Monday, 11 December 2017

Theories of Surplus Value, Part II, Chapter 10 - Part 26

A capitalist farmer, Ricardo says, will not invest their capital unless they can return the average profit on it. The price of wheat must then be high enough that capital invested on this marginal land, to meet the additional demand, can make the average profit. This land, this marginal production, thereby determines the market price. On this basis, Ricardo develops his Theory of Differential Rent, because the production on all of the more fertile land thereby produces surplus profits, and these surplus profits are absorbed by the landlords as rent.

For Marx, however, it is the average conditions of production which determine the value, not the best or worst conditions. As he sets out, it is only in conditions where demand is not met by existing supply that the production under the worst conditions becomes determinant, and similarly, only where there is a glut that the best conditions become determinate.

“The thesis set out above can be expressed in general terms as follows: The value of the commodity—which is the product of a particular sphere of production—is determined by the labour which is required in order to produce the whole amount, the total sum of the commodities appertaining to this sphere of production and not by the particular labour-time that each individual capitalist or employer within this sphere of production requires. The general conditions of production and the general productivity of labour in this particular sphere of production, for example in cotton manufacture, are the average conditions of production and the average productivity in this sphere, in cotton-manufacture, The quantity of labour by which, for example, [the value of] a yard of cotton is determined is therefore not the quantity of labour it contains, the quantity the manufacturer expended upon it, but the average quantity with which all the cotton-manufacturers produce one yard of cotton for the market.” (p 204)

Once again, the difference between Smith and Ricardo's embodied labour theories of value, and Marx’s theory of value based on socially necessary labour becomes apparent. In any industry, there will be producers who produce above, below or at the average conditions of production. If 10,000 metres of linen is produced, and requires 1,000 hours of labour to produce, then each metre requires 0.10 hours to produce on average. But, in reality, no actual metre of linen may have required 0.10 hours for its production. If there are five producers, each of which produce 2,000 metres, the times they require to produce their 2,000 metres may be as follows:- A 100; B 150; C 200; D 250; E 300. A total of 1,000 hours is expended, and 10,000 metres is produced, but the individual value produced by each is different. The individual value embodied in A's production is 100 hours, but in E's production is 300 hours, although both produce 2,000 metres of linen. It is only producer C, who produces at the average level, here, so that the individual value of their production, 200, is equal to the social value of their production, 2000 x 0.10 = 200. The social value of production is 200, for each producer, but this necessarily means that some producers, in selling at this value, will sell their output either above or below its individual value.

A will sell their output at 100 above its value, B 50 above its value, D 50 below its value, and E 100 below its value. The importance of this, as Marx describes, is that there are two contradictions that are resolved by opposite means, and it is surprising that Ricardo does not recognise this. The contradictions are these. Firstly, within a particular sphere, there are a multiplicity of individual values, because every individual capital produces under different conditions of production.

“If, for example, they sell the yard of cotton at 2s.—the average value—then they sell it at the value which the yards they produce represent in natura. Another category produces under better than average conditions. The individual value of their commodities is below their general value. If they sell their commodities at the general value, they sell them above their individual value. Finally, a third category produces under conditions of production that are below the average.” (p 204) 

Within the particular sphere, competition brings about a single market value, or social value of the production, and each producer must sell their output at this price. But, the consequence of the formation of this single market price is that the amounts and rates of profit of the individual capitals within this sphere must vary. Capital A, which sells its 2,000 metres of output at £2,000, but whose individual price of production was only £1,000, thereby makes £1,000 of surplus profit. By contrast, E sells its 2,000 metres for £2,000, but its price of production was £3,000, so it makes £1,000 less than the average profit.

Now, contrast this with the other contradiction, which is the situation not within spheres, but between them. The situation here is rather that capital will leave those spheres of production where the rate of profit is low, and accumulate in those where it is high. But, the consequence of this is that, as supply rises in one sphere, prices are pushed down, below exchange values, within it, and in other spheres, where supply contracts, prices rise above exchange values. In other words, on the one hand, in order to bring about a single market price, different rates of profit must exist, within spheres, but to create a general rate of profit, across spheres, prices must diverge from exchange values. Yet, Ricardo fails to notice this.

Marx's terminology in this section is very slightly confusing. He defines market value as this average or social value, and refers to market price as the money equivalent of this market value. This is, of course, perfectly reasonable, on the basis of the definition of price as being the monetary expression of value. However, because the market value is the central locus around which the actual market price of the commodity moves, as a result of short term fluctuations in supply and demand, it becomes slightly confusing, because it means there are several contending definitions.

“This common value is the market-value of these commodities, the value at which they appear on the market. Expressed in money, this market-value is the market-price, just as in general, value expressed in money is price. The actual market-price is now above, now below this market-value and coincides with it only by chance. Over a certain period, however, the fluctuations equal each other out and it can be said that the average of the actual market-prices is the market-price which represents the market-value.” (p 205) 

I prefer to refer to the market value as being that central locus, and to refer to the market price as that price actually applying to the commodity at any time. The problem is removed where the market value is the price of production, because then its possible to refer to the market price simply rotating around the price of production.

Back To Part 25

Sunday, 10 December 2017

Brextremists Sour May's Fudge

The Tory Brextremists could not contain themselves for long. Within 24 hours of finding themselves having to swallow May's Brexit fudge, or risk being completely sidelined along with the DUP, they rushed into print, and on to TV screens to undermine the deal that May had done with the EU, over their heads, and which surrendered ever one of the previous Brexit red lines. But, the fact that this again shows the dissembling nature of the Tories, and particularly their Brextremist wing, as they seek to claim that every statement means the opposite of what it actually says, should show to the EU, just how little they can trust their interlocutors on anything. If the European Council has any sense, having read and listened to the comments by Gove, Davis, Raab and others over the weekend, they will refrain from going ahead with Stage 2 negotiations until such time as May can prove that she and her government are prepared to proceed on the basis of both the spirit and the letter of the deal she signed up to last week.
On Monday, last week, Theresa May was forced to go to Barnier with a deal that involved Britain agreeing to pay £40 billion, as its Brexit Bill, for all those long-term commitments it had previously signed up to; it agreed to a two-year transition period after March 2019, during which Britain would effectively still be in the Customs and Union and Single Market, and continue to pay its £10 billion a year membership fee, and agreed to accept the continued jurisdiction of the ECJ, and during which there would be continued free movement; in order to resolve the question of the Irish Border, it recognised the need for Northern Ireland to remain in the Customs Union and Single Market.

The EU would have accepted that deal, and so would Ireland. It was all set to be signed, until the DUP tugged on May's reins, and told her that she could not sign, because it meant that Northern Ireland would be treated differently to the rest of Britain, with Northern Ireland being tied to the regulations within the EU rather than in the UK. The EU and Ireland were quite happy to leave Britain stewing until after Christmas, until Britain could come up with a deal that satisfied both Northern Ireland and the EU. The DUP, and the Brextremists might want to delude themselves into a belief that that was not the case, and that the EU, needing to do a deal, had made some concession, but it is just that, a delusion. The EU held firm, knowing that Britain needed to move the process forward by Christmas or face a New Year, in which businesses started moving their operations rapidly outside Britain. The fact, is that May and the DUP blinked.

In order to pacify the DUP, and facing the obvious demands from the SNP, and Scottish Tories, as well as from the Welsh Parliament, and the London Mayor, that if Northern Ireland could remain in the Customs Union and Single Market, so could they, May made the final capitulation to th EU, and agreed that not only would Northern Ireland maintain full regulatory alignment with the EU, but so too would the rest of Britain. The DUP got what nominally they had been asking for, but not on the basis they were hoping for. In other words, the DUP had been asking for no divergence between the regulatory regime in Northern Ireland and the rest of Britain, which they now got, but they were not intending for that to be on the basis of Britain as a whole, thereby agreeing to remain in the Customs Union and Single Market, in all but name, which is what May' deal amounts to. But, given the situation, they could not withhold support.

If they had done so, there were only two options. One is that May's government would have fallen, and an election would be likely to bring a Corbyn government to power, as Labour now stands 8 points clear of the Tories. The other, and more likely option would be that, having already capitulated across the piece to the EU over the terms of Brexit, May would have steamrollered over the DUP and the Brextremist wing of her own party, and formed a parliamentary coalition on the deal with Labour, the SNP, and the pro-Europe majority of her backbenches, which would have sidelined the DUP and Brextremists completely. In fact, its in that direction that the EU have been pushing May all along.

The Brextremist wing of May's own party also recognised that reality, and so sang along through gritted teeth with May's tune, all along trying to present things as though the EU had been desperate for a deal, that they had made concessions, and other such nonsense. But, those Brextremists also know something else, which is that we have seen the same process of delusion, fudge, and dissembling by May and the Tories on a whole range of issues, and they expect this to be exactly the same.

In the election campaign, having produced the disastrous manifesto commitment to introduce the Dementia Tax, May was forced to backtrack on it, and effectively disown it. But, having done so, she then made herself look ridiculous by coming out to say that “Nothing has changed, nothing has changed”! And, only a few weeks ago, having committed Britain to entering into a two-year transition period, during which Britain would remain in the Customs Union and Single Market, and continue to pay into the EU budget, and accept the jurisdiction of the ECJ, under pressure from the Brextremists, she then came to Parliament to try to claim that what she had said, was actually not what she had said, that the transition period would, in fact, be an implementation period, that required that the full deal had already been done, and so on.

The delusion and dissembling of the Tories is intermingled with their incompetence. The incompetence of Davis and the other Brexiteers must have seemed to the EU like they were negotiating with a baby over ownership of candy. That was manifest in the performance of of Davis at the Brexit Select Committee last week. His performance provoked Paul Merton, on “Have I Got News For You” to describe him as the thickest person he has come across. David for months has been proclaiming that the government had done detailed studies of the effect that Brexit would have on different sectors of the UK economy. He even described these analyses as “Impact Assessments”. Then when Parliament demanded to see these detailed impact assessments, the government tried to deny parliament that right. It led to the Speaker threatening to hold Davis in contempt of Parliament. Eventually, David provided a number of heavily redacted documents, leading to Parliament demanding the release of the original documents. Eventually, we find out that the 57 detailed sectoral impact assessments do not, in fact exist!

The dissembling nature of Davis' response is shown by the fact that, rather than saying from the start that no such documents exist, he let Hillary Benn ask him if such documents existed for several spheres, to which he said no, before, admitting that the answer was going to be no for any sector he might be asked about! Davis clearly misled Parliament in his earlier statements about their being 57 such impact s on the effect of Brexit, when, in fact, he knew that there were none. Labour should demand that he resign immediately. The importance of such impact assessments is clear. If you are going to know whether a particular form of Brexit deal is acceptable or not, you need to know what effect it will have on the UK economy. To say, as the Brextremists are now doing, that you can't have an impact assessment until you know what the Brexit deal is, is nonsense. The whole point of impact assessments is to facilitate decision making, by examining the consequence of various scenarios. We now know that a full year and a half after the referendum, the government not only has no impact assessments of what various forms of Brexit might have on the economy, but the government itself does not know, and has not even discussed what the end situation of any Brexit might be. They can't do that, because the government itself is split down the middle on what they want that end state to be.

So, now we have Dominic Raab, David Davis and others coming out and claiming that regulatory alignment with the EU does not mean regulatory alignment at all, but means regulatory divergence, by which the UK will feel free to choose whatever regulations it so chooses, and simply say to the EU that these regulations are more or less the same, and aim at the same outcome! That clearly is not what regulatory alignment means, and if that is what the Brextremists want to impose on May as the real meaning of the deal she signed last week, the European Council should walk away from it, and demand that May clarify her position, making Britain wait for Stage 2 negotiations to start until next year, when a firmer form of words can be agreed. The importance of that can be seen from Michael Gove's article, where he states that any agreement that May enters into now, could be simply ripped up by an incoming government. In other words, an incoming Tory government set on a bonfire of regulations, could simply rip up any such agreement, and go its own way, in creating whatever set of regulations it chose, so that the true meaning of regulatory divergence as opposed to regulatory alignment is clear. There clearly is no basis of any kind of long term agreement between the UK and the EU, unless any such deal is signed into international law, by a binding Treaty, and enforceable in international courts, which again makes clear the importance of the continued role of the ECJ.

This also highlights the distinction that the Brextremists have been busy trying to confuse and conflate between a free trade deal, and membership of a customs union, and single market. A free trade deal is a deal established between two countries, or blocs that enables free trade between them in a series of defined goods, and/or services. It does not cover goods and services not specified within the deal. It does not mean, therefore, that there is no border between the parties to such a deal. For example, Canada has recently signed a free trade deal with the EU, for a series of goods, but that does not at all mean that there is no border around Canada, or around the EU, for Canadian goods going one way, and EU goods going the other! It does not mean that there is not border inspection of goods moving in either direction. It simply means that no import duties are imposed on those goods covered within the deal. In fact, it does not mean that other forms of import restriction do not apply, for example, a requirement to meet common standards and regulations, and for which continued border monitoring is required.

The problem for Britain in this regard is quite clear. Unless there is regulatory alignment, meaning that Britain has to have the same regulatory framework as the EU for goods and services, there can be no open border in Ireland. Otherwise, chlorine washed chicken from the US could flood into Britain, head across to Northern Ireland, where it is then processed, or repackaged and sent into the Irish Republic, before being sent out in bulk to the rest of Europe. The EU clearly are not going to accept such a situation. But, a similar thing applies in relation to free trade. Suppose country A, in Africa produces commodity X, at €1 per kilo. It is currently subject to a 40% import tariff by the EU. The EU produces commodity X at a price of €1.30 per kilo. Now Britain wants a free trade deal with the EU. But it also wants to strike up its own deals with other countries. So, Britain imports large quantities of X from A, at €1 per kilo. It adds a profit margin of 10%, so that it sells X for €1.10, and immediately floods the EU with X, undercutting the EU internal market price by €0.20 per kilo, without having to have lifted a finger. No one in their right mind in the EU, is going to agree to such an arrangement.

If Britain wants a free trade deal with the EU, it will have to essentially agree to remain within the Customs Union, so that this kind of subversion of the internal market is not possible. And economically, that is inevitable too. If you are BMW, and you sell Minis into the EU, from Cowley, for example, you will need to have regulatory alignment with the EU, because otherwise, you will not be able to export your Minis to the EU, whether the UK is in or our of the Customs Union and Single market. For Canada, whose main export market is the US, it makes sense to align your regulations with the US, not the EU, but the greatest part of UK exports is to the EU. The Brextremists claim that 70% of UK trade is conducted on the basis of WTO rules, but that is not true. Not only does the UK conduct 40% of its trade with the EU, but also because the EU has itself established free trade deals with a large number of other countries, and trading blocs, the UK's trade with these other countries is also covered by those EU free trade agreements, and not by WTO rules. In fact, around 70% of UK global trade is covered by the EU, or the free trade deals negotiated by the EU. When Britain leaves the EU, it will then have to laboriously renegotiate all of those free trade agreements, assuming that any of these other countries want to sign a free trade deal with a UK economy of just $2 trillion as opposed to the free trade deal they have with the $14 trillion EU economy!

If you are TESCO, you can say to Farmer Giles, “We will buy every potato you can produce, but the condition is that you don't sell potatoes to Fred Bloggs corner shop”, or you might say, “but you must always sell them to us at 10% less than you sell them to anyone else”. If you are the EU, the very size of your economy means that you can do a deal with say, New Zealand that says, we will take all of the lamb you can produce, provide you don't sell it to Britain, or that says, provided you sell it to us for 10% less than you sell it to Britain. And, a whole series of such variants exist, such as we will buy all the lamb you can produce, provided you give us privileged access to sell all of our cars to you, and so on. As a relatively small, and diminishing economy, Britain will lose out in global trade from all such economies of scale. 

The DUP are, in fact, the epitome of this delusion and dissembling on the part of the Brextremists. They understand the importance of continued access to this free trade, but they want to delude themselves into believing that they can continue to have that access without actually being in the Customs Union and Single Market. The DUP Brextremism wants to be outside the Customs Union and Single Market, and yet wants to retain an open Irish border because that is essential to the economic interests of all those Northern Irish farmers whose goods go back and forth across that border! It is the typical position of have cake and eat it that has pervaded Brextremism from the beginning, and its ultimate source, is the arrogant, colonial era mentality that still believes that Britain is a significant global power, to whom the world owes a living, and to whom it will come begging to do deals. The last week has exposed that delusion clearly.

The Brextremists still want to cling to the delusion that they can pull the wool over the eyes of the EU with vague words, and promises. That was never going to happen as, the Stage 2 negotiations firmed up the heads of terms agreed last week, but now that the Brextremists have shown their hand by coming out already to say that they put no store by the words on the paper signed by May last week, there is all the more reason, for the EU leaders when they meet to reject May's ploy, and dissembling. Her fudge is already crumbling before her eyes.

Theories of Surplus Value, Part II, Chapter 10 - Part 25

[5.] Average or Cost-Prices and Market-Prices

[a) Introductory Remarks: Individual Value and Market-Value; Market-Value and Market-Price]

Ricardo puts forward a marginal theory of value, i.e. he sees the market value of commodities being determined by the marginal production. This is at variance with Marx who argues that it is the average socially necessary labour that is determinant, or others such as Thomas Corbet who argued that it was the lowest cost production that was determinant.

““The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labour that will suffice for their production under circumstances highly favourable, and exclusively enjoyed by those who have peculiar facilities of production; but by the greater quantity of labour necessarily bestowed on their production by those who have no such facilities; by those who continue to produce them under the most unfavourable circumstances; meaning—by the most unfavourable circumstances, the most unfavourable under which the quantity of produce required, renders it necessary to carry on the production” (l.c., pp. 60-61).” (p 203) 

As Marx says, the last sentence is wrong, because it implies that the level of demand is an independently determined fixed amount. In fact, demand will rise or fall according to the price of the commodity. The starting point is not some independent quantity of demand, for a commodity, but the independently determined price of the commodity. This is, of course, the opposite to the starting point for neoclassical theory.

The question is, what is this independently determined price? If we assume that prices equal values, then this price/value is the labour-time required for its production. In other words, if 10,000 metres of linen requires 1,000 hours of labour to produce, and 1 hour equals £1 (in other words one hour of labour is equal to £1 of the money commodity), then 1 metre = £0.10. If there is then demand for 10,000 metres of linen, at a price of £0.10 per metre, supply and demand will be in balance. If demand is higher than 10,000 metres, at this price, the market price will rise to ration the excess demand, but this will then encourage additional supply. If demand is less than 10,000 metres at £0.10 per metre, the market price will fall below £0.10, to clear the market, and the supply will contract.

However, at this point, it becomes obvious that things are not so straightforward. If we take the situation where the demand exceeds the supply, at £0.10 per metre, we then have to enquire as to the nature of the additional production this brings forward. Generally, in industry, a higher level of production brings with it greater efficiency and lower costs. Suppose demand at £0.10 per metre was 12,000 metres. Additional production is introduced, but now, due to economies of scale, this 12,000 metres can be produced for £10,000, so that the price of a metre falls to £0.08 per metre. But, now, at this price, the demand rises to 12,500 metres, bringing an additional production, and further economies, and so on.

Diagram 1. This is the typical demand and supply graph of orthodox economics, which assumes as Ricardo does that there is diminishing factor returns.  There is a shift in the demand curve (demand rises at all prices), and as new supply is introduced, the cost of producing this new supply is higher, so the equilibrium market price rises.
Diagram 2. Here there are constant factor returns.  The demand curve shifts in the same way as in Diagram 1.  Supply expands to meet it (this also illustrates why Ricardo's argument that additional capital investment only occurs if prices and the rate of profit rise, is wrong) but, it is able to do so without any change in the costs of production.  Market prices, therefore remain constant.  Ricardo was wrong about the need for higher prices or a higher rate of profit to drive investment, as Marx demonstrated, because all that is required to encourage capitalists to invest more capital here, is that, in doing so they appropriate to themselves a greater mass of profit. 

Diagram 3. Here the situation that Marx says is typical for industry is illustrated.  The demand curve again shifts in the same way as in Diagram 1 and 2.  Supply rises to meet this additional demand.  But, now, producing at these higher levels of output, capital obtains economies of scale, production takes place more efficiently, and the costs of production per unit fall.  As the costs per unit fall, competition ensures that market prices fall, and as market prices fall, as well as a shift of the demand curve having taken place, there is a shift along this new demand curve, as demand responds to lower market prices.  As demand rises further, and output expands further, yet more economies of scale are obtained, so that the unit costs of production, and market prices fall further, and so on.  A look at any manufactured commodity, such as electronic pocket calculators, illustrates this process.

In other words, although the level of demand is a level of demand at a certain price, and that price is determined by the labour-time required for production, the latter itself is also affected by the scale of production, and the scale of production, in turn, depends upon the level of demand for the output. The same applies in reverse. If demand is lower than supply, at a certain price, then supply will contract. But, at this lower level of production, cost may be higher, so that the price per unit may then rise, causing a further contraction of demand. By contrast, and this is what led Ricardo to his marginalist view, it might well be the case, in agriculture, that, in order to meet the extra demand, other land has to be brought into cultivation, which is less fertile. Rather than the cost of production falling, therefore, as output expands, it rises, causing unit prices to rise.

Back To Part 24

Saturday, 9 December 2017

Theories of Surplus Value - Part II, Chapter 10 - Part 24

Ricardo's Section VI of Chapter I, “On An Invariable Measure of Value”, contains nothing important, Marx says. Ricardo fails to understand the nature of money and prices, starting from the measure of value by labour-time, progressing to the expression of exchange-value, in the relation between commodities, and the ultimate form of that in the shape of a universal equivalent form of value. The only way it would be possible to measure the variations in the values of commodities, Ricardo says, is if there were some invariable standard of measure. Although Ricardo adopts a labour theory of value, he does not recognise that this invariable measure is, in fact, labour-time. That is because he slips into a definition of value as “relative” rather than “absolute” value. In other words, he conflates value and exchange-value.

Ricardo can only conceive value as this relative value, compared against something else, here the money-commodity. But, Ricardo says, even if this money commodity could act as some invariable measure, it would still not act as a perfect measure, because changes in wages, the different compositions of fixed and circulating capital, and different rates of turnover would all cause disturbances in its relation to other commodities.

““It would be a perfect measure of value for all things produced under the same circumstances precisely as itself, but for no others” (l.c., p. 43).” (p 202) 

In other words, if the prices of this latter type of commodities rose, that could only be because their own value had risen, and vice versa.

Again, Marx says there is nothing much of interest in Section VII of Chapter I, apart from Ricardo's recognition that where money prices change, because of a change in the value of money, this has no effect on the division into wages, profit, interest and rent. If the price of a commodity is £100, and comprises £50 materials, £25 wages, £10 profit, £3 rent, and £2 interest, then, if the value of money halves, the price of the commodity will become £200. Likewise, materials will become £100; wages £50; profit £20; rent £6; and interest £4. The proportional relations of all these remaining as they were before.

“The same applies when the profit is expressed by double the number of pounds, £100 is then however represented by £200 so that the relation between profit and capital, the rate of profit, remains unaltered. The changes in the monetary expression affect profit and capital simultaneously, ditto profit, wages and rent. This applies to rent as well in so far as it is not calculated on the acre but on the capital advanced in agriculture etc. In short, in this case the variation is not in the commodities etc.” (p 203)

Back To Part 23

Forward To Part 25

Northern Soul Classics - Surprise Party for Baby - The Vibrations

Friday, 8 December 2017

Friday Night Disco - Let's Dance - Chris Montez

May Surrenders Red Lines, Brexit Sinks Into The Mire

All of the bravado of the Brextremists has been exposed. Far from the EU being so desperate to hang on to Britain, as the last minute for agreement on Stage I negotiations approached, Theresa May has abandoned everyone of her red lines, and caved in to the EU positions over Citizen's Rights, the Brexit Bill, and now she has effectively had to agree for Britain to remain in the Customs Union and Single Market by any other name, as well as continuing to accept the role of the ECJ. Britain could not resolve the problem of the Irish border without accepting the need for regulatory alignment between Northern Ireland and the Republic, and faced with DUP opposition, has now had to accept regulatory alignment for the whole of Britain with the EU. That means she has had to sweep the Brextremists in her own party to one side. But, the weasel words in the settlement mean that months of further Tory infighting will follow.
The Tories and DUP are trying to define the regulatory alignment only in terms of what is specified within the Good Friday Agreement. That will not fly when the second stage discussions begin. The areas of regulatory alignment detailed in the Good Friday Agreement cover only a specific, though fairly extensive, number of areas of goods and services. But, its clear that for the border in Northern Ireland to remain open and frictionless there must be a common regulatory framework on both sides of the border for all goods and services, otherwise Northern Ireland will simply become a conduit for goods and services outside that regulatory framework to flood into the EU, just as an open border will allow migrants to flow from the EU through Ireland to Britain in the other direction.

Suppose, commodity X is not covered under the Good Friday Agreement, for example, and is banned from the EU. Importers of X, based in Britain or Northern Ireland, might then see the potential for making lots of money, by increasing their imports of X. That is particularly the case if X is cheaper than similar commodities that meet the EU's regulatory requirements. Importers of X, could simply ship it into Northern Ireland by the container full, and then transport it unchecked across the border into the Irish Republic. Having entered the Republic, it can then be simply shipped through more or less straight from Ireland, or with some minor modification, to Spain, France or wherever in Europe, and because it will then be seen to have come from Ireland, it will again not require any border checks. If the EU accepted such an arrangement it would have essentially destroyed its own Customs Union, and its inconceivable that they would do so.

Given the arrogance and the delusions of British Brexit negotiators, they probably think that they have pulled one over on the EU and Irish negotiators in the wording of the current agreement, but that is highly unlikely. On the contrary, Britain has already had to agree that the regulatory alignment for Ireland will apply to the whole of Britain, and when stage negotiations start, the EU will obviously make clear that such regulatory alignment applies to everything, and not just to a specific range of goods and services. Typical Tory short-termism might have got them over the line to go forward, but only to result in the Brexit talks getting even further mired, as soon as stage 2 talks commence. On the basis of the extent to which Britain's negotiators have been routed in the Stage 1 talks, its inevitable that they will also have to quickly cave on these other points.

Already the Brextremist wing of the Tory party have had to themselves capitulate to May, because they know that otherwise May would be forced to steamroller them and seek a parliamentary majority with Labour and the SNP. Nowhere to be heard now are Bojo's suggestion that the EU would have to go whistle for any Brexit bill, or that the ECJ would be ruled out of any role, or that Britain would have to continue to comply with EU regulations. By agreeing this deal, May has agreed for Britain as a whole to remain in the Customs Union and Single Market, in all but name, indefinitely. That is what regulatory alignment means. It means that Britain will have to align itself with EU regulations on all goods and services it wishes to ship across borders, and necessarily it will be the EU which will determine what those regulations in future will be, and Britain will have no part, in future, in determining what they are. Whether Britain accepts reality, and simply applies to be a member of the Customs Union, and pays a membership fee to do so, or else remains simply a de facto part of the Customs Union, by accepting its regulatory requirements, is neither here nor there. The fact is that, it will continue to be bound by EU regulations, and that means also bound by the ECJ. Moreover, as seen in the last week, Britain has now had to admit that it will have to remain a member of individual EU bodies such as the European Air Safety Association, if it is to get its aircraft safety certified so as to operate in global airspace. Membership of such bodies not only requires Britain to pay subscriptions into them, but also requires acceptance of the role of the ECJ, as arbiter.

The EU could not possibly allow Britain to circumvent any of these bodies, because to do so would again undermine the Customs Union, and Single Market, and would thereby begin to unravel the EU as a whole. So, the result so far, is that after nearly a year and a half after the referendum, the Tories have had to accept all of the demands that the EU first put to them when the negotiations began. They have had to abandon their red lines over the Customs Union and Single Market in all but name, they have had to agree to the Brexit Bill that the EU suggested initially, and they have had to accept the EU proposals over citizen's rights. But, now there will be further farce for several more months, whilst the British negotiators fantasise over being able to pull the wool over the EU negotiators eyes, about what they think is clever wording in the current agreement. They will quickly be proved wrong yet again, because there is no way the EU could agree to what the UK wants, if it is itself to continue to exist.

Unless a deal is agreed by the middle of next year, there will be no time for the UK parliament to discuss it, amend it, agree it, or reject it, and no time for the EU Parliament, and individual parliaments to do likewise. So, there is six months for a stage 2 deal to be negotiated. No one thinks that can happen, so the next part of the meat grinder will be for the UK to agree to a transition stage of two years, whereby it stays in the EU, on current conditions, to give time for further negotiations. All of that is leading up to Britain having to accept the need to remain in the Customs Union and Single Market, as the only way of reconciling the obvious contradictions. But, having done so, why then would you not also want to be still in the EU, so as to have an actual part in the democratic process of determining the rules and regulations by which you are to be bound.

Theories of Surplus Value, Part II, Chapter 10 - Part 23

Suppose wheat was the money commodity, and contains a higher than average proportion of variable-capital. If wages rise, this does not increase the value of wheat, but will cause its price of production to rise. In other words, we might have something like this.

c 100 + v 400 = k 500 + 20% p = 500 + 100 = 600

c 100 + v 500 = k 600 + p 15% = 600 + 90 = 690

So, the rise in wages causes the general rate of profit to fall from 20% to 15%, but the price of production of wheat rises from 600 to 690, because although the profit falls from 100 to 90, the cost of production has risen from 500 to 600. But, if the prices of various other commodities are measured now in wheat, their prices will all have changed accordingly, not dependent on their respective compositions of fixed capital, but consequent on the higher price of wheat. If previously, a kilo of wheat bought 600 metres of yarn, now it would buy 690 metres of yarn, for example.

“The commodities into which more fixed capital entered, would be expressed in less wheat than before, not because their specific price had fallen compared with wheat but because their price had fallen in general.” (p 200)

If commodities exchanged at their values, then we might have a situation where:-

c 100 + v 400 + s 100 = 600.

A rise in wages would not affect the value of wheat. But, suppose productivity falls so that more labour is required to produce the wheat.

c 100 + v 440 + s 110 = 650.

If the value of all other commodities remain unchanged, then the prices of all these other commodities, priced in wheat, will fall. But, where there are prices of production, rather than values, it is the change in wages and its effect on the rate of profit, which then has the consequent effect on prices of production. If the money commodity represents capital of average composition, then a rise in wages will leave its price of production unchanged, whilst the price of production of commodities of higher composition will fall, and those of lower composition will rise. Measured in the money commodity, they would move in the same way.

But, suppose that the value of gold rises, as the money-commodity, because more labour is required for its production. In that case, the price of production rises, but there is no change in the general rate of profit, and no change in the prices of production of all other commodities. In that case, all money prices would fall, because the value of gold/price of production would have risen, relative to all other commodities.

This is the point that Marx is making, here, against Ricardo, which is that it is not just that gold determines the prices of these other commodities, in the process of exchanging with them and circulating them. First, the prices of production of those commodities are determined, and measured in money prices, before the exchange occurs.

“If the same causes which raised the price of wheat, raised, for example, the price of clothes, then although the clothes would not be expressed in more wheat than previously, those [commodities], whose price had fallen compared with wheat, for instance cotton, would be expressed in less. Wheat would be the medium in which the difference in the price of cotton and clothes would be expressed.” (p 200-01) 

So, here, the price of production of wheat and clothes rises by the same amount, so that, if previously, 1 kilo of wheat exchanged for six shirts, this relation still holds. But, the price of production of cotton falls, so that 1 kilo of wheat, or six shirts, now exchanges for, say, 2 kilos of cotton, whereas previously it only exchanged for 1.

But, Ricardo makes the assumption not that there has been a variation in the relative prices of production between clothes and cotton, which is only manifest in the change in their relative money prices, but that wheat has risen in value, as against cotton, but not against clothes, as a consquence of a rise in wages.

“In itself, the assumption that variations in the price of wages in England, for instance, would alter the cost-price of gold in California where wages have not risen, is utterly absurd. The levelling out of values by labour-time and even less the levelling out of cost-prices by a general rate of profit does not take place in this direct form between different countries.” (p 201) 

But, Ricardo's concept of a “price” for this money-commodity is itself also an absurdity, because it is the money-commodity which is the measure of money prices. Price is only the exchange-value/price of production of a commodity expressed in money. But, it is then absurd to talk about a price of money. It would only be possible for there to be a price of money if this money was then measured against some other commodity. In fact, the price of the money-commodity can only be represented in its exchange relation to every other commodity.

“... for in each of these prices in which the exchange-value of the commodity is expressed in money, the exchange-value of money is expressed in the use-value of the commodity. There can therefore be no talk of a rise or fall in the price of money. I can say: the price of money in terms of wheat or of clothes has remained the same; its price in terms of cotton has risen, or, which is the same, that the money price of cotton has fallen. But I cannot say that the price of money has risen or fallen. But Ricardo actually maintains that, for instance, the price of money in terms of cotton has risen or the price of cotton in terms of money has fallen, because the relative value.” (p 201-2)

Back To Part 22

Forward To Part 24

Thursday, 7 December 2017

Theories of Surplus Value, Part II, Chapter 10 - Part 22

Ricardo also grasps for a similar explanation of how it is that gold, as the money commodity, can come to be a representative of value.

““May not gold be considered as a commodity produced with such proportions of the two kinds of capital as approach nearest to the average quantity employed in the production of most commodities? May not these proportions be so nearly equally distant from the two extremes, the one where little fixed capital is used, the other where little labour is employed, as to form a just mean between them?” (l.c., p. 44).” (p 199) 

But, as Marx says, the actual idea, contained here, applies more to those capitals of average composition, and average rate of turnover than to gold.

“This is far more applicable to those commodities into whose composition the various organic constituents enter in the average proportion, and whose period of circulation and reproduction is also of average length. For these, cost-price and value coincide, because for them, and only for them, average profit coincides with their actual surplus-value.” (p 199) 

Whatever the inadequacy of Ricardo's analysis of value, in Chapter I, he does arrive at a conclusion which represents a significant advance over Adam Smith, correcting a major error in his theory. It is inherent in a labour theory of value that values are determined by labour. Whilst Smith advances this argument at some points, because he does not distinguish between labour and labour-power, at other times, he advances a cost of production theory. Smith, therefore, arrives at a conclusion that rises in wages cause rises in values. Ricardo demolishes this notion, demonstrating that the amount of value is unchanged, but a rise in wages simply results in a redistribution of the new value created, by reducing profits.

He says,

““Before I quit this subject, it may be proper to observe, that Adam Smith, and all the writers who have followed him, have, without one exception that I know of, maintained that a rise in the price of labour would be uniformly followed by a rise in the price of all commodities” [l.c., p. 45].” (p 200)

And continues,

““I hope I have succeeded in showing that there are no grounds for such an opinion and that only those commodities would rise which had less fixed capital employed upon them than the medium in which price was estimated,” (here relative value is equivalent to the expression of the value in money), “and that all those which had more, would positively fall in price when wages rose. On the contrary, if wages fell, those commodities only would fall, which had a less proportion of fixed capital employed on them, than the medium in which price was estimated; all those which had more, would positively rise in price” (l.c., p. 45).” (p 200) 

But, Ricardo's explanation of rising money prices is wrong. If the value of gold rises, then the value of all commodities whose price is measured by gold falls, irrespective of whether the capital that produces those commodities has a higher proportion of fixed capital than gold production or not.

“But this is due to Ricardo’s false assumption that money, in so far as it serves as a medium of circulation, exchanges as a commodity for commodities. Commodities are assessed in gold before it circulates them.” (p 200)

Back To Part 21

Forward To Part 23

Wednesday, 6 December 2017

Answering Andrew Neill's Question

BBC's Andrew Neill has repeatedly asked Labour's financial spokespeople to answer the question of how much Labour's plans for renationalisation, and for infrastructure spending will cost. The same theme has been taken up by other presenters of TV politics programmes. As an economist, Neill should actually know that the basis of his question is fundamentally flawed. However, to be fair to him, his job is to ask the questions, so as to get the politicians to provide the answers. Again to be fair to him, the answers that Labour politicians have usually given have been pretty abysmal, so its no wonder he keeps asking the question. So, let me try to provide the simple answer to the two parts of his question. First, the cost of renationalisation, and second the cost of the infrastructure investment programme.

The basis of Neill's question in relation to renationalisation, or the taking back in house of PFI programmes, is fundamentally flawed, for the reason that the IFS themselves have given. That is that because any expenditure, or borrowing undertaken to buy up the shares of companies to be renationalised is simply a matter of exchanging one asset for a liability, it makes no difference to the government balance sheet. Issuing government bonds, to borrow money to buy the shares of a private company is rather like a reverse co-co. A co-co, is a contingent convertible bond. That is a bond, which offers the buyer the same fixed coupon, as any other bond, but which contingent upon certain future conditions, can be converted into a share, which then pays dividends, at a variable rate. If the government exchanges bonds for shares that is really just the same thing in reverse.

There are two ways that could be done. Either the government could convert existing shares in Company X into commercial bonds, with a fixed coupon, or else the government could issue Gilts to raise the funds required to be able to buy the shares in Company X, at their current market price, or some other price deemed appropriate. In the first case, the existing shareholders would obtain bonds in exchange, in the second, they would not, but would receive cash for their existing shares. Because, bonds have less risk than shares, and because they pay a fixed coupon each year, bond yields are generally lower than dividend yields on shares. For that reason, government spokespeople have been absolutely correct to say that such a programme of renationalisation would have no cost. If say, the average yield on shares in the utility sector is around 4.4%, the average for the FTSE 100, but the government, as it can, can borrow for ten years, at an interest rate today of only 1.3% on a 10 year Gilt, the net revenue for the government from such a swap amounts to 3.1% per share.

If we take, Severn Trent, for example, its dividend yield is 4.03%. In the last five years it has varied from around 3.5% up to around 4.75%. Severn Trent has a market capitalisation of £4.9 billion, consisting of approximately 235 million shares. To round things up, for ease of calculation, let's say the market capitalisation is £5 billion. So, the government would have to issue £5 billion of say, 10 Year Gilts. The annual interest it would have to pay on those gilts is currently 1.226%, or £61.3 million per year. But, now as the owner of £5 billion of Severn Trent shares, it rather than private shareholders will receive the dividends. The dividends on £5 billion of Severn Trent shares comes to £201.5 million per year. So, far from such a transaction representing a cost to the government, it would provide it with a net annual current income of £201.5 million - £61.3 million = £140.2 million. Over ten years, this net income amounts to £1.402 billion, or more than a third of the initial capital cost. The government could, however, raise the initial funds by issuing 30 year Gilts, which currently yield 1.792%. The annual interest on those bonds would be £89.6 million, giving a net annual revenue of £111.9 million, which over 30 years is equal to £3.36 billion.

In other words, the effect of such a transaction is to reduce the government's budget deficit by either £140 million per year, or £89.6 million per year, depending upon whether it is financed with 10 or 30 year bonds. Whilst, it results in an increase in total debt to the extent of the issuance of these bonds, that debt is cancelled by the increase in government assets in the form of shares, and is to eventually reduce government debt, as the income received from that asset is greater than the cost of debt issued to buy it. That is just the benefit that would accrue to the government from issuing debt to buy Severn Trent shares alone. That benefit is multiplied up for all of the other water companies, and other utility companies whose shares are bought by the issue of shares in this way.

Obviously, the net revenue that the government obtains from such transactions depends on the number of companies whose shares it buys up. The more companies whose shares it buys, and the higher the dividend yield on those shares, the more net revenue the government will obtain. This same calculation essentially applies to the taking back in house of PFI contracts. The government will have to issue bonds to buy back the contracts, but having done so, it will then obtain the revenue that private companies currently obtain each year from those contracts. The current yields on PFI contracts are often exorbitant, and so make the average yields on company shares look chicken feed. By taking these contracts back in house, the government would obtain significant net revenue. Once again, it represents not a cost, but an income.

In relation to the train companies, not even this argument applies. All that labour need do with the train companies is to wait until the current franchises run out, and then take them back in house. Its true that the government would then need to buy actual productive-capital in the shape of trains and rolling stock, but given that the current train companies can hardly use that equipment elsewhere, there would be a lot of such equipment available on the market at knock-down prices, to be bought up.

Now let's turn to the other issue, which is the cost of Labour's infrastructure investment programme. Labour has proposed to invest £500 billion in Britain's crumbling infrastructure, thereby mending Britain's leaking roof, whilst the sun of historically low interest rates is shining. Recent estimates, and analysis indicate that the multiplier effect for Britain is around 1.5. That is £500 billion put into the economy as government spending, results in an increase in GDP of £750 billion. Labour proposes to spread this programme over ten years, which thereby translates into £50 billion of investment per year, and an increase of £75 billion a year in GDP. But, let's deal with the total figure of £500 billion of investment.

Before doing that, let me deal with another point raised by Sky's Nial Paterson, last Sunday, who argued that putting additional fiscal stimulus into the economy at a time of near full employment would be likely to cause inflation. Firstly, although employment is certainly rising, and unemployment falling, the fact that a lot of the employment continues to be in part-time or zero hours employment, that Britain's appallingly low productivity levels indicate that a lot of labour is underemployed, typified by the large number of people in fake self-employment, shows that there continues to be a lot of slack in the UK labour market. With Brexit starting to tank the UK economy that slack is likely to increase. Moreover, if wages do rise, that will prompt firms to improve productivity, so that the net effect is likely to be a further increase in GDP, and potentially a greater multiplier effect on the back of it.

However, back to the substantive point. Labour has suggested that it would borrow £250 billion, and use it as part of a National Investment Bank to lever in additional private funds. Given the experience with PFI, I would have thought it better not to rely on such kindness from strangers. So, let us assume that Labour were to borrow the whole £500 billion for the ten years, by issuing 10 Year Gilts with a yield of 1.23%. That would mean the annual interest cost of such borrowing would be £6.15 billion per year. Assuming that such investment only resulted in a multiplier effect of 1.5, though as investment in productivity raising infrastructure it might well be expected the effect would be considerably greater, especially as much spending would suffer much less in leakages in imports etc., the overall increase in GDP would then be £750 billion. But, the immediate result of higher GDP, is that government tax revenues rise, and government expenditure on welfare tends to fall. 

For example, currently, £9 billion a year goes straight into the pockets of private landlords in Housing Benefit. If the government used some of the infrastructure spending to build council houses, so that people had houses to rent at reasonable rents, Housing Benefit could be abolished, and that alone would more than cover the annual interest cost of the borrowing for such spending. In addition, as the infrastructure spending put more people to work, in decent paying jobs, so the payments for Tax Credits, and other benefits would be slashed. As with the use of capital spending to buy shares through the issuing of bonds, the net effect would be a reduction in current spending, thereby reducing the budget deficit, and consequently facilitating the ultimate reduction in debt.

But, setting aside those current net revenue benefits of such capital spending, let's look at the immediate effect of the growth of GDP, and government revenues. According to the OECD, and other estimates, tax accounts for around 35% of current GDP. If the annual interest cost is £6.15 billion, over ten years that is £61.5 billion of interest payments. But, on the basis of a 1.5 multiplier, £500 billion of investment increases GDP by £750. In turn that means that government taxes rise by £262.5 billion. So, Andrew Neill is quite right to say, that such borrowing to cover infrastructure spending would not be self-financing in terms of the increase in tax revenues resulting from the rise in GDP, as a consequence of the multiplier. That might account for around half of the interest cost of such additional borrowing. However, as indicated earlier, this additional tax revenue is not the only net revenue effect of such investment.

As indicated, a saving of £9 billion a year on Housing Benefits alone would cover the annual interest cost; the saving on welfare benefits as workers are put to work, and wages rise, represents another significant saving on current government spending; if the infrastructure spending put Britain's productivity growth back to its historic 2% p.a. level that would add £40 billion a year to GDP, which means an increase in taxes of around £14 billion a year in additional revenues, which more than covers the £6.16 billion annual interest cost. A look at the queues of lorries and other traffic lined up for hours on Britain's motorways indicates just how much GDP could be increased by higher productivity from such infrastructure spending; a look at Britain's pathetic broadband infrastructure, and mobile phone network coverage shows how much GDP could be raised.

So, Labour's spokespeople are quite right to say that Neill is asking the wrong question. The basis of his question is flawed, because Labour's plans to borrow to invest, represent a reduction in current net spending, not an increase, and thereby also represent a reduction in the current deficit, along with a longer-term reduction in debt, and of the debt to GDP ratio. They need to do the maths to get the figures the next time he asks the questions. Its not as though they have not had time to do so, or that they shouldn't be expecting him to ask the question!

Finally, however, as I have pointed out many times in the past, the question of the cost of renationalisation is a bogus one anyway. What the government would be buying in any such renationalisation would not be the productive-capital of the business, but only the shares. As a corporate entity, Severn Trent owns its productive-capital, not the shareholders, be those shareholders private shareholders or the government. All that shareholders own is shares. There is no need for the government to renationalise companies like Severn Trent. All it needs to do, and this applies to all corporations, is to change the UK laws on corporate governance so as to limit the rights of shareholders to those of any other creditor, such as a bond holder. In other words, they should have no right to elect directors to the Board of Directors, or to otherwise determine corporate policy. Company boards should be elected from amongst the managers and workers of the company itself, as it is the company that owns the productive-capital. The shareholders should simply be entitled to receive a competitively determined rate of interest/dividend on their shares.

If Labour followed that policy, it would have no need to expend any money to buy company shares, dividend yields on shares would be competitively determined in the market as with any other rate of interest, freeing up profits for reinvestment, and companies would be run democratically by their workers and managers.

Theories of Surplus Value, Part II, Chapter 10 - Part 21

So in essence, what we have, in this example, based on durability, is the same as in the previous example, where, in the one case, a high proportion of fixed capital is employed, relative to labour, and vice versa. Marx reserves his further comments on Ricardo's analysis of machinery until Chapter XXXI “On Machinery”, which he deals with in Chapter XVIII of this volume.

Ricardo almost hits upon the solution, in his comment,

““It will be seen, then, that in the early stages of society, before much machinery or durable capital is used, the commodities produced by equal capitals will be nearly of equal value, and will rise or fall only relatively to each other on account of more or less labour being required for their production” [l.c., p. 40].” (p 197) 

But, he lets it go again, and returns to the idea of the determining role of changes in wages.

““but after the introduction of these expensive and durable instruments, the commodities produced by the employment of equal capitals will be of very unequal value; and although they will still be liable to rise or fall relatively to each other, as more or less labour becomes necessary to their production, they will be subject to another, though a minor variation, also, from the rise or fall of wages and profits. Since goods which sell for £5,000 may be the produce of a capital equal in amount to that from which are produced other goods which sell for £10,000, the profits on their manufacture will be the same; but those profits would be unequal, if the prices of the goods did not vary with a rise or fall in the rate of profits” (l.c., pp. 40-41).” (p 197-8) 

Capitals of equal size and composition produce commodities of equal value, Ricardo says, but where the organic composition is different, they produce commodities of different values. But, Ricardo defines composition in terms of fixed and circulating capital.

“Firstly, only a part of the fixed capital enters into the commodity as a component part of value, consequently the magnitude of their values will greatly vary according to whether much or little fixed capital is employed in the production of the commodity. Secondly, the part laid out in wages—calculated as a percentage on capital of equal size—is much smaller, therefore also the total [newly added] labour embodied in the commodity, and consequently the surplus-labour (given a working-day of equal length) which constitutes the surplus-value. If, therefore, these capitals of equal size—whose commodities are of unequal values and these unequal values contain unequal surplus-values, and therefore unequal profits—if these capitals because of their equal size are to yield equal profits, then the prices of commodities (as determined by the general rate of profit on a given outlay) must be very different from the values of the commodities. Hence it follows, not that the values have altered their nature, but that the prices are different from the values.” (p 198) 

Its surprising that Ricardo himself didn't reach this conclusion, Marx says, because he understands that a change in the rate of profit affects the prices of production, k + p. As Marx sets out, in Capital III, Chapter 11, therefore, if wages rise in general, so that the rate of profit overall falls, an average rate of profit continues to exist in all spheres, but in some where lots of labour is used, k will rise by more than the fall in p, so that k + p will rise. In other spheres, where little labour is used, k will rise by less than the fall in p, so that k + p will fall.

“How much more therefore must the establishment of a general rate of profit change unequal values since this general rate of profit is in fact nothing other than the levelling out of the different rates of surplus-value in different commodities produced by equal capitals.” (p 198-9) 

Ricardo essentially sets out all of the necessary elements in coming to the right solution, but fails to do so. He concludes,

““Mr. Malthus appears to think that it is a part of my doctrine, that the cost and value of a thing should be the same;—it is, if he means by cost, ‘cost of production’ including profits” (l.c., p. 46, note). (That is, outlay plus profit as determined by the general rate of profit.)” (p 199)

Back To Part 20

Forward To Part 22

Tuesday, 5 December 2017

Brexit Is Set To Bring Down The Government

The last couple of days have shown that Brexit is about to bring down the government. The government's own weakness and instability was demonstrated by the extent to which it is now under the control of the DUP, alongside the Tory Party's own Brextremist wing, around Rees-Mogg et al. But, the underlying contradictions surrounding Brexit, and particularly surrounding the Tory Party's own dilemmas resulting from the red lines it has wrapped around its neck have also begun to tighten, as delusion confronts reality, and dissembling descends into farce.

The Tories proposals for transition have been massaged into implementation, as may tried to dissemble her way into a reconciliation of those contradictions. In Ireland, regulatory alignment was conflated with regulatory equivalence. The two things are quite distinct, but David Davies showed in the discussion on Labour's urgent question, that either he does not understand that distinction, or else he must elide the distinction in order to have any hope of pulling off their dissembling manoeuvre on the issue to resolve the border issue. Regulatory alignment means that regulations are aligned to the EU regulations, i.e. they are made the same as those regulations. As Britain has no part in determining what those regulations are, outside the EU, it must agree to accept whatever those regulations are, as and when they are adopted by the EU. It leaves no room for dispute, and any dispute can only be resolved by the ECJ.

Regulatory equivalence, however, only means that the UK has a set of regulations that are equivalents of similar regulations adopted in the EU. The yard might be a standard measure of length, equivalent to the metre being a standard measure of length in the EU, for example, but it in no sense means that a yard and a metre are the same. Britain might have regulations on working hours, which are equivalent to EU regulations on working hours, but it does not at all mean that they are the same. Britain might set in such regulations, for example, that the standard working week should be 50 hours, as opposed to the equivalent regulations in the EU, being for a 40 hour week. Such distinctions are important when it comes to trading relations, because for their to be free and equal trade across unimpeded borders, it implies that a common set of such regulations should exist.

In order to try to massage the contradictions they face the Tories have obscured the distinction between regulatory and alignment and regulatory equivalence. Regulatory equivalence at the end of the day, enables Britain to have completely different regulations than those that exist within the EU, but to claim that they are “equivalent”. But, the dissembling around that issue was itself blown apart by the Brextremists of the DUP, who made it clear that if there was only regulatory equivalence, they would use the Stormont Parliament, to determine regulations for Northern Ireland that were the same as those in the rest of the UK, and not the same as those applying in the rest of Ireland/EU. It is quite clear that the Irish Republic/EU could not accept such a blatant slap in the face.

But, the problem for the Tories is that the more they are then forced to define regulatory equivalence as, in fact, regulatory alignment, the more this blows apart further contradictions in their position. Firstly, as soon as the Tories suggested that Northern Ireland could effectively remain inside the Customs Union and Single Market, on the basis of such regulatory alignment, it was inevitable that the SNP would demand that they effectively remained in the Customs Union and Single Market on the basis of such regulatory alignment too. Welsh Labour quickly said “Me too”, followed by Sadiq Khan on behalf of London. Spain has now come along to say, and the same should apply to Gibraltar. Worse, for the Tories, keen not to be outflanked by the SNP and Scottish Labour, Ruth Davison, for the Scottish Tories has piped up to say that if there is to be regulatory equivalence for Northern Ireland, then that should apply to the whole of Britain.

The reality is that if a separate deal s done for Northern Ireland, Scotland, Wales, London, and every other distinct administrative area is in its rights to argue for such a separate deal, so as to remain in the Customs Union and Single Market. That would turn the UK state into a Swiss cheese, full of holes and in tatters. Moreover, its not just geographical areas where that applies to. The government has already had to accept that it will need to stay in the European Air Safety Association, so that British planes can continue to be certified, and able to fly. A similar arrangement seems inevitable as far as Euratom, for the transportation of radioactive materials, and the European Medicines Association, so that pharmaceuticals produced in Britain can be certified so as to be sold in international markets. 

Having hundreds, if not thousands of these individual arrangements is wholly impractical, not to mention far more expensive than having membership of them directly via membership of the EU. The practical reality of regulatory alignment for the whole of the UK, is that Britain would have to remain inside the Customs Union and Single Market. But, the more that rationality imposes itself, the more the government comes into direct conflict with its Brextremist wing. In the debate on labour's Urgent Question today, it was not just Labour MP's that stood up one after another, to state the obvious that the government should just drop its red lines and accept the need to remain in the Customs Union and Single Market, not was it even just Liberal and SNP MP's that lined up to support that contention, it was Tory MP's like Anna Soubry, who stood up to say that the government had no majority in Parliament to push through a hard Brexit, and that a clear majority in the house supported staying inside the Customs Union and Single Market.

And Scottish Tory MP's who now see the writing on the wall also lined up behind Ruth Davison's argument that any regulatory alignment had to be one that applied to the whole of Britain, and not just to Northern Ireland. The government has only the backing of a rump of Brextremist MP's like Rees-Mogg, and their fellow travellers in the DUP, plus a few reactionary nationalist MP's in the Labour Party to support their position. The government is resting on a tiny pivot of support that is eroding by the day, not least by the repeated scandals that plague all such governments in their dying days. If they manage to dissemble their way to a deal over Ireland by the end of the week, it will only heighten the contradictions they face, as Scotland, and other parts of the UK demand the right to strike similar deals, tearing not just the union apart, but tearing the Tory Party itself all the more surely. This could spell not only the dying days of the government, but the death agonies of the Tory Party, as it currently exists, itself. No one should shed a tear over its demise.

Theories of Surplus Value, Part II, Chapter 10 - Part 20

Ricardo also notes that it is the changes in the values of commodities, and not variations in wages and profits, that has the biggest effect on prices of production.

““The reader, however, should remark, that this cause of the variation of commodities” (this should read variations of cost-prices or, as he calls them, relative values of commodities) “is comparatively slight in its effects. Not so with the other great cause of the variation in the value of commodities, namely, the increase or diminution in the quantity of labour necessary to produce them…An alteration in the permanent rate of profits, to any great amount, is the effect of causes which do not operate but in the course of years; whereas alterations in the quantity of labour necessary to produce commodities, are of daily occurrence. Every improvement in machinery, in tools, in buildings, in raising the raw material, saves labour, and enables us to produce the commodity to which the improvement is applied with more facility, and consequently its value alters. In estimating, then, the causes of the variations in the value of commodities, although it would be wrong wholly to omit the consideration of the effect produced by a rise or fall of labour, it would be equally incorrect to attach much importance to it…“ (l.c., pp. 32-33).” (p 194) 

Although, therefore, Ricardo, says, in Section 10 of Chapter 1, that he intends to examine the effect of changes in wages on the prices of production, he rarely actually does that. In fact, what his examples show, whether wages rise or fall, is that it is the postulation of a general rate of profit which means that prices of production must differ from exchange-values. Moreover, that variation is not, as Ricardo believes, a consequence of different ratios of fixed and circulating capital, but of varying ratios of constant and variable capital.

What Ricardo shows, by his illustration, is not what he set out to show, or thinks he has shown.

“In fact, he shows by his illustrations, in the first place, that it is only the general rate of profit which enables the different combinations of types of capital (namely, variable and constant etc.) to differentiate the prices of commodities from their values, that therefore the cause of those variations is the general rate of profit and not the value of labour, which is assumed to be constant. Then—only in the second place—he assumes cost-prices already differentiated from values as a result of the general rate of profit and he examines how variations in the value of labour affect these.” (p 195) 

In Section V, Ricardo demonstrated that the price of production of commodities can be affected by changes in wages, but not as a consequence of differences in fixed capital, in capitals of equal size, employed in different spheres, but when that capital turns over at different speeds. But, as Marx says, by reducing the difference between fixed and circulating capital essentially to a question of durability, Ricardo misses the main differences.

“Fixed capital enters wholly into the labour-process and only in successive stages and by instalments into the process of creating value. This is another major distinction in their form of circulation. Furthermore: fixed capital enters—necessarily enters—only as exchange-value into the process of circulation, while its use-value is consumed in the labour-process and never goes outside it. This is another important distinction in the form of circulation. Both distinctions in the form of circulation also concern the period of circulation; but they are not identical with the degrees [of durability of fixed capital] and the differences [in the period of circulation].” (p 196) 

Ricardo says that a capital that uses fixed capital that is less durable will employ more labour. In other words, it will continually require additional maintenance. The additional cost of this labour then raises the value of the output. But, as Marx points out, and Ricardo fails to recognise, this additional labour not only adds value to the output, it also creates additional surplus value.

If 50 men are required to be employed to maintain machinery, and each works 10 hours per day, this adds 500 hours of value to the output. But, if those workers are only paid wages equal to 250 hours, then that means that 250 hours of surplus value is produced, and appropriated by the capital.

“in the other very little would be so transferred” [l.c., p. 37].” (p 197)

Monday, 4 December 2017

Brexiteers Continued Delusion and Dissembling

So, there is no deal reached between Theresa May and the EU on the first round of Brexit negotiations. That is despite the extent to which the Brexiteers continue to present their delusions about the extent to which the EU needs Britain, and their dissembling over even the core issues of the stage 1 negotiations.

As I set out a couple of days ago, the Brexiteers continue to dissemble over the issue of the Brexit Bill. On the Daily Politics on Monday, Tory Crispin Blunt, challenged about the fact that May has collapsed over the Brexit Bill, and had now had to agree to the €100 billion gross bill (about €60 billion net) again claimed that €20 billion of that relates to Britain's payments during the transition period. It doesn't. The €20 billion that Britain must pay during the transition period is just a continuation of its normal annual subscription. The €60 billion Brexit Bill relates to the quite separate matter of what Britain owes as its share of the long-term financing costs that the EU has entered into.

As I pointed out the other day, taking the €10 billion a year until 2021, and then another €10 billion a year for five years up to 2026, to cover the Brexit Bill, and taking into consideration that its now clear that Britain will have to take out separate and individual membership of a whole series of European agencies such as EASA, Euratom, and so on, to which it will have to make subscriptions, and given the way the talks over the Irish border are going, Britain will also have to take out membership of the Customs Union and Single Market, the on going costs to Britain in the long-term are likely to be not much different to its current €10 billion a year annual subscription to the EU. The difference will be that it will continue to be subject to the rules and regulations of all these institutions, and to the ECJ, but will have no part in formulating those rules and regulations. The Brexiteers certainly are not making that truth known, because they themselves continue to delude themselves about the ability to stay outside those bodies.

Already, they have had to accept the need to remain in EASA and Euratom, a string of others will follow, and it is now clear that any deal over the Irish border is going to involve Northern Ireland effectively remaining inside the Customs Union and Single Market. Given the hostility of the DUP to any such solution that makes Northern Ireland a special case separate from the UK, the pressure is on May to drop her red lines over membership of the Customs Union and Single Market too. Crispin Blunt argued that if you are going to remain inside the Customs Union and Single Market three is no sense in being outside the EU, because you have all the responsibilities without the rights to participate in the decision making. Quite right, which is why the whole idea of Brexit is itself nonsensical. 

The Spanish seem to have missed a trick, compared to Ireland, because Spain should, like Ireland have flagged up the need for Gibraltar to remain in the Customs Union and Single Market to ensure that a free flow of goods and services etc. continued across the border. No doubt they can pick up that issue if and when talks progress further. Already, quite rightly, Scotland have said that if Northern Ireland gets a separate deal, so too should Scotland, especially as Scotland voted overwhelmingly to Remain in the EU. The Welsh Parliament has made similar comments, and London, which voted overwhelmingly to remain in the EU, should have the same rights to cut a separate deal as Northern Ireland, and Scotland, as should all of the other metropolitan areas, such as Manchester and Merseyside, which voted for Remain. In fact, one proposal of the European parliament has been to allow UK citizens to take out joint EU Citizenship, which would be a good starting point, in retaining the protection of the ECJ, and in preparation for parts of Britain remaining in the EU, prior to the whole of Britain rejoining at some future point.

The fact is that the whole of Britain will have to effectively retain EU membership via a whole series of separate bodies such as EASA, Euratom, and probably the Customs Union and the Single Market, because the idea that Britain could negotiate some kind of deal that gave all of the benefits of being in these bodies whilst not actually being in them, never was a realistic proposition, and that reality is now being revealed day by day. Some hard line Tory Brexiters like Peter Bone argue that any money or other deal that Britain agrees as part of the stage 1 talks could be withdrawn unless Britain gets the trade deal it wants in Stage 2, but again that is delusional. If Britain welshes on its debts to the EU, by not paying the €60 billion Brexit Bill, then, of course, the EU will refuse to allow Britain to join EASA, or Euratom, and so on, in which case, Britain's airlines will be grounded, and the radioactive isotopes that Britain's NHS needs, from Europe will not get shifted, and outside the European Medicines Association, British based pharmaceutical companies will not be able to sell their products in the EU, causing those companies to shift rapidly to the continent!

The DUP have made clear that if some fudge is stitched up whereby a form of words implying continued regulatory compliance is used to try to get round the issue of Northern Ireland remaining in the Customs Union, and Single market, they will simply use the Stormont Parliament to ensure that Northern Ireland's rules and regulation remain compliant with those in the UK, not those in Ireland and the EU. In other words, such a stitch up would be a non-starter. The idea of some kind of light-tough customs border would also be a non-starter, because not only does that not work seemlessly in places like Norway-Sweden, but the situation in Ireland is different. If some kind of number plate recognition cameras were installed in Ireland, not only would nationalists see this as a re-erection of the border, and so a target for attack, but all sorts of criminal elements would seek to blow up such technology. There is no problem policing such a border in Norway-Sweden, because there is no border question between those two countries. But, put even police on the Irish border to protect the cameras and technology, and they will become targets themselves. That would then lead to armed police being installed, and then troops, and then we are quickly back to the situation of 1969, and the resumption of sectarian civil war, and armed struggle, along with the bombing of the British mainland. It should also be remembered that the PIRA were far more effective in their mainland bombing campaigns than the jihadists have ever been, and without the need for suicide bombers!