Capital II, Chapter 10 - Part 9

A version of this Smithian idea was put forward by Mike McNair,  in a discussion I had with him some time ago.  Mike argued that workers can be owners of “human capital” in the form of various acquired skills and talents, and that they are able to charge a rent for use of this intellectual property. But, Marx specifically rejects this idea. He writes,

“The “acquired and useful abilities” (p. 187) which Smith mentions under the head of fixed capital are on the contrary component parts of circulating capital, since they are “abilities” of the wage-labourer and he has sold his labour together with its “abilities.”” (p 211)

Smith's necessity of dividing all capital into being either fixed or circulating stems from his division of all social wealth into a consumption fund and into capital – fixed and circulating. This contrasts to Marx’s analysis, which identifies money-capital and commodity-capital as capital involved in the process of circulation, and productive capital comprising fixed and circulating capital. 

“Inasmuch as under capitalist production the entire mass of social products circulates in the market as commodity-capital, with the exception of that part of the products which is directly used up again by the individual capitalist producers in its bodily form as means of production without being sold or bought, it is evident that not only the fixed and circulating elements of productive capital, but likewise all the elements of the consumption-fund are derived from the commodity-capital. This is tantamount to saying that on the basis of capitalist production both means of production and articles of consumption first appear as commodity-capital, even though they are intended for later use as means of production or articles of consumption, just as labour-power itself is found in the market as a commodity, although not as commodity-capital.” (p 212)

Smith: “Of these four parts three — provisions, materials, and finished work, are either annually or in a longer or shorter period, regularly withdrawn from it and placed either in the fixed capital, or in the stock reserved for immediate consumption. Every fixed capital is both originally derived from, and requires to be continually supported by, a circulating capital. All useful machines and instruments of trade are originally derived from a circulating capital which furnishes the materials of which they are made and the maintenance of the workmen who make them. They require, too, a capital of the same kind to keep them in constant repair.” [p. 188.]” (p 212)

This is thoroughly confused, as Marx demonstrates. Of course, everything not provided by nature, that is bought under capitalism, be it for individual or productive consumption, be it raw material or a machine, is bought as a commodity and has circulated in the market as the commodity-capital of some capitalist.

“But it does not follow from this by any means that every fixed capital stems originally from some circulating capital; that follows only from the Smithian confusion of capital of circulation with circulating or fluent, i.e., non-fixed capital. Besides, Smith actually refutes himself. According to him himself, machines, as commodities, form a part of No. 4 of the circulating capital. Hence to say that they come from the circulating capital means only that they functioned as commodity-capital before they functioned as machines, but that materially they are derived from themselves; so is cotton, as the circulating element of some spinner’s capital, derived from the cotton in the market. But if Adam Smith in his further exposition derives fixed capital from circulating capital for the reason that labour and raw material are required to build machines, it must be borne in mind that in the first place, instruments of labour, hence fixed capital, are also required to build machines, and in the second place fixed capital, such as machinery, etc., is likewise required to make raw materials, since productive capital always includes instruments of labour, but not always material of labour. He himself says immediately afterwards: 

“Land, mines, and fisheries, require all both a fixed and a circulating capital to cultivate them;”

(thus he admits that not only circulating but also fixed capital is required for the production of raw material)

“and” (new error at this point) “their produce replaces with a profit, not only those capitals, but all the others in the society.” (p. 188.) 

This is entirely wrong. Their produce furnishes the raw material, auxiliary material, etc., for all other branches of industry. But their value does not replace the value of all other social capitals; it replaces only their own capital-value (plus the surplus-value). Adam Smith is here again in the grip of his physiocratic reminiscences.” (p 213-4)

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Forward To Part 10

For A Political Revolution At the Co-op - Part 4

The AWL are in an undeclared Popular Front with
"Democratic Imperialism" similar to the Popular Fronts
proposed by Stalinism in the 1930's.  Statist policies like
nationalisation by the capitalist state, by their nature,
 as nationalist policies, involve such cross-class collaboration.

In Part 3, I referred to the demand raised by the AWL for “democratic control” as opposed to “workers control”. The demand for “democratic control” is typical of the demands raised by statists and Stalinists like the AWL, along with the fact that they frequently talk about “democracy” rather than distinguishing between bourgeois democracy and workers democracy. It comes down to the blurring of class divisions, consistent with the fact, in the case of the AWL, that they are in an undeclared Popular Front with bourgeois democracy, most clearly manifest in their support for the role of “Democratic Imperialism”.

Marx described Lassalle as the model of the
future workers' dictator.  Its Lassalle's
statist policies, not those of Marx, which
guide the AWL and others like them.

The origins of this cross-class approach lie specifically in the Popular Front politics of Stalinism of the 1930's, but the advocacy of statist policies under cover of demands for “democratic control”, go back long before that. The proposal for “state aid” - essentially nationalisation or state sponsored enterprises – under “democratic control”, was raised by the Lassalleans, as part of the Gotha Programme. It is no coincidence that Marx called Lassalle a Bonaparte, as Hal Draper points out.

“...Marx grasped the nature of Lassalleanism perfectly. He told Lassalle to his face that he was a “Bonapartist,” and wrote presciently that “His attitude is that of the future workers’ dictator.” Lassalle’s tendency he called “Royal Prussian Government socialism,” denouncing his “alliance with absolutist and feudal opponents against the bourgeoisie.”

The Two Souls of Socialism 

It is perhaps no coincidence then that today, the AWL have argued, in defence of their alliance with “Democratic Imperialism”, that the feudal Gulf Monarchies were one means by which democracy was being brought to Libya!!!

In his “Critique of the Gotha Programme”, Marx writes specifically denouncing the notion of such state aid and “democratic control” in typically stinging terms. He says,

“From the remnants of a sense of shame, "state aid" has been put -- under the democratic control of the "toiling people". 

In the first place, the majority of the "toiling people" in Germany consists of peasants, not proletarians. 

Second, "democratic" means in German "Volksherrschaftlich" [by the rule of the people]. But what does "control by the rule of the people of the toiling people" mean? And particularly in the case of a toiling people which, through these demands that it puts to the state, expresses its full consciousness that it neither rules nor is ripe for ruling!”

And, as Draper says,

““Instead of the revolutionary process of transformation of society,” wrote Marx, Lassalle sees socialism arising “from the ‘state aid’ that the state gives to the producers’ cooperative societies and which the state, not the worker, ‘calls into being.’” Marx derides this. “But as far as the present cooperative societies are concerned, they are of value only insofar as they are the independent creations of the workers and not proteges either of the government or of the bourgeoisie.” Here is a classic statement of the meaning of the word independent as the keystone of Socialism-from-Below versus state-socialism.” (ibid) 

This hostility to “state-socialism”, or what is in reality “state capitalism”, is echoed by Engels in his “Critique of the Erfurt Programme”. That programme in points 8 and 9 had called for the nationalisation of various industries such as pharmaceuticals, and services such as the law, along with the introduction of a welfare state funded by a state run national insurance scheme. Engels opposed this state interference writing.

“Here I want to draw attention to the following: These points demand that the following should be taken over by the state: (1) the bar, (2) medical services, (3)pharmaceutics, dentistry, midwifery, nursing, etc., etc., and later the demand is advanced that workers’ insurance become a state concern. Can all this be entrusted to Mr. von Caprivi? And is it compatible with the rejection of all state socialism, as stated above?” 

But, even were the AWL to replace their cross-class demand for “democratic control” with a demand for “workers control” it would not really improve matters. Firstly, we are still left with a Lassallean, top-down view of “state-socialism” rejected by Marx, Engels, and nearly all the other Marxists of the time. We are still left with an approach based not upon the workers constructing their own independent co-operatives as the means of transforming the material conditions, and the ideas that arise from them, but with an appeal to the capitalist state to come to the workers rescue, just as the AWL do in calling on “Democratic Imperialism” to ride to the rescue in Libya etc. In other words we are left with a demand for the working class to beg from its knees to its class enemy, and thereby “through these demands that it puts to the state, expresses its full consciousness that it neither rules nor is ripe for ruling!” 

I will continue the analysis of why this kind of statist approach offers no truly progressive alternatives either to capitalism or to the problems of the Co-op in Part 5.

Back To Part 3

Capital II, Chapter 10 - Part 8

Marx then again points out Smith's confusion, because, having set out this list of fixed and circulating capital, he once again confuses that definition with that for circulation capital i.e. commodity and money capital.

Smith: “The circulating capital consists ... of the provisions, materials, and finished work of all kinds that are in the hands of their respective dealers, and of the money that is necessary for circulating and distributing them, etc.” (p 208)

Smith: “... The third and last of the three portions into which the general stock of the society naturally divides itself, is the circulating capital, of which the characteristic is, that it affords a revenue only by circulating or changing masters. It is composed likewise of four parts: first of the money, secondly, of the stock of provisions which are in the possession of the butcher, the grazier, the farmer ... from the sale of which they expect to derive a profit ... Fourthly and lastly, of the work which is made up and completed, but which is still in the hands of the merchant and manufacturer. And, thirdly, of the materials, whether altogether rude, or more or less manufactured, of clothes, furniture, and buildings, which are not yet made up into any of those three shapes, but which remain in the hands of the growers, the manufacturers, the mercers and drapers, the timber-merchants, the carpenters and joiners, the brick-makers, etc.” (p 208)

All of these constitute capital in circulation, not circulating capital. Circulating and fixed capital are forms of productive-capital. Money-capital exists prior to being metamorphosed into productive-capital. The stock of provisions held by the butcher etc. and that in the hands of the merchant, constitute commodity-capital, and so are neither fixed nor circulating capital.

“The product of the cotton spinner, yarn, is the commodity-form of his capital, is commodity-capital as far as he is concerned. It cannot function again as a constituent part of his productive capital, neither as material of labour nor as an instrument of labour. But in the hands of the weaver who buys it it is incorporated in the productive capital of the latter as one of its circulating constituent parts. For the spinner, however, the yarn is the depository of the value of part of his fixed as well as circulating capital (apart from the surplus-value).” (p 209-10)

In the other category, Smith mixes up those elements of circulating capital, such as the raw materials, including the semi-finished goods, that are used in the production process, and those goods in the hands of the 'mercers', 'drapers' and so on, that constitute commodity-capital.

In this list, Marx notes, Smith does not include labour-power. Smith confuses circulating capital with commodity-capital and money-capital. But, labour-power is not capital at all. The worker is not a capitalist. He sells his commodity labour-power, at its value, but not as a capitalist. He derives no surplus value from it. In fact, as set out in Volume I, it is this fact, that a class exists, the workers, who have to pay the full cost of production for any article, including the unpaid labour-time, which enables surplus value to be produced and realised. The capitalists on the other hand, acquire those products not at the full cost, in labour-time, required for their production, but at the cost in labour-time of the inputs used for their production. The capitalists pay the full value of those inputs, but it is precisely because the workers work for a longer period than is required to cover their own reproduction, that in the production process, a surplus value is created. 

So, using Smith's definition of circulating capital, as either commodity-capital or money-capital, labour-power is neither, and so cannot be circulating capital. Only when labour-power has stopped circulating as a commodity, been bought by the capitalist, and is being used in the production process, does it become capital – productive capital. But, then it is capital in the hands of the capitalist, and does not change from his hands, so, on Smith's definition would now have to be considered fixed capital!

Back To Part 7

Forward To Part 9

US Economics and Politics V The UK and EU - Part 9

As part of the deal to get the support of the
 Social-Democrats, Merkel has agreed to the
introduction of a Minimum Wage.

Given what has been said so far, it is perhaps no coincidence that in both Germany and in the US, the issue of the Minimum Wage is under discussion, not to scrap it, or reduce it, which is the demand of conservatives, but to introduce it, or increase it! In Germany, the Social Democrats are demanding that a Minimum Wage be introduced, as a condition of them supporting Merkel; in the US, increases in the existing Minimum Wage are being proposed, and in some Democrat controlled States, increases are already in hand.

Economies that have rapidly developed have done so by moving
up the value chain.  In the 1980's, economies like Singapore,
 deliberately began to encourage higher wages, and to discourage
investment by low value/low wage producers.  China having
encouraged foreign investment by low wages, is now following suit.
The state is supporting demands by workers for wage rises of up
to 50%, as it seeks to both foster a domestic market, and encourage
higher value production.  It is also planning to introduce a Welfare State
in line with the development of other capitalist economies to ensure
the production of the labour-power it requires, and to divert workers
savings to the state, and into consumption.

The reason such policies are being proposed is easy to see. As Marx described, wherever, wages are low, labour is expensive, because low wages encourage lack of investment, and the low productivity that goes with it. Economies that have rapidly and successfully industrialised and developed, have done so by continually moving up the value chain. They have pursued policies that have encouraged the continual move from lower value production, to higher value production, which can sustain the payment of higher wages, and at the same time they have encouraged the development of higher wages, for the same reason, i.e. to encourage domestic capital to become more efficient, higher value, and more capital intensive. Economies that follow such a development path, as Marx demonstrates, thereby increase the volume, and often the rate, of profit produced, thereby facilitating increased accumulation of capital. The amount of labour employed may fall relatively, whilst increasing absolutely. Moreover, as the amount of relative surplus value produced increases, so real wages tend to rise. As, the living standards of workers rise, so they begin to consume a range of other commodities, many of which can only effectively be produced locally, for example, much service production.

Germany has not needed such a Minimum Wage, because for a long period, its social-democratic model facilitated the development of high value production, and the relatively high wages that goes along with it, including the relatively high level of social wage it provides. Ironically, the reason it may need such a Minimum Wage today may be partly due to the fact that Germany itself experimented with the Schroder reforms, to screw additional absolute surplus value from its workers, as the Long Wave downturn dragged on, and developed economies, even including Germany, suffered relatively as China and other newer economies developed as new global competitors.

From the perspective of big capital, higher wages are, in any case, less of a problem than for small capital, which is the implication of what Marx says in Capital III, Chapter 11. There Marx sets out the effect on capitals of varying compositions of a general rise or fall in wages.

He concludes,

“1) the price of production of the commodities of a capital of average social composition does not change;

2) the price of production of the commodities of a capital of lower composition rises, but not in proportion to the fall in profit;

3) the price of production of the commodities of a capital of higher composition falls, but also not in the same proportion as profit.” (p 201)

A general rise in wages results in the average rate of profit falling, but because the new value created by labour has not changed, and because the value of those commodities produced with the average composition of capital is equal to their price of production, the market prices of those commodities cannot change. The rise in the price of commodities produced with a lower organic composition is cancelled out by the fall in the price of commodities produced with a higher than average composition.

But, the only way that market prices can fall where demand remains the same, is if supply increases, and similarly, the only way that market prices can rise if demand remains constant is if supply falls. Marx is wrong then when he says,

“Therefore, the price of production of the commodities produced by this capital is now 50 c + 62½ v + 16¼ p= 128 8/14. Owing to a wage rise of 25%, the price of production of the same quantity of the same commodities, therefore, has here risen from 120 to 128 8/14, or more than 7%.” (p 201)

It is impossible, all other things being equal, for “the same quantity of the same commodities” to sell at this new higher price, precisely because the new higher price will result in a fall in demand for those commodities.

The new price of production will be 50 c + 62.5 v, cost price = 112.5 + p = 14.29% = 16.08, so a price of production of 128.58. But, the percentage composition of the capital here hides the fact that this capital itself will be smaller, and will produce fewer commodities than before the wage rise. The increase in price is approximately 7%. If the elasticity of demand is such that a 1% rise in price causes a 1% fall in demand, then demand for these commodities will fall by 7%. As a result, supply would have to fall by 7%, which means that 7% less constant capital would be used, and the amount of labour-power bought would fall by 7%.

Suppose, now we take a capital with a higher composition than the average, e.g. 92 c + 8 v. With the same assumptions, its price of production will also be 120. After the wage rise, v rises from 8 to 10. The cost price rises, from 100 to 102. If the price of production was still 120, this would mean c 92 + v 10 + p 18. That would give a rate of profit of 18/102 = 17.65%. But, the average is 14.29%. That means the price of production must fall to bring the profit rate down to the average. The only way this can happen is if the level of supply increases. The price of production to reach the average must be c 92 + v 10 + p 14.58 = 116.58.

Once again the percentage composition of the capital hides the fact that in order to bring this about the amount of capital itself must increase, just as in the former case, the amount of capital had to fall. The fall in price from 120 to 116.58 here causes demand to rise, and for the price to be stable, supply must rise to meet it.

We see here the objective material reality, which lies behind the different attitudes of capital of different sizes and compositions to wage rises. Capitals with a lower than average composition of capital, usually the smaller, more backward capitals, are badly affected by any wage rise. It causes their cost-price to rise by a larger amount, and, therefore, causes their profit to fall by a larger amount. When they come to increase their prices to restore an average rate of profit, they are hit by a large fall in demand for their commodities. So wage rises in these sectors lead to a sharper contraction of capital.

But, for the bigger more advanced capitals, which generally have a higher organic composition, the opposite is true. Because, wages form a smaller proportion of their cost-price, any wage rise has a smaller effect on increasing the cost-price, and on the reduction in their profits. In fact, the consequence is that they enjoy a higher than average rate of profit as a result of the increase in wages, which results in an influx of capital. That reduces prices, but as a consequence causes demand to rise. In fact, because more capital is now employed in this sphere, even at the lower average rate of profit, it may be the case that in terms of the absolute amount, the volume of profit rises above where it was before the wage increase!

Suppose, previously £100 million was employed in this sphere, with a 20% rate of profit bringing in £20 million of profit. After the wage rise, but now with the consequent reduction in market price, which raises demand, £150 million of capital is employed. But, £150 million at the now lower rate of profit of 14.29% brings in £21.435 million of profit. This is what Marx refers to elsewhere, when he says that the tendency for the rate of profit to fall really only affects the plethora of small capitals, because for these big capitals, the fall in the rate of profit is often compensated by the rise in the actual volume of profit.

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Forward To Part 10

Northern Soul Classics - Mighty Cloud of Joy - Mighty Clouds of Joy

Following on in the gospelly Northern theme from last week, this is a cracker from the Mighty Clouds of Joy.

Where The AWL's Policy of Nation- alisation Leads

A clear example of where the Stalinist (national-socialist) politics of the AWL (and others), who call for nation-alisation by the capitalist state, leads is given in their recent article on Npower.

N-power, is making a large number of workers in the UK redundant, because it is transferring the work to call centres in India, where it can pay workers less.  In reality, this is no different than consumers in Britain buying cheap imported commodities from China and elsewhere, because they can obtain better value than buying the same commodities made in the UK.  This, unfortunately, is the way capitalism works.  Traditionally, socialists, as internationalists, have refused to blame those foreign workers for producing these commodities more cheaply than workers in their own country, and thereby obtaining the work.  They have blamed the unplanned and chaotic nature of Capitalism, for the fact that their fellow workers lose their job in the process, and pointed to it, as a reason that Capitalism needs to be replaced.

In that process, they have certainly refused to line up with their own domestic bosses to demand import controls, or any other measure that amounts to a reactionary, nationalistic call for "British Jobs For British Workers".  If the UK were a Workers State, with the means of production owned by their workers, then matters would be different.  It would then be a matter of using whatever means were necessary to defend that Workers State, and worker owned property against capitalist property wherever it was located.  The same is true where a firm is owned by its workers within Capitalism, socialists should call for its defence by whatever means are necessary against capitalist competition.

But, the UK most certainly is not a Workers State, and what the AWL propose is not to place the ownership of Npower or any other means of production into the hands of workers.  Instead, what they call for is for Npower, and other means of production to be gathered up into the hands of the workers main enemy - the Capitalist State!  They argue,

"We need to defend every job and at the same time campaign for social ownership of the energy sector."

But, its obvious under current conditions what this means.  It is a call to join forces with British Capital against those foreign workers.  It is a demand for Npower to be taken over by British Capital, so that it will keep those jobs in Britain, rather than them being taken over by foreign workers.  The clue to what the demand for Nation-alisation really means is given in the name.  It is precisely a Nation-alistic demand for British workers to join forces with the British national, capitalist state, and thereby with British capital, against foreign workers.  That is the reality of the demand for national-isation within the context of a capitalist state.  A thoroughly reactionary, and nationalist demand.

Capital II, Chapter 10 - Part 7

Marx refers back to the distinction he had made in Capital I, Chapter 8, between raw and auxiliary material, which loses its form, in the labour process, and the instruments of labour, which do not.

“The corpses of machines, tools, workshops, etc., are always separate and distinct from the product they helped to turn out.” (Buch I, Kap. VI, S. 192.)” (p 206) 

But, the distinction applies whether this labour process is one undertaken under capitalism or under production purely for personal consumption, but this is falsified by Smith.

“He does so 1) by introducing here the totally irrelevant definition of profit, claiming that some of the means of production yield a profit to their owner by preserving their form, while the others do so by losing it; 2) by jumbling together the alterations of a part of the elements of production in the labour-process with the change of form (purchase and sale) that is characteristic of the exchange of products, of commodity circulation, and which at the same time includes a change in the ownership of the circulating commodities.” (p 206)

Turnover of capital presumes the circulation of capital, C' – C', or P..P, i.e. that the commodity-capital is sold, and the proceeds turned into productive-capital once more, replacing that consumed. The fact that, in some instances, a capitalist producer uses some of their own product to directly replace raw material or auxiliary material, used in their own production process does not change this reality, or the nature of the productive-capital.

Seed, produced by a farmer, that is used to replace the seed used in its own production, is still circulating not fixed capital, because the original seed used in the process was completely used up, and its value wholly transferred to the end product. None of the original seed remained at the end of that process, none of its value remained fixed, waiting to be transferred in some subsequent production.

The same is true of coal produced by a mine, some of which goes to replace coal used to power a steam engine, at the same mine, to pump out water, that enabled the replacement coal to be produced. The coal used for that purpose is circulating not fixed capital, despite the fact that it does not change hands. It is wholly consumed in the production process, and all its value transferred.

“Adam Smith tells us now what circulating and fixed capital consist of. He enumerates the things, the material elements, which form fixed, and those which form circulating capital, as if this definiteness were inherent in these things materially, by nature, and did not rather spring from their definite function within the capitalist process of production.” (p 207)

But, as Marx points out, in the same chapter, Smith refers to a dwelling, saying it can act as capital for its owner, providing him with revenue, and yet from the perspective of society, does not, because it does not increase society's revenue or wealth at all.

“Here, then, Adam Smith clearly states that the property of being capital is not inherent in things as such and in any case, but is a function with which they may or may not be invested, according to circumstances. But what is true of capital in general is also true of its subdivisions.” (p 207)

Moreover, it is function which determines whether a particular form of capital fulfils the role of fixed or circulating capital. Cattle used for labouring (oxen pulling ploughs) or, for example, dairy cattle producing milk, form part of the fixed capital. Only a part of their value is transferred into the product they help produce, the rest remaining fixed within them, to be transferred piecemeal to future production. Cattle used simply for fattening to be sold, are raw material, and thereby circulating capital. The fact that the latter may take several years to fatten and be sold, also does not change their nature as circulating capital. At no point do they transfer a part of their value into the end product, whilst a part of their value remains fixed within them. They are sold, and at that point, the whole of their value is transferred to the end product, and reproduced in their exchange value.

“On the other hand the same thing may now function as a constituent part of productive capital and now belong to the fund for direct consumption. A house for instance when performing the function of a workshop, is a fixed component part of productive capital; when serving as a dwelling it is in no wise a form of capital. The same instruments of labour may in many cases serve either as means of production or as means of consumption.” (p 207)

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