Marx and the LOV (Law of Value)

When China’s production begins to slow down, when bank interest rates in the West are around zero, and sovereign bonds yield nothing, this signifies that trillions of QE ‘easy money’ is not being invested in production of value and the global economy is more or less stagnating and heading for a crash.

Michael Roberts has just written another good blog post with data supporting an impending world crash. Of course every trader, money guru and left wing academic is also predicting a crash, sooner or later. At some point it becomes so obvious it can’t be denied. When China’s production begins to slow down, when bank interest rates in the West are around zero, and sovereign bonds yield nothing, this signifies that trillions of QE ‘easy money’ is not being invested in production of value and the global economy is more or less stagnating and heading for a crash.

Still the marketeers want a full-on depression to write off debt in a storm of “creative destruction”. The Keynesians want an end to austerity and more state spending on jobs and wages to stimulate demand, regulate debt and encourage investment in production. But as everyone knows capitalists don’t invest money in production unless it returns a profit. Marx explained capitalist investment was based on the “price of production” (POP) which is the capitalist’s costs in machines, raw materials, labour power and at least an ‘average’ profit. If this POP is too low and profits fall, bosses go on strike, put their money in the bank and pray for a bailout. At least that’s the current situation.

This is not new. Marx was rediscovered in the 1960s by student radicals when the post-war boom came to a halt. The New Right blamed the workers (and the students, unions and reds under the bed) for yet another crisis because it looked like their wage demands were causing price inflation and squeezing profits. The Keynesians refused to blame the workers but could not bring themselves to blame capitalists except for blocking social democratic governments stopping the crisis. What they had in mind was the welfare state, not the warfare state.

All they had to do was read Marx and find out where they were wrong. The LOV states that only labour produces value. This is the basis on which human society has existed for millennia and on which capitalist production takes place. But because it does not justify profits, rents and interest, mainstream economists are in denial of the LOV. Yet without knowledge of the LOV we fail to understand the most elementary features of capitalism including its inbuilt tendency to crash and the inability of states to prevent crashes.

The state serves the interests of the capitalists by attempting to solve crises but it cannot take over the investment decisions of the private capitalists. It can help create the conditions to drive down the POP by cutting costs through depressions and wars, but since the essential component of all costs of production are that of labour (LOV again), then in the last analysis, the working class has to suffer “austerity”, and the historic destruction of past, present and future labour to restore the conditions for profitability.

Surely if workers knew of the importance of the LOV they would realise that resistance to austerity can only succeed by getting rid of capitalism. However capitalism is not transparent. Capitalism encrypts the way it exploits labour power as the ideology of the free market, where individuals exchange commodities on an equal basis. Though Marx cracked the code over 150 years ago, this knowledge has been suppressed by bourgeois intellectuals who continue to create a smokescreen of neo-classical economics, and social democrats who transmit bourgeois ideology into the working class via parliament, education and the media.

Knowledge doesn’t fall from the sky. It grows out of the earth. Marx was a scientist whose examination of the commodity ‘cell’ of capitalism revealed its contradictory dual nature. It was a ‘use-value’ to be consumed to meet needs, but only if it was exchanged on the market for its ‘exchange-value’ (the socially necessary labour time (SNLT) used to make it). Marx was not the first to discover that labour was the source of value any more than he discovered economic classes. But he was the first to prove that the value of workers labour time measured by the commodities they consumed was less than the total value of the commodities they produced. The difference was surplus-value realised as profits.

The LOV became much less obvious with the rise of capitalism because capitalists accumulated their capital by dispossessing producers of their land and means of production. They could then force landless labourers to sell their labour power and expropriate the surplus-value produced as profit. When labour power is sold as a commodity it is paid its exchange-value, capitalists claim the surplus-value as their profit for investing money in production, just as landowners and bankers claim rent and interest. The commodity then ‘appears’ to be the source of value and not the labour power that created it. Marx dispelled this ‘appearance’ of capitalism posing as a ‘Holy Trinity’ of land, labour and capital, by ex-posing the origin of profits, rents and interest in the surplus-value appropriated by capital from labour in production.

However, if you reject the LOV, as non-Marxists do, then you fetishize the ‘Holy Trinity’ of market shares and cannot account for crises of production except by blaming workers for demanding high wages, or economic policy for failing to boost demand. Let’s take the case of Steve Keen, a radical post-Keynesian who rejects the LOV as “mysticism” because ‘value’ is not observable. This amounts to a retreat to market price rather than value and the ‘Holy Trinity’ formula as measure of income distribution. Keen follows Minsky arguing that excessive debt creates instability deterring capitalists from investing in production. He rejects both Keynesian ‘under-consumption’ and Marxist LTRPF explanations for that of banks creating too much money. The solution is to mobilise workers to vote for governments that will prevent private debt from rising too far. This must fail because Keen makes the fundamental mistake of separating banks industry. He sees excessive debt as the disease rather than the symptom of falling profits.

Debt is the normal basis for investment in production. What makes debt ‘excessive’ is insufficient profit to meet debt repayments. In other words debt is a claim on profits. Keen’s rejection of the LOV accounts for his focus on money rather than value. Marx shows how the LOV contains the contradiction between use-value and exchange-value that leads to the Tendency of the Rate of Profit to Fall (TRPF). Workers resistance to increased exploitation (because the exchange value of their labour power will not allow them to buy and consume enough use-values to survive) forces the capitalists to continually replace their labour with better machines.

However machines do not create value they merely pass on the labour value already contained in them as they are used up in production. This means that capitalists have to continually increase the rate of exploitation of those still in work to produce enough surplus value to return a profit on the rising investment in machines. When workers succeed in resisting a rising rate of exploitation to pay for increasingly expensive machines, the TRPF causes a fall in profits.

At this point crisis sets in and rising debt represents capital that is not productively employed which must then speculate in existing assets driving up their price well beyond their value. Such investments are called ‘fictitious’ because they cannot be exchanged for value. As speculative bubbles grow banks create more money to fuel the boom. Thus excessive credit is an effect of the TRPF. So neither Keynes solution of pumping up demand to induce capitalists to invest to meet new demand, nor Keens solution of using state regulation to stop banksters creating mountains of debt, can prevent crises because they are both effects of the fundamental cause, the LOV and the TRPF which is inherent in the social relations of capital.

If as Marxists claim the LOV means that crises occur because capitalists cannot extract enough surplus value from wage labour to make a sufficient profit, then capital is to blame for crises not labour. If you reject the LOV you cannot explain why reforms do not work. You resort to genes (human nature) or dreams (Corbynomics). Without Marx and the LOV there is no scientific theory that explains why crises cannot be resolved except at the expense of workers, which is why the proletariat has to rise up and overthrow the capitalist class that exploits them. Anything less brings us closer to the inevitable crash into social and environmental oblivion. For the proletariat to live capitalism must die!

See more at: http://thedailyblog.co.nz/2015/11/03/guest-blog-comrade-dave-brownz-marx-and-the-lov-law-of-value/#sthash.ZZeE3m0j.dpuf