that acts as the memory of the class, and continually reminds them of the lessons it has learned, and peels back the superficial appearances of bourgeois reality to expose to them the underlying relations and nature of their exploitation and condition. 

Socialism, therefore, can never be achieved by expecting that the workers will somehow arrive at this level of understanding and consciousness spontaneously, as a result of industrial struggle for better wages and conditions – Economism – because there is nothing in such struggle that exposes the underlying reality. On the contrary, as Marx describes in “Value, Price and Profit” whilst workers have to engage in such struggles to prevent sinking below the value of labour-power, and to maintain a level of dignity and organisation, such struggles are, by their nature, bourgeois, and reinforce bourgeois ideas. They start from an acceptance of bourgeois relations, and so bourgeois ideas, of the nature of labour as wage labour. Remaining within those bourgeois constraints, it limits workers only to the struggle of any other commodity owner, a distributional struggle to get the best market price for the commodity they are selling. 

“They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the never ceasing encroachments of capital or changes of the market. They ought to understand that, with all the miseries it imposes upon them, the present system simultaneously engenders the material conditions and the social forms necessary for an economical reconstruction of society. Instead of the conservative motto: “A fair day's wage for a fair day's work!” they ought to inscribe on their banner the revolutionary watchword: “Abolition of the wages system!"” 

(Value, Price and Profit) 

In the latter part of the 1890's, and into the early 1900's, Lenin had to fight an increasing struggle against Economism, which was growing amongst the younger members of the Marxists. It forms a significant element of his argument in “What Is To Be Done?” In the 1960's and 70's, this kind of Economism dominated not only the Communist Party, but also the left sects such as IS/SWP and Militant. Today, nearly all of the left is characterised by this kind of Economism, including where it finds political expression as Lassallean/Fabian statism. 

The real class struggle, as Marx describes above, is not about these trades union struggles/distributional struggles, or their reflection in demands for corresponding reforms or income redistribution, but about a political struggle over forms of property and control over that property. As Marx and Engels put it in The Communist Manifesto, the Communists, “bring to the front, as the leading question in each, the property question, no matter what its degree of development at the time.” Capitalism itself, as Marx says, in Value, Price and Profit and in Capital, creates the forms of property – large-scale, socialised capital – that is the transitional form of property between capitalism and socialism. It provides the objective material basis of socialism. What is required is the subjective element, the recognition, by the working-class, that this property is its collective property, and the determination, on that basis, to exert their rightful control over it. 

In the case of the worker cooperatives this comes automatically. The workers see straight away that this capital is their collective property, even if they take out bank loans to buy some of it, and, from the start, exert their collective, democratic control over it. As Marx puts it in his Inaugural Address, this is a powerful ideological tool that teaches workers far more than any number of strikes or political lectures. 

“The value of these great social experiments cannot be overrated. By deed instead of by argument, they have shown that production on a large scale, and in accord with the behests of modern science, may be carried on without the existence of a class of masters employing a class of hands; that to bear fruit, the means of labour need not be monopolized as a means of dominion over, and of extortion against, the labouring man himself; and that, like slave labour, like serf labour, hired labour is but a transitory and inferior form, destined to disappear before associated labour plying its toil with a willing hand, a ready mind, and a joyous heart. In England, the seeds of the cooperative system were sown by Robert Owen; the workingmen’s experiments tried on the Continent were, in fact, the practical upshot of the theories, not invented, but loudly proclaimed, in 1848.” 

But, the expansion of such cooperatives is necessarily slow, and, in the interim, they cannot change the workers' fundamental position as subordinated to capital. The real key is the other form of socialised capital – the joint stock company or corporation. Once workers understand that these companies, like cooperatives, are also not the private property of any individuals, but legal entities in their own right, entities that may borrow money, from share and bondholders, or from banks, then they can see that these companies are objectively no different than their own cooperatives. If no individuals own this socialised capital, and shareholders are only creditors, like bondholders or banks, then there is no grounds for shareholders having any control over that capital. It is the company that has control, and should make decisions, but the company can only rationally be the associated producers within it, i.e. the workers and managers. The control exercised by shareholders is an anomaly, and should be anathema even to bourgeois property law, except, of course, that that law is created by the bourgeoisie itself, i.e. by those shareholders, and enforced by their state. 

The Lassalleans and Fabians talk about nationalising this or that business or industry, as though the capitalist state would ever do such a thing on request from socialists. To cover their shame in making such pleas to the capitalist state, they tag on to their supplications the demand that the capitalist state also give workers control over this nationalised property. Such pleas are, ideologically, the same as the Utopian schemes put forward by the Narodniks. They are pleas to a capitalist state to act in ways that are against the interests of the bourgeoisie it exists to serve, and those that make such pleas have absolutely no means of forcing the state to comply with their wishes.

The demand for nationalisation is just an extension of the Economism such trends exhibit in general. The demand arises because this or that business has gone bust, or failed in some other way. The demand for nationalisation is really just an Economistic demand that the workers involved remain employed, and exploited by capital, and so to continue to be paid wages. It is simply a bourgeois demand that they now be exploited by a more powerful state capital rather than by a privately owned capital, or a capital controlled by private shareholders. The tagged on demand for workers control is simply a ridiculous pious wish, designed to deceive the workers. As Trotsky puts it, 

“It would of course be a disastrous error, an outright deception, to assert that the road to socialism passes, not through the proletarian revolution, but through nationalisation by the bourgeois state of various branches of industry and their transfer into the hands of the workers’ organizations.”

Nationalisation and Workers Control

“If the participation of the workers in the management of production is to be lasting, stable, “normal,” it must rest upon class collaboration, and not upon class struggle. Such a class collaboration can be realised only through the upper strata of the trade unions and the capitalist associations. There have been not a few such experiments: in Germany (“economic democracy”), in Britain (“Mondism”), etc. Yet, in all these instances, it was not a case of workers’ control over capital, but of the subserviency of the labour bureaucracy to capital. Such subserviency, as experience shows, can last for a long time: depending on the patience of the proletariat... 

What state regime corresponds to workers’ control of production? It is obvious that the power is not yet in the hands of the proletariat, otherwise we would have not workers’ control of production but the control of production by the workers’ state as an introduction to a regime of state production on the foundations of nationalisation. What we are talking about is workers’ control under the capitalist regime, under the power of the bourgeoisie. However, a bourgeoisie that feels it is firmly in the saddle will never tolerate dual power in its enterprises. workers’ control consequently, can be carried out only under the condition of an abrupt change in the relationship of forces unfavourable to the bourgeoisie and its state. Control can be imposed only by force upon the bourgeoisie, by a proletariat on the road to the moment of taking power from them, and then also ownership of the means of production. Thus the regime of workers’ control, a provisional transitional regime by its very essence, can correspond only to the period of the convulsing of the bourgeois state, the proletarian offensive, and the falling back of the bourgeoisie, that is, to the period of the proletarian revolution in the fullest sense of the word. 

If the bourgeois is already no longer the master, that is, not entirely the master, in his factory, then it follows that he is also no longer completely the master in his state. This means that to the regime of dual power in the factories corresponds the regime of dual power in the state.” 

(Trotsky – Workers Control of Production ) 

Of course, raising the property question involves raising the question of workers' control, but for the reason Trotsky describes, it can only be raised as a general demand, a political demand around which the entire working-class is mobilised, i.e. as an element of a real class struggle, not individual industrial struggles. It can only be raised in the way suggested above that workers demand that, for all socialised capital, the control exercised by shareholders be ended, and democratic control by the associated producers be put in its place. That is the way the property question is raised an element of class struggle. Otherwise, it is simply a demand raised to cover a reformist demand for nationalisation by the capitalist state, a demand designed to deceive the workers, and to subject them, via class collaboration on the part of the labour bureaucracy.

But, raising such demands other than in conditions of dual power, of a revolutionary situation can only mean either this latter interpretation, or else it is a pointless Utopian demand, like those of the Narodniks, completely divorced from reality, and thereby also reactionary. In forms where it means that some radical social-democratic, or socialist government act in this way from above, it is dangerous, because it would mean that it would provoke a vicious backlash from the state, and, in any case, unless the workers themselves seek to pursue such a course of workers' control it is unrealisable, other than being a means by which a petty-bourgeois layer of technocrats and bureaucrats seek to substitute themselves for the class itself.

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