Friday 30 June 2017

Friday Night Disco - Sweet Soul Music - Arthur Conley

Theories of Surplus Value, Part I, Chapter 4 - Part 115

Marx quotes the following passage from Senior, which shows he says, how little of Smith Senior had grasped, and even how confused he was in relation to the distinction between capital and revenue.

““It seems, in truth, that in this case Smith’s attention was entirely absorbed by the position of the great landowners, the only ones to whom his observations on the unproductive classes can in general be applied. I do not know how otherwise to account for his supposition that capital is only employed to maintain productive labourers, while unproductive labourers live from revenue. The greater number of those whom he calls pre-eminently unproductive—teachers, and those who govern the State—are maintained at the expense of capital, that is to say, by means of what is spent in advance for reproduction” (l.c., pp. 204-05).” (p 291)

If Senior means that the teachers live on the profit from capital, then that means that they are being paid out of revenue, not capital, because profit is revenue not capital. If Senior means that they are paid from taxes, which are levied on various commodities, then these taxes are also a deduction from revenues. Marx, elsewhere, however, has demonstrated that the labour of the teacher is productive, when it is employed by capital, with the purpose of creating surplus value. In other words, a school that employs teachers who are paid a wage, sells a commodity – education – the same as any other capitalist enterprise. If the teacher's wage is equal to 20 hours of labour, in the week, and they work for 40 hours, the school fees being set accordingly, then the teacher will produce 20 hours of surplus value.

This is true whether the education is sold to a landlord, capitalist, or worker. The distinction as to whether the teacher's labour is productive or unproductive is determined by whether it is paid for out of capital or revenue. Here, it is bought from capital, and produces a surplus value. It is productive labour. This applies equally whether it is private or state capital which employs this labour.

The distinction is rather between teacher's labour bought from capital, as here, or from revenue, for example, the capitalist who hires the services of a private tutor, and pays for those services from their profits, i.e. from revenue, and with no concern for the creation of a profit.

Senior distinguishes between the provision of services such as education or healthcare, and the product of those services. For example, a teacher may provide several hours of quality education, but this does not mean that the students will be educated by it. A skilful doctor may provide several hours of quality healthcare, but the patient may still die. The labour is paid according to the service provided not the result obtained. In this distinction, Marx says, Senior has at last adopted Smith's distinction between consumption that is either productive or non-productive, and labour which is either productive or non-productive.

“Consumption would be productive if it employed labour that either produced labour-power itself (which for example the schoolmaster’s or the physician’s labour might do) or reproduced the value of the commodities with which it was bought. The consumption of labour which accomplished neither the one nor the other of these would be unproductive. And indeed Smith says: the labour which can only be consumed productively (i.e., industrially) I call productive labour, and that which can be consumed unproductively, whose consumption is by its nature not industrial consumption, I call unproductive labour. Mr. Senior has therefore proved his genius by giving things new names.” (p 292)

Thursday 29 June 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 114

Senior is right that,
““The wealth of a nation does not depend on a numerical proportion between those who produce services and those who produce values, but on the proportion between them that is most fitted to render the labour of each more efficacious” (Senior, l.c., p. 204).” (p 289)

But, as Marx points out, Smith never denied this, he only wanted to reduce the ratio of the unproductive to the productive.

“And this is in any case the “proportion” in which they make the labour of productive labourers most efficacious. As for the other “unproductive labourers”, whose labours are only bought voluntarily by anyone in order to enjoy their services, that is, as an article of consumption of his own choice, different cases must be distinguished.” (p 289)

In other words, it may be necessary to have a certain number of police to ensure that highways are safe, and traffic flows efficiently, so that productive workers can receive materials, and get finished commodities to market more quickly, and in so doing this will increase the amount of surplus value produced.

However, if a capitalist instead uses their surplus value to hire the unproductive labour of a cook for their home or to spend money in a brothel, the unproductive labour, thereby employed contributes nothing to increasing the productivity of the workers in the capitalist's factory, or anywhere else.

The medieval barons consumed the surplus product in the shape of agricultural products, and maintained a large number of retainers on it. But, when the barons also began to consume this surplus in the form of manufactured goods, less was available to maintain the retainers who, thereby, had to be set to work.

On the other hand, in a society that is very productive, and where productive labour creates a large surplus, the owners of that surplus are able to use more of it unproductively. So, in the 19th century, Marx points out that a rapid rise in productivity, in Britain, as more machines were introduced, resulted in more profits, and a large supply of workers who could be employed unproductively, so that the number of domestic servants increased markedly.

Over the last 30 years, a sharp rise in productivity and profits, and large falls in commodity prices, including luxury commodity prices, has seen capitalists and other exploiters use a large part of their revenue for other unproductive purposes, such as speculation in financial markets.

Echoing the point made earlier, Marx comments,

“Taking two countries with equal populations and an equal development of the productive powers of labour, it would always be true to say, with Adam Smith, that the wealth of the two countries must be measured according to the proportion of productive and of unproductive labourers. For that means only that in the country which has a relatively greater number of productive labourers, a relatively greater amount of the annual revenue is reproductively consumed, and consequently a greater mass of values is produced annually.” (p 290)

In other words, a large amount of value is produced by this large number of productive workers, but their large number also constitutes a large cost of production, which must be taken out of the total product, in order for their labour-power to be reproduced.

Wednesday 28 June 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 113

[17.] Nassau Senior [Proclamation of All Functions Useful to the Bourgeoisie as Productive. Toadyism to the Bourgeoisie and the Bourgeois State]


Marx turns his attention to Nassau Senior, who wrote,

““According to Smith, the lawgiver of the Hebrews was an unproductive labourer” (l.c., p. 198).” (p 287)

Senior, in an attempt to present the immaterial labour of the doctor as material labour, writes,

““Does not the doctor who, by a prescription, heals a sick child and thus assures him many years of life, produce a durable result?” (l.c.)” (p 287)

Marx points out that this is rubbish because it would be just as durable a result if the child died, and, whatever the result, the doctor would require paying for the labour expended.

Senior also tries to present the labour of the Dutch and the English, in fighting the Spanish as productive labour, but Marx points out that productive labour requires a buyer and a seller, and in the above instances those involved were so voluntarily. 

“These insipid literary flourishes used by these fellows when they polemicise against Smith show only that they are representatives of the “educated capitalist”, while Smith was the interpreter of the frankly brutal bourgeois upstart. The educated bourgeois and his mouthpiece are both so stupid that they measure the effect of every activity by its effect on the purse. On the other hand, they are so educated that they grant recognition even to functions and activities that have nothing to do with the production of wealth; and indeed they grant them recognition because they too “indirectly” increase, etc., their wealth, in a word, fulfil a “useful” function for wealth.” (p 288)

Herein lies an important distinction between labour that represents a necessary cost and labour that is value adding. All necessary labour represents a necessary cost, but not all necessary labour adds value.

So, for example, Senior presents the case of the soldier. He writes,

““There are countries where it is quite impossible for people to work the land unless there are soldiers to protect them. Well, according to Smith’s classification, the harvest is not produced by the joint labour of the man who guides the plough and of the man at his side with arms in hand: according to him, the ploughman alone is a productive worker, and the soldier’s activity is unproductive” (l.c., p. 202).” (p 288)

Marx points out that the charge against Smith here is not correct because he would argue that the soldier's labour is productive of defence, though not of corn. The soldier's labour is necessary in the given circumstances, but not productive of value. If order is restored, the soldier's labour is no longer required. The corn would continue to be produced, and would have no less value, but now the farmer would not have to sustain the soldiers from the value obtained from the corn. Rather than adding to the value of the corn the need for the soldier's labour was an expense deducted from it.

In Capital II, Marx makes the same point about the labour-time required to produce grain stores and so on, or the cost of insurance for risky forms of production, such as sea transport. These are costs that must be covered but which represent no addition to the value of production.

Senior might argue that if a machine is invented so that 19 out of 20 workers are no longer required then these 19 workers “too are incidental expenses of production.”

Marx responds,

“But the soldier can drop out although the material conditions of production, the conditions of agriculture as such, remain unchanged. The nineteen labourers can only drop out if the labour of the one remaining labourer becomes twenty times more productive, that is to say, only through a revolution in the actual material conditions of production.” (p 289)

That is true, but only a partial response to the argument. The further point is that made earlier, which is that all necessary labour constitutes a cost of production, but not all necessary labour adds value. The 20 workers' labour constituted a cost of production. Before it could be undertaken, the labour-power itself had to be produced, and is represented by the wage. But, the 20 workers added value to the product by the expenditure of their labour. So, not only did this added value cover the cost of production represented by their wage, it also produced a surplus value. The soldier, however, represents a cost of production manifest in their wage, but their labour adds no value, so this cost is a total reduction in the produced value. Instead of adding to wealth, it is a deduction from it.

When 19 workers are no longer required, this indeed represents a reduction in the cost of production, equal to their wages. But, likewise, it is only now the labour of the 1 remaining worker that adds value. If previously, 20 workers worked for 200 hours, they added that amount of value. If they required 100 hours of value as wages to reproduce their labour-power, this represented a cost of production, but still they added 100 hours of value to production, over and above what they represented as a cost of production. 

If only 1 worker is now employed they represent a cost of production of only 5 hours, representing a saving to the cost of production of 15 hours. However, they only add 10 hours of value so that the value they add to production is only 5 hours more than they represent as a cost of production. Moreover, the 19 workers have been replaced by a machine, which also represents a cost of production. If its value is equal to 80 hours, this value is transferred to the value of production. It only thereby transfers to the value of production an equal amount of value to what it represents as a cost of production, neither adding to nor subtracting from the surplus value thereby.

Only to the extent that the machine suffers depreciation or damage, as a result of time, accident or moral depreciation does it represent a cost over and above the value it transfers via wear and tear, and thereby deduct from capital wealth.

Tuesday 27 June 2017

Why Aren't All Governments Issuing 100 Year Bonds?

Argentina has just issued a 100 Year Bond. They offered $2.75 billion in bonds with a fixed coupon of 7.9%. Despite the duration of the bond going beyond the lifetime of any average human being, speculators clamoured to buy it. They received $9.75 billion in orders, meaning that it was covered at a rate of nearly four times. So, the question is, why aren't all governments taking advantage of lifetime low rates ofinterest, around the globe, to borrow over these long periods?

Just to be clear what the fixed coupon on such a bond means; its this. If you buy a $1,000 bond, at par, in other words, you actually pay $1,000 for it, then every year, for the lifetime of the bond, you will get paid a fixed amount of money, say $100, which is the coupon. That is the equivalent of 10% interest. In fact, because the demand for such bonds, may be more or less than is supplied, the actual price that the bond is bought and sold for may be more or less than its face value. If the demand for the bond exceeds the amount of bonds issued, the price of the bond will rise, and vice versa. If the price of bonds rises, then the fixed coupon payment on them represents a lower rate of interest, or yield.

Suppose, the price of the bond rises to $1,250. In that case, the $100 coupon represents a yield of only 8%. Bonds that have been already bought get traded in the global bond markets, in the same way that shares are traded. The prices of all these bonds move up and down for a variety of reasons, and the movement of the bond prices then affects the yield on those bonds, which also plays into speculators considerations of how much they are prepared to pay for shares, or property, in order to obtain dividends or rent. There are then two things the speculators are interested in when it comes to such bonds, and the same applies to shares and property. One is the yield such assets provide, i.e. how much does it pay the owner in coupon, or in dividends or in rent. The other is the capital gain or loss. In other words, if I buy a bond for $1,000, it may rise in price to $1,250, in which case, although the rate of interest it pays me falls from 10% to 8%, it provides me with a $250, or 25% capital gain. The two things are inversely correlated.

The 7.9% fixed coupon that Argentina is providing on this bond might seem quite high, but this is Argentina we are talking about. Not the world's safest place to lend your money. The yield on an Argentinian 10 Year Bond, for example, is around 4.75%, compared to 1%, for a UK Ten Year Gilt. The current Yield on the UK 30 Year Gilt, is only 1.68%. One could easily imagine that the UK could sell a 100 Year Bond, therefore, with yields of only around 3 to 3.5%.

Imagine that you are a 20 something house buyer, and the bank offers you the possibility of a 100 year fixed rate mortgage at an interest rate of 3%. Or, imagine you are a business that needs money-capital to buy buildings, machines and so on, and the bank offers you a loan on the same basis. If you had any sense, you would snap their hand off. The reason being that over time the effect of inflation is to reduce the actual value of the interest payment. Suppose, you had borrowed £3,000 in 1960, at a fixed 3% rate of interest. It would have bought you a very nice above average house. Wages at that time were on average less than £1,000 a year. The interest on the £3,000 loan would have been £90, or the equivalent of about 5 weeks wages. However, consider what the position is nearly 60 years later. The £3,000 would today be a £280,000 house, and the £90 of interest per year, would amount to only about one day's wages, for someone on average earnings.  And, in the intervening period, your would have been laughing all the way to the bank when mortgage rates rose to over 15% in the early 1990's, and you could just have put what spare cash you had from the original loan into the bank, that would have paid you multiples in interest of what the loan was costing you.  If you had known you would have borrowed not £3,000, but £30,000, if they would lend it to you!

For the last 35 years, global interest rates have been in a secular downward trend. The underlying basis for that is that the supply of money-capital exceeds the demand for money-capital. The initial cause of that was that in the early 1980's, when this trend started, there was global stagnation. Businesses did not want to accumulate addition capital, and for what they did want to accumulate, their profits were more than adequate. By the late 1980's, and into the 1990's, although businesses did begin to accumulate capital, rapid changes in technology meant that the prices of a lot of the machines and other fixed capital they were buying was becoming ever cheaper, both in real terms and absolutely. That meant that all of the fixed capital stock suffered a significant moral depreciation, which causes the annual rate of profit to rise.

For example, in the mid 1980's, I went to computerise the payroll and accounts system of a local engineering company, and to provide them with a computer system to monitor their workflow. The firm already had CnC lathes and milling machines, which were semi-controlled by computer programmes stored on punch cards. One of the things they asked me to look at was putting those programmes on a PC, with an interface to the machine. PC's, even by that time had become so cheap that this became possible.  These same increases in productivity that had been driven by an incentive to introduce labour-saving technologies in the late 1970's, and early 1980's, had also acted to raise the rate of surplus value, and subsequently the rate of profit. Across the globe, businesses were making larger masses of profit, whilst the cost of their fixed capital was falling, and wages were also falling in real terms, and sometimes absolutely.

Even as capital accumulation proceeded, therefore, the mass of realised profits increased even faster, so that the supply of loanable money-capital kept rising faster than the demand for it, pushing global interest rates to ever lower levels. And, the other side of these lower interest rates, as set out above is that the prices of financial assets rise. It was this continual fall in global interest rates, that sent the prices of shares, bonds and property ever higher during the 1980's, and 1990's. But, this has perverse effects.

In the 19th century, in the era of the monopoly of private capital, private capitalists and their families, held their wealth in the form of actual capital, just as previously the landlords held their wealth in the form of land. They owned businesses, and all of the buildings, machines, materials etc. that made up those businesses. They owned the actual capital that produced the profits, and they took their income in the form of those profits. But, by the latter half of the 19th century that had changed. The most important part of the economy was made up of firms that were themselves legal entities, corporations, that owned the capital. The private capitalists were reduced to the role of being merely money lenders to such companies, and instead of receiving their income as profits, they received their income as interest on the money they had loaned to these companies. They received dividends on shares, and coupon on corporate bonds and debentures. Its what leads Engels to talk about them being reduced to a bunch of “coupon clippers”.

The continual fall in global interest rates has perverse effects, because it means that as the prices of the financial assets, fictitious-capital, in the shape of shares, bonds and property, continually rises by huge amounts, so the yields on these assets go lower and lower. The revenue of all these coupon clippers depends upon the yield, and so we see the phenomenon that Andy Haldane at the Bank of England described, whereby in the 1970's the proportion of profits going to dividends was only around 10%, whereas today it is around 70%. In other words, because these large shareholders have control over company boards, and appoint the top executives, to look after their interests, rather than the interests of the company, more and more of company profits goes to pay dividends, as dividend yields fall, and less and less, as a proportion goes to real investment in the business.

So, long as the mass of profit is rising by large amounts, as it was in the 1990's, that does not matter so much, because even a smaller proportion of this profit, going to accumulation, can still amount to a larger absolute amount of capital accumulation, and growth. It becomes a problem when that mass of profit starts to grow less rapidly, and when the amount paid in dividends still increases proportionally. And, at the same time, the mass of profit itself depends, both on the rate of surplus value, driven by rising productivity, and on the amount of capital/labour-power employed. If accumulation slows, so that the amount of labour-power being employed slows, and/or if the rate of surplus value falls, because productivity growth slows, then the mass of profit will grow more slowly, which creates a vicious circle, because then less capital is available for accumulation, and so on.

The reason we have seen such dramatic, and so many financial crashes in the last thirty years, is because financial asset prices have been continually driven higher, whilst that same fact has drawn more and more loanable money-capital into speculation in such assets, and away from capital accumulation. Financial asset prices have been driven ever higher, but the material basis for maintaining those asset prices, in the longer term, the ability to produce ever larger masses of profit, has been undermined by the same process, because ever larger masses of profit requires, ultimately ever larger accumulation of capital.

And the other perversion that these high asset prices has caused is that the owners of fictitious capital, lost interest in obtaining yield as a source of revenue, and instead became fixated on the capital gains they were making as their shares, bonds and property appeared to magically increase in value, year on year, month on month, day by day. The global top 0.001% own nearly all of their wealth in the form of this fictitious capital. It is the astronomical rise in the prices of these assets that gives the large rise in inequality of wealth that has been seen. Not surprisingly, the owners of this fictitious paper wealth, are keen not to see it disappear in a puff of smoke, as threatened to happen with the stock market crash of 1987, the property market crashes of 1990, and 2007-2010, or the Tech Wreck of 2000, or the financial meltdown of 2008. They want their representatives in the global central banks to keep the prices of all this paper inflated at all costs, including the cost of undermining the real economy.

And, that is why governments are not taking advantage of lifetime low interest rates to issue large amounts of 50 year, or 100 year bonds, so as to be able to invest in all of the infrastructure that their economies require, in roads, railways, broadband, telecommunications, schools, houses, hospitals and so on. Instead, the other side of propping up the paper wealth of the top 0.001%, by using money printing to buy up bonds, and keep their prices inflated, and then bailing out the banks when they go bust, is instead to impose austerity on spending, and to demand that the debt be cut at all costs.

Britain needs massive amounts of such spending to modernise its economy. Its estimated that the US needs at least $2 trillion of such infrastructure spending just to make repairs, let alone to modernise it. Similar investment is required across Europe. But, instead of central banks printing money to fund such vital projects, the central banks have instead printed money to simply stuff into the pockets of those that own all of the paper wealth, so as to keep that paper wealth at its current level. Britain could take advantage of being able to borrow at such low rates to finance its spending on infrastructure. So why don't they?

Over the last few years, companies like Apple and Microsoft that have masses of available cash on the balance sheets, have taken advantage of these historically low interest rates to borrow even more. They have used the money sometimes to buy back shares, which again inflates the share price and flatters the company's earnings per share figures. But, often the money has sat on the company balance sheet, the companies have borrowed at next to zero interest rates, just because they could, and because such opportunities may not exist in future. There is no reason why a government, like a company, or a house-buyer, would not rationally take advantage of these interest rates, which are the lowest they have been in 300 years, and may never be seen again, to borrow to meet its needs for capital spending way into the future. As inflation rises, and it will certainly rise significantly over the next 100 years, it will make the interest payments become lower and lower in real terms.

In the end its interest rates that control share prices.
Even when the economy and profits are growing,
rising interest rates cause share prices to fall in real
terms, and the same process causes bond and property
prices to fall, because those prices are based on
capitalised revenues.  Its the interest rate that most
affects the capitalisation process, especially at
absolute low levels of interest.
But, the reason that governments have not being doing that should be clear from the above. The rate of interest is determined by the demand and supply of money-capital. A major source of additional supplies of money-capital comes from realised profits. But, as the accumulation of real capital slows down, and as productivity slows, so that the rate of surplus value does not increase so fast, so the growth in the mass of profits slows down. That is already being seen, and it worries central banks, because asset prices have been massively inflated with nothing, really underpinning them. The only thing underpinning global bond, share and property markets is money printing by central banks. The US Federal Reserve, even today, having stopped QE last year, still buys large amounts of US bonds, because it replaces, with new purchases, all of the bonds it holds that each month reach maturity. The ECB is still actively adding to its stock of sovereign and corporate bonds. All of that buying pushes up the prices of those bonds, and pushes down their yields, which then has a knock on effect on shares, and property values. But, if profits begin to shrink, no amount of money-printing and buying of assets by the central bank will prevent those asset prices crashing, and crashing much harder than they did in 2008.

The central banks are trying to remove the adrenalin drip to these financial assets. But, they did that before. In the early 2000's, profits and growth were rising rapidly. Inflation also began to rise rapidly, and central banks started to raise their official interest rates, and pull back some of the liquidity they had been pumping into the system over the previous twenty years following the crash of 1987. The increases were modest, but it was enough to cause asset prices to start falling, and that was enough for all those banks and others that had made unsafe loans and mortgages, based upon ridiculously inflated property prices to go bust. But, things have not improved in the last ten years, they have got worse.  Global banks balance sheets are even more based upon a total fiction of asset prices.

Asset prices have been not only reflated, but inflated beyond the ridiculous levels they were at in 2007/8. In 2008/9, the Dow fell to 7,500, and now stands at over 21,000.  It is 50% higher than the Dow reached prior to the 2008 crash.  The diversion of money-capital into speculation rather than accumulation of real capital has further undermined the potential for profits growth. The rate of growth of productivity is slowing down. The US Federal Reserve has been raising its official interest rates, and is set to continue. It is now also saying that it will stop replacing the bonds it holds on its balance sheet as they mature. It has had little effect on the real US economy, because, in reality, the interest rate that consumers pay on credit cards etc., or that businesses pay for business loans, where they can get them, has become totally divorced from the official interest rates. But, it hasn't caused US bonds to fall in price either, because for one thing, the ECB is still buying large amounts of bonds, which means that liquidity is put into global capital markets, which finds its way to US bond markets.

I think its unlikely that central banks will withdraw their adrenalin drip without there being a financial crash, but that financial crash is coming anyway, because asset prices are astronomical, whilst profits growth is slowing, and necessarily slowing. The obvious thing for governments to have done over the last twenty years was to borrow money with the issue of very long dated bonds, and to use this money to modernise their infrastructure and their productive potential. They did not do so, because during all that time they were mesmerised by the astronomical rise in asset prices, that seemed to conjure wealth out of thin air. A veritable magic money tree. And now they are trapped. The experience of 2008, told them that if these financial asset prices crash, it can have other effects.

Large numbers of Tory voting homeowners, who have seen their house prices rocket by 2000% since 1960, or 500% just from the late 1980's, will not be best pleased when house prices fall by 80% from their current levels, to get back to the historic averages. All of those who have their wealth in the form of billions of bonds and shares, will not be pleased when those values drop by 75%, as happened with the NASDAQ in 2000, when reality bit. Yet, the truth is that none of that actually should change anything. A house is still the same house, provides exactly the same comfort and shelter whether its price is £200,000, or drops to £40,000. The drop in the value of shares, does not change the ability of the factories, and machines within them to continue producing goods and services. All that is actually required is that the state ensures that the method of making payments to provide the necessary currency for such transactions to occur, remains functioning.

That is what should have happened in 2008, allowing the banks to go bust, and share, bond and property prices to collapse back to reasonable levels. But, the central banks real interest is not with the real economy. The reason they keep their official interest rates low, and engage in money printing has nothing to do with stimulating the real economy. It is designed to keep asset prices inflated, and thereby protect the paper wealth of the top 0.001%. That is also why governments have not been taking advantage of these record low interest rates to modernise economies, and provide a sustainable basis for economic growth and prosperity.


If governments, issue large amounts of bonds, and use this money-capital for spending on infrastructure and so on, that is money that is not going into stock, bond and property markets to inflate those asset prices. It represents a demand for money-capital, which thereby causes interest rates to rise, and causes bond, share and property prices to fall. The real economy is being sacrificed on the altar of the belief in fictitious-capital.

Theories of Surplus Value, Part I, Chapter 4 - Part 112

[16.] Henri Storch [Unhistorical Approach to the Problem of the Interaction between Material and Spiritual Production. Conception of “Immaterial Labour” Performed by the Ruling Class]


“After Garnier, Storch is in fact the first writer to polemise against Adam Smith’s distinction between productive and unproductive labour on a new basis.” (p 284)

Storch distinguishes between material wealth and spiritual wealth, and argues that the former is dependent on the latter.

““It is evident that man only attains to the production of wealth in so far as he is endowed with internal goods, that is to say, in so far as he has developed his physical, intellectual and moral faculties, which implies the means for their development such as social institutions, etc. Thus the more civilised a people, the more its national wealth can grow.” ” [Storch, Cours d’Ă©conomie politique, p 136] (p 284)

Smith, of course, does not consider spiritual or any other kind of wealth, because he is only concerned with analysing the specific form of capitalist wealth. It would, of course, be the case that if one was considering spiritual wealth, or say ecological wealth, some other types of labour would be productive, and then capitalist productive-labour may even be considered destructive rather than productive.

Storch did recognise, Marx says, that the material division of labour is the precondition for the division of intellectual labour. But, in general, he does not get beyond trivialities. The problem, Marx says, is that Storch failed to locate production in its specific historical context.

“Thus for example different kinds of spiritual production correspond to the capitalist mode of production and to the mode of production of the Middle Ages. If material production itself is not conceived in its specific historical form, it is impossible to understand what is specific in the spiritual production corresponding to it and the reciprocal influence of one on the other.” (p 285)

These different modes of material production give rise to different social structures, different types of state, different relations between individuals in these societies, and also a different relation to Nature. As a result, the spiritual outlook of individuals within these different societies is also different.

But, by spiritual production, Storch also means the activities and functions of the various strata of the ruling class. In essence, his outlook is functionalist. Production of material wealth and spiritual wealth is then not historically determined but functionally determined.

“... he deprives himself of the basis on which alone can be understood partly the ideological component parts of the ruling class, partly the free spiritual production of this particular social formation.” (p 285)

He cannot then comprehend the point made earlier that some forms at least of capitalist material production are contradictory to spiritual production, and the same could be said of other forms of wealth.

“For instance, capitalist production is hostile to certain branches of spiritual production, for example, art and poetry. If this is left out of account, it opens the way to the illusion of the French in the eighteenth century which has been so beautifully satirised by Lessing. Because we are further ahead than the ancients in mechanics, etc., why shouldn’t we be able to make an epic too? And the Henriade in place of the Iliad!” (p 285)

Storch is right, however, Marx says, that others of Smith's critics, such as Garnier, had done so by instead of establishing the distinction between material and immaterial production, asserting that the production of services was material production.

Marx quotes the following passage from Storch, which he says, later writers copied from him.

““From the fact that internal goods are in part the product of services, the conclusion has been drawn that they are no more lasting than the services themselves, and that they were necessarily consumed as they were produced” (l.c., t. III, p. 234). “The original” [internal] “goods, far from being destroyed by the use made of them, expand and grow with use, so that even the consumption of them augments their value” (l.c., p. 236). “Internal goods are susceptible of being accumulated like wealth, and of forming capitals that can be used in reproduction”, etc. (l.c., p. 236). “Material labour must be divided up and its products must be accumulated before the dividing up of immaterial labour can be thought of” (p. 241).” (p 286)

Marx doesn't quote this passage because it contains any great insight. On the contrary, it contains only superficial analogies and relations between material and spiritual wealth.

“According to Storch, the physician produces health (but also illness), professors and writers produce enlightenment (but also obscurantism), poets, painters, etc., produce good taste (but also bad taste), moralists, etc., produce morals, preachers religion, the sovereign’s labour security, and so on (pp. 347-50). It can just as well be said that illness produces physicians, stupidity produces professors and writers, lack of taste poets and painters, immorality moralists, superstition preachers and general insecurity produces the sovereign.” (p 286-7)

In other words, we have a functionalist approach whereby these activities are designated as productive because they perform a function required for the mechanism of the society. For the later writers, who copied from Storch, it can be reduced to the following, Marx says.

“1. that the various functions in bourgeois society mutually presuppose each other;

2. that the contradictions in material production make necessary a superstructure of ideological strata, whose activity— whether good or bad—is good, because it is necessary;

3. that all functions are in the service of the capitalist, and work out to his “benefit”;

4. that even the most sublime spiritual productions should merely be granted recognition, and apologies for them made to the bourgeoisie, that they are presented as, and falsely proved to be, direct producers of material wealth.” (p 287)

Monday 26 June 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 111

Marx quotes Sismondi's comment that workers become ever more productive, and so capable of more easily meeting all their needs, but that if they were to consume all of this production, it would “ make him little fitted for labour” (Note p 282) But, similarly, Marx says, “the industrial capitalist becomes more or less unable to fulfil his function as soon as he personifies the enjoyment of wealth, as soon as he wants the accumulation of pleasures instead of the pleasure of accumulation.” (p 282-3)

This problem is resolved once the capitalists themselves are released from their social function in production, and become money-lending capitalists, owners only of fictitious capital. The function then of acting as the personification of productive-capital falls to the day to day professional managers. The requirement for abstinence is then more easily achieved for these “functioning capitalists” because the extension of public education, and creation of a welfare state, means they are increasingly drawn from the ranks of the working-class, and are paid an appropriate wage.

At the same time, the laws that apply to the increase in the price of the fictitious capital in the hands of the money-capitalists are not at all the same as those which apply to productive-capital. Above a certain minimum level, there is no advantage in accumulating more fictitious capital, so as to make even more, because every share, every bond is homogeneous and pays the same rate of interest to its owner, irrespective of the quantity they own. The owner of £1 million of shares in Tesco gets the same dividend yield on their shares as the owner of £10 million of the same shares, just as the owner of £1 million of UK 10 year Gilts gets the same yield as the owner of £10 million of the same bonds. The difference amounts rather to one of power. The owner of £10 million of Tesco shares gets ten times as many votes in how Tesco is run, including its dividend policy, as the owner of only £1 million of shares.

The industrial capitalist is, therefore, also driven into an overproduction, like the worker, a production for others. In this respect, Marx says, the landlords, state, clergy money-lenders, who live off revenue, siphoned from the surplus value of the capitalists, perform this function of consuming the overproduction. On the one hand, their consumption represents a direct drain of the wealth of the industrial capitalist, on the other, that same consumption provides a spur to the industrial capitalist to produce even more, so as to make even more profit.

Moreover, if the landlords etc. were to use their revenues productively, they would themselves become industrial capitalists, they would add to this potential for overproduction by increasing productive capacity, whilst restraining consumption. Marx refers in a note here to “... an extremely comical dispute between a Ricardian and a Malthusian.” (p 283) 

This is one of the four potential causes of economic crises referred to by Marx, i.e. the separation of production and consumption. In Capital III, Chapter 15, Marx sets out that the production of surplus value, and its realisation are two different things, and are even contradictory to each other.

“The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically....

This internal contradiction seeks to resolve itself through expansion of the outlying field of production. But the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest. It is no contradiction at all on this self-contradictory basis that there should be an excess of capital simultaneously with a growing surplus of population. For while a combination of these two would, indeed, increase the mass of produced surplus-value, it would at the same time intensify the contradiction between the conditions under which this surplus-value is produced and those under which it is realised.” (Capital III, Chapter 15)

He also points out that the issue of this realisation comes down to demand, but demand under capitalism is the demand of different classes and class fractions, each of which has their own source of revenue, and each of which has different consumption needs arising from these revenues. As he says, echoing his point here, a large part of consumption depends upon the consumption of these non-productive elements.

On one level, production and consumption are inseparable. Yet, commodity production and exchange does separate them, creating the potential for crises. Industrial capitalism takes that separation to a qualitatively higher level, and by creating this dichotomy, in terms of the sources of these different revenues, in production, and their expenditure as demand, in the realm of circulation, it creates the inevitability of crisis.

“Production and consumption are in their nature [an sich] inseparable. From this it follows that since in the system of capitalist production they are in fact separated, their unity is restored through their opposition—that if A must produce for B, B must consume for A. Just as we find with every individual capitalist that he favours prodigality on the part of those who are co-partners with him in his revenue, so the older Mercantile system as a whole depends on the idea that a nation must be frugal as regards itself, but must produce luxuries for foreign nations to enjoy. The idea here is always: on the one side, production for production, therefore on the other side consumption of foreign production.” (p 283)

Sunday 25 June 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 110

“Other economists, like Malthus, admit the distinction between productive labourers and unproductive, but prove to the industrial capitalist that the latter are as necessary to him as the former, even for the production of material wealth.” (p 281)

The underlying assumption here is that the purpose of production is consumption rather than the production of surplus value. In other words, it assumes that the aim is the maximisation of production, so that every increase in consumption drives this additional production, rather than that the actual drive of the industrial capitalists is only the maximisation of the surplus value, a drive which itself stems from a need to expand their own productive potential, which in turn is the means to maximise their production of surplus value.

Marx's terminology has to be read carefully here, for later readers, where he talks about “overproduction”. He is not talking, in the following passage, about an overproduction of capital or commodities, in the sense of a crisis of overproduction, but of the overproduction of the worker, in terms of what is required for his own consumption. In other words, the creation of a surplus product and surplus value.

“The labourer’s consumption on the average is only equal to his costs of production, it is not equal to his output. He therefore produces the whole surplus for others, and so this whole part of his production is production for others. Moreover, the industrial capitalist who drives the labourer to this overproduction (that is, production over and above his own subsistence needs) and makes use of all expedients to increase it to the greatest extent possible—to increase this relative overproduction as distinct from the necessary production—directly appropriates the surplus-product for himself. But as personified capital he produces for the sake of production, he wants to accumulate wealth for the sake of the accumulation of wealth. In so far as he is a mere functionary of capital, that is, an agent of capitalist production, what matters to him is exchange-value and the increase of exchange-value, not use-value and its increase.” (p 282)

This is a further illustration of the earlier discussion, in relation to the difference between Smith and Ricardo. As Marx stated, Ricardo was correct to point out that Smith gave too much importance to the value of the gross output, and not enough to the net output, i.e. the surplus value. The same thing could be seen today with an over concentration on the growth of the GDP figure.

As Marx and Ricardo point out, it is better to have 200 workers producing enough to sustain a population of 300 than to have 300 workers producing enough to sustain 400 workers. In the first instance, the output (GDP) may be only £300, and therefore, less than the latter, where it would be £400, but the amount of surplus value in both case is £100, which represents 50% in the first case, and only 33.3% in the second case. The reason is a higher level of productivity in the first case. For this reason, as Marx and Ricardo state, it is not the size of the GDP that is important, but the size of the surplus product.

On this basis, a country could even see the value of its GDP fall, and yet its economic position may have strengthened. If productivity in the country rises sharply, the value of its gross output may fall, or more likely the extent of its rise will be less than it otherwise would have been, for the reasons Marx and Ricardo describe. But, this same rise in productivity, which reduces values, at the same time, increases the surplus product relative to the gross product.

For the individual capital, this increase in the size of the surplus product is manifest in a higher rate of profit, and the ability, therefore, to employ a greater quantity of labour-power so as to produce even more surplus value. The actual need for less labour-power, to produce a given quantity of output, therefore, leads to the actual employment of more labour-power, made possible by the higher rate of profit.

The same applies to a country. The higher its surplus product, relative to its gross product, the more rapidly it can accumulate capital. The fewer productive workers it needs to produce a given mass of output – and so the lower the value of that gross output – the more capital it can create, so as to set more workers to work.

Rather than the purpose of production being consumption, 

“If the labourer’s overproduction is production for others, the production of the normal capitalist, of the industrial capitalist as he ought to be, is production for the sake of production. It is true that the more his wealth grows, the more he falls behind this ideal, and becomes extravagant, even if only to show off his wealth. But he is always enjoying wealth with a guilty conscience, with frugality and thrift at the back of his mind. In spite of all his prodigality he remains, like the miser, essentially avaricious.” (p 282)

Saturday 24 June 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 109

[15. General Nature of the Polemics against Smith’s Distinction between Productive and Unproductive Labour. Apologetic Conception of Unproductive Consumption as a Necessary Spur to Production]


“Most of the writers who contested Smith’s view of productive and unproductive labour regard consumption as a necessary spur to production. For this reason they regard the wage-labourers who live on revenue—the unproductive labourers whose hire does not produce wealth, but is itself a new consumption of wealth—as equally productive even of material wealth as the productive labourers, since they widen the field of material consumption and therewith the field of production. This was therefore for the most part apologetics from the standpoint of bourgeois economy, partly for the rich idlers and the “unproductive labourers” whose services they consume, partly for “strong governments” whose expenditure is heavy, for the increase of the State debts, for holders of church and State benefices, holders of sinecures, etc.” (p 281)

These unproductive labourers create immaterial products, but consume material products. As Marx has described, earlier, however, it is not this difference between material and immaterial products or services that defines the labour as productive or unproductive. Immaterial products can be produced by productive labour too, and material products can be created by unproductive labour. It is the exchange with capital or revenue that is decisive, i.e. whether surplus value is produced.

There is a similarity, however, in this point about the production of immaterial products and consumption of material products with another aspect of Marx's analysis. That is with the question of the rate of turnover of capital. It is a point also discussed by Bukharin in his “Economics of the Transition Period”. Marx points out that workers employed in the production of commodities with an extended turnover period, put no value into the economy, in the shape of those commodities, but all the time are taking value out of the economy, both in the shape of commodities required for their own consumption, and required for their production process.

For example, take workers building a bridge that takes five years to complete. Once built, it will put value back into the economy. Workers will get to work faster, commodities will get to market faster, and so on. But, during the five years of its construction, the workers building it will need to eat, be sheltered and clothed etc. They will throw money into circulation to buy these things. Similarly, their employers will throw money into circulation to buy steel, machines, paint and other materials required for the construction. But, the recipients of this money, will have no equivalent commodities to buy, with this money, because the equivalent is in the form of the bridge, which is only available after five years. As Marx points out, either this money must be hoarded until that time, or else it will be spent to import commodities.

Northern Soul Classics - If You Ask Me - Jerry Williams

Friday 23 June 2017

Friday Night Disco - Sweet Gypsy Jane - The Temptations

Theories of Surplus Value, Part I, Chapter 4 - Part 108

Destutt has only succeeded in showing that the industrial capitalists do not pay wages, rent or interest twice, once as money and secondly as commodities, because what is paid out first as money wages, rent or interest is “drawn back”, only in exchange for commodities of the same value. At best, the idea that this second exchange takes place on a basis favourable to the industrial capitalist explains the relative distribution of that profit. It does not, in any way, indicate the origin of the profit itself.

But, later, Destutt, echoing Adam Smith, actually alights, by accident, on the real source of the profit.

““Whence come their revenues to these idle men? Is it not from the rent which those who set their capitals to work pay to them out of their profits, that is to say, those who use their funds to pay labour which produces more than it costs, in a word, the men of industry? ”” (p 278) 

In other words, the profit arises not at all from these capitalists selling their commodities above their value, but from the workers creating more value than they are themselves paid as wages, in other words, creating a greater quantity of value than the value of their own labour-power.

“... a surplus-product which the industrial capitalist appropriates for himself, and of which he gives away only one part to those receiving rent from land and money. 

Monsieur Destutt concludes from this: not that we must go back to these productive labourers, but that we must go back to the capitalists who set them in motion.” (p 279)

If we take Smith's correct definition of productive labour being that which produces surplus value, then Destutt's argument leads to the conclusion that the only productive labourers are the industrial capitalists!

““They” (the industrial capitalists) “who live on profits maintain all the others and alone augment the public fortune and create all our means of enjoyment. That must be so, because labour is the source of all wealth and because they alone give a useful direction to current labour, by making a useful application of accumulated labour” (p. 242).” (p 279)

But, all this means is that the industrial capitalists set labour to work to produce use values. They do so by using accumulated labour to set this current labour to work. The value of the accumulated labour, in the form of wages, is less than the value produced by the labour it sets in motion.

“In the passage just cited Destutt naĂŻvely epitomises the contradictions which make up the essence of capitalist production. Because labour is the source of all wealth, capital is the source of all wealth; the actual propagator of wealth is not he who labours, but he who makes a profit out of another’s labour. The productive powers of labour are the productive powers of capital.” (p 280)

Destutt writes,

““Our faculties are our only original wealth; our labour produces all other wealth, and all labour, properly directed, is productive” (p. 243).” (p 280)

On that basis, labour is not wealth. But, the act of labour thereby produces all other wealth. Only labour which produces profit for capital is properly directed, and thereby productive.

Destutt gives a good summary, Marx says, of Adam Smith's discussion of different types of consumption, and their effect. A firework and a diamond may have the same value, Destutt says, but the former once lit, is soon consumed and disappears, whereas the latter will still exist 100 years hence to still be enjoyed. This is a similar distinction as that between material and immaterial commodities. The same is true of services.

““The most ruinous consumption is the quickest, because it is that which destroys more labour in the same time, or an equal quantity of labour in less time; in comparison with it, consumption which is slower is a kind of treasuring up, since it leaves to times to come the enjoyment of part of the present sacrifices… Everyone knows that it is more economical to get, for the same price, a coat that will last three years than a similar one which will only last three months” (pp. 243-44).” (p 281).

Thursday 22 June 2017

Theories of Surplus Value, Part I, Chapter 4 - Part 107

The third category of consumers that Destutt lists, who buy these overpriced commodities is the idle capitalists, and as the consumption of their workers also forms a part of their revenue, the two can be considered together.

“Here again there is the childish conception of the rent, etc., coming back, as there was above of the drawing back of the whole of the wages.” (p 275)

In other words, the industrial capitalist hands over £100 in rent or interest to the landowner or money-capitalist. These idle capitalists then buy £100 of commodities from the industrial capitalists, so that they “draw back” this £100. But, they achieve this “drawing back” only by handing over £100 of commodities to the idle capitalists instead! Even if they hand back only £80 in value, in exchange for this £100, they have only, in effect, reduced the amount they have handed to the idle capitalists to £80.

Destutt himself has said that rent and interest are only a deduction from the industrial profit, and so had this £100 not been deducted in the first place, it would not have needed to have been drawn back. Therefore, even had the industrial capitalist drawn back the entire £100, without giving any commodities to the idle capitalists in exchange, they would have only set this deduction from their profit to zero, rather than in any way added to it.

But, there is a further absurdity in Destutt's argument, yet one that is reflected in actual history. Suppose a landlord receives £100 in rent from an industrial capitalist. The landlord buys commodities from the capitalist with this £100. But, the capitalist sells commodities to him with a value of £80. The landlord, however, needs commodities with a value of £100. So, they sell a portion of their land to raise the additional £25 required to buy the additional commodities (they need to buy 25% more, which means £25 more than the £100 they have already paid.) 

The buyers of this land will be the productive-capitalists. Over time, therefore, all of the land will pass out of the hands of the idle landowners and into the hands of the productive-capitalists. But, at this point, the idle landowners will have no rent as revenue, and no means to buy commodities from the industrial capitalists. But, this process did, in fact, occur in history, as Marx describes.

“And Monsieur Destutt is quite right up to a certain point, although not at all in what he wants to explain. In the period of the declining Middle Ages and rising capitalist production the rapid enrichment of the industrial capitalists is in part to be explained by the direct fleecing of the landlords. As the value of money fell, as a result of the discoveries in America, the farmers paid them nominally, but not really, the old rent, while the manufacturers sold them commodities above their value —not only on the basis of the higher value of money.” (p 276-7)

Something similar has occurred more recently.  As the prices of financial assets, fictitious capital, (shares, bonds, property) bubbled to ever higher levels, so the yields on these assets fell lower and lower towards zero.  Instead of being concerned over the revenue these assets might produce, their owners became concerned only with the potential capital gains, arising from the ever higher prices.  Pension funds, depend upon the revenue from such assets to cover their future pension liabilities to pensioners, but as yields fell, they too saw the means of paying pensions being from out of these large capital gains, but which could only be realised by selling some of the underlying financial assets.  In other words, current liabilities were met by undermining the capital base of the pension fund, which then led to inadequate capital in the pension fund to cover future liabilities, particularly as yields on those assets fell to near zero.

Wednesday 21 June 2017

A Tale of Two Cities

Numerous people have noted the contrast between Grenfell Tower, and its inhabitants, and the multi million pound properties within a short distance from it, and their inhabitants.  A tale of two cities in many ways.

One wonders just how much the decisions about cladding the outside of the tower, for example, were governed by a desire that those in the multi-million pound properties did not have to look out on the brutalist concrete architecture of the tower that previously existed.  Brutalist, and perhaps less aesthetic, but at least concrete is flammable (in the correct usage, meaning that you can apply a flame to it without it burning, as opposed to inflammable meaning you can't apply a flame to it without it burning), as one of the nearby residents noted having seen a fire in one of the apartments some years ago, which failed to spread.

In Dickens' A Tale of Two Cities the activity is spread between London and Paris, with characters moving between the two.  Some of the residents of Grenfell Tower are themselves migrants and refugees from other countries.  In contrast, many of those who own the multi-million pound properties nearby are far from refugees, many are foreign millionaires, who own the property in London, not as somewhere needed to live, but as merely somewhere to stash some of their money, in an asset that government and Bank of England policies over the years have deliberately inflated, and kept inflated so as to protect the private wealth of such individuals whilst simultaneously pricing millions of workers out of being able to buy a house, and at the same time thereby causing rents to rise, and private landlords to massively subsidised to the tune of around £11 billion a year in Housing Benefit payments.

When Jeremy Corbyn, quite rightly proposed, last week, that the immediate housing needs of Grenfell Tower residents should be addressed by sequestering some of those empty properties, it brought howls of anguish from the ranks of Tories and their supporters in the media.  Their empathy towards people made homeless by such an event obviously only goes so far, as far as pretty empty words, in the aftermath, but not as far as dipping into their pockets or seeing the rights of property infringed, even unused, empty property!

Sophy Ridge, on Sunday complained that the suggestion to sequester the empty property was ridiculous because of the cost for the government to compulsory purchase these multi-million pound properties.  Absolute nonsense.  If the property is empty, and earning no rent currently, the owners are losing nothing from allowing a homeless family to live in it, and they should be compensated by the payment of nothing for it, accordingly.  Indeed, a systematic programme of occupying and squatting empty properties across the country, would be a good immediate way of dealing with homelessness, and of encouraging property speculators to get their properties occupied or sell them, and thereby would act to bring property prices down, by getting some of the 1.5 million empty properties in the country on to the market.

The fire also showed the schizophrenic nature of the government in another way.  In the London Bridge terrorist attack, 8 people were killed and 48 injured.  Within 24 hours, the troops were on the streets, in support of the police and across the country, police were knocking down doors, and hauling dozens of people in for questioning or under arrest.  A similar response came with the Westminster Bridge attack, and the Manchester attack.

But, when Grenfell Tower burned, the response of the state seems to have been completely different.  The firefighters and paramedics did the best they could to save lives, and prevent injuries way beyond the call of duty.  But, already the official estimate of deaths runs to around 80, and the residents know the real figure is likely to be more like 150.  Yet, where were the troops to help with dealing with the fire?

When there are large forest fires, Hercules transport aircraft and helicopters are used to drop fire retardant or even just water from nearby sources on to the fire.  Yet, no such help was provided in this instance.  If the £100 billion being wasted on Trident were instead used on resources for real civil defence and security, then a more effective response would have been possible.  Indeed, the £100 billion wasted on Trident would have been much better used on providing adequate fire and other safety measures in these buildings.

But, also where have been the dawn raids by police, and the arrests of those responsible for the cladding on these buildings and so on.  It may turn out that many of the people who might be so arrested, or brought in for questioning are released without charge, but so have been many of those arrested and brought in for questioning following the terror attacks.  The point is that it shows a completely different approach when it comes to businesses when such events occur.  Its much the same with Health and Safety.  Never do you see police going into firms to investigate breaches of Health and Safety Law, even while they are being sent out to break up strikes against such bad employers.


Theories of Surplus Value, Part I, Chapter 4, Part 106

Next, Destutt lists the workers as buyers of these commodities above their value. But, Destutt, by his previous argument, has made it impossible to derive a profit by selling commodities to workers above their value. He told us that these commodities are not, in fact, bought by the workers, who have no wealth of their own, but are bought by the capitalists, with their own wealth that is given to the workers as wages.

But, if it is actually the industrial capitalists who are really the buyers of these wage goods, not the workers, then, by selling them above their value, this once again amounts to to them selling them to themselves above their value, and thereby simply swindling themselves! Moreover, this applies not only to the industrial workers, but also to the workers employed by the idle capitalists, who must also buy these overpriced commodities, out of the revenues they deduct from the industrial capitalists profit.

As Marx comments,

“First the capitalist pays money to the labourer as wages. Then he sells him his product “too dear”, and by so doing draws the money back again. But as the labourer cannot pay back to the capitalist more money than he has received from him, so the capitalist can never sell his products to him dearer than he has paid him for his labour. He can always only get back from him as much money for the sale of his products as the money he has given him for his labour. Not a farthing more. How then can his money increase through this “circulation”?” (p 273)

This is the point referred to earlier. Destutt believes that the capitalist is able to make this profit by “drawing back” the money wages paid to the worker. In other words, having paid £1 in wages, the capitalist draws it back in exchange for commodities. But, what the capitalist has given to the worker is first £1 in wages, and then £1 in value of commodities. Having given out £2 in value, they have only “drawn back” £1 in money.

As Marx points out, they could hardly get rich on the back of such an exchange.

“Here, therefore, the noble Destutt confuses the circulation of money with the real circulation of commodities. Because the capitalist, instead of giving the labourer directly commodities to the value of £1, gives him £1, with which the labourer then decides as he likes which commodities he wants to buy, and returns to the capitalist in the form of money the draft he had given him on his merchandise—after he, the labourer, has appropriated his aliquot share of the merchandise—Destutt imagines that the capitalist “draws back” the wages, because the same piece of money flows back to him, And on the same page Monsieur Destutt remarks that the phenomenon of circulation is “little known” (p. 239).” (p 273-4)

As analysed previously, the surplus value arises not from those exchanges, or the circulation of money and commodities, but from production. The surplus cannot be explained on the basis of cheating.

“If I go into a shop and the shopkeeper gives me £1 and I then use this £1 to buy commodities to the value of £1 in his shop, he then draws back the £1 again. No one will assert that he has enriched himself by this operation. Instead of £1 in money and £1 in commodities he now has only £1 in money left. Even if his commodity was only worth l0s. and he sold it to me for £1, in this case too he is 10s. poorer than he was before the sale, even though he has drawn back the whole of one pound sterling.” (p 274)

The same thing applies here in relation to wages. Had the capitalist simply given the workers £1 to spend, and then sold those workers commodities, for £1, whose value was only £0.50, then they would have cheated the workers out of £0.50, but it would only thereby have reduced the loss of the capitalist, who gave the workers the £1 to spend in the first place!