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

Economic Crash Ahead!

 

Will the coming meltdown of China mean the end of global capitalism? Let’s have a brief look at this question. It’s pretty common knowledge that the so-called Global Financial Crisis (GFC) was not some isolated crisis but a symptom of something fundamentally wrong with the global capitalist economy. In fact, if it were not for China’s rapid growth the GFC would have turned into a long recession. Now China is finally slowing down but who can say by how much? It is still a long way from a meltdown but it opens the door to a slump or a crash in the near future. The big question today is whether or not the global economy can recover from another big crash.

Economists on the Marxist Left, Neo-Classical Right and Keynesian Centre can all see a slump ahead but they disagree on the causes and the solutions. The Neo-classicals blame state interference preventing the market self-correcting by means of depression. “Socialism for the Rich” (QE, or printing money) after the GFC only postponed the inevitable deflation and depression ahead. Keynesians complain that the QE trillions went to Wall St instead of Main Street whereas policies like Sanders and Corbyn’s plans for “peoples’ QE” would avert another depression. Marxists argue that QE cannot stop a depression but for different reasons than the Neo-classicals. The Neo-classicals want to unleash a depression to smack working class wages down to slave levels, and eliminate the ‘social wage’ while Marxists argue that workers should refuse to pay for the capitalist crisis, rise up and overthrow the rotten system that only survives at the expense of the lives of working people.

To put this debate in perspective we need to take a deeper look at the history of capitalism. Crises are not new. Capitalism has a history of regular crises punctuating long upturns and downturns. They are akin to the economy breathing in and out. As the economy expands it reaches a point where it cannot grow without depressions that cut costs and increase productivity. Each depression cleared the road for a new expansion. Thus the crises of the 19th century fuelled a process of national capitalism which drove industrial revolution ahead.

But by the turn of the 20th century national markets became fetters on growth and the more advanced economies began to colonise the backward countries to extract their wealth. By exporting capital to the colonies the ‘imperialist’ countries took advantage of cheap labour and raw materials. Crises were now less like regular breathing and more like the gasps of a dying animal. The downturns were driven by monopolies backed by powerful nation states to wage trade wars and World Wars to defeat and plunder their rivals and fuel an upturn.

Capitalism in the 20th century as a global system was no longer progressive. Instead of developing the economy by increasing labour productivity it was destroying wealth in depressions and wars. The capitalists were no longer entrepreneurs but parasites living off monopoly profits that were squandered on wars and speculation. The world economy virtually stagnated between 1914 and 1945. Far from Keynesian economics stimulating a post-war boom, the boom was possible only as the result of such massive destruction of the wealth by depressions and wars. Despite the price paid for the post-war boom it didn’t last long and crisis set in again in the 1960s.

While capitalism staggered from crises to wars in the 20th century the Soviet Union and then China demonstrated that there was an another way of organising society where economic development did not need to destroy wealth. They proved that by getting rid of the capitalists and planning the economy they could grow much more rapidly than capitalism. The superiority of planning over the market forced world capital to impose economic quarantines and a Cold War that ultimately forced Russia and China to return to the global capitalist market.

Here the story gets more interesting. The return of Russia and China to the capitalist world economy did not rescue it by opening up Eurasia to Western plunder. It proved that even the dreaded ‘communist’ regimes could retain their economic independence and resist Western domination. The ‘communist’ elite could convert itself into a new capitalist class and manage the switch to the market without becoming re-colonised by foreign powers. The result is that since 2000 both Russia and China have become rising imperialist powers that are now the main rivals to the US imperialist bloc.

The joke on the Neo-classicals is that the former ‘communist’ states have proven they are able to switch to state monopoly capitalism and apply a centralised Keynesian economics to moderate the anarchic effects of the global market. This is not good enough for the ideologues who preach ‘more-market’. They demand an end to corruption, regulation of markets, currency manipulation, off-book debts, fake statistics, cyber war, one-party dictatorship, etc., knowing that this would subordinate Chinese state monopoly capitalism to US state monopoly capitalism.

Meanwhile the Keynesians are seething with envy because this state monopoly regime is what they want in the US and EU to end financial speculation and invest capital into the real economy. As Michael Roberts argues, the end of the post-war boom has already taught us that a Corbyn-type ‘peoples QE’ or more correctly the ‘multiplier’, will not make capitalists switch from parasitic speculation to invest in production unless they are sure of making a profit. More money chasing fewer goods leads to “stagflation”. If more proof is wanted, Japan has stagnated for most of the post war period as a result of such policies.

What is this ‘root cause’ behind the China slowdown? How best to explain this? For Michael Roberts neither the Neo-Classical or Keynesian approach can explain the rise and fall of China. “The Marxist model of rising productivity through investment and innovation to replace labour and the accompanying contradiction with the dominant law of value in the world economy provides the best explanation of where China has come from and where it is going.” (Roberts, China: A Weird Beast).

On the Marxist model, China’s real GDP depends on production of value by its working class. But this is subject to exploiting labour sufficiently to make a profit. When workers resist, profits fall, production slows down or stagnates, and excess money that leaves production enters speculation in existing commodities causing price inflation and money devaluation. So while crises begin with falling profits they usually blow up when asset bubbles burst.

Rather than printing money that leads to stagflation, the capitalist solution to the crisis must be depression –the devaluing of existing capital, machines, raw materials and wages, to the point where investment in production is profitable again. But depression comes up against the resistance of the workers that produce the raw materials in China’s trading partners including NZ, as well as Chinese workers producing finished products. The more-market solution is a declaration of open class war inside China and in all its trading partners. The Marxist response is to say “bring it on” to workers in all these countries. The workers united will never be defeated!

Meanwhile, the growing antagonism between Russia/China bloc and the US bloc sparked by trade and finance sanctions on Russia has escalated the rivalry between the blocs and ramped up economic and military confrontations. Russia may spark the crash by defaulting on its debt to its Western creditors before a China meltdown can happen. The proxy wars in Ukraine and Syria may blow up into regional wars. Whatever the timing of such events, there is nothing that can prevent the China slowdown becoming a meltdown sooner or later. Whenever it happens a new global crash will pose the question: is this the last crash before human extinction?

See more at: http://thedailyblog.co.nz/2015/10/23/guest-blog-comrade-dave-brownz-economic-crash-ahead/#sthash.3HvOnOcK.dpuf