Tuesday, 22 July 2014

After Obama, What Next - Part 6

On all the grounds set out in Part 5, therefore, it can be seen that what is in some ways only a superficial political division between Democrats and Republicans, is at the same time based on real underlying class interests. And it is these underlying class interests that are decisive in looking at what comes after Obama, and what position Marxists in the US should adopt.

The first question is what attitude should Marxists adopt to the Democrats? In reality, it is the same question as what attitude should Marxists adopt towards Labour in the UK, the SPD in Germany and so on. The answer is to “stick with the workers”. 

“As the experiences of the Russian Revolution teach us – remember this in England and America! – the most important thing of all is to stay in the midst of the masses of workers. You will often go wrong with them, but never leave the mass organisations of the working class, however reactionary they may be at any given moment” (emphasis added).

(Zinoviev’s closing speech at the 15th Session of the Second Congress of the Comintern) 

Close to the end of his life, Engels, writing to US socialists, Made this same point, and he related that he and Marx had joined the German Democrats, an openly bourgeois party, because it was the means of gaining the ear of the workers.

“When we returned to Germany, in spring 1848, we joined the Democratic Party as the only possible means of getting the ear of the working class; we were the most advanced wing of that party, but still a wing of it. When Marx founded the International, he drew up the General Rules in such a way that all working-class socialists of that period could join it -- Proudhonists, Pierre Lerouxists and even the more advanced section of the English Trades Unions; and it was only through this latitude that the International became what it was, the means of gradually dissolving and absorbing all these minor sects, with the exception of the Anarchists, whose sudden appearance in various countries was but the effect of the violent bourgeois reaction after the Commune and could therefore safely be left by us to die out of itself, as it did. Had we from 1864, to 1873 insisted on working together only with those who openly adopted our platform where should we be to-day? I think that all our practice has shown that it is possible to work along with the general movement of the working class at every one of its stages without giving up or hiding our own distinct position and even organisation, and I am afraid that if the German Americans choose a different line they will commit a great mistake.” 

London, January 27, 1887


Engels made the same point to Eleanor Marx, to ignore the various British sects such as the SDF and the ILP, and to go directly to where the workers were in the trades unions and in the Liberal Clubs.

But, of course, that did not mean fetishising those organisations. The Marxists activity within them must always be geared to developing the working-class, and thereby to developing the praxis of these organisations, so as better to reflect the needs and interests of the workers. At certain points, this very process, must involve the fracturing of these organisations. Where this happens naturally, with the British workers decisively moving beyond the limits of the Liberal Party, it would be lunacy to oppose this movement, as, for example, the Fabians did, and thereby to fetishise existing structures.

But, it is also lunacy to believe, as some do today, that groups of a few hundred, or a few thousand – usually petit-bourgeois – members of revolutionary sects, can substitute for the real movement of the working-class, and simply proclaim the establishment of a new Workers Party, even if that party is intended to be only a replica of some old workers party.

More difficult is the condition that Lenin and Trotsky found themselves in in 1914-20, when the old mass workers parties were dividing, and the possibility of developing new revolutionary mass workers' parties existed at a time when global socialist revolution appeared to be unfolding. As it turned out, that division of the working class movement, was catastrophic, and created the weakness we have today, but it would have been near impossible to have seen that at the time.

It would be much better to have a workers' party in the US that was more like the social-democratic parties in Europe, but we have to deal with the reality we have. In reality, the US Democrats are not greatly different to European social-democratic parties, which if anything are moving closer to their US counterpart, and that is because they are all built upon that same bourgeois, social-democratic ideology of a compromise between the interests of big industrial capital and the working-class.

The former is based on the more progressive forms of capital – in fact, it is based upon what Marx calls, in Capital III, one of the transitional forms of property between capitalism and socialism.

“The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.” 

It is based on a socialised form of capital, represented by the joint stock company, and its modern form, the corporation and public limited company. As Engels describes in his Critique of the Erfurt Programme, these forms of capital have not only gone beyond private capitalist production, but they have also gone beyond that “planlessness”, that characterised the early forms of capital.

“What is capitalist private production? Production by separate entrepreneurs, which is increasingly becoming an exception. Capitalist production by joint-stock companies is no longer private production but production on behalf of many associated people. And when we pass on from joint-stock companies to trusts, which dominate and monopolise whole branches of industry, this puts an end not only to private production but also to planlessness.”” 

As Marx describes in Capital III, this form of capital necessarily comes into conflict with the less mature forms, as it “expropriates the expropriators”, i.e. the small and medium capitalists.

"The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself.

There is antagonism against the old form in the stock companies, in which social means of production appear as private property;...

Success and failure both lead here to a centralisation of capital, and thus to expropriation on the most enormous scale. Expropriation extends here from the direct producers to the smaller and the medium-sized capitalists themselves. It is the point of departure for the capitalist mode of production; its accomplishment is the goal of this production. In the last instance, it aims at the expropriation of the means of production from all individuals. With the development of social production the means of production cease to be means of private production and products of private production, and can thereafter be only means of production in the hands of associated producers, i.e., the latter's social property, much as they are their social products."

This is at root, the material basis of the class antagonism reflected in the division between conservative and social-democratic parties.

Monday, 21 July 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 25

Fall In the Value Of The Variable Capital (9)

As Marx sets out in Capital I, there are two ways in which the introduction of new technology and techniques result in a rise in relative surplus value. Firstly, for an individual capital, if it introduces such new methods, ahead of others, it sells into the market at prices below the market price but above its own individual price of production. It thereby obtains an additional surplus value. It is as though the value of the product of an hour of its workers' labour represents more than the product of an hour of the labour of its competitors' workers, i.e. it is as if this labour stood in the same relation as does complex to simple labour. As Marx points out, this applies also when comparing the capital of a developed and developing economy. This is a point important for further discussion.

The second way that relative surplus value is produced is that the value of wage goods is reduced, by the rise in productivity, so the value of labour-power falls, leaving a greater portion of the working day available as surplus labour. It is this process which reduces the value of commodities in general and which also reduces the quantity of surplus value in each individual commodity, whilst increasing the mass of surplus value.

“Everything that promotes the production of relative surplus-value by mere improvement in methods, as in agriculture, without altering the magnitude of the invested capital, has the same effect. The constant capital, it is true, does not, in such cases, increase in relation to the variable, inasmuch as we regard the variable capital as an index of the amount of labour-power employed, but the mass of the product does increase in proportion to the labour-power employed. The same occurs, if the productiveness of labour (no matter, whether its product goes into the labourer's consumption or into the elements of constant capital) is freed from hindrances in communications, from arbitrary or other restrictions which have become obstacles in the course of time; from fetters of all kinds, without directly affecting the ratio of variable to constant capital.” (Capital III, Chapter 14, p 233)

In other words, these means raise the rate of surplus value without requiring that more fixed capital is employed to raise productivity or resulting in more materials being processed by a given quantity of labour. The clearer example that Marx gives is the repeal of the Corn Laws. By removing such restrictions, the price of food was reduced, which, in turn, reduced the value of labour power, which meant the rate of exploitation could rise. The same amount of labour continued to process the same amount of material as before, but the surplus value was higher resulting in a higher rate of profit.

Anything such as the creation of the EU, or removal of other barriers, which improve free trade, and thereby reduce the cost of wage goods, equally act to raise the rate of surplus value and of profit. As Marx pointed out, with the repeal of the Corn Laws, a lot of other tariffs were abolished , which reduced the prices of other imported materials that constituted constant capital.

“The rise in the rate of surplus-value is a factor which determines the mass of surplus-value, and hence also the rate of profit, for it takes place especially under conditions, in which, as we have previously seen, the constant capital is either not increased at all, or not proportionately increased, in relation to the variable capital. This factor does not abolish the general law. But it causes that law to act rather as a tendency, i.e., as a law whose absolute action is checked, retarded, and weakened, by counteracting circumstances. But since the same influences which raise the rate of surplus-value (even a lengthening of the working-time is a result of large-scale industry) tend to decrease the labour-power employed by a certain capital, it follows that they also tend to reduce the rate of profit and to retard this reduction.” (Capital III, Chapter 14, p 234-5)

The mass of surplus value always tends to rise because the number of workers employed always tends to rise absolutely, even if it declines relative to the total capital, and also because even with a constant number of workers, the rate of surplus value tends to rise. But, whether this rising mass of surplus value results in a rising rate of profit depends upon its relation to the total capital employed.

Sunday, 20 July 2014

Capital II, Chapter 17 - Part 13

Marx goes on to deal with this argument, that had been raised by the Owenite, Weston, within the ranks of the First International. The more extended argument, detailing that debate is given in Value, Price and Profit .

Marx continues, considering the argument about higher wages. Those proposing this argument say,

“This causes a greater demand for commodities on the part of the labourers. This, in turn, leads to a rise in the price of commodities.—Or it is said: If wages rise, the capitalists raise the prices of their commodities.—In either case, the general rise in wages causes a rise in commodity prices. Hence a greater amount of money is needed for the circulation of the commodities, no matter how the rise in prices is explained.” (p 344)

Marx easily dismisses this argument. Higher wages will mean workers demand more necessities, and might demand new commodities, and this may cause their price to rise, in the short-term. But, the fall in surplus-value means capitalists have less money to spend on luxuries. The fall in their demand causes their prices to fall. Profits for producing necessities rises, and for producing luxuries fall. That means more capital will move to producing necessities and less to producing luxuries. This continues until the rate of profit is equalised in both sectors again. The consequence is that the supply of necessaries rises, and so their prices fall back to the original level, and the supply of luxuries falls, pushing the prices of luxuries back up to their original level. 

The overall price level has not changed, but more social labour-time is now devoted to producing necessities, and less to luxuries.

Alternatively, workers themselves may spend some of their higher wages on luxuries. In that case, they exert less pressure on the demand for necessities, and simply replace the demand for luxuries that previously came from capitalists.

“More luxuries than before are consumed by labourers, and relatively fewer by capitalists. Voilà tout. After some oscillations the value of the mass of circulating commodities is the same as before. As for the momentary fluctuations, they will not have any other effect than to throw unemployed money-capital into domestic circulation, capital which hitherto sought employment in speculative deals on the stock-exchange or in foreign countries.” (p 344)

Part of the argument, of those who believe that wages determine prices, is that price is comprised of the costs of production – primarily here wages – plus an amount of profit. So, if wages rise, prices rise as a result. But, again, this is not true as Marx shows.

Firstly, if capitalists could simply increase prices at will, in that way, they would do so whether wages had risen or not. But, capitalists cannot simply raise prices. Conversely, wages would never rise when commodity prices fell, and

“The capitalist class would never resist the trades’ unions, if it could always and under all circumstances do what it is now doing by way of exception, under definite, special, so to say local, circumstances, to wit, avail itself of every rise in wages in order to raise prices of commodities much higher yet and thus pocket greater profits.” (p 344)

The argument that higher wages cause inflation, “is a bugbear set up by the capitalists and their economic sycophants.” (p 344)

The basis of the argument rests on three foundations. Firstly, the money put in circulation is determined by the total value of commodities to be circulated. If more commodities are to be circulated, or if the same number of commodities are circulated, but their value has risen, then more money has to be thrown into circulation. The latter would be the case if productivity had fallen, or if, for example, there had been a bad harvest, pushing up food and raw material prices. This increase in money would then mean that all prices, including wages, might rise.

“The effect is then confused with the cause. Wages rise (although the rise is rare, and proportional only in exceptional cases) with the rising prices of the necessities of life. Wage advances are the consequence, not the cause, of advances in the prices of commodities.” (p 345)

Secondly, a rise in some wages might cause a rise in some prices. Whether or not this is possible depends on a number of factors, such as the price elasticity of demand of the products concerned. Products that are inelastic can enjoy a rise in price without a damaging fall in demand, and vice versa. Whether a product has inelastic demand or not depends on a range of factors such as whether its a necessity, if it has substitutes, how much competition there is between suppliers, and so on. But, also, for some products, wages comprise a small element of costs, so a wage rise might be easily absorbed. Later, in Capital III, Marx demonstrates why it is that, in fact, a general rise in wages will cause the prices of commodities that have a higher than average organic composition of capital, to fall rather than rise.

But, in any case, the consequence of a rise in some prices here is a fall in the prices of other goods, as effective demand rises for one and falls for the other. Finally,

“In the case of a general rise in wages the price of the produced commodities rises in branches of industry where the variable capital preponderates, but falls on the other hand in branches where the constant, or fixed, capital preponderates.” (p 346)

Saturday, 19 July 2014

An Historical Property Value Calculator

I bought my first house, for cash, in 1977. Having saved up, and lived on baked beans for three years, buying clothes from jumble sales etc., we eventually had the £5,000 needed to buy the three-bedroom town house, with small gardens to front and back. At the time, my wages came to £2,500 a year. As a comparison, if I were the same age and doing the same job today, my wages would be around £15,000 p.a. or six times as much. If the house were six times as much, it would be around £30,000, therefore. It isn't. A similar house today would sell for around £80,000, even in the weak local market. In other words, it would be nearly three times as much as it should be, had it risen in line with wages. But, there is no reason it should have risen by that much. In general, wages should rise by more than prices, in line with the rise in productivity.

I sold that house in 1988 for £22,500. In the meantime I'd added some value by taking out walls, putting in a bathroom and modern kitchen and so on. But, even assuming I'd added 10% extra in value, to take the initial value to £5,500, that still represents a four fold increase in price in just eleven years. In fact, this demonstrates a fact I discovered a while ago, in looking at the rise in various asset markets, over the last sixty years, which is that, although its thought that the main rise in these markets has occurred over the last ten to fifteen years or so, this is not the case. The main rise in asset markets occurred during the 1980's, as the conservative governments in the US and UK, under Thatcher and Reagan, attempted to build low-wage/high debt economies, and particularly from the second half of the 1980's onwards, injected large quantities of liquidity into the newly deregulated financial markets, thereby sparking an explosion of debt, and debt fuelled asset price bubbles.

An example of that is that the Dow Jones Index rose from 1,000 in 1982 to 10,000 in 2000, a rise of 1,000 %, whereas, between 2000 and today, the Dow has only risen from 10,000 to 17,000, a rise of just 70%. Between 1950 and 1960, UK house prices rose by 31%, between 1960 and 1970 they rose by 96%, reflecting the "dash for growth" of Reggie Maudling, and the so called Barber Boom. But, between 1970 and 1980, they rose by 380%, and rose a further 154%, between 1980 and 1990. By comparison, they rose by 70% between 1990 and 2000, and a further 60% between 2000 and 2011. This demonstrates that the real crisis in UK housing was created in the 1980's and 90's, as a result of the policies adopted by Thatcher. All the massive money printing has been able to do, since then, is to keep that bubble inflated, and to reflate it, whenever it has burst. It also shows that the argument that the high prices are due to shortage of supply is nonsense. It would have required that the main period of short supply was during the 1980's and 90's.  The extent of this inflation of asset prices in the 1980's and 90's can be judged by the fact that this was a period of economic stagnation, and of stagnant or falling real wages.

To illustrate the effect of this, let me relate it back to my own experience. Having sold my first house in 1988, for £22,500, I bought a three bedroom detached house for £30,000. Working backwards then, the 1977 value of that house would have been around £7,500, and, in fact, I know that is the price they were sold for at that time, because I saw them being built. Then, working forward to today, on the basis of a six fold rise in wages, would give a current price of around £45,000. In fact, when I sold the house, at the start of 2010, I sold it for £150,000 or more than three times that amount. This gives an indication of just how much current house prices are out of whack with where they should be, on any kind of rational historical basis. In fact, as stated above, even this overstates where house prices should be, because rationally wages should rise by more than prices.

If we assume a 2% p.a. rise in productivity then between 1977 to today, we should expect wages to have risen by around double the rise in prices during that period. In that case, the house price should only have risen from around £7,500 to about £22,500, or about a sixth of what it was. As prices of assets always revert to the mean over the long term, and usually have to go through a period when they drop below it, this gives an indication of just how much the drop in house prices will actually be when it happens. It means that prices will need to drop by between 80-90%, or near the same amount they fell in Japan when the asset price bust happened there in the 1990's.

A few weeks ago, the Open University had a programme on BBC, narrated by Sandi Toksvig, about property. It set out that, of the price of a £200,000 house, between £50,000 and £100,000 of the cost was the price of the land. A further £50,000 was the actual cost of construction of the house. The rest was made up of the costs the builder has to pay, to the local Council, to cover the Section 106 Agreements, to provide roads, schools, and other amenities, as well as social housing, plus the profit of the builder. This shows how significant the price of land is to resolving the housing crisis. Builders interviewed made the point I set out a few weeks ago in, Building More Houses Will Note Cure The Housing Crisis, that they will not build houses unless they know that there are customers for them, at prices that provide the builder with normal profit.

Because, high land prices force up the price of new build houses – because all the other above costs, other than the actual construction cost, tend to be calculated as percentages on the cost price – this necessarily makes new houses unaffordable for large numbers of people, so demand is constrained. At the same time, supply is constrained, because the builders will not build large numbers of additional houses for which there is no effective demand.

The programme illustrated this by referring to John Prescott's challenge to builders to produce a low cost home, setting aside the cost of the land. Builders, architect designed homes, that could be sold for £60,000, not counting the land, which it was proposed would remain in the ownership of the state. But, in fact, it was shown that when the houses were sold, they were not sold for £60,000, but for £300,000 including the land!

Even Tory Minister Nick Bowles has pointed out - Would You Pay £47 For A Chicken? – that if the price of chickens had risen by as much as houses in the last 30 years, then you would be paying £47 for a chicken, as opposed to the £5-6 they cost in the supermarket, and by the same token, a jar of coffee would cost £20. That gives a similar figure for how much house prices are overvalued as that I arrived at above, of about 8 to 9 times where they should be on an historical basis.

As the Bank of England has eventually realised that this could mean a serious problem, as global interest rates are rising, and inflation is also likely to be rising too, it has started to use its macro-prudential tools, and to give the warning, to those able to read the Kremlinology, that its time to get out of the water, before the shark attack. Unfortunately, even the supposedly savvy investors of the bond and equity markets, seem to have been so inoculated, by years of central bank money printing, that they either don't believe or don't recognise the warnings they are being given. The chance that home buyers who have been led to believe that house prices only go one way – up – will recognise those signs is pretty remote.

Central banks have tried, in recent years, to obtain the results they require, by sending out such messages, rather than actually implementing measures to bring them about. Mario Draghi has succeeded in getting banks across Europe to take money, through the LTRO, and use it to buy the bonds of peripheral European countries, to force down the yield on their bonds, by warning that the ECB would do “whatever was necessary” to bring that about. In fact, as money has also moved out of emerging markets, it has moved into peripheral European bonds to such an extent that they now, ridiculously, have yields lower than in the US! Carney is trying to do the same thing. He is trying to say, there is going to be a property crash, so stop bidding up property prices now, and keep out of the market. That avoids him having to raise interest rates for now, or to impose more stringent rules on mortgages than have so far been introduced.

Its not likely to work. There has never been an occasion where property bubbles have been deflated gradually.  Given the massive bubble in UK property built up over 40 years, its impossible to see how it can end well, as in much of the country we seem to have hit the limits of how many more “bigger fools” can be pulled into the market to buy overpriced housing. Despite “Help To Buy” and other measures to keep the bubble inflated, in many parts of the country, the bubble is barely being kept inflated despite all the furious pumping by the state.

According to Moneyweek the solution, as I've suggested, requires not building more houses but reducing the price of building land. But, as I've also suggested, the price of building land will not be reduced unless either land is nationalised, or else, the bubble in property prices is burst.

The Moneyweek article refers to this survey

It shows that domestic buildings cover just 1.1% of the land area of Britain. So much for the idea that we are an overcrowded island! Including roads and other non-domestic buildings, only 4% of the land mass is built on. As Moneyweek state,

“If England’s 20 million homes cover just 1.1% of its land, you could increase the housing stock by 20% – 4 million homes – and only build on another 0.2% of land. Surely, we can find the space to do this.

Even if you give each home a large garden, you’re still talking less than 1% of English land to increase the housing stock by 20%.”

In some areas, there is more land taken up by golf courses than by residential property. The majority of all this land that is being underused, is still in the hands of the landed aristocracy, of people like the Prnice of Wales, and Duke of Westminster. Moreover, in these conditions, it also pays the builders to accumulate large land banks rather than to build houses on them.

Carney realises that the burst in this property bubble is inevitable and will be very nasty. He's telling the banks in so many words, to start to pull in their horns even further, despite the government's desire to get them to lend more, to keep the bubble inflated, to bolster its own election hopes. But, the bubble is so big, as the above figures demonstrate – even the OECD and IMF a couple of years ago said that UK property prices were 40% over valued against the historical average – that when it bursts, the banks will be taken down by it. That is why they have tried to keep the bubble inflated for as long as possible.

Northern Soul Classics - Turning My Heartbeat Up - MVP's

I'm turning my heartbeat up ready for the stoke Nighter tonight.  Can't wait.


Friday, 18 July 2014

Marx and Engels' Theories of Crisis - Part 112

Conclusion (10)

This is the crisis of overproduction described by Marx in Capital III, Chapter 15. The very same processes which cause the crisis are also the same ones that cause the boom. The reality is that capital is mis-allocated. Too much continues to be invested in existing lines of production, whose output meets the limits of the market, and not enough in the new lines of production where those limits are more elastic, and where very large profits are still to be made.

In a sense, this is reflected in the pricing of technology shares today. Some – though by no means all – of the capital employed in this sector makes very large profits. If the process of creating an average rate of profit worked smoothly, much more capital would be employed productively in this and related sectors. That would reduce the profits and capital valuation of these companies. But, it isn't because of a number of frictions not least of which is the lack of sufficient highly skilled workers. As a result, the share prices of these companies stand at high multiples, in addition to the inflation of all share prices due to excess liquidity.

But, its precisely because the same processes that lead to the crisis are the same processes behind the boom, that the resolution of the crisis results quickly in the resumption of the boom. Misallocated productive-capital is devalued, wages fall, and capital is directed towards those new dynamic areas where high profits are to be made. What inhibits this process is any attempt to limit the effects of the crisis, and thereby prevent the necessary destruction of capital-value. In this respect, QE has had a very negative effect on the real economy, simply in order to prop up the banks and financial institutions.

There is a difference between injecting necessary liquidity to prevent a credit crunch, as happened with the suspension of the 1844 Bank Act, in 1847 and 1857, whilst allowing speculative bubbles to burst, and continuing to inject liquidity in order to prevent the bursting of such bubbles.

These conditions are not those pertaining in the period of stagnation. The Autumn phase of the long wave is a transitional phase between the periods of boom, just described, and the period of stagnation. Its no wonder then that we have seen the periods of hyper-inflation combined with stagnation in the Weimar Republic, or, on a smaller scale, the stagflation that affected all developed economies in the 1970's. But, at the close of this period, and as it transitions into the Winter phase, it is the forces of stagnation that predominate, sending prices, wages and interest rates lower.

It is then, no longer crises of overproduction fuelled by high profits and over-exuberance that are the problem, but low profits and low levels of accumulation. During this period, all those firms that operated at levels below average efficiency find it increasingly difficult to find a place in the market for their commodities, at prices that reproduce the capital consumed in their production. That is especially so as the bigger, more efficient firms use their mass of profit to squeeze out their smaller competitors.

In fact, the bigger capitals may see their mass and rate of profit rise during this period even as the general rate of profit falls. That is because, where several smaller, less efficient capitals go bust, a larger capital picks up their capital at knock-down prices. It uses this capital itself more efficiently to satisfy the demand for commodities no longer produced by the bankrupt firms. Because it produces these commodities more efficiently, than the previous firms, it makes a profit on this production, where they could not, or makes a larger profit, where they could only make a small profit. In fact, by these means, not only are they able to raise their own mass and rate of profit, but as an aliquot part of the total social capital, they raise the total mass and rate of profit too.

During this period, the other forces which tended towards a crisis of overproduction in the boom phase are also mitigated and reversed. High levels of unemployment caused by stagnation, reduce wages even below the value of labour-power, raising the rate of surplus value; the development of vast new supplies of materials during the Spring and Summer phases of the cycle continues to result in an over-supply into stagnant economies, sending those input prices lower, and thereby raising the rate of profit.

Attempts by particularly big capital to reduce the cost of constant capital results in rising productivity and the introduction of new materials and methods. All of this provides the basis for a large rise in the rate and mass of profit that is witnessed, during the Winter phase of the cycle, and which provides the basis for a rapid expansion of capital in new lines of production, and usually in new geographical areas, both globally and nationally.

For example, the new boom starting in the 1890's, saw the rise of the US and Germany, and relative decline of Britain. The post-war boom saw the consolidation of the US and Germany as leading economic powers, and the continued decline of Britain, but it also saw the rise of Japan, particularly in those new lines of production that provided the basis of the boom, i.e. motor cars, and electronic goods. But, in Britain, it saw the decline of those areas based on the old industries such as textiles in Lancashire and Yorkshire, and the rise of the Midlands and South-East, where production of motor cars and consumer electronics was based. In the current boom, not only has Britain continued to decline, but the US has joined it, with the baton being passed to Asia, where China and other Asian Tigers now represent the main source of growth.

Thursday, 17 July 2014

The Law Of The Tendency Of The Rate of Profit To Fall - Part 24

Fall In the Value Of The Variable Capital (8)

The lesson from the examples set out in Part 23 appears to be that, on the basis of absolute surplus value, the increase in the rate of surplus value offsets the increase in the constant capital (material processed) so that the rate of profit rises, but its ability to do so is increasingly reduced where the organic composition of capital is already high, and the rate of surplus value already high. The increase in the constant capital is assumed to rise here in the same proportion as the increase in the working day, but, in fact, as Marx points out, this is not accurate, because although twice as much material may be processed, the actual increase in wear and tear of fixed capital is likely to rise, in practice, by a smaller proportion. An increase in the working day, is, therefore, a powerful means of increasing the rate of profit, even as it increases the organic composition of capital.

“But notably, it is prolongation of the working-day, this invention of modern industry, which increases the mass of appropriated surplus-labour without essentially altering the proportion of the employed labour-power to the constant capital set in motion by it, and which rather tends to reduce this capital relatively.” (p 233)

However, as seen in Capital I, there are limits on the extent of the working day that form the basis of a normal working-day. If workers work beyond it, they are unable to work as intensively and their own wear and tear increases, raising the value of labour-power, and reducing the rate of surplus value. If they work more intensively, the same thing applies, and they are unable to work so extensively.

Moreover, for any particular concrete labour there are limits to how long the working day can be prolonged. For example, suppose the examples given are for coal miners working an 8 hour day. Its possible that this day could be extended to 16 hours, to obtain the results set out in the examples. But its not possible to go beyond that, because the miners require some time to rest, sleep and recuperate.

Marx describes other means by which this effect can be obtained, however, such as the employment of women and children. By employing the labour of the entire family, for little more if anything in wages, than was formerly paid to a male worker, capital is able to raise the amount of labour exploited in a single day, by simply employing more workers for the same amount of variable capital.

If one worker previously worked for 10 hours providing 5 hours of surplus labour, for a wage of £5, they provided £5 of surplus value. But, if six members of their family are now employed for the same amount of wages, 60 hours of labour are provided, and now 55 hours constitute surplus labour, producing a surplus value of £55. However, as was seen in Capital I, the effects of this process on the longer term supply of labour-power were eventually recognised by capital and its representatives, which together with the actions of workers and their trades unions, limited such practices via the Factory Acts. Instead capital found a much more effective means of raising the rate of exploitation, via relative surplus value arising from increases in productivity resulting in a reduction in the value of labour-power.