Cooking the Books: Energy wars (2022)

The Cooking the Books column from the October 2022 issue of the Socialist Standard

In September the G7, the group of the world’s leading Western capitalist economies (US, Canada, France, Germany, Italy, Japan and Britain), agreed to try to impose a cap on the price of Russian oil. The level has not yet been fixed but is likely to be somewhere near to the cost of production plus a mark-up for profits. Russia would still have an incentive to export oil but would only make a ‘normal’ profit rather than the super-profits that they and others (such as Saudi Arabia and the Gulf States) get because the cost of extracting oil there is less than the cost in the other parts of the world whose higher cost of production sets the world price.

What the West seems to want is to impose as the price of Russian oil is what Marx in Volume III of Capital called its ‘production price’, ie, its cost of production plus the average profit on the capital invested in its production. Over a fifth of Volume III is devoted to a discussion of this in relation to ground-rent, the money paid to a landlord for the use of their land to grow crops or raise livestock but also to extract materials.

David Ricardo is credited with being the first to explain why different areas of land yielded a different rent. The price of what it was used to produce was fixed by what Marx later called the production price on the least fertile land producing it. Those farming more fertile land, where the cost of production was correspondingly less, still sold their produce at the higher price and so made super-profits but which, unless they owned the land themselves, were taken by the landowner as ground-rent.

Marx accepted this theory. Ricardo explained how it applied to mines:

“[T]here are mines of various qualities, affording very different results, with equal quantities of labour. The metal produced from the poorest mine that is worked, must at least have an exchangeable value, not only sufficient to procure all the clothes, food, and other necessaries consumed by those employed in working it, and bringing the produce to market, but also to afford the common and ordinary profits to him who advances the stock necessary to carry on the undertaking. The return for capital from the poorest mine paying no rent, would regulate the rent of all the other more productive mines. This mine is supposed to yield the usual profits of stock. All that the other mines produce more than this, will necessarily be paid to the owners for rent” (Principles of Political Economy and Taxation, ch. 3).

This applies today to the extraction of oil, its price being fixed by the production price in the least productive oilfield in use.

What the G7 are trying to do is to prevent Russia from benefitting from having a lower cost of production than in the oilfields that set the price of oil and so reaping a super-profit. This is to be done by forcing Russia to sell its oil at a price nearer to its price of production. It’s a clever scheme – to be enforced by refusing to insure tankers carrying Russian oil bought above this price – but it may be too clever. Russia has already announced that it will refuse to sell oil to any country that goes along with the G7 plan. And it can’t be a coincidence that the day after the plan was announced Russia suspended the direct supply of gas to Germany.

While the capitalist West and capitalist Russia battle it out, economically and militarily, as to whose sphere of influence Ukraine should be in, workers everywhere are suffering the consequences in terms of higher and higher energy bills reducing their standard of living. But it’s a pain both sides have no qualms about inflicting.

‘Contemporary Capitalism’ (1956)

From the December 1956 issue of the Socialist Standard

Contemporary Capitalism by John Strachey (Victor Gollancz Ltd).

Mr. Strachey has never lacked a cause or a pen to wield on its behalf. He has both a talent for remembering and reproducing what others have told him and later forgetting what it was really all about. In turn he has been a currency reformer, I.L.P.’er, a Left Book Club writer of fairy tales for political innocents about “the Socialist one-sixth of the world,” an alleged Marxist, a Keynes admirer, a Labourite, and Minister in two Labour Governments. Such has been the evolution from half-baked theorist to hard-boiled politician.

That such a varied diet of ill-digested theories has induced intellectual heartburn, explains the burping Marxism in his latest book, Contemporary Capitalism. Although Mr. Strachey has arrived at political respectability, he fashionably sowed his wild oats in Communist heresy, and he has skeletons in his cupboard. We find them grinning at us at times through his book, in the guise of Marxist revisionism. Like all revisionists, he comes not to revise Marxism, but to destroy it.

Mr. Strachey pays lip service to Socialism, but it has never meant for him anything else than the vague Labour notion of “the good society,” currently expressed in the utility utopia of “The Welfare State.” That Socialism is a working-class issue, embodying a different social and economic organisation with a different set of human values, is for Mr. Strachey the seventh veil of political mystery.

Actually his book on present day Capitalism is largely an echo of the past whose font was Edward Bernstein, one of the founding fathers of Reformism. His work, Evolutionary Socialism, is the watershed of Marxist Revisionism. Like Mr. Strachey, Bernstein “came to bury Marx, not to praise him.”

Briefly, Bernstein believed that the growth of the credit system and the rise of trusts and cartels would lead to the economic regulation and control of Capitalism. Not only would cut-throat rivalry and anarchy of production disappear, but alongside this the social democrats would seek to organise the working-class politically and transform the State in the direction of “true” democracy. Thus he maintained that democratic pressure and the exercise of ethical principles would gradually transform Capitalism into a humane and civilized society. The subsequent evolution of Capitalism shattered the facile and optimistic assumptions of Bernstein. Capitalism without tears was his version of Socialism. It is also Mr. Strachey’s.

Only on one issue do Mr. Strachey and Bernstein disagree. One of the main points of Bernstein’s revisionism was a denial of the validity of the “Law of the Concentration and Centralization of Capital.” Mr. Strachey not only accepts this “law,” but argues that it has effected what he terms “a social mutation.” The essence of this “mutation,” we are to understand, is that in an economy of large and few units a point is reached in the increased size and decreased number which allows the managers of the remaining units lo affect prices instead of being affected by them. (Page 26).

We are further told (Page 29) that “in any sphere of production where firms are large and few, they can by their power to affect prices, affect the level of their own profits.” Capitalism, argues Mr. Strachey, has lost its regulator, the impersonal force of the competitive market; it has been or is being replaced by the conscious decisions of groups of men who, by tacitly refraining from competitive pricing, may move prices within limits. We are not told what the ceiling of these limits is, but one gathers from Mr. Strachey that it can be pretty high.

Mr. Strachey’s conclusions seem to be then that throughout the large units of industry the margin between costs and selling price can by agreement among the various groups be so arranged as to realise a profit above the average or norm. It follows then that if the ability to affect prices so as to obtain an above the average profit, or what is known as maximum returns, characterises extant capitalist society, then maximum profit must constitute a profit norm.

But it is a Marxist axiom that the distribution of profits can of itself add nothing to the sum of values produced by the social labour force. Ruling out that the extra profit is a deduction from working-class wages, the extra profit of some concerns can only come out of the pockets of other concerns. There can be then no such thing as a prevailing law of maximum profit, for it is fairly evident that as the power to raise prices spread from point to point of the economy, what some capitalists gained on the “selling” swings they would lose on the “buying” roundabouts. The net result would tend towards an equalisation of profit, even though the price structure of the economy would be distorted.

It is true that firms do use monopolistic advantages to seek monopolistic gain. But if that be the measure of this “mutation,” then mercantilism was a greater mutation than present society. It is the nature of capitalists to seek maximum gain. Even in laissez-faire capitalism they sought maximum gain, through any device or resources which gave them superior competitive power. Because the accumulation of capital is the most compulsive feature of capitalist society at any time, capitalists will use all available means to produce and reproduce their capital. That monopolistic practises have become one of these means in their attempt to do so, is itself a normal and logical development in capitalist society.

There is a widespread belief among the uninformed, among whom Mr. Strachey must be counted, that the British Economy is in the iron grip of a relatively few powerful concerns. The belief does not tally with the facts. In the first place, big monopolies compete against each other. Also the power of these big monopolies acts as a restraint on any one of them seeking abnormal returns. And even if a monopoly does seek to obtain super-profit, it faces the danger of other giants entering the field. Even those concerns that are suppliers of particular products often meet with fierce competition from substitutes.

Again, powerful organisations of sellers bring into being powerful organisations of buyers, and strenuous price-haggling results. Not only do big buyers play one supplier off against another, but they are prepared to “roll their own” if the prices of supplies are too high.

It is true that big monopolies make big profits, but in relation to their huge capital turnover, their rate of profit may be no more, even less, than that of many smaller concerns.

Mr. Strachey, conscious perhaps of the weakness of his claims, drags his economic nets and brings in cartels to illustrate his social mutation. Indeed, they are the only attempt at evidence he offers. It is true that cartels flourished during the period between the wars, especially in certain important British industries. They were enabled to do so by the connivance of the Government of the time and by protection duties. These cartels did not exemplify Mr. Strachey’s “conscious regulating power of Capitalism,” but the desperate plight to which world conditions had reduced many sections of British industry.

Cartels, which Mr. Strachey makes his strong suit are the weakest form of monopolistic organization. Their chief function is to combat price-cutting in times of bad trade. Even so, there are always temptations for some firms to sell below the cartel price. Also price-cutting takes place in cartels by the granting of long-term credit facilities, quantity discounts, free delivery, etc.

Neither does it necessarily follow that restriction of output and price manipulation by cartels allow of extra profit because restriction of output can keep low-cost firms back and preserve high-cost ones. Thus the spread-over cost will be considerable and profit margins correspondingly reduced to approximately competitive levels. In times of good trade the rules of cartels will be much less stringent and in some cases ignored.

Mr. Strachey also includes in his mutation what is termed monopolistic competition. This is an alternative to price-cutting by the use of effective selling methods, although even then price-cutting takes place in the form of adding extras and variations to the product.

Monopolistic competition confers, however, no power on firms to affect their own profit levels. Huge staffs of salesmen, highly decorative labelling and packaging, the costly and constant advertising in press, radio and television, greatly enhance total costs and thus reduce profit margins. So far from monopolistic competition being some conscious form of regulating Capitalism, it only too clearly reveals what compulsions are attached to the realisation of surplus value and the vicious and antisocial channels they often take. To say that a variation of competition from the cut-throat to the monopolistic is a transformation of Capitalism is like saying; that if knuckle fighting is replaced by boxing gloves with horse shoes in them, fisticuffs will be mutated, although the participants will still be mutilated.

That Mr. Strachey should really think that changes in the realisation of profit constitute a transformation of Capitalism is enough to make the pages of Marx’s Capital curl up at their edges with laughter.

Capital is not, as Mr. Strachey seems to think, something which people are free to use as they choose. Capital is an historically conditioned form of wealth, expressed in the class ownership of society. And the motives and objectives of the owners of capital are prescribed for them by this form of control. That is why the basic law of Capitalism is the self-expansion of capital via the production and reproduction of surplus value. It is for that reason that the owners of capital today compete not only on a bigger scale, but with more ferocious intensity than did their 19th century counterparts. To preserve and reproduce capital to an ever greater degree has for its owners the same overriding compulsion it always had.

Mr. Strachey, like many Liberals, sees in State economic intervention stepping stones to Socialism. He is indifferent to the fact that the expansion of Capitalism necessitates State participation. He talks glibly of the State taking over key controls, but is careful not to suggest the old Labour nostrum of nationalisation as the universal remedy. Nor does he offer any evidence to show how State possession of key controls will alter or affect the primary objectives and aims of Capitalist society.

He is dazzled, or appears to be, by the attempts of social reformers to come to terms with the class conflicts engendered by Capitalism. He believes with Bernstein that State power can be shared between the classes with an ever greater degree of power going to the exploited class. It is this which gives him and others the illusion of great democratic victories. For Mr. Strachey the State is a means of class reconciliation and collusion where in reality its intervention—via social reforms—is an attempt to soften the tension of class conflict. That the dismal failure of Social Democracy to realise its own limited social ideals provides itself the key to the real nature of Capitalist society is a lesson not yet learned by Mr. Strachey.

For someone who once claimed to be a Marxist, even though a “Moscow one,” his efforts to see State activity and intervention as something socially new is laughable. In actual fact, State activity is socially old, and whatever class society one examines in the past, one will always discover the State functioning very actively and significantly to guarantee and further the interests of a particular set of property relations.

Mr. Strachey in his political adventures has certainly gone a long way but in the opposite direction to Socialism.

(Other aspects of Mr, Strachey’s book will be dealt with in a later article)

Ted Wilmott