## Wednesday, 30 April 2014

### Capital II, Chapter 16 - Part 4

The relation between the advanced variable capital, and that actually employed, all other things being equal, can only affect the production of surplus value to the extent that it determines how much labour-power can be exploited in a given period of time. In other words, the longer the period of turnover, the more capital must be advanced in proportion to that actually employed. Consequently, a larger capital is then required to productively employ a given number of workers for a given amount of time.

In our example, B had to be ten times the advanced capital of A, in order to employ the same amount of labour-power, for the same amount of time.

“The advanced variable capital functions as variable capital only to the extent and only during the time that it is actually employed, and not during the time in which it remains in stock, is advanced, without being employed. But all the circumstances which differentiate the relation between the advanced and the employed variable capital come down to the difference of the periods of turnover (determined by the difference of either the working period, or the circulation period, or both). (p 303)

Equal quantities of variable capital, however it is expended, (e.g. 10 hours of simple labour or 5 hours of complex labour, 1 worker working for 10 hours or 10 workers working for 1 hour) produce equal amounts of surplus value, if the rate of surplus value is constant.

“If then, equal quantities of variable capital are employed by the capitals A and B in equal periods of time with equal rates of surplus-value, they must generate equal quantities of surplus-value in equal periods of time, no matter how different the ratio of this variable capital employed during a definite period of time to the variable capital advanced during the same time, and no matter therefore how different the ratio of the quantities of surplus-value produced, not to the employed but to the advanced variable capital in general. The difference of this ratio, far from contradicting the laws of the production of surplus-value that have been demonstrated, rather corroborates them and is one of their inevitable consequences.” (p 303)

Examining the rate of surplus value for A and B, over a five week period, A produces £500 of surplus value for £5,000 (even though only £500 are employed) = 500/5000 = 10%.

In a year, we calculated that the figures were 1000% and 100% respectively, but these ratios are still the same as for a five week period i.e. 10:1.

“The annual rate agrees with the actual rate of surplus-value. In this case it is therefore not capital B but capital A which presents the anomaly that has to be explained.” (p 304-5)

The answer is that capital A is never advanced for more than 5 weeks, whereas capital B is advanced for 50 weeks. So, A is only five times larger than the capital advanced each week, whereas B is 50 times larger. The five week turnover period of A is just one tenth of a year, in which A is turned over ten times. So, although the employed capital is £5,000, the same as B, for the year, the capital advanced is only a tenth of that, £500.

The surplus value is produced according to the amount of variable capital employed, not that advanced. The amount of variable capital employed is the same in the case of both A and B, i.e. £5,000, and so the amount of surplus value produced is also the same. Necessarily, when measured against the variable capital advanced then, the rate for A must be ten times that of B, because B is ten times A.

## Tuesday, 29 April 2014

### Capital II, Chapter 16 - Part 3

The labour process is measured by time. A working day consists of a certain number of hours of abstract labour. A working period could be considered as a single working day of say 300 hours. It could be made up in a variety of ways. For example, if we are looking at purely abstract labour, it may be made up of 30, 10 hour days, divided into 6, five day weeks, or five, six day weeks. Or it could be 50, 6 hour days etc. Similarly, the labour-power employed may be complex rather than simple labour. If it is equal to 2 hours of abstract labour, this complex labour may actually work for 6 hours per day for only 25 days, yet this will amount to 300 hours of abstract labour.

Provided it is exploited at the same rate as other labour-power, this complex labour would then produce as much surplus value in 25 x 6 hour days, as simple labour produces in 50 x 6 hour days etc.

Similarly, if we are considering the labour-power exploited, and the quantity of labour-time, the other variable is the number of workers exploited. The 300 hours could be made up of 50 workers working a six hour day for 1 day. The amount of variable capital laid out to buy the labour-power of 50 workers to work a six hour day, is the same as to buy the labour-power of one worker to work a six hour day for 50 days.

On that basis.

“The rate of surplus-value and the length of the working-day being the same, variable capitals of equal magnitude are therefore employed, if equal quantities of labour-power (a labour-power of the same price multiplied by the number of labourers) are set in motion in the same time.” (p 302)

Returning to A and B, we have

 A Week Capital Advanced Utilised Returned 1 500 100 0 2 400 100 0 3 300 100 0 4 200 100 0 5 100 100 500 6 0 100 0
 B Week Capital Advanced Utilised Returned 1 5000 100 0 2 4900 100 0 3 4800 100 0 4 4700 100 0 5 4600 100 0 6 4500 100 0 7 4400 100 0 8 4300 100 0
Etc.

“The variable capital advanced for a definite period of time is converted into employed, hence actually functioning and operative variable capital only to the extent that it really steps into the sections of that period of time taken up by the labour-process, to the extent that it really functions in the labour-process. In the intermediate time, in which a portion of it is advanced in order to be employed later, this portion is practically non-existent for the labour-process and has therefore no influence on the formation of either value or surplus-value. Take for instance capital A, of £500. It is advanced for 5 weeks, but every week only £100 enter successively into the labour-process. In the first week one-fifth of this capital is employed; four-fifths are advanced without being employed, although they must be in stock, and therefore advanced, for the labour-processes of the following 4 weeks.” (p 302)

## Saturday, 26 April 2014

### Northern Soul Classics - Swinging Camels - The Detroit Road Runners

Another classic early Northern instrumental from the Road Runners.

## The Law Of Falling Profits and Catastrophism

In Part 1, the contrast between Marx's Law of Falling Profits as merely a tendency, as he describes it, was contrasted with the theories of the previous political economists, who believed that the rate of profit must fall, because at some point the mass of profit must fall, in the same way that Malthus had forecast that food production could not keep pace with the increase in population. Marx demonstrates that this is wrong. The rate of profit can fall even as the mass of profit rises. If we have c 1000 + v 1000 + s 1000, then the rate of profit is 1000/2000 = 50%. If the mass of capital rises so that we have c 5000 + v 2000 + s 2000, then the mass of profit has doubled, but now the rate of profit is 2000/7000 = 28.57%.

In fact, Marx demonstrates that, the condition for the rate of profit to fall is not that the mass of profit begins to fall, but only that it falls relative to the laid out capital.  However, the basis upon which that occurs, is that there is a rise in the social productivity of labour. But, this rise in the social productivity of labour is itself predicated upon an increase in the mass of capital employed, including the mass of variable capital. The consequence is, therefore, Marx says, that an inevitable corollary of a falling rate of profit, is a rising mass of advanced capital, and a rising mass of profit.

The prognostications of the catastrophists that, just as diminishing returns in agriculture would cause workers to starve, so diminishing returns to capital would cause a collapse of capitalism, were proven wrong, and had to be proven wrong, Marx says, because a necessary condition for a falling rate of profit is a growing mass of profit, and ultimately it is this growing mass of profit, rather than the rate of profit, which is determinant for capital accumulation, and the expansion of the system.

“The number of labourers employed by capital, hence the absolute mass of the labour set in motion by it, and therefore the absolute mass of surplus-labour absorbed by it, the mass of the surplus-value produced by it, and therefore the absolute mass of the profit produced by it, can, consequently, increase, and increase progressively, in spite of the progressive drop in the rate of profit. And this not only can be so. Aside from temporary fluctuations it must be so, on the basis of capitalist production.” (Capital III, Chapter 13, p 218)

“It therefore follows of itself from the nature of the capitalist process of accumulation, which is but one facet of the capitalist production process, that the increased mass of means of production that is to be converted into capital always finds a correspondingly increased, even excessive, exploitable worker population. As the process of production and accumulation advances therefore, the mass of available and appropriated surplus-labour, and hence the absolute mass of profit appropriated by the social capital, must grow.” (ibid p 218-9)

“It requires no more than a passing remark at this point to indicate that, given a certain labouring population, the mass of surplus-value, hence the absolute mass of profit, must grow if the rate of surplus-value increases, be it through a lengthening or intensification of the working-day, or through a drop in the value of wages due to an increase in the productiveness of labour, and that it must do so in spite of the relative decrease of variable capital in respect to constant.

The same development of the productiveness of social labour, the same laws which express themselves in a relative decrease of variable as compared to total capital, and in the thereby facilitated accumulation, while this accumulation in its turn becomes a starting-point for the further development of the productiveness and for a further relative decrease of variable capital — this same development manifests itself, aside from temporary fluctuations, in a progressive increase of the total employed labour-power and a progressive increase of the absolute mass of surplus-value, and hence of profit.” (ibid p 219-20)

“Thus, the same development of the social productiveness of labour expresses itself with the progress of capitalist production on the one hand in a tendency of the rate of profit to fall progressively and, on the other, in a progressive growth of the absolute mass of the appropriated surplus-value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both. This two-fold effect, as we have seen, can express itself only in a growth of the total capital at a pace more rapid than that at which the rate of profit falls.” (ibid p 223)

But, as capital bursts asunder the fetters of the monopoly of private capital that initially characterised it, and instead takes on mammoth proportions in the shape of first the Joint Stock companies, all the way through to the multinational corporation, it is this mass of profit that is decisive, as it compensates any fall in the rate of profit for these huge companies.

“The rate of profit, i.e., the relative increment of capital, is above all important to all new offshoots of capital seeking to find an independent place for themselves. And as soon as formation of capital were to fall into the hands of a few established big capitals, for which the mass of profit compensates for the falling rate of profit, the vital flame of production would be altogether extinguished. It would die out.” (Capital III, Chapter 15, p 259)

## Marx's Law and That Of His Predecessors

The fundamental basis of the Law, as developed by Marx, is straightforward. The rate of profit is the proportion between the surplus value, and the value of the total productive-capital advanced to produce it (assuming a single turnover of capital). If constant capital is designated “c”, variable capital “v”, and the surplus value “s”, then the rate of profit is s/c+v. Because, as any capital grows, the rise in productivity means that the same amount of “v” processes increasing amounts of material, which comprises part of “c”, the ratio of c to v, the organic composition of capital, tends to rise. But, “s” is also a function of “v”. If “c” rises relative to “v”, then it also rises relative to “s”, unless the relation of s to v, the rate of surplus value, “s'” changes, so that “s'” increases. In short, s will tend to fall relative to c+v, so the rate of profit falls. If this tendency for the rate of profit, for any particular capital, to fall, is extended to the total social capital, then there must be a tendency for the average rate of profit of the total social capital also to fall.

This fundamental basis of the law, as described, is straightforward, and yet his predecessors had been unable to uncover it. That is because they had not uncovered the difference between constant and variable capital, as opposed to fixed and circulating capital, and so had not been able to reveal the source of surplus value, and its relation to these component parts of the total advanced capital.

Yet, as Marx points out, the Law of Falling Profits was seen as highly important by those predecessors. The Law of Falling Profits was important for all previous political economy, because it was seen by them as a threat to the existence of capitalism itself. In fact, Marx explains why they were wrong in that view. In Theories of Surplus Value II, Marx writes,

“A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”

They were wrong, because their theories of the falling rate of profit were wrong. The falling rate of profit, for previous political economy, had been the equivalent for capital to what Malthus' theory of population had been for workers. Malthus believed that population must grow faster than the ability to feed it, so real wages would fall as the price of food rose, and workers would starve so as to reduce the population. This same conception is behind Ricardo's theory of falling profits, and Marx comments, in Theories of Surplus Value, that for Ricardo, the falling rate of profit operates as a law of nature. The basis of this law is derived from Ricardo's theory of rent. As capital expands, more workers are employed. The demand for food rises, and because land is limited, less fertile soil is brought into use. The price of food rises, and because food comprises the major part of workers' expenditure, it causes the value of labour-power to rise, even if rises in productivity cause the prices of other wage goods to fall. Wages, must then rise, and as wages rise, profits must fall.

Other economists explained the fall by similar methods, for example, a tendency for the rate of interest to rise, for rent to rise and so on. What all these explanations had in common is that as well as a falling rate of profit, they all involve, at least at some point, a falling mass of profit as well. The rate of profit falls because the mass of profit falls. Marx shows this is fundamentally wrong. In fact, what Marx demonstrates is that not only does the rate of profit tend to fall, despite the mass of profit remaining the same or even rising, but the very process which implies a falling rate of profit itself necessitates a rising mass of profit!

This is just one of the contradictions at the heart of the process, which Marx unveils. In fact, as Marx outlines, those same processes that create the basis of a falling rate of profit not only necessitate this growing mass of profit, but also equally generate a tendency for the rate of profit itself to rise.

Moreover, there is confusion over exactly what Marx is setting out in the theory, by some who have failed to notice that Marx uses several different definitions of the rate of profit.  The rate of profit that Marx is referring to here is s/c+v, which is the same as the profit margin, which can also be written as p/k, where p is the profit, and k is the cost of production.  This is made clear by Marx in Theories of Surplus Value, Chapter 16, where he writes,

"{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay."

But, Marx and Engels specifically distinguish between the "capital outlay", and the capital advanced. The capital advanced, is the capital advanced for one turnover period, whereas the capital outlay is the total amount of capital laid-out during the year.  As Engels describes in Capital III, Chapter IV, and as Marx himself refers to in Chapter 13, the rate of profit is calculated on the laid-out capital, whilst the real rate of profit, or annual rate of profit is calculated on the advanced capital.  Two completely different figures and sets of conclusions arise from these different rates of profit, as will be demonstrated.

Forward To Part 2

## Wednesday, 23 April 2014

### Capital II, Chapter 16 - Part 2

In the previous chapter, Marx disregarded the fixed capital. In this chapter, he also disregards the circulating constant capital, to focus on the variable capital. That is reasonable because, although materials can form a productive supply, i.e. a stock of materials held in a firm's stores waiting to be used, they are only actually advanced as productive capital, as part of the labour process itself. Consequently, in analysing the turnover of productive capital, it is only that capital so advanced that can be considered i.e. the circuit P...P. Here, the circulating constant capital is advanced, is processed, and is turned over coincidentally with the labour-power that processes it.

From the assumptions set out earlier, we have a total annual product of £25,000. The advanced capital turns over 10 times. The variable capital is £500, and so the amount of the annual product attributable to labour-power is £500 x 10 = £5,000.

In establishing the principles for analysing the turnover of the capital, surplus value had also been left out of the equation. Now, Marx introduces it into the analysis.

With a 100% rate of surplus value, £100, or 1 week of labour-power, produces £100 of surplus value. In a working period of 4 weeks, £400 is produced, and in a 50 week year, £5,000 of labour-power produces £5,000 of surplus value.

But, its clear why the rate of turnover is important here. The firm has spent £5,000 on wages, in the year, but to achieve this, it only had to advance £500 of capital. The other £4,500 of wages paid during the year came not from an advance of capital, but merely from the capital advanced being returned in the sale of the commodity, and laid out once more to buy replacement labour-power. The firm did not need £5,000 of capital to start business, to cover wages, but only £500.

Yet, from the £500 of capital advanced, to buy labour-power, that labour-power has created £5,000 of surplus-value. In other words, the annual rate of surplus value is not 100% but 1000%!

“If we analyse this rate more closely, we find that it is equal to the rate of surplus-value produced by the advanced variable capital during one period of turnover, multiplied by the number of turnovers of the variable capital (which coincides with the number of turnovers of the entire circulating capital).” (p 299)

So, the annual rate of surplus value is s x n/v, where v is the amount advanced for variable capital, s is the surplus value produced by it for the period advanced, and n is the number of times v is turned over in a year.

Similarly, the total amount of surplus value produced in a year, S, = v x (r/100)/ n, where r is the rate of surplus value. For example, £500 x 100/100 x 10 = £5,000.

Marx labels this first variable capital A. He then assumes another variable capital, B, of £5,000. That is ten times that of A. This capital is expended at the rate of £100 per week to buy labour-power, just as with A. This labour-power is exploited at exactly the same rate as A. So, each week, the £100 advanced for labour-power, produces £100 of surplus value, as did A. The difference here is that the product of B can only be sold at the end of the year. Consequently, instead of the advanced capital being repeatedly returned, so as to be laid out again, this capital turns over just once during the year.

In order to keep producing during the year, and even though only the same amount of labour-power is employed and exploited, B has to be £5,000 as opposed to £500 for A.

In a year, B has produced exactly the same amount as A, £25,000. B has produced exactly the same amount of surplus value as A, £5,000. The capital laid out in wages, for B, is exactly the same as for A, £5,000, and for materials too, £20,000. Yet, the annual rate of surplus value for B is only a tenth that of A. S £5,000 x n = 1/ v £5,000 = 100%.

“This phenomenon creates the impression, at all events, that the rate of surplus-value depends not only on the quantity and intensity of exploitation of the labour-power set in motion by the variable capital, but besides on inexplicable influences arising from the process of circulation. And it has indeed been so interpreted, and has — if not in this its pure form, then at least in its more complicated and disguised form, that of the annual rate of profit — completely routed the Ricardian school since the beginning of the twenties.” (p 301)

But, the reason is obvious. A required an advance of capital of only £500 whereas B required an advance of capital ten times the size, of £5,000. If B had been advanced on the same basis as A, then the rate of surplus value would be the same. But, then we would have £5,000 advanced for 5 weeks = £1,000 per week = £50,000 per year. The surplus-value would be £50,000.

“Only the capital actually employed in the labour-power produces surplus-value and to it apply all laws relating to surplus-value, including therefore the law according to which the quantity of surplus-value, its rate being given, is determined by the relative magnitude of the variable capital.” (p 301)

## Tuesday, 22 April 2014

### Capital II, Chapter 16 - Part 1

Assume we have a circulating capital of £2,500 - £2,000 Constant Capital and £500 Variable Capital. The working period is 4 weeks, and circulating period 1 week, giving a turnover period of 5 weeks.

 Capital 1 Capital 2 Total Constant Capital 1600 400 2000 Variable Capital 400 100 500 Total 2000 500 2500

£500 per week is laid out. Over 50 weeks that equals 50 x £500 = £25,000.

The total capital advanced = £2,500, so the number of turnovers is 25000/2500 = 10. Both the variable capital and the circulating constant capital can only function when their entire value has been realised in the commodity, transformed into money-capital and used to buy new materials and labour power.

It is this which distinguishes this circulating capital from the fixed capital. The fixed capital, transfers a portion of its value, as wear and tear, which, like the circulating capital, is circulated by the commodity. But, unlike the circulating capital, the fixed capital continues to function in the labour process, without the need for all of its value to be reproduced, and thrown back into it.

The value, circulated by the commodity, includes that created by the labour-power, that transferred from the materials and from the wear and tear of the fixed capital. The money-capital realised in its sale goes in different directions. A portion is hoarded to cover wages for the next working period; a portion may be laid out to buy materials, some of which then form a productive supply; and another portion may form a hoard built up to replace fixed capital when it is worn out.

## Saturday, 19 April 2014

### May's Elections Will Be The High Point Of The European Right

In the upcoming elections, to the European Parliament, in May, the Right and Far Right will do very well. In Britain, UKIP are likely to come second to Labour, beating even an increasingly conservative and euroseptic Tory Party into third place. The Liberals, particularly after Clegg's abysmal performance against Farage, are likely to be annihilated. It could even spell an early bath for Clegg if not for the Coalition.

In France, the Front National may even top the poll. It has sought to shed its neo-fascist image, to present itself as merely an extreme nationalist party, similar to UKIP. Yet, the history of many of the members of both parties – the BNP has openly admitted encouraging its members to join UKIP – and the underlying racism of both parties, remains.

Similar Far Right parties in the Netherlands, in Austria, Finland and elsewhere look set to benefit from the nationalist bandwagon that short-sighted policies of austerity have generated across Europe. As living standards have dropped, and services been cut, as a result of those policies, the usual scapegoat of foreigners – be it EU bureaucrats, or immigrants – has formed an easy target, facilitating the message of the Far Right.

But, in many ways, all this gives a false picture. The main reason these Far Right parties will do well is that the turnout, in the EU elections, will be low. It is the same reason UKIP, and even the BNP, did well in the last Euro elections. Its why they tend to do well in local elections, where the turnout is usually less than 30%.

Even where UKIP have done relatively well in by-elections, their actual share of the vote, for a normal General Election, has not been that significant. They have done well, in Labour constituencies, only to the extent that the Tories have done appallingly. Compared to the Labour vote, they have continued to lag well behind.

No one seriously believes that in a General Election, Farage and his circus of “loonies, fruitcakes and closet racists” will even win one seat let alone pose any significant chance of winning. The most likely effect will be to take sufficient votes from the Tories to let Labour win. Look at the experience of the BNP. It held many council seats, won in small turnout elections, in the same way it won its Euro seats. Today, it's a busted flush. In the General Election, it went backwards; it lost most of the council seats it had; it's bankrupt politically and financially.

Even the most successful of the Far Right parties, the FN in France, has no chance of winning the Presidency or a majority in the National Assembly. It benefits from the semi-proportional representation system in France, as did the BNP and UKIP in the last Euro elections. But, the success of the Far Right in the euro elections is likely to be part of their undoing. When Jean Marie Le Pen managed to get into the final round of Presidential elections, several years ago, the response of the establishment was to muster against him, in favour of Chirac.

The same could be seen in relation to the BNP, at its height, and to an extent today with Farage – though in part he has been a media created figure in his own right. Capital, particularly big capital, has no need of these Far Right, and certainly not fascist or neo-fascist parties, at the moment. In fact, after their experiences with Hitler in the 1930's, they are likely to have a high watermark before they resort to such measures again.

The Far Right represent a destabilising force that capital does not need when it is secure in its position, entrenched within resilient bourgeois social-democratic regimes. Although the success of UKIP is likely to exert a further centrifugal force on the Tory Party – sending its conservative wing off in the direction of Farage, and its social-democratic wing off towards what is left of the Liberals and towards Labour – the main result will be a further coming together of the interests of big capital, under the aegis of social democracy.

Whether that social democracy has the party label Labour or Tory, SDP or CDU etc. does not matter.

The other reason that May will mark the high water mark for the Far Right is the economic conjuncture. The long wave cycle turned from its Spring phase to its Summer phase around 2012/13. That means that strong global growth continues until around 2025-30, just as it did between 1999-2008, and indeed as it has done, in most of the world, outside Europe and North America, since 2009. But, the conditions under which that growth occurs have changed, and will continue to change. Firstly, the high prices of raw materials that characterised the earlier period, stop rising and begin to fall as large, new sources of supply come on stream. Secondly, the large gains in productivity that reduced the values of commodities and pushed up profits, slow down. Thirdly, the large increases in the supply of labour-power (both new workers and relative surplus population due to productivity growth) slows significantly.

China is already experiencing that and seeking sources of cheap labour in Vietnam, Indonesia, Africa etc. Even Britain is experiencing shortages for some skilled workers, exacerbated by the immigration cap. In the US, it was revealed that the top technology companies have formed a secret cartel so that none of them poach highly paid workers from the others, which would push up wages even further.

The consequence is that countries producing manufactured goods and services find it harder to sell to primary producing economies as the latter see their income fall, as raw material prices fall. Secondly, the latter see their currencies fall as their income falls. This pushes up domestic inflation. Workers seek higher wages, so profits fall. The rash of strikes across South Africa's mining sector is an indication of this process. But, this comes at a time when other emerging markets are seeing their currencies fall and inflation rates climb, in the backwash of the tapering of QE in the US. The result is sharply higher interest rates in these economies to defend the currency and curtail inflation. But, this process plays into and is part of a general rise in interest rates across the global economy.

Thirdly, the slow down in productivity growth means that the fall in commodity values slows down or stops. That is exacerbated by the fact that the world's main manufacturing power – China – has faced rising costs and a rising currency value, which makes the commodities it supplies to the world's consumers increasingly expensive.

In the last thirty years, a massive expansion in the quantity of money tokens and credit-money, pumped into circulation, did not cause consumer price inflation only because the value of those consumer goods was itself being massively reduced. In a world of slowing productivity growth, and rising commodity values, the massive amount of liquidity already in circulation, will inevitably result in sharply rising inflation.

The latest US data already suggest inflation is rising, and the only reason inflation in the UK and EU has fallen (besides the fact the figures are bogus because they do not include rising housing and pension costs) is because the value of the pound and euro have risen against the dollar, reducing import costs.

As interest rates rise across the globe, the money that flowed into Europe and the US, will flow out again, causing their exchange rates to fall, inflation rates to rise, and prompting another rise in interest rates, as bond investors seek to defend their assets against depreciation.

The consequence of this is a weakening of the economic conditions which have strengthened the positions of those sections of capital on which conservative and nationalist parties rely. Low interest rates are the condition for the growth of the “plethora of small capital”, as Marx describes it. It is seen in the 150,000 businesses in Britain described as “zombie firms”, who just about survive being able to repay this low rate of interest, but unable even to produce enough profit to repay the capital sum they have borrowed.

These zombie firms cling to existence on the back of these low interest rates, and on the back of the extraction of absolute surplus value from their low paid workers, who make up many of those on zero hours contracts. Many survive only because the low wages they pay are subsidised, by the state, by a transfer of tax, taken from the wages of other workers, and from the fact that their workers, even then, have to resort to Pay Day lenders, to make ends meet.

These small capitalists are the bedrock of the Tory Party, and what they represent makes up the bulk of votes for the Tories. UKIP simply represents the more extreme, more consistent exposition of those ideas. But, the Tories also draw support from other traditional sources, from the financial and landed oligarchy, and commercial capital. As Marx points out, wherever these interests predominate, the political regime is more reactionary than where industrial capital predominates. The centre for these interests in Britain, is London and its environs, and its there that the Tories have most of their support.

But, the consequence of the change in the conjuncture is that as well as interest rates rising for the reasons outlined, the rate of profit begins to fall, as all those causes of it previously rising go into reverse. A fall in the rate of profit first hits all of that plethora of small capital. The initial effect is likely to be a sharp rise in unemployment, as the zombie firms go bust. The large scale disguised unemployment of millions employed part-time, on temporary contracts, under employed, and on zero hours contracts will then be exposed, along with all of those who are supposedly self-employed, but who are simply scraping a living from underemployment on their own account.

But, ironically, big capital may benefit from this process. Part of the drag on its costs, represented by the taxes on its workers, to subsidise low paying small capitalists, will be lifted. To the extent it picks up capital on the cheap, its rate of profit will rise. More workers will be picked up by this big capital, paid higher wages, and may for the first time become organised in unions. But, in any case, the fall in the rate of profit, at a time when more productive capital will need to be employed as productivity growth falls, and in order to retain markets, means that interest rates will rise, as the supply of money-capital falls relative to its demand. The likely consequence will be in the short term a more serious financial collapse even than that of 2008/9.

It will fatally weaken the power of the financial and landed oligarchy and the merchant capitalists, as workers end their obsession with debt fuelled consumption and property speculation. It will by contrast strengthen big industrial capital and encourage its logical drive to establish a European state. To the extent it does that by mobilising social-democratic forces to achieve it, the power of conservative and nationalistic ideas will be further weakened.

In the second half of 2014, a new 3 year cycle will lead to a slow down in growth that will last until around mid 2015. Survey data is already indicating the onset of that cycle.  In countries like the UK, where austerity has been inflicted, it will give the lie to the idea that those policies have been beneficial. In Britain, where much of the recovery has been built on an encouragement of further debt, and the same kind of state intervention in the property market that led to the US sub-prime crisis, that is likely to be even more acute, particularly considering the huge number of people who now rely on Pay Day lenders, and food banks.

Despite the government throwing everything it could at it, outside London and a few other cities, the property market barely flickered. How could it do any more when in most of Britain around half the working age population now use Pay Day loans, and about a quarter of the population have used food banks.  The Liberal-Tory claims that we are all in this together, suggested again recently by Employment Minister Esther McVey, who said,

"It’s been a tough time for you, for me and everybody in the UK but we’ve now turned that round.” (Paul Mason's Blog)

shows just how remote they are from the real world.

A slow down in the economy, rising unemployment, rising interest rates, and increasing debt defaults will kill the property market. All suggestions that “this time its different” will be shown to be as false as when the same statements preceded the 75% drop in the NASDAQ in 2000!

The denouement in all this financial froth will be the death knell for those conservative and nationalist political forces that rose on the back of it. We should say good riddance to both.

### Northern Soul Classics - The Fife Piper - The Dynatones

Classic Wheel Instrumental.

## Thursday, 17 April 2014

### Second Case. A Change in the Price of Materials of Production, All Other Circumstances Remaining the Same.

Marx examines what happens if everything else is held constant, but the price of materials is halved.

Of the £900 advanced capital, 4/5 = £720, was previously spent on materials, and £180 on wages. If the price of materials falls by 50%, only £360 is required for 9 weeks, or £240 for the 6 week working period.

£180 is still required for wages, so the total capital advanced for 9 weeks, is £180 + £360 or £540. That means £360 of the original £900 capital is now released. If the business is not to be expanded, this released capital now becomes superfluous, and enters the money market, in search of some other venture to finance.

“If this fall in prices were not due to accidental circumstances (a particularly rich harvest, over-supply, etc.) but to an increase of productive power in the branch of production which furnishes the raw materials, then this money-capital would be an absolute addition to the money-market, and to the capital available in the form of money-capital in general, because it would no longer constitute an integral part of the capital already invested.” (p 295-6)

In other words, this money could only act as permanently released capital, if the fall in prices was itself permanent rather than a temporary fluctuation in market prices. If it were the latter, it would be likely to be cancelled out by a future variation in the opposite direction.

But, a fall in price caused by a fall in value is itself reflected in the fact that, as a consequence of the fall in the value of materials, goes a fall in the value of the end product. Less money-capital is advanced to purchase materials, and a smaller corresponding amount is returned from the sale of the end product. Less capital circulates in this sphere (£360) and is spun off to elsewhere.

### Third Case. A Change in the Market Price of the Product Itself.

It should be noted that this is a change in its market price not its value. A change in market price arises as a consequence of changes in its demand and supply. A change in its value arises from a change in the socially necessary labour time required for its production.

Suppose a commodity is produced by the average productivity, but, when it is brought to market, for some reason, for example a change of fashion, demand for it has fallen sharply. Supply exceeds demand and prices fall. Technically, too much labour-time has been spent on its production, but this may be merely a temporary situation. If the product is ice cream, and this week is cold, demand next week, when there is a heatwave, could more than compensate for this week's low demand.

Either way, the fact that the commodity has to be sold at a market price below its exchange value represents a capital loss for the seller. In order to continue production, on the same scale they will have to make it good with additional capital from their own pocket, or borrowing.

The loss to the seller may be a gain to the buyer. If the price of ice cream falls this week, because of bad weather, the producers and wholesalers may suffer a loss as prices fall. But, vendors who buy up these cheap supplies will benefit if they sell them next week during the height of a heat wave. That is a direct gain for the buyer. But, the buyer may gain,

“Indirectly, if the change of prices is caused by a change of value reacting on the old product and if this product passes again, as an element of production, into another sphere of production and there releases capital pro tanto.” (p 296)

In this case, the producer of X has sent it to market having expended say £80 in materials and £20 in wages on its production. In the meantime, the value of the materials falls to £70, which can now only be recovered in its price. It falls to £90. If X is used in the production of Y, the producers of Y gain indirectly, because £10 of capital, they previously advanced, has now been released.

But, the producer of X does not really suffer a loss here. The £90 they receive for X is enough to buy the replacement labour-power, and the materials at its new price of £70. They can continue production on the same scale.  They may have suffered a paper capital loss, because the historic price paid for these materials was £80, and are now worth only £70, but not only is the £70 they now receive, as part of the price of their own commodity, sufficient to reproduce this capital, but because the capital they now have to advance for production has been reduced by £10, their rate of profit is correspondingly increased.  In short, any surplus value they produce would now buy a greater quantity of these materials than it did previously.

The same is true in reverse if prices rise. A rise in market price not related to a change in value, provides a capital gain to the seller, and capital loss to the buyer. But, a higher price could also be due to a change in its value resulting from productivity changes arising after it was sent to market. If its linen, for example, and the price of cotton rises by 50% (say a £10 rise) then the price of linen will rise by £10 also, even though this £10 was never advanced for its production.

The seller of the linen appears to make a £10 gain, but in reality, they need this extra £10 in order to replace the cotton consumed in production. The value of the linen is based not on the money-capital advanced for its purchase, its historic price, or the labour-time embodied in the productive capital it bought, but on the labour-time currently required to reproduce it. In fact, value is not intrinsic to a commodity; it is not somehow embodied, and fixed within it. The commodity is only a shell, which at any time acts as a receptacle within which a given portion of society's available social labour-time is kept. Because the latter is constantly changing, the value residing in each commodity is constantly changing too.

“As we have assumed that the prices of the elements of the product were given before it was brought to market as commodity-capital, a real change of value might have caused the rise of prices since it acted retroactively, causing a subsequent rise in the price of, say, raw materials. In that event capitalist X would realise a gain on his product circulating as commodity-capital and on his available productive supply. This gain would give him an additional capital, which would now be needed for the continuation of his business with the new and higher prices of the elements of production.” (p 296)

It can be seen, from these examples, why interest rates have fallen over the last 30 years. Not only have huge rises in productivity brought about a massive rise in the rate and volume of profit, but the same causes have also reduced the value of constant and variable capital, bringing about the kind of “freeing” of money-capital into the money market described by Marx above. In addition, those same increases in productivity have brought about a significant reduction in both the working period and circulation period of capital, throwing even greater amounts of “freed” money-capital into money markets, continually pushing down the global rate of interest.

## Tuesday, 15 April 2014

### Capital II, Chapter 15 - Part 23

If the working period of the materials suppliers is reduced, this also means that materials can be supplied more frequently, and so less needs to be held as a productive supply. By contrast, if the turnover period is prolonged, because of difficulties in obtaining supplies, additional capital has to be advanced.

In the end, this additional capital is capital that has to come from the money market. If it comes from the pocket of the producer of X, it is still capital he could have invested in other ways.

“To make it available, it must be pried loose from its old form. For instance stocks must be sold, deposits withdrawn, so that in this case too the money-market is indirectly affected. Or he must borrow it.” (p 295)

Marx goes on to say,

“But this is indispensable for the part which must be invested in materials of production only if he must pay for them in cash. If he can get them on credit, this does not have any direct influence on the money-market, because the additional capital is then advanced directly as a productive supply and not in the first instance as money-capital. But if the lender throws the bill of exchange received from X directly on the market, discounts it, etc., this would influence the money-market indirectly, through someone else. If, however, he uses this note to cover a debt not yet due for instance, this additional advanced capital does not affect the money-market either directly or indirectly.” (p 295)

This, I think is wrong. The supplier here is extending credit in the form of commodity-capital, but in so doing is increasing their own period of turnover. They are advancing an additional amount of commodity-capital for which they themselves have to advance additional capital to produce. They require additional money-capital so as to produce that extra output.

## Sunday, 13 April 2014

### Capital II, Chapter 15 - Part 22

It doesn't matter whether the capital described in the foregoing example is the private property of some individual capitalist, or if it is capital borrowed from a bank etc. In the latter case, it simply means only £800, rather than £900, would be borrowed. The £100 not then borrowed would, in the same way, mean £100 of money-capital was available for other purposes.

Similarly, if the producer of X gets his materials on credit, from his supplier, he would only need to obtain £400 worth, rather than £480 worth. His supplier would be left with £80 worth of commodity-capital, but by the same token, this could be offered as credit to some other buyer. The producer of X would still have freed up £20 of money-capital because of their reduced need to advance wages for the additional week.

If this shortening of the circulation time means that the additional capital advanced results in less being held in the form of a productive supply, but production remains on the same scale, then its clear that what must happen is that smaller amounts are bought more frequently. That is illustrated in the tables above. The same amount of material is consumed in a year, but if a smaller supply/stock of materials is maintained, this can only occur if it is replenished more frequently.

So, above, we see that the additional capital was reduced from £300 to £200, and that broke down into £160 for materials and £40 for wages i.e. enough for 2 weeks rather than 3 weeks.

Marx gives an example of the purchase of cotton.

“The additional supply for production is now reduced by one-third. It consisted of £240 constituting four-fifths of £300, the additional capital II, but now it is only £160, i.e., additional supply for 2 instead of 3 weeks. It is now renewed every 2 weeks instead of every 3, but only for 2 instead of 3 weeks. The purchases, for instance in the cotton market, are thus more frequent and smaller. The same amount of cotton is withdrawn from the market, for the quantity of the product remains the same. But the withdrawals are distributed differently in time, extending over a longer period. Supposing that it is a question of 3 months or 2. If the annual consumption of cotton amounts to 1,200 bales, the sales in the first case will be:” (p 293)

 Date Sales Left In Storage January 1, 300 900 April 1, 300 600 July 1, 300 300 October 1, 300 0

“But in the second case:”

 Date Sold Left In Storage January 1 200 1,000 March 1, 200 800 May 1, 200 600 July 1, 200 400 September 1, 200 200 November 1, 200 0

The contraction of the circulation time and the releasing of £100 of money-capital here is represented by the fact on the one hand of a saving of £80 for materials and £20 for wages, and on the other hand to a £100 increase in the commodity-capital of the cotton dealer.

“The longer this cotton lies in the latter’s warehouse as a commodity, the less it lies in the storeroom of the manufacturer as a productive supply.” (p 294)

We see here the theoretical basis for capital's introduction of “Just In Time”. As well as the circulation period being shortened, by being able to sell faster, it could also be shortened by being able to buy faster. In other words, it may be the circulating periods of other capitals that supply the producer of X that are shortened.

“For instance if cotton, coal, etc., with the old methods of transport, are three weeks in transit from their place of production or storage to the place of production of capitalist X, then X’s productive supply must last at least for three weeks, until the arrival of new supplies. So long as cotton and coal are in transit, they cannot serve as means of production. They are then rather a subject of labour for the transport industry and the capital employed in it; they are also commodity-capital in the process of circulation for the producer of coal or the dealer in cotton. Suppose improvements in transport reduce the transit to two weeks. Then the productive supply can be changed from a three-weekly into a fortnightly supply. This releases the additional advanced capital £80 set aside for this purpose and likewise the £20 for wages, because the turned-over capital of £600 returns one week sooner.” (p 294)

## Saturday, 12 April 2014

### Northern Soul Classics - A Little Bit Hurt - Julien Covay & The Machine

Getting down with the dancers again with Julien Covay.

## Friday, 11 April 2014

### Capital II, Chapter 15 - Part 21

The tables below illustrate the situation described in Part 19. Its assumed that all the capital is present from Day 1, and that all the means of production required for the entire turnover period are bought in week 1.

 Form Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Money 160 140 120 100 80 60 40 20 0 100 80 60 40 120 LP 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Means of Production 720 640 560 480 400 320 240 160 80 480 400 320 240 640 Commodity 0 100 200 300 400 500 600 700 800 300 400 500 600 100

At the start of week 1, £20 has been allocated for wages, and £720 has gone to buy all the means of production for 9 weeks. £160 of the £900 capital remains in the form of money capital to cover wages for the next 9 weeks. At the start of week 7, production has created £600 of output, which now exists as commodity-capital and has been sent into circulation. It remains as commodity-capital for the next 3 weeks until it is sold at the end of week 9. In the meantime, an additional £100 of commodity-capital is produced during each of those 3 weeks.

At the start of week 10, the £600 of commodity-capital sent into circulation is sold, and has been turned into money-capital, £480 of which has gone to buy means of production to cover the next 6 week working period, and £20 of which has gone to pay for labour-power for that week. At the start of week 10, the output of week 7-9, £300, exists as commodity-capital. Production continues through week 12, at which point the capital is turned over again.

That can be compared to where the turnover period is 8 weeks, as the circulation period is reduced to 2 weeks.

 Form Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Money 140 120 100 80 60 40 20 0 100 80 60 40 20 100 LP 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Means of Production 640 560 480 400 320 240 160 80 480 480 400 320 240 640 Commodity 0 100 200 300 400 500 600 700 300 400 500 600 700 100

Here the amount held as Money Capital falls by £20 in each week, compared with the previous situation, whilst the amount of commodity-capital reaches a maximum of £700 rather than £800. This reflects the fact that here wages have to be advanced for 1 week less. Moreover, the amount of means of production is also reduced by £80 in each week, for the same reason. Had it been the case that the means of production required only for the working period had been bought from Day 1, as was done at the start of the second turnover that would obviously have changed the amount of money capital held, as opposed to the amount of means of production for each week.

“Now only £800 are necessary to carry out the same productive process. The £100 thus released in money now form a new, employment-seeking money-capital, a new constituent part of the money-market. True, they have already previously been periodically in the form of released money-capital and of additional productive capital, but these latent states were themselves the requisites for the execution of the process of production, because they were the requisites for its continuity. Now they are no longer needed for that purpose and for this reason form new money-capital and a constituent part of the money-market, although they by no means form either an additional element of the available social money-supply (for they existed at the beginning of the business and were thrown by it into the circulation), or a newly accumulated hoard.” (p 292)

This last point is important. This is not additional capital that has been produced, which can only arise from additional surplus-value, but is merely additional capital available for use, i.e. the more efficient use of capital in one place means a bigger proportion of it is available for use elsewhere.