Monday, 6 July 2015

61-39, Syriza Bursts The Dam

What Syriza and the Greek workers have sown, over the last five months, the European Labour Movement should now reap. Syriza did not promise a socialist revolution in Greece. They simply proposed what any traditional social-democratic party should have been proposing, over the last few years, which is to oppose the stupid policy of austerity that was being imposed upon economies, and which has wreaked such havoc in destroying real wealth, real productive-capital, and the potential for profits and growth. That Syriza's simple, social-democratic agenda has been presented as something any more radical than that is simply an illustration of the extent to which appearance and reality has got out of whack. Social-democratic parties, across Europe, in the last three decades, have themselves become captive to conservative ideas, which is why those parties core base has declined, why they have fragmented, why in the most acute conditions, such as Greece, those social-democratic parties, like PASOK, have been destroyed, and new social-democratic parties emerged to replace them. It is why nationalist parties that adopt a social democratic verbiage, like the SNP, have eclipsed the traditional social-democratic parties, it is why, for example, when the institutional and organisational lid is lifted, a candidate like Jeremy Corbyn can attract large amounts of support.

The paucity of political analysis on the left is illustrated by this comment from Michael Roberts.

“... the majority ‘no vote’ is a huge defeat for the Troika and big capital in Europe...”

The reality is that the large “No” vote is an indication of real material changes that have been taking place in economies and society at a subterranean level, changes which have begun to undermine the power of money-lending capital that has grown over the last 30 years, and once more to swing back in favour of big industrial capital. The Troika, and the various conservative parties across Europe, have not acted as the representatives of “big” capital, as Michael suggests, but as the representative of that section of society they have always represented – the financial and landed oligarchy, whose power comes from vast amounts of fictitious wealth, from the small capitalists, who represent the remnants of the monopoly of private capital, that Marx describes as representing a fetter that must be burst asunder, and of the backward sections of the middle and working-class still enthralled by nationalistic pride.

The “No” vote is not a “huge defeat” for big industrial capital, but a huge victory. It does represent a huge defeat for money-lending capital, and its conservative political representatives, but they are the enemies of big industrial capital, and as Engels points out, in his later Prefaces to The Condition of the Working Class in England, they have been from the last part of the 19th century, from the time when bourgeois liberal democracy was replaced by bourgeois social democracy, from the time when big industrial capital took the form of socialised capital, with the development of the limited liability, joint stock company, and co-operative, and when the functioning capitalists in these enterprises, the professional day to day managers, themselves increasingly became drawn from the ranks of the working-class, as public education was extended.

Objectively, the interests of this big industrial capital are antagonistic to the interests of money-lending capital, and the personification of that antagonism, as Marx describes, in Capital III, is represented by the professional managers on the one hand, paid a wage like every other worker, and the shareholders and bondholders on the other, whose manifestation is the imposition of tiers of Directors, above the professional day to day managers, to monitor their activities on behalf of the shareholders and bondholders who have lent money-capital to the company.

It is the interests of the latter, and above all the interest of maintaining the hugely inflated prices of their fictitious capital that became more dominant over the last 30 years, as against the interests of big industrial capital. As Engels describes, it is the fact that the representatives of the latter require the social weight of the working-class, and after workers get the vote, their electoral weight that defines social-democracy. It is what led to the establishment of welfare states in the 20th century, but likewise, it was the ending of the long wave boom in the mid 1970's that caused a crisis for that social democracy, and led to the increasing influence of conservative ideas, as the money-lending capitalists became more powerful, and fictitious wealth exploded.

Just as conservative parties became hostage to social-democratic ideas, in the 1950's and 60's, so now social-democratic parties became hostage to conservative ideas, witnessed in the steady rightward drift of all those parties across Europe. But, that in itself represents a contradiction. Capitalism is ultimately driven by profits. As Marx sets out, merchant-capital and money lending capital are antediluvian forms of capital, that are antagonistic to industrial capitalism. So long as the former are dominant, Marx says, the latter cannot develop. Moreover, wherever the former are dominant, conservative and reactionary ideas are also prevalent, which is one reason that industrial capitalism cannot then develop. But, merchant capital, as capital, shares in the profit created by productive-capital, whilst money-lending, or interest-bearing capital (in the form of shares, bonds and so on), sucks surplus value out of productive-capital in the form of interest (dividends, bond interest). Capitalist landed property, which itself is historically tied, by family connections, to the financial oligarchy, likewise sucks surplus value out of productive-capital, in the shape of rent.

Ultimately then, capitalism depends upon real productive-capital accumulating, and increasing amounts of surplus value to be created by it. But, the form of productive-capital, under modern capitalism, is that of socialised capital, of the limited liability, joint stock company, not of the private capitalist property of the early 19th century, and certainly not of the small private capitalist property. As Marx describes in Capital III, the private capitalists who had expropriated the direct producers, and even smaller capitalists, themselves become expropriated by this giant socialised capital, that stands increasingly in opposition to it.

Social democracy and conservatism are the political reflection of this division, with the workers and big industrial capital on the one side, and the money lending capitalists, landed property, and private capitalist property on the other. Two great class camps confronting each other across the social divide. Without big industrial capital, there is no production of surplus value, and the production of that surplus value, increasingly depends upon social democracy, so that the modern capitalist state is founded upon social democracy. The modern capitalist state is a bourgeois social democracy, just as the capitalist state of the early 19th century was a bourgeois liberal democracy.

But, the state is not the same as the government. As Lenin describes, the Tsarist state in Russia was a capitalist state, it was driven by the objective needs of capital, but the political regime was feudal. The state in Chile was a capitalist state, but Allende's government was proletarian. Different laws govern the election of governments and nature of the political regime, to those which determine the class nature of the state, and for periods the two things can conflict. It is not at all surprising then that the political regime can at times represent class fractions that are based upon reactionary forms of property rather than upon those fractions that are based upon the progressive forms of property. The relation between economics and politics, between material conditions and ideas is not a mechanical one.

Syriza's victory is a reflection of changed material conditions. It means the dam of conservative and nationalist ideas that stood in the way of progress has been breached at its weakest point. It is now up to workers and the organised labour movement to push through that breach, and create the flood that has been held back for so long. The response of all those social-democratic politicians across Europe, that have been in thrall to conservative ideology, will increasingly be exposed for what it is. They will be swept away in the flood, just as those politicians have been swept away in Greece, and are in the process of being swept away in Spain, and elsewhere.

Syriza's victory has highlighted the contradictions referred to above, and the contradiction at the heart of the EU itself. The EU from the beginning, like all modern capitalist states, was established as a bourgeois social democracy, and yet its political regime has itself been captured by conservative politicians. That contradiction resides behind the political crisis that the EU has faced, and which has been acute since 2010. Greece exploded that contradiction of a state that was not a state, a single market that was not a single market, a monetary union that was not a monetary union, a central bank that was not a central bank, because none of these things had a single state and polity standing behind them.

It is no surprise that Euroseptic Tories, UKIPPERS and nationalists across Europe have welcomed the No vote in Greece. They see it as reflecting the inevitable break up of Europe, and a return to the conservative nationalism they represent. The ball is in the court of European social democracy, either it can confront all of those contradictions it has allowed to develop over the last 30 years, or it can resolve them, as it should have done long ago. Otherwise, those contradictions will destroy the EU, and the conservative nationalists will triumph.

Syriza and and the Greek workers have done the heavy lifting. They have ploughed the fields, and scattered the seed. They are reaping the benefits of what they have sowed, but for the harvest not to be wasted, it is now up to social democracy, and the European working class to take over the burden of the work.

Capital III, Chapter 10 - Part 2

Going back to the total social capital, C + V + S, it is clear that, as with any other capital, it is reducible to the basis of valuelabour-time. C is equal to the total abstract labour-time required to produce the means of production advanced. V is equal to the labour-time required to produce the wage goods consumed by the workers (necessary labour), and S is the amount of surplus labour-time performed by the workers, which is embodied in the surplus product, remaining after the constant capital and variable capital has been physically replaced.

On that basis, S/V = s' for the economy, and S/C+V = r' for the economy. As with the organic composition, these rates, for the economy as a whole, thereby constitute the average for all of the individual capitals within it. And, precisely because it is an average there will be firms whose rate of profit falls below, and others whose rate of profit will be above it.

Those whose rate of profit is above the average will cancel out those whose rate of profit is below it. In those areas where the rate of profit is highest, there will be a tendency for there to be an influx of capital. Supply increases, which causes market prices to fall, which thereby reduces profits, and this continues until the rate of profit equals the average, which means, at this point, k + kp' equals the price of production.

By contrast, where the rate of profit is low, capital migrates. Supply falls, and so prices and profits rise. This is the answer to the question that Marx raises, and which the other economists failed to answer.

“The really difficult question is this: how is this equalization of profits into a general rate of profit brought about, since it is obviously a result rather than a point of departure?” (p 174)

In order to elaborate this process, Marx proceeds on the same basis he has done throughout Capital, by providing both an historical and logical explication. He begins, therefore, by examining the position, not under capitalism, but under a system of petty commodity production and exchange, where the means of production are owned by the producers themselves.

Under such conditions, commodities exchange according to their exchange-values not their price of production.

“According to the foregoing, very different rates of profit would then reign in the various spheres of production. It is prima facie two entirely different matters whether commodities are sold at their values (i.e., exchanged in proportion to the value contained in them at prices corresponding to their value), or whether they are sold at such prices that their sale yields equal profits for equal masses of the capital advanced for their respective production.” (p 175) 

A basic assumption here is that a single rate of surplus-value exists. The term is used loosely here because, in reality, a producer owning their own means of production, in these conditions produces a surplus product rather than surplus value. That is, the value of the commodity they produce contains no unpaid labour-time. All of the labour-time that makes up the new value added, is labour-time, which they have themselves expended in its production.

The term here rather signifies that, of the total labour-time expended, by the producer, it too, like that of the wage worker, can be divided into necessary and surplus labour-time. The necessary labour-time is that required to produce enough of the particular commodity to be sold so as to be able to buy the necessities required for the subsistence of the producer and their family. Any labour-time expended above this is surplus labour-time and the value of the commodities produced during this time, therefore, surplus value.

It is valid to argue for the existence of a single rate of surplus value, therefore, Marx says because if producers found that the price they were being paid for their commodities did not cover their subsistence needs/value of their labour-power, and also provide them with this average surplus value, they would move to some other type of production. The same thing applies for wage workers not paid the equivalent of the value of their labour-power.

“In reality there exists only approximation; but, this approximation is the greater, the more developed the capitalist mode of production and the less it is adulterated and amalgamated with survivals of former economic conditions.” (p 175)

So long as commodities are exchanged as commodities by direct producers, therefore, rather than by capitalist producers, there is no problem with commodities exchanging at their values. Producer A produces commodity X, which requires £100 of means of production, and to which they add £100 of additional value by their labour. So, they will sell it for £200, and of this, £50 may be required to cover their subsistence, and £50 will be surplus value. The other £100 is required to buy replacement means of production.

If the commodity repeatedly sold for more than £200, other direct producers, seeing that more surplus value could be produced, in this sphere, would enter it, supply would increase, the price would fall, and so would the amount of surplus value. The opposite would apply if the price were consistently below £200.

For the direct producer, or petty commodity producer, it is only a matter of recovering the value of the commodity.

“The whole difficulty arises from the fact that commodities are not exchanged simply as commodities, but as products of capitals, which claim participation in the total amount of surplus-value, proportional to their magnitude, or equal if they are of equal magnitude. And this claim is to be satisfied by the total price for commodities produced by a given capital in a certain space of time. This total price is, however, only the sum of the prices of the individual commodities produced by this capital.” (p 175) 

In other words, the capitalist enters production from a completely different standpoint than the petty-commodity producer. The latter is only concerned to obtain the equivalent of the labour-time they have expended. The capitalist, however, is concerned to obtain the highest rate of profit they can on the capital they advance.

Sunday, 5 July 2015

Greece and the Money Myth - Part 5

This fear of having your currency circulation held hostage by what amounts to alien forces, simply illustrates the fragility of the Eurozone as currently constituted. It is what will blow the Eurozone and the EU apart unless it is addressed.

It is the problem of a central bank and currency that does not have a single state and single fiscal and debt issuing authority standing behind it. It is the problem of separate states and fiscal regimes that do not have the necessary control over their own currency. Greece has merely illustrated this contradiction at its most acute point, but it will undoubtedly manifest itself in Spain, Portugal, Italy and other eurozone economies until either it is resolved, or until the Eurozone itself is destroyed.

There are various immediate solutions that Greece could adopt. It could, for example, choose to use Bitcoin for its currency. That would be jumping from the frying pan into the fire. There are two obvious problems with Bitcoin. The first is that although it has a price (which itself is a problem because it varies by huge amounts on a day to day basis) it has no value. Bitcoin is the product of labour, but not necessary labour. Gold, for example, is a use value in its own right. It has exchange value, because people desire it as a use value (for jewellery etc.) and because it has value as the product of labour. But, Bitcoin can only ever be used as a money token, no different from a £10 note.

The price of Bitcoin is derived from the fact of its scarcity, and the fact that it is traded, or really we should say is the object of speculation. In fact, one reason that the price of Bitcoin varies so widely, is precisely because it does have no value, which can act as the locus around which its market price fluctuates. For most commodities, the market price fluctuates within fairly limited ranges around the price of production, that is the cost price plus average profit. If the market price rises much above this, the producers of that commodity make higher profits, which encourages additional capital into its production, pushing the market price back down to the price of production. But, for any commodity that does not have value, like land, for example, there is no price of production. If the demand for land rises, it cannot cause a production of more land! And the same applies to Bitcoin, which thereby causes speculation, and spikes and collapses of its price.

But, by the same token someone can and has created other virtual currencies, so that the scarcity of one is neutralised by the plethora of many different such currencies.

Secondly, Bitcoin would simply replicate the unnecessary problems caused by an artificial constriction of the currency that the ECB is now inflicting on Greece. Bitcoin is much loved by the Libertarians and adherents of the Neo-Austrian School of von Mises, precisely because it takes control of the currency out of the hands of the state, and places it into the straitjacket of “sound money” based on artificial constraints.

Another option is to reintroduce the Drachma, with Greece then simply printing whatever currency the circulation of commodities and capital within its economy requires. All other things being equal, that would certainly have been a better option for Greece in 2010, than the five years of austerity and destruction of real wealth that has been imposed on it by the Troika.

The evidence of that can perhaps be seen in Iceland, which allowed its capitalist banks to go bust, leaving the capitalist shareholders and bondholders, who had lent money to those banks, to pick up the tab for the reckless actions of those banks. Having done so, and not thereby wasted taxpayers money on bailing out the money lenders, it was able to provide the currency its economy required, so that it quickly recovered, and has continued growing since.

It has been said that a reintroduction of the Drachma would inevitably see that currency collapse in value, with a consequent sharp rise in import prices and devastation of Greek living standards. That is more than likely, but on the basis of what has been said above, that possibility should not be overstated.

If we consider what causes the value of money tokens such as the Drachma or the Euro to fall, it is that too many of these tokens have been put into circulation, relative to what is required for the circulation of commodities. As Marx puts it,

“How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given... The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity."

The reason the Bank Act was introduced in 1844, besides the fact that it was based upon false economic theory, and was a reflection of the growing power of money lending capital relative to productive-capital, is that fear still existed in England, following a series of bank runs in the 18th and early 19th centuries, due to commercial banks printing excessive amounts of banknotes, which they could not honour. People wanted gold currency or a paper currency backed by gold to assuage this fear.

But, as Marx and Engels set out, it was a fear that had never affected Scotland. In Scotland, not only had gold never formed a significant element of currency circulation, but the Scots preferred the circulation of a paper currency to that of gold and found the constraints of the 1845 Bank Act an imposition.

“As mentioned before, the Scottish banks were forced by the Bank Act of 1845 into a system resembling that of the English. They were obliged to hold gold in reserve for their note issue beyond the limit fixed for each bank. The effect of this may be seen from the following testimony before the C. D. 1848/57. 

Kennedy, Director of a Scottish bank: 

"3375. Was there anything that you can call a circulation of gold in Scotland previously to the passing of the Act of 1845? — None whatever." — "3376. Has there been any additional circulation of gold since? — None whatever; the people dislike gold." — 3450. 

The sum of about £900,000 in gold, which the Scottish banks are compelled to keep since 1845, can only be injurious in his opinion and 

"absorbs unprofitably so much of the capital of Scotland."”

(Capital III, Chapter 34, p 562)

Marx goes on to give further such testimonies as to the way a gold backed currency imposed unnecessary restrictions on the Scottish banks and economy.

The amount of money put into circulation, as Marx sets out in “A Contribution To The Critique of Political Economy”, is a function of the value of commodities to be circulated, and the velocity of circulation of the currency, together with the value of the money commodity.

“The law that, if the speed of circulation of money and the sum total of the commodity-prices are given, the amount of the medium of circulation is determined, can also be expressed in the following way: if the exchange-values of commodities and the average speed of their metamorphoses are given, then the quantity of gold in circulation depends on its own value. 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...

Since the quantity of gold in circulation depends upon two variable factors, the total amount of commodity-prices and the velocity of circulation, it follows that it must be possible to reduce and expand the quantity of metallic currency; in short, in accordance with the requirements of the process of circulation, gold must sometimes be put into circulation and sometimes withdrawn from it. We shall see later how these conditions are realized in the process of circulation.” 

Of course, as Marx described in the quote provided earlier, this relation is stood on its head when paper currency replaces precious metals, as the more paper put into circulation, the lower its value, and so the higher the level of commodity prices. If in 2010, Greece had not had to comply with the austerity measures imposed upon it, in order to obtain liquidity from the ECB and IMF, it would not have suffered a 25% contraction of its economy. Instead, its economy may have grown by say 10% over that period.

In that case, it could have undertaken a 30% expansion of notes and coins in circulation compared with today without that having any inflationary impact on the value of its currency. Likewise, a return to the Drachma may not have the damaging effect that is being predicted. For example, suppose the government tomorrow reintroduced the Drachma, and announced that all deposits were secure, and enough Drachma would be supplied to banks to meet all withdrawals.

There may still be a surge of withdrawals, but once people were sure that whenever they went to the ATM, there would be drachma in it, they would tend to stop panic withdrawals. If the government had the Drachma it required to pay wages and other bills, it could begin to employ more people. They would have money in their pocket to spend with the small trader, who would expand their business and so on.

In other words, just as happened in 1847, when the Bank Act was suspended, and more notes and coins were put into circulation, which caused an increase in economic activity, so too that could be the consequence in Greece. Following a 25% contraction of economic activity, with 25% unemployment/60% youth unemployment, there are significant under used economic resources that could be put to work, and which would thereby justify an increased currency circulation without causing inflation.

The main problem, in that respect, however, is the devaluation of that currency in foreign exchange markets. This is really, the answer to the point raised at the beginning about how notes and coins can disappear from the economy. One reason is that people hoard the currency so it disappears from circulation, but the other is that if the economy is uncompetitive, it imports more than it exports, and so the difference is made up by an export of capital. In the past, that was symbolised by an outflow of gold. But, today importers may exchange domestic currency for the foreign currency of the country from whom they want to import so that thereby the domestic currency flows out and ends up in the foreign currency reserves of the exporting country.

A country that controls its own currency can print more notes to cover the outflow, but this then leads to the problem of inflation discussed earlier. The problem that Greece faces currently, however, is that not only has the country lacked the resources to import commodities, because its own industry has been decimated by austerity, making exporting more difficult, but large chunks of its capital has gone to repay debt. Moreover, the problem it has faced more recently is that, without currency, importers are unable to obtain foreign currency to be able to import anyway. Ironically, although this has been causing severe problems for pharmacies etc., who cannot obtain drugs, it does represent a self-stabilising mechanism. Over recent months, for example, when Russia has not only faced restrictions on its imports, but also a depreciation of the Rouble, this has acted as an incentive for domestic producers to fill the gap in the market, and has also led foreign businesses to establish businesses in Russia for the same purpose, which thereby strengthens the Russian economy, making it less dependent on imports, or on oil exports to finance them.

The policy of austerity has been a totally illiterate economic policy imposed on the country by the ECB, EU and IMF, that has seriously damaged the economy during that period. But, the policy of austerity has had the same effect everywhere it has been applied. It has destroyed real capital and the ability to produce profits, solely in order to maintain the fictitious wealth of money lending capitalists, a policy which ultimately will cause an even bigger crash of those fictitious capital prices.

But, in the meantime, there seems little need for Greece to risk the potential downside from a reintroduction of the Drachma, as I've set out before. Nor does it need to introduce any further Euro denominated IOU's, in addition to those already in circulation in the shape of Euro notes and coins, bank cheques and so on.

The Euro is merely a symbol of measurement of value, and so of a given quantity of labour-time. There is no more need of these symbols to be in circulation for prices to be denominated by this unit of measurement than there is for gold to be in circulation.

The advantage for Greece at the moment is this. If it were using the Drachma as its currency, the quantity it put into circulation would be constrained by the value of commodities to be circulated. Put too many Drachma into circulation and they become devalued, reflected in inflation, too few and there is money hoarding, a credit crunch, higher interest rates and economic contraction.

But, Greece could have its central bank print electronic Euros in exchange for Greek sovereign bonds. At the moment this is not possible because only the ECB is allowed to determine which bonds are acceptable as collateral. So, it restricts the ability of banks to create money. However, that gate swings both ways. If the ECB cuts Greece adrift, which by maintaining but not increasing ELA it has so far been careful not to do, then Greece is free to set its own rules on what bonds its central bank will take as collateral.

So, Greece could continue to consider itself part of the Eurozone, in so far as Euros are its standard of prices, and legal tender, but it would be outside the control of the ECB, just as it has to borrow money in capital markets, on its own terms, rather than as a member of the Eurozone, like Germany.

On that basis, the Greek government, with its bank account filled with these electronic Euros could lift the austerity. It could begin to undertake the work needed to rebuild the Greek economy, once again putting Greek workers back to work, creating real wealth.

Its notable that on the same day that the institutions were trying to impose further austerity on Greece, President Obama and President Rousseff were doing the opposite, announcing major programmes of fiscal expansion in both the US and Brazil, to put workers back to work, building roads and bridges and undertaking the other infrastructure work that their economies require, and Obama was also announcing that millions of US workers would from now on be legally entitled to overtime pay, who previously lacked that right.

The Greek government with the currency it requires could begin to put people back to work. They would have incomes to spend, which would enable a range of Greek businesses to expand, and for Greece to be able to build the capital it requires to meet its needs, rather than relying on imported goods. Indeed it could begin to build the capital it requires to be able to export goods so as to pay for its imports without exporting capital.

The advantage of doing this whilst continuing to denominate prices in Euros is that it avoids the dislocation a return to the Drachma implies, and because any increase in money supply it brings about would be tiny compared to total Euro money supply, it would have no inflationary impact. That is why I have been arguing for the latter course of action. If the Greek people vote No today, as seems likely, Syriza should not let this be interpreted as a vote to leave the Euro. It is a vote to reject austerity, and to provide, by whatever means necessary, the currency required to end it, and to put the Greek and European economy back on the path of growth from which austerity has derailed it.

Capital III, Chapter 10 - Part 1

Equalisation of the General Rate of Profit Through Competition. Market-Prices and Market-Values. Surplus-Profit 

If we take the total social capital, then, like any other capital, it divides into c + v + s, the advanced capital being c + v. The relation of c/v gives the organic composition of the total social capital, which is by definition the average for all of the individual capitals that comprise it. Some of these individual capitals will have an organic composition higher than this, and some lower, whilst others will have a composition roughly equal to it. This can only ever be an approximation, for several reasons.

The average is constantly changing, because the composition of each capital is constantly changing.

The average is only an arithmetically derived figure. If we take the average height of five different people, the derived figure might not coincide with the actual height of any of the five.

As soon as prices of production take the place of exchange values, the value composition of capital can only be calculated using those prices. The value composition of firm A's capital, using prices of production, for its constant capital, might equal the average, but may not do so on the basis of exchange values. 

For those spheres of production that approximate the average, the price of production of their commodities will equal their exchange value, and their rate of profit will equal the average rate of profit.

I'm not sure I agree with the formulation that Marx uses to describe the process by which competition then leads to this average becoming a general rate of profit across the whole social capital, and it seems to differ from what he says elsewhere. He writes,

“This average rate of profit, however, is the percentage of profit in that sphere of average composition in which profit, therefore, coincides with surplus-value. Hence, the rate of profit is the same in all spheres of production, for it is equalized on the basis of those average spheres of production which has the average composition of capital. Consequently, the sum of the profits in all spheres of production must equal the sum of the surplus-values, and the sum of the prices of production of the total social product equal the sum of its value. But it is evident that the balance among spheres of production of different composition must tend to equalize them with the spheres of average composition, be it exactly or only approximately the same as the social average.” (p 173)

The tendency of competition will be to drive capital not towards that sphere where the rate of profit, and composition of capital is equal to the average, but towards that sphere where it is highest. It is not a transformation of the organic composition of the capital, which tends towards the average rate of profit, but the consequence for prices resulting from the increase in supply in high profit areas and reduction in supply in low profit areas.

It is not a search for the average rate of profit that brings it about, but a continual search for the highest rate of profit. The consequence of that search may also result in an increase in the organic composition of capital, in high profit areas, as each firm attempts to increase productivity and reduce costs, by replacing labour with machines, but that is a different matter. Marx makes this same argument himself later, in his further elaboration of the process, so it is really only a matter of what I think is here a poor formulation.

Forward To Part 2

Saturday, 4 July 2015

Greece and the Money Myth - Part 4

In Part 3, the question was raised, why is so much being made of the shortage of money? Why are people queuing at cash machines to take out notes?

The answer to the first question is easy. Particularly in the last 30 years, when wealth has been almost exclusively associated with the possession of money, it takes on a mystical, god-like power. Even in the shape of worthless bits of paper, people, including economists, bow down before it. By contrast, if I were a Greek worker, or the Syriza government, I would say you can take as many bits of paper out of the country as you like, but leave the land on which we can grow agricultural commodities; leave the tractors and other machines required to plant and harvest the crops; leave the factories, shops and offices; leave the machines required to process the materials; leave the stocks of food and materials we require. We, the workers, will take those things off your hands for free, and run them as co-operatives, to directly meet our needs. If we need them, we can print whatever bits of paper we need!

As for the second question, of why people are queuing to get money out of ATM's, the answer is more complicated. In part, its similar to the answer to the first question. People over a long period have been brought to believe that these worthless bits of coloured paper actually have some value. As Marx puts it, “A Contribution To The Critique of Political Economy”,

Gold circulates because it has value, whereas paper has value because it circulates.”

The money tokens, like a €100 note, have no value, apart from the value of the paper and ink. They are mere representations of value, a claim to a portion of the product of total social labour. But, those seeking to take out the €60 maximum, each day, believe these bits of paper do have value. Part of the reason they want to take out these bits of paper is the same reason that, in the past, people wanted to trade in such bits of paper for the gold they represented. That is that they fear that the bank itself may collapse, and so their funds, deposited with it, will be confiscated. The latter reaction is more rational than the former, because gold, at least, does have value, whereas the Euro notes have none.

The other reason is that many of those queuing are pensioners, who do not have, and do not know how to use a bank card. But, the other reason for people to want actual notes and coins is because this is always what happens when there is a credit crunch, artificially induced as a consequence of restricting the amount of currency put into circulation. Its what happened in 1847, as a consequence of the Bank Act. Its why Phillippe Legrain, is quite right in describing the actions of the ECB, as directly political in restricting the ELA provision of notes and coins to the Greek banks. It is an act of political blackmail.

In 1847, Britain had a crop failure, which caused it to import food. It paid for it with gold. At the time, Britain had just entered upon a long wave boom, that started in 1843, and was to run until the late 1860's. But, the 1844 Bank Act forced the Bank of England to reduce the quantity of banknotes it put into circulation, as a result of the reduction in the gold reserves. That restricted the ability of other banks to discount Bills of Exchange, which were the main form of commercial credit, and discounting them was the main way businesses obtained banknotes. But, with fewer Bank of England banknotes made available, the other banks and discount houses found it harder to carry out this function, and so charged a higher commission to discount the bills.

Interest rates then rose, and credit shrank. Suppliers required payment in cash rather than on credit, and anyone who had notes and coins tried to hold on to them, for payment. The crisis was quickly resolved when the 1844 Bank Act, was suspended, and additional Bank of England banknotes were thrown into circulation. A similar thing happened globally in 2008, and in the Eurozone in 2010, and the same thing is being induced now in Greece, as a result of the actions of the ECB, in limiting its funding of the Greek banks.

This is one of the reasons that sovereign states have wanted to retain control over their currency. The actions of the ECB and EU leaders, is playing strongly into the hands of the conservative nationalists such as UKIP, and the FN, who use these kinds of examples, to demonstrate why each country should be outside the Eurozone, if not outside the EU itself. Rather than Draghi doing everything necessary to save the Eurozone, he along with Jean Claude Juncker and Angela Merkel appear to be doing everything necessary to blow it apart once and for all.

The actions of the ECB in not providing the required funding for the Greek banks, to meet the currency needs of their customers for withdrawals is quite grotesque. It is designed to cause the kind of bank runs that were seen with Northern Rock in 2007, for which the Bank of England was criticised. That is particularly the case as right-wing politicians and the right-wing media have been trying to encourage such a bank run over the last week, to put pressure on the government, and to create a climate of chaos ahead of the referendum on Sunday. The ECB's actions would not be tolerated in any other country, and represents an overtly political act.

One of the functions of a central bank, like the ECB, is to act as lender of last resort, and thereby to provide the currency required to prevent such bank runs. If customers of Eurozone banks have funds in their account, they are entitled to withdraw notes and coins up to the limit of the value of those funds, and it is the fiduciary duty of the ECB as the issuing bank, to ensure that sufficient notes and coins are supplied to its member banks to meet those requirements. After all those ECB issued notes and coins, like all other such fiat notes and coins, are merely a token of value that it has issued in place of real money.

Without that fiduciary duty being upheld by the ECB, no one can have any confidence that any Euro-denominated account is secure, and therefore, no one can have confidence that the Euro is a secure currency. It is as though people have taken a load of real money in the shape of gold to an ECB member bank, been given notes issued by the ECB with a promise to exchange them again for gold on demand, only to find that the ECB has chosen not to honour that promise in a particular country!

If today I have €100 in a Greek bank account that I cannot get hold of, because the ECB does not provide the required Euros to my bank, how can I have any confidence that tomorrow that will not be the case if I have an account in Portugal, Spain, Italy Cyprus, Malta, Ireland, Luxembourg or any of the other Eurozone economies, particularly those whose banks have been shown to be even moreexposed than were those in Cyprus. The banks in Luxembourg, for example, where Jean Claude Juncker, was involved in developing an economy that, like Cyprus, was built more or less on similar principles to a Ponzi Scheme, that attracted funds, on the basis of being a tax haven, have been shown to be more than twice as exposed to a potential crash, as those in Cyprus; a fact that the IMF itself drew attention to some time ago, given the interconnectedness of the banks in Luxembourg.

The problem of pensioners not having debit cards is perhaps easy to resolve. I'm surprised Syriza, as a party with grass roots connections, has not resolved it already. The obvious answer is to take action to get pensioners and everyone else to have debit cards, and know how to use them; organise credit unions with collective access to funds, run by people who understand finance, and have access to debit and credit cards that can act to make payments collectively by electronic means.

This really is a reflection of the extent to which socialists have become tied to statist conceptions, and reliant upon the mechanisms of the capitalist state rather than building up their own worker owned and controlled mechanisms in parallel to it. It really would be quite easy to achieve on the basis of nominal book transactions where commodities were supplied by worker owned co-operatives, and payments were effected via worker owned co-operative banks.

But, even in the immediate term, pensioners could make payment by cheque rather than cash, if they do not have a debit card. The government may have to take measures to ensure that payment can be made by such means rather than businesses bringing on a credit crunch by demands for cash payment, action which itself may be political, by some business owners.

The real reason for the queues at ATM's is a fear that deposits may be sequestered. That is a fear that conservative politicians and media have been fostering in order to create a bank run, and credit crunch ahead of Sunday's referendum.

I will conclude this analysis in Part 5 tomorrow.

Northern Soul Classics - A Love Reputation - Denise LaSalle

Super soul.  A real groover from Denise LaSalle.