Theories of Surplus Value, Part II, Chapter 8 - Part 33

The way Marx sets this out is, therefore, slightly misleading. An equilibrium condition of prices in this example would be arrived at where capital had effectively left spheres I and IV, and migrated to sphere III and V, although, in reality, as described above, this would be the result of accumulation taking place in III and V, and not in I and IV, or at least faster in the former than the latter.

Marx’s example is based on a percentage allocation, and so he retains the same figure of £1,000 of capital invested in each sphere. But, from his explanation of how these prices of production/average prices are formed, and an average rate of profit established, its clear that, in absolute terms, this is impossible.

If sphere I starts with £1,000 of capital, and so does sphere III, then its impossible for capital to move from I to III, so as to increase the supply of III, thereby reducing its price, and so reducing its profit to the average, and yet, at the end of that process, for I to still have £1,000 of capital invested the same as III. Either capital has relocated to bring about the average rate of profit, or it hasn't!

For the average price of I to rise from its exchange-value of £1100 to £1200, assuming no shift in demand, the supply of I must fall, which means less capital employed in that sphere, say a reduction to £900. Similarly, for the average price of III to fall from its exchange-value of £1300 to £1200, the supply of III must rise, which requires more capital to be advanced in this sphere, say to £1100, and similarly, capital might have to be reduced in sphere IV from £1000 to £950, whilst rising in sphere V from £1000 to £1050, so as to bring about the required reductions and rises in supply so as to modify average prices and establish an average rate of profit.

But, that would mean that the actual prices of production of the output in each sphere would not be £1200, in each case, but the cost price plus the 20% average profit, which is the definition of the price of production.

A more realistic picture of the actual situation might be something like this.

Sphere	£'s	Profit 20%	Price of Production
I	900	180	1080
II	1000	200	1200
III	1100	220	1320
IV	950	190	1140
V	1050	210	1260
Total	5000	1000	6000

Marx did not set it out this way for several reasons. Firstly, it requires that input prices be transformed simultaneously with output prices. As Marx says, in Capital III, although he realised that for a complete theory such a formulation was necessary, it was not required for his immediate task of explaining the basic mechanism by which competition transforms exchange-values into prices of production, via the reallocation of capital.

His task there was to show that the view of Ricardo and others, as with Rodbertus here, that market prices fluctuated around the exchange-value of commodities was wrong, and that, in fact, they fluctuated around this price of production, i.e. cost price plus average profit.

Marx also does not set out the situation as I have done above, because, as in other examples, he provides, he relates the situation to a purely proportional basis, for clarity of exposition. It is easier to see the equalisation of profit rates at 20%, and the movement of average prices if they are related in each case to a capital outlay of £1,000. It is just that the cost of this clarity of exposition also obscures the underlying reality of how that process of equalisation is effected.

The other reason that Marx could not provide such an explication, and the reason there can be no effective algebraic model for the resolution of the transformation problem is that it requires knowledge of the price elasticities of demand in each sphere. Marx certainly was aware of the concept of price elasticity of demand, as we will see later, but the mathematical tools for analysing it were only developed later by the marginalists.

But, without such knowledge, its impossible to arrive at a complete solution. For example, above I have arbitrarily chosen a figure of £900 as the amount of capital in sphere I as representing the extent to which supply would need to contract so as to cause the equilibrium/average price of I to rise to the price of production (cost price £900 + 20% = £1080. However, the actual amount by which supply would need to fall depends on the price elasticity of demand.

Suppose, Sphere I produces butter, and the previous situation represented a supply and demand for 1100 units. Capital leaves butter production and heads for sphere III. The capital invested in sphere I falls to £900, and now the supply of butter falls to 990 units. As a result of the reduction in supply of 110 units, the price rises from its previous price of £1 per unit to 1080/990 = £1.09 per unit.

However, assume Sphere I produces bread, and while consumers may switch from butter to margarine, in the event of a higher price of butter, there are fewer substitutes for bread. Consequently, any rise in the price of bread is likely to provoke a smaller reduction in demand, and so supply will need to fall by a smaller amount to cause the same rise in its price.

Suppose then that capital fell to £950, output would fall to 1045, and the price would rise to £1.09, giving a price of production for the output of £1140, which provides the 20% profit on the £950 of advanced capital. If instead, sphere I was involved in the production of some commodity which consumers could easily find substitutes for, if prices rose, then a much larger fall in supply would be required to bring about a rise in price to £1.09 per unit, to produce the average profit.

For example, supply of such a commodity might have to fall from 1100 units to 800 units. Where the £1,000 of capital was employed previously, this reduction in supply would require a capital of just £727. The 800 units would sell at the equilibrium price of £1.09, giving a return of £872, or 20% profit on the capital advanced.

Moreover, as I have set out elsewhere - The Transformation Problem and the Elasticity of Demand - it may not be possible for a condition of general equilibrium to be established on this basis, because there is nor reason why the amount of capital that must migrate into some particular sphere so as to raise supply, and reduce prices to the price of production, is equal to the amount of capital that must move from other spheres so as to reduce their supply and cause prices to rise to the price of production.

Back To Part 32

Forward To Part 34

Northern Soul Classics - Use It before You Lose It - Bobby Valentin

Northern Soul Classics - She's Puttin' You On - The United 4

Friday Night Disco - Time - Edwin Starr

Dealing With Uber

Uber is emblematic of the gig economy, for which read the casualised, precarious, zero hours economy. It argues that Uber drivers are not its employees, but are self-employed workers. To the extent that those workers have to buy their own means of production, have to provide for their own holiday pay, sick pay, national insurance and so on, that is, of course, true. But, the reality is that the Uber drivers, like others in the gig economy, are dependent upon Uber for work. They are like the Scottish pebble collectors described by Marx in Theories of Surplus Value, who nominally sold a commodity – pebbles – to the stone cutters, but who were so numerous themselves, and so dependent upon selling to those stone cutters, that, in fact, they had to sell their pebbles to the stone cutters at prices below their exchange-value, and which only, at best, covered the pebble collectors own wages.

But, both cases, actually demonstrate the limitations of trades union solutions. In the case of the pebble collectors, the best a trade union organisation for them could have ensured would have been that the stone cutters were forced to recognise them as employees, and to try to ensure that the prices paid to them did not fall below what effectively reproduced the value of their labour-power, as trades unions did in respect of other workers paid on the basis of piece-rates. The same is true for Uber drivers. But, with Uber a further limitation of a trades union solution is illustrated.

Around 40,000 people in London are dependent on Uber for their employment. The decision of TfL has provoked a backlash, with around half a million people quickly signing a petition against it, because of that fact. This is a bit like the situation in relation to workers in less developed economies. Liberals sitting comfortably in well paid jobs in developed economies throw up their hands in horror at children being employed in Bangladesh, and elsewhere, or at workers in such countries being employed on very low wages. But, of course, in many cases, in those places, these terrible jobs, represent an improvement for those that undertake them. The children in employment, would often otherwise have been scraping a living begging on the streets or worse. The real option is often not a more civilised employment and conditions, but no employment at all, and desperate penury. As Marx put it, in contrast to the Liberal idealism of others, in his Critique of the Gotha Programme,

“A general prohibition of child labour is incompatible with the existence of large-scale industry and hence an empty, pious wish. Its realization -- if it were possible -- would be reactionary, since, with a strict regulation of the working time according to the different age groups and other safety measures for the protection of children, an early combination of productive labour with education is one of the most potent means for the transformation of present-day society.” 

The reason that workers in countries like Britain have higher standards of living is because, over the years, capital made profits, which were then accumulated, as additional capital, as competition drove each capital to seek to be more efficient so as to grab a larger market share for itself. As this caused labour productivity to rise, and the value of labour-power to fall, the rate of surplus value was driven higher, and the average annual rate of profit along with it. Even as workers living standards rose, because a given amount of wages bought an increased quantity and range of ever cheaper goods and services – and this “Civilising Mission of Capital", as Marx describes it, is also necessary for capital, in order that it is able to sell this increased mass and range of goods and services to workers – still meant that because of higher productivity, British goods and services were cheaper than those produced in other parts of Europe, let alone in places like India, or China, and its rate of profit was also higher than in these less productive economies.

“Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results. The country that is more developed industrially only shows, to the less developed, the image of its own future.

But apart from this. Where capitalist production is fully naturalised among the Germans (for instance, in the factories proper) the condition of things is much worse than in England, because the counterpoise of the Factory Acts is wanting. In all other spheres, we, like all the rest of Continental Western Europe, suffer not only from the development of capitalist production, but also from the incompleteness of that development. Alongside the modern evils, a whole series of inherited evils oppress us, arising from the passive survival of antiquated modes of production, with their inevitable train of social and political anachronisms. We suffer not only from the living, but from the dead. Le mort saisit le vif! [The dead holds the living in his grasp. – formula of French common law]"

Preface To Capital I

That is why the profits produced in the developed economies have always tended to be invested in other developed economies, rather than in low wage economies, because the rate of profit to be had from these low wage economies was generally lower than in the developed economies, despite their low wages. Far from their being “super-exploitation” in these low wage economies, as the liberals and Stalinists, and other “anti-imperialists” try to explain it, the real super exploitation is of workers in the developed economies, where the rate of surplus value is far higher, despite the higher living standards. As Marx puts it, the problems for low wage, developing economies is always that they suffer not only from capitalism, but also from insufficient development of capital. It is why, as against the reactionary socialists such as Sismondi, Marx agreed with the ruthless scientific approach of Ricardo that promoted the idea of production for the sake of production, for the most rapid development of the productive forces, so as, as quickly as possible, to develop the productive forces to a level which makes a transition to a higher form of society possible. The same idea was put forward by Lenin, who wrote,

“And from these principles it follows that the idea of seeking salvation for the working class in anything save the further development of capitalism is reactionary. In countries like Russia, the working class suffers not so much from capitalism as from the insufficient development of capitalism. The working class is therefore decidedly interested in the broadest, freest and most rapid development of capitalism. The removal of all the remnants of the old order which are hampering the broad, free and rapid development of capitalism is of decided advantage to the working class.”

Lenin - Two tactics of Social Democracy In The Democratic Revolution, Chapter 6.

Those who have pointed to the fact that Uber represents such a similar revolutionising and developing of the productive forces are absolutely right, as against those who seek to hold back such development, and who thereby also place themselves in the camp of defending existing restrictive monopolies, and entrenched power. And, the reality is that such restrictive solutions can never work, in the longer run, for workers. In the case of Uber, its fairly obvious why that is the case. Firstly, even if all of the Uber drivers join the Independent Workers Union (which they should, in any case, do, by the way), they face the same problem as the Scottish pebble collectors. That is there are so many of them, and so many more people who would take their place, that they lack the market power to be able to drive up their wages.

Suppose, as members of the IWU, they were able to exercise their own monopoly? The response has been seen many times in the past. Adam Smith thought that as capital grew and the demand for labour-power grew with it, labour would become in short supply, so that wages would be pushed up. It was his explanation for the law of the falling rate of profit. But, as Marx points out, when wages rise to such a level that they begin to squeeze profits, capital responds by introducing labour saving technology, which then causes unemployment, and causes wages to fall again.

Even if Uber drivers were able to organise so as to push up their wages, or even if the demand for Uber drivers rose to a level whereby they were in relative short supply, so that they could increase their income, what would be the response of Uber? It is already apparent. By 2020, electric cars will be becoming ubiquitous, and by a similar point, those electric cars will all begin to be autonomous, self-driving vehicles. There will be no requirement for drivers, and consequently their economic power disappears.  Higher wages for drivers simply encourages a more rapid adoption of new technological developments.  Indeed, that has been one of the main drivers in the history of capitalism towards such productivity raising technology being introduced.

Recently, on Newsnight, Paul Mason, effectively provided the answer. Within a much shorter period of time than most people imagine, in a place like London, all transport will be controlled by a single computer. The tube and other train drivers are fighting an heroic battle to protect their jobs and conditions, but ultimately it is a losing battle, as workers in other industries found in the 1980's when technology developed to be able to replace them. Driverless trains are much easier to develop than driverless vehicles. Its the disappearance of train drivers that the unions should be preparing for.

Essentially, the technology for a single transport computer organising journeys, and allocating trains, buses, and cars to passengers requirements is identical, in each of these different forms. The question is who has ownership and control over it. Given our experience of the state in the past, during the Miners Strike, the BL disputes, the actions of TfL in relation to tube workers today, is there any reason whatsoever for workers to place more faith in these instruments of the capitalist state, than there is in the executives – often the same executives – that shareholders place in control over companies like Uber? Absolutely not, which is why the statist solutions put forward on many of these things at the Labour Party Conference last week, offer no way forward.

The way forward for Uber workers, and so for others in a similar situation, is fairly clear. Uber say that the drivers are self-employed. Fine, firstly via the IWU, those drivers should take Uber at their word. They should then merge their capital, and become one single worker-owned, Uber Drivers Co-operative, and should sell their services via that co-operative. Quickly, they should develop for themselves the only thing that Uber actually has as a means of extracting surplus value from them, that is the software application. The Uber drivers could then quickly displace Uber itself, having real control over their means of production, and using their own profits to further develop the co-operative. They could exercise their own direct control not over their own working conditions, but over policing their own drivers to avoid some of the problems that have arisen in relation to attacks on passengers. That model could then be rolled out to other areas of the gig economy, but it could also link up with other areas of the transport industry, including the tube and train drivers who will face similar problems in coming years.

Theories of Surplus Value, Part II, Chapter 8 - Part 32

Continuing with the earlier example, Marx considers the situation where a definite value of £100 is used for raw materials.

I. Agriculture
Constant capital		Variable capital	Surplus-value	Value	Price	Profit
	Machinery
	100	100	50	250	233.33	[33.33=] 16.66%
II. Industry
Constant capital		Variable capital	Surplus-value	Value	Price	Profit
Raw materials	Machinery
100	100	100	50	350	350	50 = 16.66%

An equal rate of profit exists here because the agricultural product is sold below its value at £233.33, rather than £250. But, this simply means that the law of average prices (prices of production) has come into play so that the rate of profit is equalised. What Rodbertus needs to explain is why prices in agriculture remain high, and why a surplus profit continues to exist in agriculture rather than submitting to the law of average prices as in other industries.

“It becomes evident here that Rodbertus does not understand what the (general) rate of profit and the average price are.” (p 66) 

Marx then sets out the basis of prices of production, and the formation of the average rate of profit as also set out in Capital III, Chapter 9.

	Constant Capital		Variable Capital (wages)	Surplus-value	Rate of surplus-value %	Profit	Rate of profit %	Value of product
	Machinery	Raw materials
I	100	700	200	100	50	100	10	1,100
II	500	100	400	200	50	200	20	1,200
III	50	350	600	300	50	300	30	1,300
IV	700	none	300	150	50	150	15	1,150
V	none	500	500	250	50	250	25	1,250

If these five different types of commodities exchanged at their values they would sell for the money prices listed in the final column. At these prices, each sphere produces a different rate of profit as listed in the penultimate column, even though the same total capital is employed in each sphere, and the same rate of surplus value of 50% applies in each sphere.

The difference is due to varying organic compositions of capital, so that in those spheres that employ relatively more labour-power, relatively more surplus value is also produced. Its possible to consider the production in all five spheres as being the aggregate output of a total social capital. The total social capital consists of £5,000 and is divided into £3,000 of constant capital and £2,000 of variable capital. This then the organic composition of the total social capital, and the ratio in each sphere can then be compared against it.

Wherever the organic composition is higher than the total (average) composition, the rate of profit will be lower than the average profit, because it employs less labour-power, and so produces less surplus value, and vice versa.

If we take the total social capital of £5,000 and the total surplus value of £1,000, this gives an average rate of profit of 20%. Looking at commodity II, we see that its organic composition of capital (500 + 100):400 = 6:4 = 3:2, is equal to the average organic composition of 3000:2000 = 3:2.

Correspondingly, it also receives the average rate of profit of 20%.

If we take Commodity I, its organic composition of capital is 800:200 = 8:2 = 4:1, and so higher than the average, and its rate of profit is correspondingly lower, at 10%. By contrast, Commodity III has an organic composition of capital of 400:600 = 4:6 = 2:3, which is lower than the average and its rate of profit is correspondingly higher than the average at 30%.

Consequently, if commodities sold at their values, it would be impossible for there to be the same rate of profit in each sphere. But, capitalists only engage in production to make profits, and so those capitalists that had advanced £1,000 in sphere I, and only obtained 10% profit would look at sphere III, where they could obtain 30% profit, and decide to move into that production instead.

In reality, its unlikely that this would mean an immediate withdrawal of capital from I, and transfer to III, but it would mean that any new capitals being established would start business in III, and no one would choose to start a business in I. Similarly, capitalists with capital invested in I, will not add to it, but will be likely to use any profits to invest in the new more profitable area of III.

The result is that the output of commodity I does not rise significantly, as no new capital is accumulated in that sphere. But, output of commodity III rises rapidly as capital favours this production to obtain the higher profits. Supply of III rises relative to I, and so the price of III falls relative to I. As the price of III falls, so the excess profit also falls, until it reaches the average (price of production).

In reality, as the economy expands, because capital is accumulated in III and V, which have the higher rates of profit, so this expands demand for all commodities, on average. So, if the supply of I and IV does not rise, because capital shuns their lower than average profits, whilst the demand for them rises, their prices will rise, and with the rising prices will then come rising profits, until they reach the average.

In short, competition in search of the maximum rate of profit will lead to capital accumulating faster in those areas where the organic composition of capital is lower than the average and rate of profit higher, and vice versa. The supply of commodities will rise faster in the former than the latter, as a result, and so the prices in the former will fall, whilst the prices of the latter will rise. The prices of the former will fall below the exchange-value of the commodity, and for the latter will rise above the value of the commodity. An equilibrium condition is arrived at when the prices for each type of commodity result in the capital in that sphere obtaining the average profit.

Back To Part 31

Forward To Part 33

Labour Should Take Back Control of the Bank of England

Its been twenty years since Blair's government gave operational independence to the Bank of England. The experiment has been a disaster. Labour should commit to taking back operational control.

The Bank of England was charged with keeping inflation at 2%. For several years, it failed in that objective, with inflation running at 4-5%. Then it failed on the other side with Britain nearly falling into deflation, and with inflation languishing, along with economic growth, at not much more than 0-1%. Now inflation has spiked again, as the Pound falls due to Brexit, whilst wages have remained at historic lows, with the slowest pace of wage growth in the last ten years, for nearly 200 years. In terms of the task officially set it, the Bank of England, therefore, has consistently failed. But, of course, what the Bank of England has really sought to do, over the last twenty years, and particularly over the last ten years, is not to constrain inflation, or as the Federal Reserve is supposed to do, to ensure economic growth, is to keep asset prices inflated, and thereby to protect the fictitious wealth of the top 0.001%. In that it has been very effective.

The Bank of England, like the US Federal Reserve, has acted whenever those asset prices have fallen, to reduce official interest rates, and to pump additional liquidity into circulation, so that money could again been funnelled into pushing bond, share and property prices higher. When in 2007, the UK economy was being dragged forward at a rapid pace by the global long wave boom that started in 1999, the bank had to react to the sharp rise in inflation that occurred, and particularly to the fact that workers were beginning to demand higher wages to compensate for that higher inflation. Oil tanker drivers had just won, after a very short strike, a 14% pay rise, and it looked like that would set a pattern for other industries.

The Bank of England raised its official interest rates to nearly 6%. That rate, in itself was not exceptional. The interest rate in the United Kingdom averaged 7.68 percent from 1971 until 2017, reaching an all time high of 17 percent in November of 1979 and a record low of 0.25 percent in August of 2016. Historically, even the 6% rate was below average, with rates more typically ranging from 6% up to 15%. Yet, the 6% rate was enough to cause a sharp response, which led to the collapse of Northern Rock, and as other central banks raised rates, and the credit crunch unfolded, to the financial meltdown of 2008. The 6% interest rate seemed high, because in the preceding period, interest rates had been pushed down to unsustainably low levels, liquidity injections by central banks had pushed up asset prices, and equally depressed yields on financial assets.

But, shockingly, the official interest rate today is even lower than it was prior to the start of the credit crunch, and the collapse of Northern Rock in 2007, and by a very large margin. Correspondingly, asset prices have been pumped even higher than they were in 2007, whilst private household debt is back to the same unsustainable levels it was at prior to the financial crisis. A rise in interest rates will this time be even more dramatic in terms of the financial crisis that ensues than was the case in 2007 and 2008. Yet, such a financial crisis, a bursting of those huge asset price bubbles is precisely what the economy needs.

There are two levers that the state can pull to influence the economy. One is the monetary policy lever, the other is the fiscal policy lever. From the late 1980's, conservative governments across the globe put nearly all of the weight on using the former rather than the latter. That is not to say that they didn't use fiscal policy to intervene in the economy too. The capitalist economy depends upon the state intervening, because the state must provide things like education and health and social care to ensure that capital has the supply of labour-power it requires, and the state must also provide all of the huge infrastructure of roads, and other facilities that a capitalist economy requires to move goods and services around efficiently.

But, conservative government, based upon the interests they serve, of the money-lending capitalists and the landed oligarchy, placed its emphasis on monetary policy, because fiscal policy, certainly in respect of increasing public expenditure, tends to strengthen demand in the real economy, which increases the power of workers to get higher wages, and thereby to reduce profits. It also tends to cause the demand for money-capital to rise, which leads to higher rates of interest, which in turn causes the capitalised prices of financial assets such as bonds and shares, as well as of land, to fall. The capitalist class holds nearly all of its wealth in the form of these assets of fictitious capital. It does not take kindly to policies which cause the prices of those assets to fall, because it is from that paper wealth that it derives its power and influence in society.

In 1987, Thatcher in Britain and Reagan in the US, therefore, deregulated financial markets. It meant that their friends the money lenders could make big bucks from lending vast amounts of money to individuals who got deeper and deeper into debt, especially as their wages fell or remained stagnant. When global stock markets crashed in 1987, and the capitalists panicked, the US Federal Reserve, and the Bank of England intervened to reduce official interest rates, and to pump money into the economy, so that these financial assets rose once more in price. Over the last 30 years, they have continually had to repeat the exercise with larger and larger doses of money, and with official interest rates driven to ever lower levels, just to prevent the asset prices collapsing. But, with official interest rates more or less at zero, and yet with global economic activity rising, and inflation rising along with it, and with actual market rates of interest rising so as to begin to dislocate entirely from official rates, the central banks are themselves having to try to withdraw the support they have been giving.

Of course, for taking back operational control to be of use, a Labour government would itself have to use that control to benefit the real economy rather than to simply keep underpinning those astronomically inflated asset prices. It would have to be prepared to raise official interest rates, so as to burst those asset prices, whilst ensuring that the economy continued to have the liquidity it required to ensure that commodity circulation could continue unimpeded. The crash in asset prices is inevitable one way or another, because global interest rates (market rates) are inevitably rising. The question is whether that crash arises spontaneously, and unexpectedly as in 1987, 2000, and 2008, or whether it is planned for and engineered, in such a way that it does not damage the real economy, but rather benefits it.

Look at what the consequence of Bank of England, and other central bank policy has actually been over the last thirty years. Firstly, it massively inflated share prices, and bond prices. For the top 0.001% who hold nearly all their wealth in this form, that has brought about a massive rise in their nominal wealth. If we take the Dow Jones Index, it has risen from just over 800 in 1980, to more than 22,000 today. That is a rise of 2750%. That is way in excess of the increase in US GDP during that period. Now let us look at the effect of that for everyone else.

Firstly, of course, this massive rise in share prices is the main cause of the huge growth in wealth inequality. Other people, hold shares but that share ownership is massively diluted amongst the rest of the population compared to its concentration in the hands of that top 0.001%. For most people, the shares are held in pension funds, or mutual funds, over which they have no control. But, the other effect is that as these share and bond prices have been massively inflated, so ordinary people find it harder and harder to buy them. And the importance of that is clear when it comes to pensions.

In order to be able to pay out a pension, a pension fund has to take in revenues from dividends on the shares it owns, or interest on the bonds it owns. The more shares and bonds it owns, the better it is able to be able to pay out pensions. But, as share and bond prices have been pushed up to astronomic levels, the fewer shares and bonds, workers monthly pension contributions are able to buy. That together with the fall in yields on shares and bonds, which is the corollary of their higher price, means that pension funds have been increasingly unable to meet their pension commitments. That is a direct result of the fact that central banks, like the Bank of England, have pumped up those asset prices.

What it should have meant was that workers needed much higher wages, so as to be able to make much higher monthly pension contributions. But employers were not going to volunteer to do that, and wherever workers resisted the consequent cuts in their pension, such as with public sector workers, they were vilified for having done so. It means that workers wages, in the form of deferred wages (pension) have been massively reduced, so as to not cut profits, which in turn was made necessary, because a massive transfer has been made in favour of the owners of fictitious-capital.

But, even that is contradictory, and only storing up problems. With workers future pensions slashed as a result of the inflation of share and bond prices, those workers will have less revenue to spend in coming years. These will be the same workers who over the last thirty years have been driven into debt by falling and stagnant wages, and by the astronomic rise in housing costs, let alone all of the debt incurred as student debt. Either the state will have to step in to increase its support for such workers, via a higher state pension etc., or else there will be a massive drop in spending power by a large cohort of the population, which will make it difficult for businesses to be able to sell their output, which in turn will cause their future profits to fall.

A sign of that can also be seen with the other example of the consequence of the blowing up of asset price bubbles by the Bank of England. The other example is the blowing up of an unprecedented property bubble. That bubble benefits the other constituent of support for conservative governments, the landed oligarchy, who have seen the paper value of their vast estates rocket, a process that has also been facilitated by the ridiculous policy of the Green Belt, which further enhances the monopoly of that landed oligarchy.

The monetary policy adopted by the Bank of England acted to encourage speculation in all kinds of financial assets, and that spread into every other kind of asset, including land and property. Typical of every bubble in history, going back to Tulipmania, it was characterised by the mantra that it was necessary to get on to the property ladder, before prices went any higher. Bubbles are always inflated in this manner, of the bigger fool principle, i.e. that prices continue to rise so long as there is always some bigger fool prepared to pay the over inflated prices, for fear of missing out, and the bubbles collapse as soon as the supply of such bigger fools runs out.

Contrary to popular belief, the high price of houses is not the result of a shortage of supply, as I have set out many times before. There is actually 50% more homes per head of population today than there was in the 1970's. There are at least 1.5 million empty homes in the country, a fact that was highlighted recently by the Grenfell Tower catastrophe. And, as 2007/8 demonstrated, any such shortage did not stop house prices dropping 20% almost overnight. The real cause of high house prices is speculation. Every individual has been led to believe they must own one, as an “investment”, so as not to miss out on further rising prices. Some people having seen their savings produce them no interest have been encouraged to speculate in buying houses to rent, and to obtain a capital gain as prices rise.

The action of the central bank has encouraged such reckless speculative behaviour, and it was further encouraged by Thatcher's government in the 1980's, and by every government since, because higher house prices deluded some homebuyers to think they had become richer, and also encouraged them to borrow further on the back of their house price to finance further spending, which thereby acted to keep up the level of aggregate demand in the economy, at a time when wages were stagnant or falling.

But, the children and grandchildren of those people then found that they could not afford to buy these houses at these massively inflated prices. They were forced into renting. And, as house prices rose, so landlords charged higher rents, and as more people were driven into private renting because they could not buy, and council houses were not available, so that pushed up private rents further, and as private rents rose further, so that made it even more worthwhile, for private "buy to let" landlords to engage in such speculative activity. The one area where the mass of liquidity, and low official interest rates has flowed into, besides the stock and bond markets, has been into the provision of mortgages. Nearly all of the lending of banks in recent years has gone to finance mortgages, or property in some other form, in contrast to the problems of small and medium sized businesses in being able to obtain bank finance. The banks have been prepared to lend into the housing markets, at lower interest rates, because they have not wanted to cause existing borrowers to default, causing a house price crash, and because they have believed that if they do need to repossess houses they could do so without losing capital.

That kept house prices at unsustainably high levels. For all those forced into renting, and at higher and higher levels of rent, the consequence has also been to drive up the level of Housing Benefit. Private Landlords are currently subsidised to the amount of around £9 billion a year paid out in Housing Benefit. Once again, as with pensions, if workers wages had risen so as to compensate for this higher cost of living caused by the inflation of property price bubbles, then profits would have been reduced accordingly. In effect, profits have been reduced, as a result, because the £9 billion of subsidies paid to landlords from Housing Benefit does not come from a magic money tree. It comes from taxes, which ultimately means it comes from profits, which thereby reduces the potential for capital accumulation and capital growth.

When it comes to pension provision and housing provision the interest of money-lending capital has been promoted over the interests of real capital, but that can only last for so long, and that has now come to the end of the line.

The rise in house prices caused by all this speculation has also acted to cause land prices to inflate, because landowners know that they can sell land at massively inflated prices to builders, who in turn sell new houses at massively inflated prices. In turn, the massively inflated land price increases the builders costs of building new houses. One reason that builders have not increased their house building, is because high land prices mean that the surplus profits they would have made are siphoned off by the landowner, and now at the current astronomical level of house prices, the demand for those houses is very limited. That has been seen in the sharp decline in home ownership, as people can no longer afford to buy, causing the demand (as opposed to need) for houses to fall. Builders will only build houses they are confident they can sell at a price which produces them an average profit. Only if the cost of building new houses falls significantly, which also requires a dramatic fall in land prices, will the demand for houses be able to rise, so that builders can build, and sell a greater number of houses. The policy of the Green Belt, is also forcing up land prices, and forcing down the quality of housing provision, by forcing new developments on to unsuitable brown field sites.

For land prices to fall, the Green Belt should be scrapped, and more intelligent planning policies put in place to prevent urban sprawl, and to develop attractive environmentally sustainable housing. But, for land prices to fall, first the astronomical house price bubble itself must be burst, and that requires that interest rates rise, and that the current measures inflating speculative demand for property be removed. That would act to massively reduce workers housing costs, raising real wages, spurring house building, and also facilitating a rise in profits at the expense of fictitious capital. It would act to stimulate economic activity, at the expense of financial speculation.

Labour should then take back control over the Bank of England. It should seek to burst the existing bubbles that are damaging and destabilising the real economy. It should do so, whilst preparing to ensure that the mechanisms for money transmission within the economy, required to circulate commodities and capital remain fully functional. There is absolutely no reason why a banking and financial crisis should impact on the real economy, if such provision is put in place. On the contrary, a financial crash, bursting those bubbles is exactly what the real economy requires, in order to repair itself.

Labour should use control of the Bank to raise official interest rates, and to withdraw the QE put into the economy. When share and bond prices fall, the cost of pension provision will fall along with it; when property prices crash, the cost of shelter for workers will fall dramatically too, raising real wages, and providing the basis for a rise in house building. A rise in interest rates will also mean that workers can again begin to see some safe return on their savings, rather than being pushed into speculative activity.

A rise in interest rates will not depress economic activity. If we take companies, they place their surplus funds in their bank, and a higher interest rate means they will obtain a better return on it. When those funds have reached the minimum level required to make a new investment, they will not then be borrowing money at these higher interest rates, but will simply be drawing down their own accumulated profits, stored in their bank account. Moreover, for all those millions of small and medium sized companies, they currently cannot borrow, or else in order to borrow they are forced to borrow from other sources such as peer to peer lenders, at rates of around 10% p.a. or else to use their own credit cards etc. with rates of interest up to 30% p.a.

The same applies to the millions of individual workers. The 0.25% official Bank of England interest rate is meaningless to them as they borrow at 30% p.a. on their credit card, or at 4000% p.a. on their payday loans, simply in order to make ends meet from one week to another. Far more significant for them will be the reduction in their living costs as rents and house prices collapse. More important for them, will be if a Labour government switches from a reliance on monetary policy to a return to the use of the fiscal levers so as to increase spending on infrastructure etc. so that more people are put back to work, in decent permanent jobs, at decent wages.

All that a Labour government need do is to ensure that as financial markets collapse, the payments systems of the economy continue to function, so that business can continue to pay their workers wages, and those workers direct debits for goods and services continue to be paid out from their accounts. None of that requires banks lending activities, certainly not their lending activities for speculative purposes to continue. As Marx describes in Capital III, the bankers have tended to delude everyone into the belief that all the money they advance to their customers is an advance of capital, whereas in 90% of cases, it is nothing more than those customers accessing their own funds that have been deposited with the bank. So long as a Labour government, via the Bank of England, guaranteed those deposits, there is no reason why a financial crisis should pose any problem for the real economy. It is only a problem for the speculators, and the owners of fictitious capital, who see the paper price of those assets collapse.

Theories of Surplus Value, Part II, Chapter 8 - Part 31

[6. Rodbertus’s Lack of Understanding of the Relationship Between Average Price and Value in Industry and Agriculture. The Law of Average Prices]

If we take capital employed in mining, where there are no new materials used, we might have:

c 500 + v 500 + s 200. s' = 40%, r' = 20%.

The 500 c is just for machinery. 

In a business where, in addition, £500 of materials are used, we would have:

c 1000 (500 machines, 500 material) + v 500 + s 200. s' = 40%, r' = 13.33%.

The first case applies where the capital is employed in transport or some other industry, where material is not processed. In the second case, if the constant capital remained 500, but divided as 100 for machinery and 400 for materials, then it would still be:

c 500 + v 500 + s 200. s' = 40%, r' = 20%.

According to Rodbertus, it is only in industry that the cost of raw materials enters, as they are reproduced in kind in agriculture. So we might then have:

I. Agriculture
Constant capital	Variable capital	Surplus-value	Rate of profit
Machinery
100	100	50	50/200 = 1/4
II. Industry
Constant capital			Variable capital	Surplus-value	Rate of profit
Raw materials	Machinery
x	100	[=x+100]	100	50	50/200 + x

Whatever the value of x might be, it is then clear that the rate of profit in industry must be lower than in agriculture, and it is this difference that Rodbertus thinks is the basis of rent.

“Firstly then, this difference between agriculture and manufacture is imaginary, non-existent: it has no bearing on that form of rent which determines all others.” (p 65)

But, secondly, the difference is a consequence of different organic compositions of capital, and such differences exist between all industries, not just between agriculture and manufacturing. Such differences, therefore, have nothing to do with ground rent.

Only if the value of raw material used in manufacture fell below the cost of labour would the rate of profit in manufacture be similar to that in agriculture, so that there would be no room for rent, Rodbertus argues.

““But in so far as, in practice, as a rule, conditions gravitate towards the law that value equals labour cost, so, as a rule, ground-rent is also present. The absence of rent and the existence of nothing but capital gain, is not the original state of’ affairs, as Ricardo maintains, but only an exception” (p. 100).” (p 66)

Back To Part 30

Forward To Part 32

Labour Is Getting Bamboozled Over Nationalisation

Labour has committed to renationalising a series of industries from rail to mail. The policy presents a gift to the Tory media to ask the question of where the money for such policies will come from. In fact, there is no reason for Labour to “nationalise” these industries, because their capital is already “socialised”. All that Labour needs to do is to change the laws on corporate governance, so as to prevent shareholders from exercising any control over it, and that would cost a Labour government nothing. It also deals with the problem of “capital flight”.

Let's deal with the facts. When an individual sets up a company, and uses their own money-capital to do so, they use their money to buy premises, machines, materials and to employ labour-power. They no longer then own money-capital, because it has been metamorphosed into productive-capital. Instead of owning money-capital, they now own productive-capital, and it is up to them what they do with it. 

But, such an individual may also borrow some money-capital from a bank, which they then metamorphose into productive-capital. The bank lends this money-capital for a given period of time, at a given rate of interest. The bank continues to own this money-capital, even though it is not in their possession. They can ask for it back within the terms of the loan agreement, along with the interest. However, the bank does not own the productive-capital that the individual private capitalist has bought with this money. That belongs to the individual capitalist, and they control it, not the bank. Provided the individual capitalist conforms to the loan agreement, and makes the required repayments, the bank has no more right to tell them how to use their capital, than it does to tell a homeowner, what colour to paint their living room, just because they gave them a mortgage to buy a house.

But, larger businesses require more money-capital, in order to be able to undertake business on a larger scale than does an individual private capitalist. Moreover, the cost of borrowing these larger sums is lower if other means of financing are used. A large company might, for example, issue bonds or debentures, and these can be bought by the public, and financial institutions. Such bonds offer to pay a fixed amount of interest, or coupon, for the duration of the bond, and to give back the face value of the bond to the buyer at the end of this period. Once again, the lenders, who buy these bonds, do not have control over the productive-capital that the company buys with the borrowed money.

An economic and legal agreement is entered into by the borrower and lender, the bond issuer and bond buyer. The former agrees to pay the latter the market rate of interest on the money-capital they lend, and to return their money-capital to them at the due date. But neither the economic nor legal agreement requires the borrower to give the lender control over what they do with the borrowed money, or over the productive-capital they turn it into. Once again, the lender, the bond buyer, remains the legal owner of the money-capital, although in return for interest, they have temporarily given up possession and control over it. The borrower, the company issuing the bond, does not own the money-capital, but they have possession of it, and control over its use, including the right to use it as capital, to metamorphose it into productive-capital. The interest they pay, is the price for that usage of the money-capital, of its potential to create for them the average rate of profit.

The company that has borrowed the money-capital does not own the money-capital, but owns the real capital that it has been metamorphosed into. It is that real capital that produces the profit, that enables the interest to the money lender to be paid. The money lender, or bondholder, owns the money-capital, that they have rented out to the productive-capitalist, in return for a bond that pays them interest. This bond is not real capital. It is fictitious capital. That is, unlike the real capital represented by the factory, machines, materials and labour-power, it has no power of its own to create profit. Its own value increases, only because the productive-capitalist uses it to acquire productive-capital to engage in production of goods and services, and thereby to create a profit.

A company that issues shares, is then no different than a company that borrows money from a bank to use to turn into productive-capital, or which issues bonds to obtain money, which it uses to turn into productive-capital. These are just different ways of a company obtaining money, to use as money-capital, which can be turned into productive-capital, which the company owns, and uses to produce profits. Logically, those who lend money to companies by buying the company's shares, have no more right to demand control over the productive-capital that the company acquires with that money, than do bondholders, or banks who make such loans. Yet, they do.

As FT columnist and author John Kay writes, in a piece with Aubrey Silberston,

“... do BT shareholders own BT? Begin by noting the difference between the statement “BT shareholders own their shares in BT” and the statement “BT shareholders own BT”. There is not much doubt that the first of these is true. They enjoy the rights of possession of their shares – even under CREST, you can still insist on holding a physical share certificate if you want one. And no-one will dispute your right to the income from the shares, or to the capital value of your shares, or argue with you if you want to sell them or give them away. You may not use your shares harmfully – it is difficult to think of how you might – and your creditors may take them over when you fail to meet your obligations.

But none of this means that the owners of BT shares own BT – after all, investors own BT bonds, landlords own BT premises, and lessors own BT equipment, but no-one would suggest that BT itself is owned by these investors, landlords or lessors. The claim that BT is owned by its shareholders implies that there is something special about their contract with the company which means that they are owners, not just of that contract, but of the company itself.”

There is no logical, economic or juridical reason that shareholders should be any different to bondholders, or a bank that lends money to a business, in terms of being able to exercise control over capital, which they do not own, i.e. the firm's productive-capital, which has been bought with the borrowed money. Indeed, there is no such reason why they should exercise any control over the use of the money they have lent either. By agreeing to pay interest, in the form of dividends, the company has agreed to pay the market rate of interest to the lender of the money, precisely in order that the company, not the lender should be able to exercise that control, and obtain the use value of the capital to produce profits. To use Kay and Silberston's example, taken from Honore, it would be like someone agreeing to lend you an umbrella, for a given charge, but then continuing to use the umbrella themselves, or dictating how and when it could be used.

The only reason that shareholders have this unwarranted right, to determine company policy, to appoint Boards of Directors, and company executives comes down to a question of political power, just like, in the past, the political power of the landed aristocracy allowed them to pass legislation through Parliament that gave them unwarranted rights and privileges. The owner of a company's actual productive-capital, is the company itself as a legal entity in its own right. And, the company can be nothing other than the people employed by it, from the most important manager, down to the day labourer who sweeps the floor. The company is nothing other than these “associated producers”, and it is they who should exercise democratic control over the company's capital not the shareholders, who merely loaned money to the company in return for interest, and the potential for capital gains, if the company's shares increased in price.

Other countries have recognised this simple fact, and at least partially acted upon it. Germany, for example, established co-determination laws, back in the middle of the 19th century. They guarantee the workers in company's over a minimum size the right to elect half of the supervising boards of the company. In 1975, Harold Wilson asked Alan Bullock to undertake an inquiry into industrial democracy in Britain, along similar lines. The Bullock Report, proposed changes to company law that were slightly more far reaching than the co-determination laws in Germany, which still enshrine a majority for shareholders by giving them the casting vote of the Chair. And at the same time the EU, in its Draft Fifth Company Law Directive, made proposals to extend such industrial democracy across the whole of the EU.

But, in the late 1970's, conservative governments, like that of Thatcher in Britain came to power. These conservative parties are based upon the owners of fictitious capital, share and bondholders, as well as the remaining small private capitalists. Despite the fact that the Tory media talk about Labour being hostile to business, it is actually these conservative parties that are hostile to actual business, because instead they look after the interests of these money lenders, that seek to drain money from businesses, in dividends and other such payments, and thereby reduce the ability of businesses to invest and to expand. The political power of conservative parties and politicians from the 1980's onwards, prevented the further development of industrial democracy that was required to ensure that large-scale socialised capital could be managed and organised rationally and democratically, and instead increased the power of the money lenders, and of fictitious capital. It was part and parcel of blowing of financial asset and property bubbles, and of massively increasing debt that these parties promoted in the 1980's and 90's, and which led to the financial meltdown of 2008, and the even bigger one to come.

So, there is no need for a Labour government to spend any money nationalising any companies. The large companies are already socialised. They already own their own capital. It is merely that current company law allows shareholders to exercise unwarranted control over capital they do not own, and which actually belongs to the company, to the workers and managers within each company. Why on Earth would a Labour government pay money to shareholders to buy back real capital that does not belong to those shareholders in the first place? That makes no sense. They could, of course, pay money to buy back the shares that those shareholders own, but again why would you want to do that? In order to to raise the money to buy the shares, the government, or the workers in the company would have to borrow the money on the capital markets, and by and large, the people who would be lending the money on those capital markets, for example to buy government bonds, are the same people who already own the majority of shares. It would simply be swapping shares for bonds!

All that a Labour government need do is to change Company Law. That overnight would change the relationship in every company. It would simply say that shareholders had no right to elect boards of directors, or to appoint executives of companies. It would vest that right where it belongs, democratically in the hands of the company itself, of its associated producers, the workers and managers within the company. The shareholders would continue to have the right to exercise control over the only thing they do own, their shares. They could buy and sell them as they wish, and would be entitled to receive a dividend on them. The company would have an economic imperative to pay dividends that matched the market rate of interest, because if they did not, they would be unable to raise additional funds by selling more shares, and the price of their own shares would fall, so that they were less able to use those shares as collateral.  In the end, that is even beneficial to shareholders and bondholders, because with more of the profits being invested productively, rather than paid out in dividends or inflated salaries to executives, all companies would produce more profits, which means they could then pay out more in interest.

There would be no cost to workers or to a Labour government of such a policy. Moreover, it does away with the problem of capital flight. What a company is actually concerned with, what enables it to make profits so as again to be able to invest, is not its shares, but its actual capital. Shareholders can be free to sell their shares, as part of a process of capital flight, if they choose. It will not affect the real capital of the company, its buildings, machines and so on, which have been bought from the money raised long ago, in the issue of those shares. All of that real capital would continue to function unchanged. It would be the shareholders who would lose out, because all they own is shares, bits of paper, and the more they sell those shares, the more the value of the shares they own gets reduced. They would simply be reducing their own fictitious wealth.

In fact, as I've set out previously, its because of that fact, that if I were a Labour Chancellor, one of the things that I would do, alongside changing the laws on corporate governance, as described, would be to scrap Corporation Tax, and instead to place that tax burden on dividends, capital gains, and via a wealth tax. After all, we want companies to use their corporate profits to expand the company, and with workers exercising control over those profits, they would have a direct interest in doing so. Workers in control over their own companies would not take kindly to a large chunk of their profits, and potential for growth being taken by the taxman. Instead, by more heavily taxing dividends, and other forms of unearned income, along with heavier taxation of capital gains, which are by definition unearned income, and through a wealth tax on all financial assets, and property over a minimum level of say £10 million, a Labour government could bring about a powerful economic boost that would itself generate the tax revenues to finance other aspects of its agenda. 

Theories of Surplus Value, Part II, Chapter 8 - Part 30

Reproduction occurs in all forms of production, but its only in agriculture that it coincides with a natural reproduction, Marx says. In other words, agriculture, in producing grain, also produces seed, the chaff and other waste vegetable matter forms fertiliser, chickens not only produce eggs and poultry for consumption, but also produce a replacement generation of chickens and so on.

We might today consider recycling so that, for example, scrap steel is used in the production of new steel, but this is not a use of the product in its natural or original form. It does not reproduce the iron ore consumed in the original production. Similarly, although coal is used to fuel the steam engines in coal mines, it forms an auxiliary material, rather than a raw material. It does not reproduce coal, but only participates in the extraction of existing coal, as a means of reproducing that consumed.

All products, whether agricultural or industrial, become means of production unless they are solely for consumption. Even in respect of the latter, they are thereby a means of production of the producer themselves. In other words, they form part of the commodities required for the reproduction of the worker.

Nor is agricultural production differentiated from industrial production by the fact that agricultural products enter into production as commodities.

“... they go into production just as they come out of it. They emerge from it as commodities and they re-enter it as commodities. The commodity is both the prerequisite and the result of capitalist production.” (p 63)

Agricultural products act as means of production in the production of themselves, but the same is true with machines that build machines, coal that helps extract coal, transport coal and so on.

In agriculture, the process of natural reproduction may mean that these means of production are reproduced in kind, as use values, directly from output, but that does not change the fact that these use values are also commodities.

“He is evidently thinking of the time when agriculture was not as yet a trade, when only the excess of its production over what was consumed by the producer became a commodity and when even those products, in so far as they entered into production, were not regarded as commodities. This is a fundamental misunderstanding of the application of the capitalist mode of production to industry. For the capitalist mode of production, every product which has value—and is therefore in itself a commodity—also figures as a commodity in the accounts.” (p 64)

Back To Part 29

Forward To Part 31

Theories of Surplus Value, Part II, Chapter 8 - Part 29

On the basis of excluding an entire category of expenses, therefore, Rodbertus necessarily derived a higher rate of profit in agriculture than manufacturing.

Marx summarises the three wrong propositions put forward by Rodbertus.

Firstly, surplus values are not proportional to values. Secondly, given an average rate of profit, commodities do not exchange at their values, but at prices of production. Thirdly, the value of raw material, reproduced in kind, in agriculture, does form a part of the constant capital in agriculture, and a cost of production against which the profit must be measured, to obtain the rate of profit.

The more production becomes capitalist production, the more the products either consumed directly, by the farmer, or reproduced in kind, are also commodities, sold at money prices, with other commodities bought for their own consumption, or else as means of production also bought at money prices.

“Since wheat, hay, cattle, seeds of all kinds etc. are thus sold as commodities—and, since this sale is the essential thing, not their use as a means of subsistence—they also enter into production as commodities and the farmer would have to be a real blockhead not to be able to use money as the unit of account.” (p 61)

Whether the farmer sells grain on the market, and from part of the proceeds buys seed from a seed merchant, or else retains the equivalent portion of their output to replace the seed in kind, makes no difference, because in the latter case, the farmer has simply sold the seed to themselves; it represents simultaneously a receipt and an expense.

“It is therefore wrong to say that there is a part of capital which enters into industry but not into agriculture.” (p 61)

If the surplus value is proportionate to the value of the commodity, as Rodbertus wrongly claimed, then if the agricultural and manufactured products exchanged at their values, as Rodbertus also wrongly claimed, there could be no disparity in the rate of profit, in each sphere, and so no basis for an agricultural rent.

Continuing with the summary of the faulty propositions set out by Rodbertus, Marx refers to his inclusion of the wear and tear of fixed capital, under the heading of variable-capital, i.e. the part that creates surplus value. That inclusion, whilst omitting the value of raw material, used in agriculture, provided Rodbertus with the conclusion he sought from the start, of a higher rate of profit in agriculture.

In summarising the fifth wrong proposition, Marx exposes the farcical nature of Rodbertus' argument. On the one hand, Rodbertus says that the raw materials produced in agriculture, represent a capital outlay in industry, because they are bought from outside industry. Therefore, the outlay in industry consists of raw material plus wages. But, he argues that in agriculture the raw materials are not bought from outside, but provided in kind, internally.

On that basis, then, Marx says, Rodbertus should reason that machines and tools, and other industrial commodities, used in production, are provided internally, in kind, by industry, and so should not comprise part of its outlay. But, those industrial commodities used in agricultural production are then equally bought from outside agriculture from industry, and so should only form part of agricultural outlay.

But, then some of the cost of producing the tools, machines, and other industrial commodities, used in agriculture, consists of raw materials and so on.

The sixth wrong proposition concerns the areas where no raw material is used. For example, forests existed without needing to be planted, minerals exist in the ground, fish in the sea, lakes and rivers. Apart from auxiliary materials, for machines etc., therefore, its true that the production of timber, ore, fish and so on requires only fixed capital and labour-power.

But, that is not true of agriculture. Even forests, when developed commercially, require replanting. Moreover, the same applies to large sections of industry. For example, the transport industry uses only fixed capital, and labour-power, alongside auxiliary materials. It processes no raw material, as part of the production of an end product.

Marx also says,

“Finally, there are certainly other branches of industry, such as tailoring etc., which, relatively speaking, only absorb raw materials and wages, but no machinery, fixed capital etc.” (p 63)

Today, that argument would not apply, as mechanisation has been introduced into more or less all forms of physical production. However, today the vast majority of industry is service industry, where it is only in limited areas where raw material is processed. Bars and restaurants may take raw materials from agriculture that is processed on the premises, in the production of meals, but, more often, their raw material comes to them semi-processed by industry – breweries, food processing etc.

The largest part of service industry production consists almost entirely of fixed capital, labour-power and auxiliary materials.

“In all these instances, the size of the profit, i.e., the ratio of surplus-value to capital advanced, would not depend on whether the advanced capital—after deduction of variable capital, or the part of capital spent on wages—consists of machinery or raw material or both, but it would depend on the magnitude of the capital advanced relative to the part of the capital spent on wages. Different rates of profit (apart from the modifications brought about by circulation) would thus exist in the different spheres of production, the result of their equalisation being the general rate of profit.” (p 63)

Back To Part 28

Forward To Part 30