Thursday, 28 July 2016

Capital III, Chapter 42 - Part 1

Differential Rent II. Second Case: Falling Price of Production


In this chapter, Marx examines the various situations where additional capital is invested, but where the result is a falling price of production. This can only be because the additional investment increases supply sufficiently so that the output of land type A is no longer required. So that land type B or better becomes the regulator, or else that there is a rising marginal productivity of capital, so that any additional investment in A causes its price of production to fall.

Marx compares these situations to the original situation, and that where the amount of land cultivated doubled, or as was shown to be the same thing, where the amount of capital per hectare doubled, with a constant marginal rate of return on capital, as set out in Chapter 41. For ease of comparison, these two tables are reproduced here, against each new set of examples.


I. Productivity of the additional investment of capital remains the same.


In this case, further investment in land type A is excluded, because, with the marginal productivity of capital constant, any additional investment in A will have no effect on the price of production. The price of production here can only fall if additional capital is invested in land types B-D, so that supply increases enough to make the output of A no longer required.

Depending upon where the additional capital is employed, and the degree to which output expands, the new regulating price of production will be determined by B, C or D. In fact, on this basis, if all the investment occurred on D, so that its output sufficed to produce enough to meet demand, the basis of differential rent would disappear. Marx, however, does not deal with that potential result.

Table 1.

Type of soil
Ha.
Capital £
Profit £
Price of Prod. £
Output Kilos
Selling price £
Proceeds £
Rent
Rate of Surplus profit
Kilos
£
A
1
2.50
0.50
3.00
1
3.00
3.00
0
0
0
B
1
2.50
0.50
3.00
2
3.00
6.00
1
3.00
120%
C
1
2.50
0.50
3.00
3
3.00
9.00
2
6.00
240%
D
1
2.50
0.50
3.00
4
3.00
12.00
3
9.00
360%
Total
4
10.00
2.00
12.00
10

30.00
6
18.00



Table 2.

Type of soil
Ha.
Capital £
Profit £
Price of Prod.
Output Kilos
Selling price £
Proceeds £
Rent
Surplus profit
Kilos
£
A
1
2.50 + 2.50 = 5
1.00
6.00
2
3.00
6.00
0
0
0
B
1
2.50 + 2.50 = 5
1.00
6.00
4
3.00
2.00
2
6.00
120%
C
1
2.50 + 2.50 = 5
1.00
6.00
6
3.00
18.00
4
12.00
240%
D
1
2.50 + 2.50 = 5
1.00
6.00
8
3.00
24.00
6
18.00
360%
Total
4
20.00
4.00
24.00
20

60.00
12
36.00
180%

Its assumed here that the supply of 18 kilos is enough to meet demand, rather than 20, as was previously the case, i.e. the demand curve has shifted to the left. The 2 kilos produced by land type A (Table 2) is then no longer required. Because the price of production has fallen, and is now determined by land type B, the amount of of surplus profit and rent falls from £36 to £9. B now produces no surplus profit or rent.

Table 3

Type of soil
Ha.
Capital £
Profit £
Price of Prod.
Output Kilos
Selling price per Kilo    £
Proceeds £
Rent
Rate of Surplus Profit
In Grain Kilos
In Money £
B
1
5.00
1.00
6.00
4
1.50
6.00
0
0
0%
C
1
5.00
1.00
6.00
6
1.50
9.00
2
3.00
60%
D
1
5.00
1.00
6.00
8
1.50
12.00
4
6.00
120%
Total
3
15.00
3.00
18.00
18

27.00
6
9.00
60%

Although the money rent has fallen to a quarter of its previous level, the rent in grain has only halved from 12 kilos to 6 kilos, reflecting the lower value of the grain. Total output has only fallen by 10% from 20 to 18 kilos. The surplus profit, measured against the capital now employed, has fallen from 180% to 60%.

If this is compared with Table 1, the rent in grain remains 6 Kilos, but it declines in money terms, because the price of grain falls. The differences in relation to B, C and D here are accountable for, in terms of differential rent 1, because the same amount of capital is invested in each type of land (£5), so any differences are due to the relative fertility of each type of land, not different quantities of capital.

A different situation exists where different types of land have different amounts of capital invested on them.

Wednesday, 27 July 2016

Capital III, Chapter 41 - Part 3

The small peasant farmer, such as those that set themselves up in the US, and other colonies, having started out as workers, had no real access to capital. The main factor in their production was their own and their family's labour. The major part of the product of that labour went directly into reproducing it. In other words, they produced food they needed in order to live, so that they could continue to work, and to the extent they could produce other goods, they required, the rest of their labour fulfilled that object too.

As with the examples given previously, therefore, in relation to the production of value by Robinson Crusoe, via his labours, this labour, expended by the small producer, in so far as it creates these items of consumption, constitutes his revenue, as opposed to that portion of his labour-time required to produce and replace his means of production, and any surplus labour-time remaining after these necessary functions have been completed.

The consumption fund they create, i.e. that part of their production designed for their own consumption, is the equivalent of wages. It is both the revenue they pay to themselves, and its physical equivalent in the form of the articles of consumption.

“In the case of colonists, and independent small producers in general, who have no access to capital at all or only at high interest rates, that part of the output which represents wages is their revenue, whereas for the capitalist it constitutes an advance of capital.” (p 690)

But, its precisely for this reason that the assumption that Marx makes, having inherited it from Ricardo, that the production on the worst land must still obtain the average profit, can't hold. Capitalists of all sizes, cannot simply move their productive-capital instantaneously from one enterprise to another. The small producers described by Marx here, are really labourers tied to their particular piece of land, happy if they can make something above what they might have been paid as wage labourers. They are like all those workers today who, unable to find proper full-time employment, become self-employed, scraping an uncertain living as window cleaners etc.

But, very large capitals, having been invested, cannot simply shut up shop and move elsewhere, just because the rate of profit has fallen below the average. So, at any one time, capitals of varying sizes will be producing at different levels of efficiency, in all industries, including agriculture, some making surplus profits and some below average profits. Only in exceptional conditions, where demand far outstrips supply will the least efficient producers make average profits, and those situations will usually be quickly ended as supply increases.

Marx then makes a further point that does not seem to be correct. He says,

“Assuming prices of production to remain unchanged, the additional investments of capital in the better soils, that is, in all soils from B upward may be made with unaltered, increasing, or decreasing productivity. For soil A this would only be possible under the conditions assumed by us, if productivity remains the same — whereby the land continues to yield no rent — and also if productivity increases; a portion of the capital invested in A would then yield rent, while the remainder would not.” (p 691)

However, this does not seem logically possible. If we take an hectare of land A, and apply an additional capital to it, with increasing marginal productivity then, by definition, this total capital produces proportionally more than previously, and the hectare of land produces proportionately more. If before it produced 1 Kilo, it may now produce 2.5 Kilos, on the basis of a doubling of the capital. But, this means that the price of production must then fall.

I take it, therefore, that what Marx is trying to say here, but his formulation does not make it clear, is that additional investment of capital may be made in some farms of land type A, and not others. In that case, those that do not receive additional investment continue to determine the price of production, whilst those that do receive additional investment become like a new land type A', which now produces rent.

Otherwise, Marx’s comment that “... a portion of the capital invested in A would then yield rent, while the remainder would not” makes no sense, because it would be impossible to separate the first £2.50 of capital invested in an hectare of land type A from the second.

If additional investment is made in all or some land type A, with falling marginal productivity, then the price of production must rise.

“Yet in all these cases, i.e., whether the surplus-product yielded by the additional investments is proportional to the latter or is greater or smaller than this proportion — whether, therefore, the rate of surplus-profit on the capital remains constant, rises or falls, when this capital increases, the surplus-product and the corresponding surplus-profit per acre increases, and hence also the potential rent in grain and money. The growth in the mere quantity of surplus-profit or rent, calculated per acre, that is, an increasing quantity calculated on the basis of some constant unit — in the present case on a definite quantity of land such as an acre or a hectare — expresses itself as an increasing ratio. Hence the magnitude of the rent, calculated per acre, increases under such circumstances simply in consequence of the increase in the capital invested in the land.” (p 691)

This is, of course, so long as the additional capital is invested in land other than A, and so long as the additional output is greater than would be produced on land A. it is so because, even if the surplus profit is rising, by a diminishing amount, it is still rising. It is so also only so long as this additional investment does not raise supply to such a level whereby the production of land A is not required, and where, therefore, the price of production is reduced.

Where there is an increasing or decreasing marginal productivity of capital, it affects the extent of the increase, in rent per hectare, but not the fact that it will increase. This distinguishes Differential Rent II from I. If additional capital is invested in additional pieces of land, rather than in the same land, then the total rent rises, because more rentable land is cultivated. If the land brought into cultivation is not land type A, the average rent will also increase. However, for any particular type of land the rent per hectare will not increase.

“Given the same result so far as quantity and value of total production and surplus-product are concerned, the concentration of capital upon a smaller area of land increases the amount of rent per acre, whereas under the same conditions, its dispersion over a larger area, all other conditions being equal, does not produce this effect. But the more the capitalist mode of production develops, the more does the concentration of capital upon the same area of land develop, and, therefore, the more does the rent, calculated per acre, increase.” (p 691-2)

If there are two countries, or even different regions of the same country, therefore, where the price of production is the same, the types of soil are identical, and the same amount of capital is invested, rents, and, therefore, land prices will be higher where this capital is used intensively, on a smaller area of land, than where it is used extensively, on a larger area of land. The total rent, however, will be the same, because there will be higher rents per hectare in one area, with a smaller number of hectares rented, whereas in the other, rent per hectare will be be lower, but rent will be levied on more hectares.

“The difference in magnitude of rent could thus not be explained here to be a result of a difference in the natural fertility of the various soils, nor a result of a difference in the quantity of employed labour, but solely a result of different ways in which the capital is invested.” (p 692)

Tuesday, 26 July 2016

The Eagle Has Crashed and The Jackal Has Had His Day

Angela Eagle's bid to unseat Jeremy Corbyn never looked credible. It never got off the ground, let alone soared to great heights. From day one, it looked to be forlorn and hopeless. The hopelessness of Eagle's bid, emblematic of the hopelessness of the Blair-right cause she represented, was the fact that having made the basis of the challenge the personal leadership abilities of Jeremy Corbyn, she was found even more wanting in those qualities. The manifestation of that was that even at the first hurdle, she could not even muster more support than the previously anonymous Owen Smith. When Smith then assassinated her political ambition, it was less Day of The Jackal, and more of a mercy killing.

But, no sooner had Eagle crashed than Smith began to pick away at the carcase. Eagle's erstwhile supporters were snatched up by Smith, anxious to put meat on his campaign from wherever he could scavenge it. The reason the opponents of Corbyn resolved to put just one candidate up against him, then became patently obvious. On the first weekend of campaigning, a few thousands people packed in to hear Corbyn in Salford, whilst a few dozen filled a small room in South Wales, to hear Smith. That despite all of the Tory media campaign to back Smith, and to pour out endless unsubstantiated rubbish, not even about Corbyn, but about supposed Corbyn supporters.

The latest “proof” of the intimidatory and abusive activity of these Corbyn supporters was that some people had posted abusive Twitter comments, having used a Corbyn picture as their avatar! Its the same kind of evidence they have used to claim that it must have been a Corbyn or Momentum supporter who threw a brick through Angela Eagle's office window. No wonder these people were so convinced that Saddam Hussein had weapons of mass destruction that they were prepared to launch an illegal war that killed hundreds of thousands of civilians. You wouldn't want them to have their finger on a nuclear button would you? Oh that's right, they've just voted with the Tories to buy even more effective nuclear weapons capability, in breach of Britain's commitments under the Non Proliferation Treaty, and Labour Party policy in favour of multilateral disarmament. You can hardly claim that you are pursuing even multilateral disarmament if you acquire more or better nuclear weapons!

And here lies the problem for the Blair-rights and soft-lefts. This is no longer the 1990's, when right-wingers like Kinnock could rely on their access to the Tory media. In fact, the majority of Labour Party members no longer trust anything they read in the Tory press or see in the Tory media, especially the BBC. A vast array of alternative sources of information now exists via social media, and the more the information about what is really going on gets disseminated, the more the bias of the Tory media becomes apparent and ludicrous, and all of those Tory politicians, Blair-rights, soft-lefts, and Liberals that are part of the same establishment bubble that comprises the careerist politicians, the professional pundits, and the Westminster journalists are tarnished by it, and made ludicrous themselves as a consequence.

They crave a return to a political-centre that no longer exists, because they cannot conceive of a world outside the bubble they created for themselves over a particular period of history whose time has passed. Its why the attempt by Paddy Pantsdown to create some new artificial centre force is doomed to failure, just as the Liberals adoption of that centre ground in the last election was doomed to fail. As Phil has put it, you can't crowd source the centre ground. There are very good material reasons that Pasok and other centre parties in Greece were destroyed, why the PSOE has almost been eclipsed by Podemos, why the Left Bloc has grown in Portugal, why Bernie Sanders cannot put the genie back in the bottle in the US, but also why the collapse of the political centre has seen the rise of UKIP, the FN, Trump, Golden Dawn, and a string of extreme nationalist and neo-fascist parties across Europe.

And, the material reasons for that have everything to do with the politico-economic policies that conservatives - be they in formally conservative parties, or nominally social-democratic politicians who adopted conservative policies for short term electoral advantage – have implemented over the last thirty years. It became eminently obvious what the consequences of those policies had been during the referendum, and the same pattern can be seen across Europe, and North America, but particularly in Europe.

Angela Eagle could never have been a credible candidate, precisely because of her Blair-right governmental baggage, not to mention her previous baggage, as a tool of Kinnock in the 1990's. But, no sooner has Smith picked over her bones, than his own politics are cast into the limelight. Afraid to attack Corbyn over policies Smith claimed that it was all about leadership qualities, and competence. This from someone who as a young journalist thought it was a good idea to ring 999 in order to speak to someone at the police for a story!

But, when it comes to politics, even Smith's lack of experience has proved no safeguard against his history coming back to bite him. The advantage he seemed to have over Eagle, was that having not been in Parliament at the time he did not have to vote for the illegal war in Iraq. Smith also claims that he was opposed to the Iraq war. However, in a 2006 interview, with Wales Online, he said,

"We are making significant inroads in improving what is happening in Iraq.

"I thought at the time the tradition of the Labour Party and the tradition of left-wing engagement to remove dictators was a noble, valuable tradition, and one that in South Wales, from the Spanish Civil War onwards, we have recognised and played a part in."

According to the same report, "he didn't know whether he would have voted against the war, as the previous MP Llew Smith did".

In this same report, he says of private sector involvement in the NHS,

"Where they can bring good ideas, where they can bring valuable services that the NHS is not able to deliver, and where they can work alongside but subservient to the NHS and without diminishing in any respect the public service ethos of the NHS, then I think that's fine. I think if their involvement means in any way, shape or form the break up of the NHS, then I'm not a fan of it, but I don't think it does." 

In a TV discussion with Eagle, a week ago, Smith dismantled Eagle's previous claim that her abstention on the Tories Welfare Bill was justified, because they wanted to make amendments to the Bill. Smith said that he had argued in Shadow Cabinet that they should oppose it, but had been outvoted. But, that does not excuse Smith's own position. He could have resigned from the Shadow Cabinet over the issue, and any reasonable Labour MP, should have done so, rather than fail to oppose the Tories vicious cuts in the welfare payments to some of the most vulnerable in society.

So, it has taken no time at all for the actual reality of the politics of the anonymous assassin Smith to start to become apparent. Nor has he come out to oppose the ridiculous campaign being waged by sections of the PLP and their supporters against Corbyn and McDonnell. To suggest that Corbyn or McDonnell, or anyone else could do anything to prevent anonymous trolls doing what trolls always do, which is to flood social media with abuse and bile, is totally ridiculous, and that a campaign by Blair-right MP's, has been their major tactic over the last couple of weeks shows just how desperate, but also just how unprincipled and unscrupulous they are.

They have used anti-semitism to attack Corbyn by proxy. When Jeremy immediately acted in response by appointing Shami Chakrabarti to undertake a review, his opponents still tried to attack him over it, provoking Chakrabarti to have to intervene in his defence. By adopting that approach for their own narrow sectarian ends, the Blair-rights have also undermined the opposition to actual anti-semitism. Now they are doing the same thing in relation to claimed intimidation of women members, misogyny and homophobia, and they are undermining the opposition to real instances of such acts. The revelations about what actually seems to have happened in relation to the “break in” of Seema Mulhotra's office, and the impact of that on the poor office manager dragged into it, looks like another instance of the way the Blair-rights, and other opponents of Corbyn and McDonnell, have little concern for collateral damage, in their search for immediate tactical advantage.

But, the wheels seem to be coming off the plotters wagon by the day, as yesterday Sarah Champion, decided to unresign, and came back to her position as Shadow Minister for Preventing Abuse. Obviously, she doesn't think that Jeremy and John are guilty of the things their opponents are claiming! The inside information is that there are several more people ready to resume their former posts if allowed to.

In the coming months, Momentum should be drawing up lists of potential parliamentary candidates. That is no different than Blair and Brown did over the past two decades, or that Kinnock did, in foisting candidates on local parties. Unlike Blair and Brown, however, we need to return democracy to local parties, and control over the candidates they select. What we need is a pool of potential candidates, who support Corbyn that local parties can themselves choose from democratically. To win the next election, we will need to secure 100 new Labour MP's, at least, and an influx of 100 Corbyn supporting Labour MP's, will transform the PLP, and our opposition to the Tories.

There is a wealth of talent out there, and with half a million members, we now have the resources to support them.

Capital III, Chapter 41 - Part 2

Provided the additional capital produces more than 1 Kilo, the total surplus profit increases. But, because of falling marginal productivity of capital, the rate at which it increases continually diminishes.

“Thus the average surplus-profit of a capital invested in B = 90% on the capital, whereas it was = 120% for the first outlay of capital. But the total surplus-profit increases from 1 qr to 1½ qrs, or from £3 to £4½. The total rent — considered by itself rather than in relation to the doubled magnitude of the advanced capital — has risen absolutely. The differences in rents from various soils and their relative proportions may vary here; but this variation in differences is a consequence, not cause, of the increase in rents in relation to one another.” (p 688)

Fourthly, where additional investments in the better soil results in a rising marginal productivity of capital, this is as though some better soil type than D was brought into cultivation, or in the case of investment in land type C, producing more than it currently produces.

With a rising marginal productivity of capital, any investment, in land other than A, will cause rent to rise by proportionately more than the increase in investment. It will, however, create a proportionately larger increase in rent where it occurs on D rather than C, and C rather than B. The same applies where the same increase in output is produced with a smaller additional capital. For example, if £2 rather than £2.50 is additionally invested in D, but still produces an additional 4 Kilos, or more.

“This case is not quite identical with the former one, and the distinction is important in all investments of capital. For instance, if 400 yields a profit of 40, and 200 employed in a certain form yields a profit of 40, then the profit has risen from 10% to 20%, and to that extent it is the same as though 50 employed in a more effective form yields a profit of 10 instead of 5. We assume here that the profit is associated with a proportional increase in output. But the difference is that I must double the capital in the one case, whereas in the other, the effect I produce is doubled with the capital employed hitherto. It is by no means the same whether I produce: 1) the same output as before with half as much living and materialised labour, or 2) twice the output as before with the same labour, or 3) four times the former output with twice the labour. In the first case, labour — in a living or materialised form — is released, and may be employed otherwise; the power to dispose of capital and labour increases. The release of capital (and labour) is in itself an augmentation of wealth; it has exactly the same effect as though this additional capital has been obtained by accumulation, but it saves the labour of accumulation.” (p 688-9)

If a capital of £100 produces twice what it did previously, this additional output is produced without any accumulation of capital. Any capital that has been accumulated, and would have been so used, is thereby saved, and can be used for other purposes. So, if demand is such that this additional supply can be absorbed, it is met without the advance of any additional capital. But, if the market cannot absorb more than the original level of output, there is no point in producing more. In that case, £50 of the capital can be released, whilst still producing the required level of output. This £50 of capital, comprising both constant and variable capital, can then be used in other industries.

However, it might be the case that the increase in the productivity of the capital can only be achieved by producing on an extended scale, so that it only arises on the back of an additional investment of capital. So, if instead of £100 of capital being invested, £200 is invested, the output may then not just double but quadruple. But, this depends upon the market being able to absorb this large increase in supply.

For any individual capitalist, so long as the price of production remains constant, a reduction in input costs, either of constant capital or variable capital, reduces their cost price, and thereby increases their profit. But, as Marx set out previously, any individual capital will only invest in new fixed capital where its cost is less than the paid labour it replaces.

It always appears then that the employment of constant capital in the shape of machines, is cheaper than the employment of labour, even though ultimately the machines produce no surplus value for capital, as a whole, whereas the labour does. £100 of capital in the shape of wear and tear of machines adds £100 of value to the output, but if this £100 is used to employ 5 workers, then with a 100% rate of surplus value, these 5 workers create £200 of new value, added to the value of the output.

Marx then says,

“Furthermore, as regards the cost of the commodities from the viewpoint of the capitalist, there is also this difference, that of the £100 constant capital only the wear and tear enters into the value of the commodity in so far as this money is invested in fixed capital, whereas the £100 invested in wages must be completely reproduced in the commodity.” (p 690)

But, this doesn't seem to be correct. Marx's requirement is that a machine is profitable for a capitalist to introduce if it costs less than the paid labour it replaces. However, this must surely be the paid labour it replaces over its own lifetime. For example, a machine that costs £10,000, and has an expected lifetime of ten years would be profitable to introduce provided the paid labour it replaces over its lifetime was more than £10,000, or £1,000 per year. If wages are £250 p.a. and it replaces 5 workers, it is then profitable to introduce, because, over ten years, it will have saved £12,500 in wages, at a cost of just £10,000.

In terms of the costs that must be reproduced, out of the price of the commodity, therefore, each year, it is the wear and tear of the fixed capital, and this will be less than the saved wages, but not to the degree that Marx suggests here.

Monday, 25 July 2016

What Theresa May Have Done

Brexit means Brexit, so we are told.  Maybe.  Theresa May's assertion that that is going to be the case, together with her appointment of hard line Brexiteers to the major positions, responsible for negotiating Britain's exclusion from Europe, certainly give that impression, don't they?  But, here's what Theresa may have done.

It was suggested that Theresa May, may have been the Jeremy Corbyn of the Tory Party.  That is, although she was nominally in favour of Remain, she was a secret Brexiter.  I'll leave aside the fact that such comparisons, made repeatedly by the media, were as much about trying to place Jeremy in a frame, that suited the media's narrative, than anything based on facts.  There seems no doubt to me that Jeremy was in favour of Remain, and his thirty odd public meetings, up and down the country, to packed audiences, once again demonstrated it.  What Jeremy quite rightly was not going to do, and what the Tory media, and the Blair-rights could not forgive him for, was that he was not going to play second fiddle to Cameron's EU agenda, which required an unbelievable, uncritical acceptance of the EU as its stands, rather than a case for remaining on the basis of fighting for a more social Europe, fought for in solidarity with workers and social democrats in other countries.  But, no doubt, there will be enough opportunity to discuss that further, in coming months.

The suggestion was that Theresa May was always a Brexiter, and her hardline comments about immigration were an indication of it.  But, here is another alternative.  May had been in the running to become the next Tory Leader for a long time, much before the referendum was even planned.  It had long been known, referendum or no referendum, that any future leader, would be likely to come from the Eurosceptic wing of the party, and that Cameron had been something of an aberration. Many people, including Tories had been surprised when John Major became leader after Thatcher, and he had a running battle with "the bastards", throughout the 1990's.  All of the leaders that came after him were hard line Eurosceptics.  Cameron pipped David Davies to become leader, largely because it seemed that The Tories, who hate losing elections, had taken on board Theresa May's own warning that they were seen as "the nasty party".

A large part of that image of them as "the nasty party" came from the fact that their continual internecine fights over Europe, made them appear as what they actually are.  That is a party of the past. They are a party whose basis is founded upon defending the privileges of a very, very tiny slither of society.  They defend the privileges of the old financial, and landed aristocracy, and all those in society whose immediate concerns are similar, for example, all of those old Daily Express readers, who have convinced themselves that they have somehow become wealthy because their house price has risen 100 fold from when they bought it fifty years ago, and bugger their kids and grand kids, who, by the same token, find themselves, today, unable to buy a house, and forced into expensive private rented accommodation.

Compared to, at that time, a young Blair, who represented "Cool Britannia", with a modernist, forward looking outlook, that encompassed the Europeanism that many young people, by then, took for granted, the Tories looked like dinosaurs, who would never win another election.  It was then understandable that the Tories, desperate to break their succession of election losses, would feel they had to bite their tongue, and choose the less Eurosceptic Cameron, over the hard line Davies.  Even then Cameron could not win at first time of asking, and only scraped in at the second attempt, much to his own surprise.  He had rather hoped to retain the cover of the hapless and witless Liberals against his own set of "bastards", who were once again getting restless, spurred on by UKIP.

So, if May was to become leader, once Cameron had handed in his own notice via the media, at the previous election, she must have known that her chances only existed on the basis of being Eurosceptic.  But, that posed a further problem once Cameron was forced into actually calling a referendum, by his own unforeseen election win.  If May came out decisively for Brexit, but the referendum, as all the pundits believed inevitable, was significantly, or even marginally for Remain, she could have queered her own pitch.

A win for Remain would have seen Cameron stay on until 2020, or thereabouts.  In the meantime, had May come out for Brexit, the other main contender, Bojo, could have come out for Remain.  That would have put Bojo in the front seat, on the winning side, whilst May would have been seen as disloyal, on the losing side, and probably shunted from high office by a victorious Cameron.  No Tory leader is likely to be elected unless they are already in some senior position, as the current contest has shown.

The reality is that no Tory leader is likely to be allowed to remain in position who is truly Eurosceptic.  The party is based upon all of those old conservative ideas and interests, that drive its membership and voter base, but, in the end, as one of the main parties of British capital, it is constrained by what is in the long-term interest of that capital.  Some sections of that capital, particularly those sections of small private capital, might believe that Britain is still a major power, and that it will thrive outside the EU, but the reality is quite different.  In the end, Brexit is unlikely to happen, and the only question is how that is brought about.

By being in the Remain camp, May hedged her bets.  The likely outcome was a vote to Remain, in which case, she would keep her position.  But, by being hardly visible during the referendum, and making her comments about immigration, she left her route back towards the Eurosceptics open.  She undoubtedly saw that as a longer term strategy, to come into play around 2020, when Cameron stood down, but it worked equally well, when the vote was for Brexit, and Cameron stood down immediately.

But, given the fact that May herself had recognised the limitations of the Tory Party with her previous statements in respect of "the nasty party", its unlikely that she is actually an ardent Eurosceptic, or if she is, she almost certainly understands the limitations of such a position.  The same is almost certainly true of Bojo.  No one really believes that he is a Eurosceptic.  He adopted the position solely for internal Tory Party strategic reasons.

Theresa May's decision to make Bojo Foreign Secretary is similarly motivated.  Having come out for Brexit, May has put him directly in the firing line.  Every day, he now has to justify and advocate that position.  Bojo is renowned for being rather lazy, and in this position not only will he soon be seen not to be on top of his brief, but he will continually have to run to keep up with apologies for all of the previous gaffs he has made, as happened last week over Turkey, with his press conference with Kerry, and so on, not to mention all of the new gaffs he is likely to make.  May has given him the rope, and the stool that Bojo will hang himself with, and thereby remove a challenge to her longer-term position.

But, the other appointments are of a similarly strategic nature.  She has appointed David Davies to be in charge of the new Brexit Ministry, and Liam Fox, to work closely with him, as new International Trade Minister.  Both are hard line Brexiters, and everyone knows they both hate each other.  Whilst its possible to argue that in appointing Bojo, Davies and Fox to these Brexit facing ministries, May has shown her commitment to carrying out Brexit, because Brexit means Brexit, its also possible that what she has done is to say to these leading Brexiters - "You broke it, you bought it."  That after all is what Cameron himself did, by resigning, immediately after the referendum result.

In the weeks after the referendum result, the Pound has sunk significantly, and looks set to reach parity with both the Dollar and the Euro.  That will push UK inflation up significantly, at a time when, oil and other primary product prices are already heading back higher, as the previous gluts get drawn down.  The talk currently is of the Bank of England cutting official interest rates, and engaging in QE, but with the UK having its credit rating cut, with the UK trade deficit at record levels, and likely to worsen, as the Pound falls, and import costs rise, as a country reliant on the benevolence of strangers, it is likely to see its actual borrowing costs rise, not fall, whatever the Bank of England does.

As actual market rates of interest rise, and as lending itself becomes tighter, whilst living costs rise with rising inflation, an immediate consequence is going to be sharp falls in property prices.  Already, commercial property prices have fallen by around a third, and speculators in at least eight UK based property funds, have been told that they cannot get their money out, or can only do so on the basis of losing a large chunk of the money they put into the fund.  That is a major problem of speculating in property, as buy to let landlords, and others will find.  It is an illiquid asset, which means that when you want to sell, you can't.  Everyone else tries to sell at the same time, and so prices crash.

All of those old Daily Express readers, will start to feel very aggrieved, when their presumed wealth turns out to have been a mirage, as house prices crash, and their savings in various funds and trusts face similar collapses in their value.

In similar vein in May's appointment of the previously anonymous Andrea Leadson to the Agriculture Ministry.  Leadson, like all of the Brexiters had made endless rash promises during the referendum campaign, about all of the money that would flow to this or that area, once the £350 million per week was not going to Europe.  Leadsom had promised UK farmers, who do rather well out of the Common Agricultural Programme, and other EU funding, that the UK outside the EU would continue to provide them with all of the funds they required, in place of EU funds.  Again, May's appointment of her to that post appears to a matter of "You made these promises, now you can explain why you are not keeping them."

In other words, May has put a string of Brexiters into positions where they will be held responsible for not making good on the referendum promises they made.  The only exception there seems to be in relation to Theresa Villiers and Northern Ireland.  Villiers claims that Brexit would not affect the border between Northern Ireland and the Republic, or all of the elements of the Good Friday Agreements, and so on that flow from it, were wholly irresponsible.  Its quite clear that if Brexit were to go ahead, either a hard border has to be established between the North and the South, or else a hard border has to be established between the whole of Ireland, and the UK mainland.  In practice, only the former would work, and that will cause all of the developments since the Good Friday Agreements to start to unravel.

By putting the hard liners Davies and Fox in the front line of the Brexit negotiations, May has created the conditions under which the EU is likely itself to take a hard line in response, even if that was not likely to have been the case, as the EU protects its own greater interests.  Davies and Fox, really are true believers.  They still live in a fantasy world of the British Empire, and are deluded enough to think that outside the EU, the world will beat a path to Britain's door.  The only reason other countries may do that will be a) to ask for all of their loans back, b) to try to sell Britain even more of their cheap commodities, as UK capital floods out to pay for them, and c) to buy up increasingly cheap British companies and assets, made even cheaper as the Pound collapses, as happened last week with the purchase of ARM.  Having bought these companies, the foreign buyers will then transport the technology, business and profits to their own country, or to EU based operations, before eventually closing down the UK business.

But, because Davies and Fox live in this fantasy world, they seem to think that the path ahead lies merely in them drawing up their set of demands of what they want the UK's relationship to the EU to be, and then going to demand it be given to them!  The EU negotiators are likely to tell them quickly where to get off.  Davies and Fox will get worse than nowhere, because the UK really has no hand to bargain with.  May if she really wanted to stuff her opponents, should initiate Article 50 now, and make them start negotiating, which would show that they actually have no clue about even what they want, and that the whole referendum campaign was a fiasco from start to finish.

But, there is a reason why May has not initiated Article 50.  By holding back, the initial drops in the UK stock market were halted.  Some of that is a mirage.  The FTSE 250 has barely recovered the significant losses it suffered.  The FTSE 100 recovered only because it is comprised overwhelmingly of large companies, such as oil companies and miners, who make most of their profits from overseas operations, often priced in dollars, which then translates into a larger number of pounds, given the sharp fall in the Pound against the dollar.

In the meantime, May has given some indication of her actual likely direction in her speech outside Downing Street, after her appointment.  The reason for not appointing a hard line Brexiter to Northern Ireland, is probably because she recognises the danger that Brexit represents to the break-up of the UK, a point she made in her speech, and reinforced by her early visits to both Scotland and to Northern Ireland.  But, May also made comments about corporate governance, a subject I have written about at some length over the last year or so.

Across the globe, there is a growing recognition that the old Monetarist policies no longer work.  Its much like the way in the late 1970's, after several years when it was obvious that the old Keynesian policies did not work, it took several years, until that translated into a general acceptance that some new strategy was required, which turned into the adoption of Austrian policies by Thatcher in the early 1980's, followed by Friedmanite Monetary stimulus in the late 1980's, and throughout the 1990's.

There is now a growing acceptance that large scale fiscal stimulus is required to provide the necessary mechanism by which huge amounts of liquidity, currently sitting sterile in bank vaults, or on company balance sheets, can be fed into the economy.  But, there has been a growing recognition that whilst governments can undertake such spending, to promote aggregate demand, the real basis of economic growth is that companies themselves engage in productive investment.  Part of the reason they have not, is that policies of austerity, combined with the huge overhang of private household debt, built up over the last thirty years, has meant that businesses have not seen much indication that consumption was likely to expand very much.  They were able to meet the normal growth of consumption from their existing capital, and that is especially the case, as the large majority of the economy nowadays involves the provision of services rather than material production.

But, the other reason that companies have not invested is that all of the QE has boosted financial asset prices, and it has put a floor underneath.  The consequence of ever higher asset prices, with only slowly growing masses of profits, has been that the potential to pay interest (dividends, coupon etc.) has declined.  The same thing has been seen in relation to property.  As property prices bubbled to ever more astronomical levels, even as rents rose, the rental yield (the relation between the rent and the property price) continually declined.  The speculators, therefore, increasingly lost interest in obtaining income on the loaned money-capital, and instead became fixated by ever larger paper capital gains on their financial assets.

Instead of using profits for productive investment, the representatives of shareholders on company boards, pushed through continual rises in dividends.  According to the Bank of England's Andy Haldane, in the 1970's, the average proportion of profits that went to dividends was around 10%, whereas today it is around 70%.  Yet, despite that rise, the actual dividend yield, like bond yields has fallen to next to nothing.  There is really no justification for buying any of these financial assets in order to obtain an income - in fact, in many part of the world, the return on bonds out for the next ten years is negative! - the only justification is to keep making paper capital gains, as the prices of the assets are pushed higher.  To bring that about, companies have also used profits to buy back stock, and even borrowed money on the bond market, to use to buy back stock, and thereby push the share price higher.

But,that is unsustainable, and it is increasingly apparent that it is unsustainable.  When people are paying to lend money, when the prices of shares, bonds, and property are at astronomical levels supported by nothing, it is obvious that sooner rather than later, that bubble will burst.  The more than 30% drop in commercial property prices shows what is likely to happen.

In order for money lenders to get more in interest, profits have to rise.  In order for share and bond prices to rise, or not collapse, whilst interest rates can fall no further, and are likely to rise, again profits have to rise.  But, for profits to rise, firms have to engage in productive investment, they have to accumulate capital, because it is that accumulation of capital that is the basis of increased masses of profit.  It seems a chicken and egg situation, which is why it has persisted for so long.

Last year, Andy Haldane, and Hillary Clinton within days of each other described this situation, and talked about the need for reform of corporate governance.  Now, Theresa May has made a similar comment, talking about the need for workers to be on company boards.  That is not a particularly revolutionary proposal.  The proposal for such worker directors was proposed by the Frankfurt Parliament back in 1848.  Germany has half the members of the supervisory boards of its companies elected by the trades unions, and proposals for such industrial democracy were made in both Britain and the EU, during the mid 1970's.

May, may be raising such proposals to discipline UK company boards into action.  Its unlikely to work, as Harold Wilson found with proposals for voluntary planning agreements.  However, it gives an indication of the direction of travel.  On the one hand, May is setting up the Brexiters to fail, whilst making moves for fiscal stimulus, and pressure on companies to increase investment, to get the economy moving, and thereby take credit for herself.  But, the price of such increased investment - as opposed to the financial speculation seen over the last thirty years - is that interest rates will rise, and as interest rates rise, stock, bond and property prices will fall sharply.  She will place the responsibility for that at the door of the Brexiters.

Expect, the election in 2020 to be fought on the basis of the need to remain in the EU.

Capital III, Chapter 41 - Part 1

Differential Rent II. First Case: Constant Price of Production

Marx, in this chapter examines a number of scenarios in which the price of production is constant, and so is determined by the worst land type, A.

Firstly, if additional capital is invested in any of the soil types, A-D, but produces an additional output only equal to what would be produced by A, then the effect is the same as if additional land type A had been brought into cultivation. In that case, because A produces no rent, the total rent does not increase. Nor is there any change in the relative productivity of lands B-D, compared with A, so not additional rent arises, on these lands.

Secondly, if additional capital is invested in lands B-D, but the marginal productivity of capital is constant, the increase in output will be proportional to the particular level of fertility of the soil in which it is invested. So, if the capital invested in land type B is doubled, the output of B doubles, but what effect this has relatively, on total output, depends on the fertility of B compared to A, C and D. What effect it has on output absolutely depends on the fertility of B, i.e. if an hectare of B produces 2 Kilos, with £2.50 of capital, it will produce 4 Kilos with £5 of capital. If total production was 10 Kilos, the additional capital causes output to rise 20%. If the additional capital had been invested in D, which produced 4 Kilos, an additional 4 Kilos would now be produced, which means total output rises by 40%.

The effect of doubling the capital on each land type is shown in the following table.

Table 1.


Type of soil
Hectares
Capital
£'s
Profit
£'s
Price of Prod.
Output Kilos
Selling Price £
Proceeds
£'s
Rent
Surplus Profit
£'s
Kilos
£'s
A
1.00
2.50 + 2.50 = 5
1.00
6.00
2.00
3.00
6.00
0.00
0.00
0
B
1.00
2.50 + 2.50 = 5
1.00
6.00
4.00
3.00
2.00
2.00
6.00
120%
C
1.00
2.50 + 2.50 = 5
1.00
6.00
6.00
3.00
18.00
4.00
12.00
240%
D
1.00
2.50 + 2.50 = 5
1.00
6.00
8.00
3.00
24.00
6.00
18.00
360%
Total
4.00
20.00
4.00
24.00
20.00

60.00
12.00
36.00


Compared with the original position.

Table 2.

Type of soil
Hectares
Capital
£'s
Profit
£'s
Price of Prod.
£'s
Output Kilos
Selling Price
£'s
Proceeds £'s
Rent
Rate of Surplus Profit
Kilos
£'s
A
1.00
2.50
0.50
3.00
1.00
3.00
3.00
0.00
0
0
B
1.00
2.50
0.50
3.00
2.00
3.00
6.00
1.00
3.00
120%
C
1.00
2.50
0.50
3.00
3.00
3.00
9.00
2.00
6.00
240%
D
1.00
2.50
0.50
3.00
4.00
3.00
12.00
3.00
9.00
360%
Total
4.00
10.00
2.00
12.00
10.00

30.00
6.00
18.00


The rent is doubled on each type of land, where the capital is invested. The increase is due solely to the proportional increase in output. The effect here is the same as arose when the area of land under cultivation of each type was doubled.

The difference then was that although the total rent, and the rent on each type of land doubled, the rent per hectare remained constant. Here, because no more land is cultivated, but the capital per hectare is doubled, the rent per hectare doubles, but the rate of rent remains constant.

Although the proportional difference remains constant, there would be absolute differences, if additional capital were only invested in particular land types.

Table 3.

Type of soil
Hectares
Capital
£'s
Profit
£'s
Price of Prod. £'s
Output Kilos
Selling Price
£'s
Proceeds £'s
Rent
Rate of Surplus profit
Kilos
£'s
A
1.00
2.50
0.50
3.00
1.00
3.00
3.00
0.00
0.00
0
B
1.00
2.50 +2.50
1.00
6.00
4.00
3.00
12.00
3.00
9.00
180%
C
1.00
2.50
0.50
3.00
3.00
3.00
9.00
2.00
6.00
240%
D
1.00
2.50 +2.50
1.00
6.00
8.00
3.00
24.00
7.00
21.00
420%
Total
4.00
15.00
3.00
12.00
18.00

48.00
12.00
36.00


This means that D now produces 8 Kilos, whilst A still produces 1, so the difference is now 7 Kilos, compared to just 3 previously. Land B now produces 4 Kilos rather than 2, so the difference with A is 3 Kilos rather than 1. In other words, these absolute differences now more than double. Land type C still produces produces 3 Kilos, which means it now produces 1 Kilo less than B, whereas before it produced 1 Kilo more.

“But this arithmetic difference, which is decisive in differential rent I in so far as it expresses the difference in productivity with equal outlays of capital, is here quite immaterial, because it is merely a consequence of different additional investments of capital, or of no additional investment, while the difference for each equal portion of capital upon the various plots of land remains unchanged.” (p 687)

Thirdly, Marx assumes that an investment in land type B-D is doubled, but with falling marginal productivity of capital, of different rates, for each land type.

Table 4.

Soil
Hectares
Capital
£'s
Profit
£'s
Price of Prod.
£'s
Output Kilos
Selling Price
£'s
Proceeds £'s
Rent
Rate of Surplus profit
Kilos
£'s
A
1.00
2.50
0.50
3.00
1.00
3.00
3.00
0.00
0.00
0
B
1.00
2.50 + 2.50 = 5.00
1.00
6.00
2.00 + 1.50= 3.50
3.00
10.50
1.50
4.50
90%
C
1.00
2.50 + 2.50 = 5.00
1.00
6.00
3.00+
2.00 =5.00
3.00
15.00
3.00
9.00
180%
D
1.00
2.50 + 2.50 = 5.00
1.00
6.00
4.00 + 3.50 = 7.50
3.00
22.50
5.50
16.50
330%

4.00
17.50
3.50
21.00
17.00

51.00
10.00
30.00


Table 4 indicates an equal investment in B-D, but as with the previous example, it does not matter if this is the case, or whether additional investment is made on only some of B-D. Nor does it matter whether marginal productivity falls unevenly, as in this example, or by some proportion in each case.

This remains the case other than as previously specified, where any additional investments on any type of land, must result in an additional output greater than 1 Kilo, i.e. greater than the output of land type A. This example corresponds to the situation considered with Differential Rent I, where additional lands were brought into cultivation whose fertility ranged between that provided by A and D. An additional investment in land type D, that produces only an additional 3 Kilos rather than 4 would have the same effect as if an additional hectare of land type C were cultivated. The additional 3.5 Kilos, seen produced here, is the same as if an hectare of some new land type C' were brought into cultivation.

It will then depend on which lands the additional investments are made what effect this will have. For example, with falling marginal productivity, an additional £2.50 of capital, invested in land type D, may produce an additional 3.5 Kilos, but invested in land type C could only produce something less than 3, and B something less than 2. A further investment in D would then produce something less than 3.5 Kilos and so on.

“But this is the law: The rent increases absolutely upon all these soils, even if not in proportion to the additional capital invested.” (p 688)