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

Is a China meltdown the end of capitalism?

Massive chemical explosion in China is a metaphor for an economic 'meltdown'

The global ruling classes are beginning to panic about the slowing down of China. Will a China ‘meltdown’ mean a new ‘Great Depression’ and even the end of capitalism? This question has been debated furiously throughout the history of capitalism each time crises led to depression and war. Since the early 20th century capitalism has destroyed the productive forces to survive. Each crisis brought deeper depressions, more destructive wars, and abortive revolutions. The question posed again and again was: socialism or barbarism?

Today, as we face another ‘Great’ depression and the threat of a Third World War, the question is posed again: is this the end for capitalism? We argue that since WW1 capitalism was ripe for socialist revolution. But capitalism can always stagger on like a violent drunkard to another economic crisis and world war, unless there is a Marxist party leading the world’s workers to its overthrow. This time we know the crisis is terminal because the survival of capitalism means certain ecological disaster: Socialism or Disaster!

We have been there before!

Marxists know that capitalism was objectively ripe for revolution at the turn of the 20th century. Capitalism had ceased to function as national markets competing with one another. Rival nations now exported capital to other countries to counter falling profits. This led to the epoch of imperialism characterised by monopoly state capitalism that competed for the world market by means of diplomatic, trade and military wars.

Not only was monopoly capitalism destructive compared with its progressive 19th century phase, it was holding back the huge productive potential of socialism. Objectively capitalism was ripe for overthrow as its worsening crises sparked revolutionary uprisings. However, rotten imperialism would not fall over by itself. It had to be pushed over by the class conscious proletariat led by a Marxist vanguard party.

This was proved in the Russian revolution which ended the First Imperialist War when the warring imperialist powers buried their differences to invade the new Soviet Union to smash the revolution. They were defeated by the Red Army under Trotsky but the revolution was contained in Russia and failed to spark a victorious world revolution. In the other imperialist countries ripe for revolution, the Marxist parties had degenerated into tame bourgeois tools bought off by colonial super-profits.

The reason was not the ‘objective’ factor of backward workers in every country who did not spontaneously throw out their treacherous leaders and rise to revolution. It was the missing ‘subjective’ factor of the revolutionary party necessary to break then away from petty bourgeois misleaders. Only in Russia had a Marxist vanguard party - the Bolsheviks - become strong enough to build a mass vanguard of the proletariat and win over the reformist majority in the soviets to form a Workers Government.

But even after the bosses and their lackeys ganged up on the Soviet Union and suppressed revolutions elsewhere, the capitalists hadn’t removed the threat of revolution. To smash the workers movement in Europe and America they used fascist mobs and mercenaries like the Pinkertons to kill the workers leaders and smash their organisations. Again fascism failed to destroy the working class in the great depression and once more the imperialists went to war driving their workers to the fronts to slaughter one another.

The defence of the USSR led to victory in the Second Imperialist war at a cost of 30 million dead. But again the worldwide spontaneous worker uprisings never led to world revolution. What was missing was the Marxist international capable of mobilising the power of the world’s workers. The post war revolutions were led by Stalinist bureaucracies on the back of the Soviet Union and formed a bloc of Soviet states. They were not Marxist revolutions based on a class conscious proletariat. They could not create a world revolution, and under pressure from global imperialism in crisis, restored capitalism in the late 1980s and early 1990s.

The return of Russia and China to global capitalism changes nothing. Because they have become new capitalist imperialist powers they cannot prevent the current crisis from deepening. They too are subject to crises as we explain below. The crisis this time will be even more destructive as it will go beyond depression and war and threaten human extinction. For that reason we can state in advance that this crisis is terminal. Depressions and wars can no longer buy capitalism more time.

Because we have been there before, we know that the international proletariat can overthrow capitalism only when it becomes conscious that the alternative is socialism or barbarism. Socialism means survival. Capitalism means death.

The China Crisis is the key

What is a structural crisis of capitalism? For Marxists crises are interruptions in capital accumulation caused by the law of the tendency of the rate of profit to fall (LTRPF). It assumes the law of value (LOV) which holds that the value of commodities is determined by the "socially necessary labour time" (SNLT) required to produce them. This includes the commodity labour power that creates more value than its own value (v) as surplus value (s). Increasing the rate of surplus value (s/v) has historically caused an increase in the composition of capital invested in plant, machinery and raw materials that do not contribute to new value, constant capital (c) relative to the value of labor power which does create new value, hence variable capital (v).

Since c increases relative to v, the LTRPF results from the inability of total capital invested to extract sufficient surplus value to make a profit (p= s/c+v). The crisis therefore can only be solved by destroying sufficient c and v to restore the rate of profit. This is the market solution of orthodox economists like Wolf Richter to end the structural recession. Thus China’s rising cost of labor; i.e. declining rate of productivity (exploitation) causes a decline in investment and output. A slowdown in GDP is a problem because it means China is not producing enough s/c+v to return a profit on its huge surplus of capital stock. Hence the market solution is to wipe out much surplus capital and devalue c, plant, raw materials and v, wages, to increase productivity to return a profit on capital.

The Left Keynesians on The Daily Blog can see a ‘Great Depression’ coming when the China ‘meltdown’ hits the red line. The solution is more state intervention to boost consumption and stimulate investment in production. Yet since 2008 the major capitalist states have intervened to bailout the banks rather than boost consumption by creating jobs and raising productivity. Nevertheless, left Keynesians all over the world still have illusions in China as the state capitalist saviour of the global economy leading the BRICS nations as the ‘progressive alternative’ to US led ‘neo-liberalism’.

For Marxist economists like Michael Roberts capitalist crisis cannot be resolved by state intervention as that postpones the destruction of surplus capital. The crisis of falling profits has not been fixed by the market or state intervention, ultimately because workers have refused to submit to the greater exploitation necessary to restore the rate of profit. 

The structural crisis since 2008 is therefore a Long Depression because the conditions for a return to acceptable profits in production have not been created. This can only mean that to resolve capitalism’s crisis, further attacks on workers jobs, wages and living standards must follow. Only by increasing the rate of exploitation (s/c+v) will capitalists create the conditions to reinvest in production to accumulate capital.

China’s decade-long burst of expansion is succumbing to a crisis caused by the LTPRF. The sum of surplus value it can pump out of its workers at home and in its 'trading partners' is insufficient to realise a profit on its stock of surplus capital. This proves beyond doubt that China is a capitalist economy. State intervention can only postpone briefly the need to devalue or destroy surplus capital.

As explained above, the LTRPF results from the law of value (LOV) which states that ‘socially necessary labor time’ determines the value of commodities. China cannot evade the global LOV or the LTPRF. Already we see China devaluing the Yuan to boost its declining exports. And it is embarking on a massive restructuring of old inefficient plant and technology combined with a drive to cuts wages and conditions. At the same time it is ramping up its military spending and alliances.

There is every sign that China too, despite its large state sector, must embark on depression and war to solve its crisis. Chinese imperialism can only survive at the expense of attacking its workers and those of its trading partners. This creates the conditions for international solidarity between the workers in China and its trading partners including the BRICS who refuse to pay for capitalism’s crisis. Such class solidarity demands a program and a party that can lead resistance to the deepening austerity and open the road to a socialist solution to end capitalism’s terminal crisis.

Transitional Program for workers power

Capitalism can survive only by destroying social value and the ecology to sustain it by means of depressions and wars. This means inter-imperialist rivalry to grab what is left before the ecology collapses. The increasing tension between the two big blocs of imperialist powers led by the US and China already causes many proxy wars any of which can break out into a spiralling Third World War.

The task of the Marxist Party with a Transitional Program is to guide the working class in struggle from the urgent immediate demands to stop paying for the bosses’ crisis stating clearly in advance that this will require a struggle for power that must end in either a workers revolution or capitalist counter-revolution. The program is therefore summed up as ‘preparing for power’.

We must resist being dragged into a proxy wars that are breaking out everywhere and in a Third World War. We resist wars by opposing drafts, and calling for soldiers to refuse to fight.We must resist all attacks on our jobs, wages and living standards. We will learn quickly that this means workers taking control of production through strikes and occupations.

To do this we need to organise strike committees and to defend occupations with armed pickets. Movements to stop ecological destruction will also require mass pickets and strikes.This will pose the question of who rules the state and society. Will it be the working masses or the tiny ruling class and its mercenaries? The state forces will attempt to smash strikes, occupations and pickets to destroy revolution at all costs.

This struggle for power can be resolved only by a revolutionary seizure of power or a fascist counter-revolution. We are for the victorious revolution and a Workers Government! A Workers Government based on workers councils and militias will have the power to act quickly to stop capitalist destruction of the world economy and ecology. The market will be replaced by democratic plans that uses workers control over production, distribution and exchange to plan production for our basic needs including the survival of species threatened with extinction; replacing carbon extraction with renewable energy; closing down nuclear plants; etc.

None of this will be possible unless the revolution is global. The world-wide proletariat needs to overcome the divisions between nations, employed and unemployed, between ethnicities, cultures and religions etc., which are all created by the bosses to divide and rule us. We need to link local, national and international struggles to defeat the power of the imperialist ruling classes. There can be no such thing as socialism in one country in a capitalist world!
In every country there needs to be a Marxist party that is part of a world party of socialism to raise the red flag of Marxism and the Transitional Program for world socialist revolution!

Our best hope is that the Chinese crisis of falling profits will meet with the resistance of the 1 billion workers which, as the vanguard of the multi-billion workers of the world, will lead the fight for an international socialist revolution to stop the destruction of our civilisation and ecology and rescue humans and many other species from imminent extinction!