Saturday, 30 May 2015

What Next? - Part 10

For Britain (2)

In order to understand the material conditions that affect Britain's future its necessary to start at the top. The global economy entered the Spring Phase of the long wave in 1999. As I wrote some years ago, however, the global economy is characterised by combined and uneven development.  Some parts of the global economy, such as Britain, having been formerly dominant, have been in relative decline for some time. Britain has been in relative decline since the latter part of the 19th century, as new economies like Germany, the US and Japan developed; some of those economies, like the US and Japan, that were dominant after WWII, have themselves gone into relative decline, as new economies like China have arisen. Other economies like Germany have managed to reinvent themselves. Germany is essentially transforming itself into a new economy, as the industrial heart beating at the centre of a new EU state.

This process of combined and uneven development has other effects. It causes a growth of demand for labour-power; the working class expands and its conditions improve; workers find it easier to organise and advance their interests. Its hard to know exactly how this has affected workers in China, other than we know that wages have risen there considerably, and the state has recognised the need to respond to their demands. There are indications of widespread unofficial action by workers, but as yet it has not broken out into the establishment of large scale, independent workers organisations or demands for wider democracy, as has happened with, the Arab Spring. Again, I suggested some time ago, that it would be in these newer dynamic economies that such action would be seen, whereas, in the older economies, like the UK, any action would at first continue to be more defensive. 

During such Spring periods, the growth of capital tends to be based upon intensive accumulation, so that new technologies are introduced that replace existing technologies. But, what gives the Spring phase its vibrancy is that a high rate of profit, caused by the increase in productivity, which raises the rate of surplus value, increases the rate of turnover of capital, releases capital, and creates a relative surplus population, provides the basis for the creation of many new capitals. Examining this phase in the 19th century, Marx refers to the fact that many former workers and overseers took the opportunity to set up their own businesses, and it is in the new types of production that many of the new small businesses are established. In many ways, this is replicated within the world economy, as new more vibrant national economies arise to challenge the older, more sclerotic economies.

But, the further development of this process leads to first a concentration of this capital, as it increases in size organically, and then to its centralisation, as the more dominant capitals swallow up the smaller capitals. That process tends to develop during the Summer phase of the cycle, which began around 2012, as also the growth of productivity slows down, and each capital seeks to consolidate its position, by bulking up, and removing the competition. The economic laws, which drive in that direction for individual capitals apply also to national capitals. It is why the natural drive for capital has been to create larger markets within which to operate. But, contrary to the utopian ideas of the Eurosceptics, it is impossible to develop such single markets, without also creating a single economy, and a single state which determines the rules and creates the level playing field within which each individual capital is to operate.

That includes the establishment of a single currency, so that capitals in one part of the market cannot obtain unfair advantage over others, by utilising leverage over the state to manipulate the value of the currency against their competitors; it involves having a single fiscal policy so that capitals operating in one part of the market do not obtain tax advantages over capitals operating in other parts of the market; in a welfare state, it means that there are common benefits, pensions, retirement ages and so on, so that capitals operating in one part of the economy do not obtain subsidies from the state, in the shape of a social wage paid to their workers.

That is why nation states themselves were created by the bourgeoisie as part of their revolution. As Marx points out, what the bourgeoisie require above all else is that each capital operates on a level playing field, of the same rules and conditions applied to each. That was manifest in Britain, in the 19th century, when it came to the laws under which individual capitals had to operate. In its youth, capital, faced with a vast reservoir of labour to exploit, used up labour supplies at a phenomenal rate, driving workers living standards down sharply, and causing mortality rates to rise to a degree that threatened capital itself. Three generations of workers were killed off by overwork and poor conditions, in the time that would previously have only accounted for one.

For its own sake, capital required a limitation of its actions, in the shape of the Factory Acts, and the limitation of the working day. Yet, the capitalists themselves recognised that left to their own devices they would not do so. Competition would drive each of them to try to work their employees to the utmost, to pay them as little as possible, and to fail to provide the necessary safe working conditions.

“We, therefore, find, e.g., that in the beginning of 1863, 26 firms owning extensive potteries in Staffordshire, amongst others, Josiah Wedgwood, & Sons, petition in a memorial for “some legislative enactment.” Competition with other capitalists permits them no voluntary limitation of working-time for children, &c. “Much as we deplore the evils before mentioned, it would not be possible to prevent them by any scheme of agreement between the manufacturers. ... Taking all these points into consideration, we have come to the conviction that some legislative enactment is wanted.” (“Children’s Employment Comm.” Rep. I, 1863, p. 322.) 

(Capital I, Note 2, Chapter 10)

“Some of the masters themselves murmured: 

“On account of the contradictory decisions of the magistrates, a condition of things altogether abnormal and anarchical obtains. One law holds in Yorkshire, another in Lancashire, one law in one parish of Lancashire, another in its immediate neighbourhood. The manufacturer in large towns could evade the law, the manufacturer in country districts could not find the people necessary for the relay system, still less for the shifting of hands from one factory to another,” &c. 

And the first birthright of capital is equal exploitation of labour-power by all capitalists.” 

(Capital I, Chapter 10)

Whatever, the conservative nationalists of the Tory Party or UKIP say about only wanting a single market, without all of the political trappings of the EU and a single state, the two things necessarily go together. As Frederick Hayek put it, all such regulations over the length of working day, working conditions and so on, are compatible with liberal principles and competition,

“so long as these restrictions affect all potential producers equally”.

(The Road To Serfdom, Chapter 3, p 28)

But, it is impossible for such regulations to apply to all potential producers within a single market unless there is a single state to establish such regulations and to enforce them. Capital needs ever larger single markets within which to operate, and it necessarily requires larger states to set the regulations under which the capitals within it operate. That is why, the US underwent its Civil War to create a single centralised state. It is why Europe first went through the process of establishing nation states in the 18th and 19th centuries, and in the same process began almost immediately to seek to unify those states into a single European state, via the wars of the 19th century, and the two world wars of the twentieth century. It is why, the EU was established, and why the US has established NAFTA. It is why Africa is creating its own economic unions, and has set itself the goal of creating a single African Economic Union. It is why similar economic blocs are being created across Asia, Latin America and elsewhere. It is why over and above these economic blocs, supra national state bodies to establish controls and regulations, such as the IMF, WTO and so on were established. These are simply political reflections of the underlying material conditions. Set against this reality and the tide of history, the bleatings of Cameron, let alone of the eurosceptics appear truly bizarre, and out of time.

Northern Soul Classics - Put Your Lovin' Arms Around Me - The Sherrys

Hundred mile an hour Wigan classic from The Sherrys.

Friday, 29 May 2015

Friday Night Disco - Love Or Leave - Detroit Spinners

The brilliant Spinners do it again.

Tories Open Pandora's Box

The Tories believed they were going to lose the last election. They were not alone. Despite all the spin, in many ways they did lose. The Liberal-Tory government from 2010 to 2015 had a majority of around 80, but that majority has now fallen to just 12. They only need to lose six seats before they are in a minority, and already the narrowness of the majority has caused them to drop the flagship of their manifesto, scrapping the Human Rights Act. In order to scrape together even the votes they did get at the election, the Tories were forced to open Pandora's Box.

Inside the box, they found a range of parcels labelled Greed, Envy, Fear and so on, and inside these parcels they found policies for tax cuts, for benefit cuts, for attacks on trades unions and human rights, and on immigration controls, withdrawal from Europe and national division. The passions let loose from the box threaten chaos, and strife, but one parcel remained in the box that the Tories did not take out, and which has been left for Labour. It is a parcel labelled Hope.

In fact, the policies of Hope that can be picked up by Labour, themselves in many ways are made possible by the policies that the Tories have themselves announced. For example, the Tories have now committed the country to an EU referendum. Labour is right – and the media simply look carping to be suggesting that Labour has made a U-Turn on the issue – to say that now it is to happen, they will not waste time opposing it, but will concentrate on making the case for staying in Europe. They should do so, but they should make a clear distinction between a socialist case for Europe, and the kind of reforms that we seek, in the interests of all Europe's workers, and the narrow national interests of British capital that the Tories seek to promote. Rather than the dismal backward looking, and defensive case that the Tories seek to promote, based on greed, fear and envy, Labour should promote a positive case for taking Europe forward, based on Hope, and a confidence in the ability of workers across the continent to create a better future for themselves together.

But, the biggest gift the Tories have given is in relation to their policy on the Right to Buy. The Tories announced in the election campaign that they would extend the Right to Buy from Council Houses to the private property of the Housing Associations. In other words, they would tell private owners of property that they must sell it to other stakeholders – their tenants. For more than a century, Liberals and Tories have raised the spectre against socialism, that it would confiscate private property. It was a powerful ideological threat in their hands. Now the Tories have thrown it away, by themselves announcing that private property is no longer sacrosanct in their eyes, and is open for confiscation.

Its now quite clear that if the Tories support the confiscation of the private property of the Housing Associations, forcing them to sell at huge discounts to tenants, then this same right must also be extended to all private tenants, or else the fundamental requirement of natural justice is infringed that all should be treated equally. There are far more tenants of individual private landlords than there are tenants of Housing Associations, and in general, the former are in a better position to be able to buy their properties than the latter, whilst in general facing higher rents, and, therefore, a greater need to own.

Labour had proposed introducing rent caps to address this problem, but its now clear that the solution that has to be promoted, is the extension of the Right To Buy to all private tenants, at the same 70% discounts that the Tories have introduced for Housing Association property. Labour should commit itself to supporting Tenants and Residents Associations along with the Co-operative Housing Federation to a campaign for the Right to Buy to be extended to all private tenants, and they should work towards such a right to buy for private tenants to be organised by the TRA's and Co-operative Housing Federation, which could provide tenants with access to all the legal and financial support they require.

The basis upon which the Tories have argued for the Right to Buy being extended to Housing Association property makes this immediately possible. The Tories have ignored the fact that these properties are owned by private organisations rather than the state, and said that the goal of individuals owning the property they live in overrides it. That must then apply equally to tenants living in other privately rented property, who must be given the same right. Labour does not have to just promise such a right from a future Labour government; it should begin immediately to actively campaign for such a right now, and should commit itself to amending the Tories Right to Buy proposals, to provide all private tenants with the same right.

But, the Tories argument does not just apply to the home you live in. Their desire for people to own the home they live in, and to be able to buy it on the cheap should also apply to the business you work in. Labour, in its commitment to promote the aspiration of workers that the Blairites have been so keen to base themselves upon, must apply that aspiration to your place of work, at least as much as your place of abode. After all, without a secure job, over which you feel you have some control of your future, it is difficult to feel that you have the required security of income to even consider the risk of home ownership.

Labour should use the Tories own arguments in this respect to argue for a Workers Right to Buy the companies they work in, and to do so with the same kind of discounts that the Tories are proposing for the Right to Buy Housing Association properties. After all, just as tenants have paid rents to landlords for many years, thereby compensating them for their costs, so workers have produced profits in the companies they work for, for decades, that have been appropriated by the company owners, which have more than compensated them for any capital they advanced to start those companies.

Labour should promote the idea of legislation for a Workers Right to Buy their company. This would mean that workers in every company would have a right to ballot, as to whether they wished to buy it. If sufficient workers in the company were able to raise the funds required to buy, they should then have a legal right to do so, whether the current owners wished to sell or not. As with the Right to Buy houses, workers should be able to buy these companies at a significant discount. Labour should suggest that workers could buy these companies at a 70% discount to their current asset value.

This would avoid the problem experienced with nationalisation, and with the Lassallean forms of state aided co-operatives, because it would require first and foremost that the workers in the firm wanted to take it over, and were prepared to run it themselves. But, it has the advantage over current co-operative arrangements in that often workers only get to take over businesses that are already bust, and usually then lack the capital required to run them efficiently. This way, workers would have an incentive to vote to take over the most efficient, most profitable companies first, and by obtaining them under a Right to Buy discount, would thereby provide themselves with a greater level of capital with which to run the business.

Of course, these limitation only apply so long as a Tory government is in office. The choice of a 70% discount for the right to buy houses or businesses, is a purely arbitrary figure chosen by the Tories. Labour should commit itself to going way beyond those limitations, in order to enable ordinary working people to fulfil their aspirations. Labour should commit itself to introducing a Right to Buy for private tenants to buy their homes, and for workers to buy their businesses with a 99% discount. That would enable them to fulfil their aspirations to have secure employment over which they have control, and security in their home.

But, the Tories have introduced other measures that would facilitate workers in achieving this right to buy. They introduced the right of workers to cash in their pension funds, rather than have to take an annuity. This right should also be extended to the state pension.

The current state pension is £6000 p.a. If we take a current interest rate of 2%, that means the capitalised value of this pension is £300,000. In other words, this is the notional capital sum that the state must hold in your pension pot, so as to be able to pay a pension of £6,000, i.e. 2% interest on £300,000 is £6,000. Put another way, if the average worker is employed for 50 years, for each year they have contributed, their pension pot will have increased by £6,000. If workers had a right to cash in their state pension pot, therefore, they should have the right to £6,000 for each year they have contributed.

For many workers that would amount to a considerable sum, which could then be used as the capital required to buy their companies, especially at a 99% discount to current asset values. That would be even more possible if workers had the right to control the £800 billion of funds in their company pension funds.

The Tories in search of policies to cadge quick electoral support, have opened a Pandora's Box, that provides Labour and Socialists with the means to argue for a real transfer of wealth and power in favour of working people. The Tories, of course, have no such intention, but that is no reason for workers to limit themselves to the Tories narrow aspirations.

Capital III, Chapter 6 - Part 3

Unlike the fixed capital, which only has to gradually replace its wear and tear, via accumulation in a reserve fund, the cost of the raw material must be continually reproduced in the sale of the commodity. However, as indicated previously, if the price of the raw material rises sharply, then depending on the price elasticity of demand for the particular commodity, this cost increase may not be recoverable. Passing on the full price rise may cause demand to fall sharply, reducing overall income.

However, unless a sufficient proportion of the price rise can be passed on, the revenue may not be sufficient to cover the reproduction cost of the raw material. A firm may decide to ensure that cost is covered and reduce its level of output, to meet the new reduced level of demand. That is something today's oligopolies can do more easily than in an era of many competing small capitals. But, this may not be possible either.

“This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.” (p 109)

Finally, the effects of the level of raw material prices mean that the issue of waste takes on added significance when prices rise sharply. Marx cites the example of Surat and American cotton. There was a difference of about 12.5% in waste between the US cotton and the cheaper Surat cotton. At lower prices the higher level of waste could more easily be borne, but at higher prices, considerably more money was simply thrown away as waste. That provided an incentive to move to the higher quality cotton that produced less waste.


These issues are discussed here “because they create the impression that not only the rate, but also the amount of profit — which is actually identical with the amount of surplus-value — could increase or decrease independently of the movements of the quantity or rate of surplus-value.” (p 110)

That impression is false because the amount of surplus value can only be increased by either a higher rate of surplus value or the exploitation of a greater quantity of labour-power.

Appreciation and depreciation can occur for both fixed and circulating capital, and for constant and variable capital. An appreciation of capital simply means that its value has risen, and is, therefore, to be distinguished from the self-expansion of capital that occurs in the production process, via the creation of surplus value. A machine's value might rise because the steel required for its production has risen in price. The value of cotton held in stock, or going through the production process, might appreciate in value because a poor cotton harvest has caused the price of cotton to rise. Similarly, the value of a firm's commodity-capital, in the shape of yarn waiting to be sold, might rise because the value of cotton used in its production , or the wear and tear of the machine used for its production, have themselves risen in value. In short, the value of all these types of capital appreciates because the labour-time currently required for their reproduction has risen.

A depreciation of capital-value similarly arises if the labour-time currently required for its reproduction falls.

Thursday, 28 May 2015

Embodied Labour

Throughout Marx's economic analysis, he uses the term “embodied labour”, or alternatively “materialised labour”, as well as phrases such as “the labour embodied in”, or “materialised in the commodity”. So, did Marx have a theory of embodied value? That would mean a contradiction at the heart of the “Labour Theory of Value”, because, if value is, in fact, embodied within the commodity, this requires that this value be something tangible and fixed within the commodity itself, even if this something tangible and fixed is only the actual labour that was used for its production. This conception of value, as something specific to, and inherent within, the commodity is totally alien to Marx's concept of value, as something that is socially determined and continually changing. The idea of value as something embodied within the commodity is an aspect of what Marx calls “commodity fetishism”, a failure to recognise that what is actually being exchanged in the market is not things, but equal amounts of labour-time.

The reason that Marx uses these terms is two-fold. Firstly, there is a sense in which labour is embodied within the commodity, just as it is in any product. That is in the sense of concrete labour. Secondly, Marx uses the terms simply as shorthand. In other words, if he had to write in full detail, to express his ideas, in precise language, every time he uses a concept, not only would it be tedious, but it would make his writing almost unreadable. Moreover, as Engels points out, when Marx uses concepts and definitions he does so in accordance with his scientific method. Those who seek fixed frozen definitions, that are cut and dried, from Marx, Engels says, simply have not understood that method.

“They rest upon the false assumption that Marx wishes to define where he only investigates, and that in general one might expect fixed, cut-to-measure, once and for all applicable definitions in Marx’s works. It is self-evident that where things and their interrelations are conceived, not as fixed, but as changing, their mental images, the ideas, are likewise subject to change and transformation; and they are not encapsulated in rigid definitions, but are developed in their historical or logical process of formation.” (Capital III, Preface, p 13-14)

For example, in Capital II, Marx makes clear that capital, as capital, has no value. This concept is central to his analysis in Capital III, of the rate of interest, as the price of loanable money-capital, in other words, of capital itself as a commodity. Capital as capital, i.e. as self expanding value, has no value, like land, because it is not the product of labour. Capital, as capital, has a market price – the rate of interest – despite the fact that it has no value, for the same reason that land has a market price – rent – despite the fact that it has no value. Both land and capital are use values. Land has a use value, because of its role in production, whilst capital has the use value of being self-expanding value. Both have become commodities that are bought and sold in the market, and like every other commodity that is bought and sold, they, therefore, acquire a market price, because the owners of these use values will not relinquish them for free.

Yet, despite the fact that capital, as capital, has no value, Marx repeatedly talks about capital value, or the value of capital, or the value of constant capital, and so on. This appears to be then a complete contradiction in what Marx is saying, but that is so only if you read every word or phrase that Marx utters as though it stands alone as a literal representation of his ideas, rather than taking such phrases within the overall context of his ideas. In that case, the use of such phrases poses no problem whatsoever, and the intelligent reader can then see that no such contradiction exists, and that Marx is simply using such terms as a shorthand.

When Marx talks about “the value of constant capital”, for example, he is actually referring not to the value of the constant capital, as capital, of which it has none, but to the value of the commodities that comprise the constant capital, i.e. the value of the buildings, machines and so on that comprise the fixed capital, and of the materials that comprise the circulating constant capital. Capital value, in this context, simply refers to a quantity of value that exists in one or other form of capital – money-capital, productive-capital, or commodity-capital, and the fact that within the circuit of industrial capital, this capital value continually metamorphoses from one of these forms into another.

The same is true when Marx talks about “embodied labour”

There are several ways in which labour is embodied within a product. The concrete labour of a carpenter is embodied in the chair he produces, for example, just as is the concrete labour of the spinner in the yarn they produce. Not only is the nature of the chair determined by the fact that it is the product of the labour of a carpenter rather than a spinner, but even the nature of a particular chair is determined by the fact that it was produced by this carpenter rather than some other, or even by the fact that it was produced by this carpenter today rather than by the same carpenter a year ago.

In other words, this concrete labour is defined by its particular use value, and it is this use value that is embodied within the product, and thereby determines the specific use value of that product. Carpenter A and carpenter B, may both produce chairs, and they may be technically of equal quality in their construction and so on, but they will not be the same chair, because each will reflect the particular style and so on of the carpenters that built them, and which is embodied within the chair. Similarly, the chair will reflect other concrete labour embodied within it.

The chair is constructed of wood, whose use value itself will reflect the concrete labour that went into its own production; it may comprise leather and other materials, each of which reflect the concrete labour that went into their own production, and each of these will be embodied within the chair whose construction they participate in. For that reason, each individual product will be different from every other, in terms of its use value, even if by relatively negligible amounts. Even aside from these differences, in the use value of the materials that the carpenter uses, his own concrete labour will vary from one chair to another, and even one day or hour to another. If the carpenter is feeling ill, or tired, then its likely that this will be reflected in the labour he performs during that period. This can be seen in relation to the labour of the collective worker too, for example, the phenomenon of the Friday afternoon car, which rolls off the production line, notoriously being of poorer quality than cars produced during the rest of the week.

But, it was this fact, which, Marx says, also led Adam Smith to view productive labour as only that which produced material products, in which this embodied labour was visible. This view of embodied labour is specifically rejected by Marx, because concrete labour may be embodied in a product, which is not itself a material object.

“It may be that the concrete labour whose result it is leaves no trace in it. In manufactured commodities this trace remains in the outward form given to the raw material. In agriculture, etc., although the form given to the commodity, for example wheat or oxen and so on, is also the product of human labour, and indeed of labour transmitted and added to from generation to generation, yet this is not evident in the product. In other forms of industrial labour, the purpose of the labour is not at all to alter the form of the thing, but only its position. For example, when a commodity is brought from China to England, etc., no trace of the labour involved in the thing itself (except for those who call to mind that it is not an English product).

(Theories of Surplus Value, Part 1, Chapter IV, p 171-2)

But, concrete labour is also thereby embodied within products not just as a use value. Concrete labour is the source itself of value, although it is not the essence or measure of value. A lamp, a candle or the sun are the source of light, but they are not the essence of light, which is the photon. In the same way, the concrete labour of the carpenter or the spinner is the source of value, but it is abstract labour, labour stripped of all the characteristics of any specific concrete labour, which is the essence of value. But, just as photons come from some source, such as a lamp, candle or the sun, so abstract labour itself must have a source, and its source is the performance of some specific concrete labour. Value only exists, in the form of a quantity of abstract labour, because a quantity of real concrete labour has been performed.

If we examine any particular product, say a chair, it will contain a certain quantity of concrete labour. Even leaving aside the concrete labour required for the production of the wood, leather and so on, the concrete labour performed by the carpenter, in producing this chair, will vary from the quantity of concrete labour they perform in producing the next chair, just as this one will differ from the one he produced before it. In other words, each chair will have a quantity of concrete labour embodied within it, in both these senses. It will have a quantity of concrete labour embodied within it as use value, and whose measure is, therefore, its quality, and it will have a quantity of concrete labour embodied in it as value whose measure is time. But, because this is concrete labour this measure in time cannot be simply its own duration, but can only be measured as a quantity of abstract labour-time.

Each form of concrete labour, say the labour of a spinner, can only be treated as a form of complex labour. The value of the product of an hour of each type of concrete labour is, in fact, some multiple or fraction of an hour of abstract labour, dependent upon how much consumers are prepared to pay, in the market, for the product of this labour.

If we take the situation, Marx refers to of Robinson Crusoe, and the same applies to a peasant producing use values, purely for their own consumption, this distinction itself does not arise. The value of an hour of Robinson's concrete labour in producing chairs is the same as an hour of his labour producing yarn, and consequently, each are for him an hour of abstract labour.

“In spite of the variety of his work, he knows that his labour, whatever its form, is but the activity of one and the same Robinson, and consequently, that it consists of nothing but different modes of human labour.”

An hour for him spent in one form of labour is an hour lost to some other form of activity. His only concern then is whether the utility (use value) he obtains from an hour of his labour spent in one activity is greater than the utility obtained spent in some other activity. In terms of value, as opposed to use value, the quantity is the same, i.e. one hour.

For Robinson, or for the self-sufficient peasant, the concrete labour they expend on the production of each individual product is indeed embodied both as use value and value. Yet, even here neither Robinson nor the peasant is really concerned with the labour they embody within each individual product. Both are concerned with the average labour-time required for any particular type of production. They may find that it takes two hours to catch the first fish of the day, but after that, they catch one every fifteen minutes. Its the average time to catch a fish that determines how they will allocate their labour-time between production of fish or some other activity.

Similarly, a metre of cloth may take a week to produce, because the particular batch of cotton is problematic, and requires longer to spin into yarn, and then the yarn repeatedly breaks when being woven. But, the next metre may be produced in three days, because those problems are not present. It is, again, the average time required to produce the cloth that is considered, not the labour-time embodied in any particular metre of cloth.

But, when we come to examine the concept of value within the context of commodity production and exchange, as existed as Engels states from around 10,000 years ago to around the 15th century, even this concept of average value is superseded. It is then no longer just the average value of the products produced by the individual producer – their individual value as Marx calls it – that is relevant, but their social value, the average proportion of total available social labour-time, which they represent.

Marx makes clear that, in this context, the concept of the materialisation or embodiment of labour in the commodity is false.

“The materialisation, etc., of labour is however not to be taken in such a Scottish sense as Adam Smith conceives it. When we speak of the commodity as a materialisation of labour – in the sense of its exchange value – this itself is only an imaginary, that is to say a purely social mode of existence of the commodity which has nothing to do with its corporeal reality; it is conceived as a definite quantity of social labour or money...Therefore, the materialisation of labour in the commodity must not be understood in that way. (The mystification here arises from the fact that a social relation appears in the form of a thing).” 

(Theories of Surplus Value, Part 1, Chapter IV, p 171-2)

In other words, the labour is not embodied or materialised as value in the commodity. The phrase is simply intended to reflect the fact that, at any one time, each commodity represents a certain quantity of social labour-time, irrespective of the actual labour that was embodied within that particular commodity unit, and indeed irrespective of the individual value of the commodities produced by that particular producer.

The value of each commodity unit is determined not by the labour embodied within it, but by the socially necessary labour-time required to produce that type of commodity, of which each individual unit is merely a representative. This exchange of things – commodities – creates the illusion that it is these things that have value, rather than being merely the representatives of value. As Marx puts it, every commodity is money, it is a claim to a certain quantity of labour-time, and that quantity of labour-time is equal to the socially necessary labour-time required for its own production.

The commodity does not embody labour within it as value, thereby making that value some intrinsic quality of the commodity. The commodity is rather merely a vessel within which value is contained, and the quantity of that value can be greater or smaller, within the same individual commodity, in accordance with the proportion of social labour time it represents, a proportion which is constantly changing, as social productivity changes.

Capital III, Chapter 6 - Part 2

It was an inadequate understanding of the rate of profit, and the difference with the rate of surplus value, that led economists, like Torrens, to misunderstand the role of these prices in raising profits. On the basis of their practical experience, they saw reductions in these prices as leading to higher profits, and vice versa, whereas what they actually brought about was a rise in the rate of profit, which facilitated accumulation, and vice versa.

On the other hand, “economists like Ricardo [D. Ricardo, On the Principles of Political Economy, and Taxation, Third edition, London, 1821, pp. 131-138. — Ed.], who cling to general principles, do not recognise the influence of, say, world trade on the rate of profit.” (p 107) 

That influence was the powerful impetus to lower prices that global trade could bring. That is why the industrialists sought free trade, and repeal of the Corn Laws. It was not just a reduction in the value of labour-power via a reduction in food prices that was sought. The textile industry itself used large quantities of flour as size.

“As far back as 1837, R. H. Greg calculated that the 100,000 power-looms and 250,000 hand-looms then operating in the cotton-mills of Great Britain annually consumed 41 million lbs of flour to smooth the warp. He added a third of this quantity for bleaching and other processes, and estimated the total annual value of the flour so consumed at £342,000 for the preceding ten years. A comparison with flour prices on the continent showed that the higher flour price forced upon manufacturers by corn tariffs alone amounted to £170,000 per year. Greg estimated the sum at a minimum of £200,000 for 1837 and cited a firm for which the flour price difference amounted to £1,000 annually.” (p 107) 

The rate of profit, as determined previously, is calculated on the total capital advanced, i.e. on the whole of the fixed capital plus the circulating constant capital and variable capital. However, because the fixed capital only conveys the value of its wear and tear to the commodity, whilst the raw material conveys all its value at once, to the commodity, the latter has a far more significant effect on the price.

Marx demonstrates here that he understood the principle of price elasticity of demand. He writes,

“But it is evident — although we merely mention it in passing, since we here still assume that commodities are sold at their values, so that price fluctuations caused by competition do not as yet concern us — that the expansion or contraction of the market depends on the price of the individual commodity and is inversely proportional to the rise or fall of this price. It actually develops, therefore, that the price of the product does not rise in proportion to that of the raw material, and that it does not fall in proportion to that of raw material. Consequently, the rate of profit falls lower in one instance, and rises higher in the other than would have been the case if products were sold at their value.” (p 108)

In other words, when the price of the raw material rises, this raises the price of the commodity. But, a higher price causes demand to fall. When commodities exchanged at their values – which Engels cites in the Appendix to have been between 10,000 B.C. and the 15th century – this would have simply resulted in a contraction of supply. But, under capitalist competition, this may not be the case. In that event, suppliers may absorb some of the additional cost of the raw materials themselves. How much can be passed on depends on the price elasticity of demand for the particular commodity. This is a function of the transition to prices of production and market prices.

In addition, although the quantity and value of fixed capital, and particularly machinery, grows, as labour productivity grows, - and indeed in the case of machinery is a means of the growth of that productivity – it does not grow as rapidly as labour productivity. The higher labour productivity, as well as scientific development, ensures that better machines are produced that do the work of many older machines, that they last longer, and that their value, particularly measured against their output falls sharply.

Even where more fixed capital is employed, therefore, the value of that fixed capital can fall bringing with it a corresponding rise in the rate of profit. But, alongside that rise, in the productivity of labour, and of the machines comes a huge expansion of the raw material processed.

“The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.” (p 108-9)