Economics: Theory of Rent (part 2) (1975)

From the April 1975 issue of the Socialist Standard

Link to part 1

Generally speaking, commodities sell at their price of production. This is calculated by the amount of the total capital involved in their production — constant capital (machinery, materials, etc.); variable capital (wages); plus a profit. Through the action of competing capitals an average rate of profit is formed, and all capitals, usefully employed, whatever the field of investment, will generally obtain the average.

This means that the range of goods produced by these capitals will sell at average prices appropriate to their classification as use-values. For instance, similar-quality bread produced by one baker would not alter dramatically in price from that of another baker, although their individual prices of production may be different. The amount of profit is the difference between the cost of production and the average price of production, which is not determined by individual prices, but by a socially determined price based on socially-necessary labour which regulates the market. Socially- necessary labour is not measured industry by industry.

It should be borne in mind that no capitalist manufacturing concern by itself produces commodities or value; products only become commodities when they come into contact with other commodities which provide their social equivalent. This means they all contain social labour — the labour of society. The individual labour which has gone into the production of groups of commodities forms part of the social labour. The value of commodities is determined by the amount of social labour, measured in time, and they exchange with one another according to the amount or proportion of this social labour vested in them. It is not individual producers who determine the proportion, but society generally. The realization of the market price (value) of a commodity depends purely on social interaction without regard to the nature of the commodities, whether they be agricultural products, motor cars, pig-iron or coal. Commodities can only average this price of production with reference to the whole field of commodities, and the total social capital, and cannot realize their price of production in groups isolated from other groups.

If we assumed that all commodities sell at their price of production, and that all capitals secured the average rate of profit, there would be no rent available for the landlord. As land in itself does not form part of the social cost of production, it cannot have any influence on the rate of profit. Therefore, rent must come from a profit over and above the average rate of profit — in effect a surplus profit. The individual cost of production for most capitalists within particular industries are generally the same, pro rata to the capital invested. The larger firms may be more efficient, although this is not always the case. Wage rates are regionally and nationally determined, and the cost of materials, machinery, etc. and the other elements of constant capital are similar. This will establish a general average cost of production.

Let us assume that a few factories within a certain country, because of their location are able to drive their machinery with the use of natural hydro power, whereas the great majority of other factories have to use electricity in the production of their commodities. Suppose that for every £100 unit of capital expended the factories using electricity make a profit of £15. The average price of production of the commodities in that case would be £115. (We are ignoring for the moment any temporary fluctuation of the market or any other accidental factors.) Assume that the factory using water power could produce the same quantity of commodities in the same time, but that instead of using a unit of £100 capital they need only use a unit of £90, because the water power was provided by a natural force, and not having to buy electricity they managed to save £10, this brings their production costs down to the £90 referred to above.

In effect, through the use of this force they were able to produce the same amount of commodities with less capital. In the normal way their commodities would contain less value than those of the capitalists using electricity, because less social labour was involved in their production. But the average price of production is based on the socially-necessary labour of the whole of society, not of individual factories. The majority of factories using electricity determine the price of production, because all commodities can only realize their value by acting as equivalents to each other over the whole field of commodity production, and not in separate compartments.

Individual industries do not produce commodities as value; it is society at large which creates the commodity form (e.g. a tailor produces a coat. He does not produce the exchange-value of a coat — that is socially determined.) The capitalist using water power, would, therefore, be able to sell his commodities at an average price of production, i.e. £115 — the same as the others. In that case, he would receive a surplus of £25 per unit of capital, an excess of £10 over all the other capitalists who had to buy electricity. This is a surplus profit; a profit over and above the average rate of profit, and this fact directly arises because the conditions under which he used his capital were more favourable; his exclusive use of the natural force denied to other capitalists, and which could not be reproduced by them and consequently was not at their command. Capital can reproduce electricity at will, but you cannot reproduce a natural waterfall or the land upon which it flows.

In the same way, capital cannot reproduce land, and therefore the landowner holds a position of monopoly. In the final reckoning, the surplus profit of the capitalist using water power was due entirely to this force — something which had no value because no labour had entered into its production, as with all natural power. The labour of harnessing this natural power would add value, and this is taken into account. Nevertheless, the cost of harnessing and supplying electricity has been shown to be greater, and it is this difference in cost which constitutes the surplus profit.

Inevitably the owner of the land over which the river or waterfall flowed would require payment for permission for the use of the land which contained the natural force, otherwise he would forbid its use. If the capitalist were to part with the surplus profit of £10 out of the £25, he had received, to the land- owner, that would constitute a ground rent. He would have, in effect, transferred his surplus profit to the landlord. At the end of the day he would have earned a profit of £15, the same as the body of capitalists who used electricity. If he owned the land it would make no difference to the formation of the ground rent. In that case he would retain the surplus profit of £10 in his capacity as landlord and not as an industrial capitalist, because the surplus profit was not due to his capital as such but to a natural force which he has monopolized.

It is evident that any capitalist who is able to use a natural force based on land, whether it be hydro power, naturally fertile land, natural pasture-land, land where the climate is more favourable, and other natural attributes, will be able to cut down his production cost below that of his fellow capitalists who are not in a similar position. He will always be in a position of earning a surplus profit over the average rate of profit, which he transfers to the landlord by way of ground rent for permission to use the land in question.

Agriculture and mining dominate the use of land. The degree of fertility of the soil and the potential mineral wealth will determine the amount of rent. But the existence of rent is due to the use of the land itself. There is an erroneous view held by the Labour Party and other left-wing parties that if you nationalize land you abolish rent. In fact, at no time has any Labour government taken any action to abolish ground rent. The object of the present Land Nationalization Bill is to curtail by taxation the profits of the landlords the price of whose land has risen because of planning and other consents — external factors. In other words, an attempt to prevent landowners from consuming the whole fruits of social progress instead of sharing it with their brother capitalists whose interests are represented by the State.

This makes no difference at all to the formation of ground rent, nor would it make any difference if all ground rent were paid to the State. It would mean that all land was owned by the State and has been taken from the private owners. How this came to pass, whether by nationalization with compensation or by confiscation does not matter. In point of fact, the State is inevitably the largest landlord in any country, and the State is the embodiment of all capitalists’ interests. It is a fallacy to assume that the State or local authority will act differently from private landlords and refrain from levying a ground rent.

At the moment, the Government owns directly, or through the nationalized industries, over 5¼ million acres of land. There are 345,000 acres of Crown Estates; 183,000 acres Church Commissioners; 248,000 acres National Coal Board (50 per cent, farm land); 220,000 acres British Rail (Sunday Times, 2nd February 1975):

The new landlords are operating on strictly commercial terms . . . the tenant farmers have Crown Estates, the Treasury, and tough minded agents for landlords.

(Wiltshire: Sunday Times 2nd Feb.)

The Crown Estates are one of the biggest landlords in London, owning large blocks of flats and houses in Regent’s Park and Kensington. If anything, the rents charged are higher than those of a private landlord, and furthermore Crown property is not subject to the application of Rent Acts, and courts and Rent Officers have no power to fix “fair rents”. According to the agricultural correspondent of the Daily Telegraph: “Tenant farmers occupy about 40 per cent, of the country’s holdings and farm nearly half of the agricultural land.” Rents vary from £30 per acre for good land to £12 per acre for other land. (Daily Telegraph 28th February 1975).

As the total amount of agricultural land in England and Wales is 27.2 million acres (Min. of Agriculture statistics 1972), tenant farmers alone pay an average of £260 millions rent annually for the use of the 13.6 million acres. The formation of rent over the whole 27.2 million acres would amount to approx. £540 million by present rent levies. Practically the whole of London is in the hands of ground landlords, both public and (very) private family trusts. The colossal amount of wealth which is appropriated annually in rent comes solely from the surplus value produced by the working class. Every advance in agricultural science, every intensification of the use of land, is of direct benefit to those parasites who have literally inherited the earth. In the same way, every advance in technology and science generally is appropriated for the benefit of their industrial capitalist brethren.

If human rights mean anything, they mean the right of every man, woman and child to the best possible existence society can provide. Freedom from paying rent, selling labour-power, and producing surplus value for a wealthy group of international idlers. Capitalist society simply cannot cope with the multifarious social problems which it has created because of the restrictive social relations which hold it together. Socialism is an urgent necessity, and working men and women everywhere must devote their thoughts and energies to its establishment through the Socialist Party of Great Britain.

Jim D'Arcy

Economics: Theory of Rent (part 1) (1975)

From the March 1975 issue of the Socialist Standard

Carved in stone above the Royal Exchange in the City of London is the Biblical legend “The earth is the Lord’s and the fullness thereof”, to which we reply “The earth is the landlord’s and the rent therefrom”. In the same Biblical strain we add “And he reaps where he does not sow”.

The ancient forms of rent paid to a feudal lord, or lord of the manor, or to the Church, were usually levied in kind, and met either by the supply of a portion of the produce from the land, or by performing unpaid labour on land belonging to these groups. These old social relations of feudal society have been replaced with other higher social relations of production associated with the land and its capacity to attract rent. Land use, including agriculture, has been specifically adapted to the needs of capitalism. The vast bulk of society’s food is obtained from the land, and takes the form of commodities, i.e. articles produced for sale and profit. Consequently agriculture is under the domain of capital.

Rent is the money tribute levied by one section of society (landlords) against other sections for permission to use certain portions of the globe which they (landlords) have appropriated and monopolized to the exclusion of others. To grow food, to build houses, factories, shipyards, etc., a ground rent must be paid to the owner of the soil. Private property of land, and this includes land owned by the State, is a prerequisite for extracting rent. History is full of instances as to how the rural labourers were driven off the land by force, bloody violence, threats of imprisonment and deportation, as in the case of the Land Enclosures over the last few hundred years. The fact remains that permission even to inhabit the earth has to be obtained from a group of rentier parasites who monopolize it. Ground rent is surplus-value which has previously been extracted from the working class. Whether this is paid to private individuals, the State or the Church makes no difference. It is an element in the overall economic organization of capitalism.

Land has no value — that is, it contains no socially necessary labour, the source of value. The labour of society has not participated in its creation. It cannot be reproduced, and is therefore not a commodity. Not being a commodity it does not have an exchange-value, and consequently does not contain surplus-value. Surplus-value comes from unpaid labour, and as no labour at all has gone into its creation it cannot contain value. Land has use-value as have commodities generally, but whereas you can have use-value (the utility of a thing) without exchange-value (price), you cannot have exchange-value without use-value. The landlord cannot sell non-existent commodities; the service he provides is the service of rent collection.

It is obvious that land is bought and sold both as building plots and agricultural land. To that extent it assumes the commodity form. Capital can be fixed in the soil either through the erection of buildings, land improvements like ploughing, drainage and fertilization, mining and quarrying operations etc. This capital forms part of the labour of society generally and does not spring from the soil. The capitalist farmer produces wheat etc. in the same way as the capitalist manufacturer produces other commodities. They differ only in the element in which their capital is invested. Their capital, like all other, qualifies for the average rate of profit, and if needs be can move from one sphere of production into another.

Capital fixed in the soil — plant, factories, office-blocks etc., as with capital elsewhere, would be entitled (under the laws of capitalism) to attract interest, but strictly speaking this is not the same thing as ground rent, which is specifically paid for the use of the soil and for permission to fix the capital in it in the first place. Unlike machinery and industrial plant which wears away and has to be replaced, the land (apart from natural catastrophe) with normal care and attention, fertilized and drained regularly in the case of arable land, or developed with office blocks and shopping precincts, continues to improve. To that extent it can attract a higher price for its use in the form of ground rent, or fetch a higher price should the landlord decide to sell it. The price of land has nothing to do with its value, which is nil. The price of building land depends purely on the oscillations of the market, or competition between buyers and sellers.

The location of the land is a very important factor in this competition. Land required for building in a big commercial centre like London will fetch a higher price than land elsewhere. With agricultural land the position is somewhat different, but the monopoly of the land owner is a major factor in the determining of the final price in both cases. Obviously good agricultural naturally-fertile land which can yield 2 tons of grain per acre would fetch a higher price than land of lesser quality which would only produce 30 cwts of grain per acre. The rent charged for the use of these lands would vary, and bear some relation to their yields.

Certain vineyards in the Bordeaux/Medoc area — Pauillac, Pomerel, etc. because of certain chemical properties in the soil, are able to produce fine wine. Other vineyards which lack these properties in the soil are unable to produce such fine wines, although the same amount of useful labour has gone into their production. The finer wines and lesser-quality wines contain, broadly speaking, the same amount of useful labour, but there is a considerable difference between the price of a bottle of Chateauneuf de Pape from the Rhône  valley, and a bottle of Chateau Petrus or Chateau Lafite from Pomerel or Pauillac, as any wine-drinking capitalist will tell you — at £5 per bottle this is hardly a worker’s tipple.

The difference in price does not arise from the labour involved but purely because of the natural properties of the soil. The owner of land where the vines were grown would be able to charge a higher rent for the use of this land, and the wine producer would have to part with a larger share of the surplus- value to the landlord than would the Rhône  wine producers. Were the fine-wine producer the owner of the vineyards instead of the tenant this would make no difference. In that case, he would pocket the extra profit in his capacity as a landlord and not as a wine-growing capitalist. In any event, before he could become a landlord, he would have to acquire the land from the previous owner, and spend a capital sum in order to achieve this. To that extent, the rent that he virtually paid to himself instead of to the landlord would merely represent the interest on the capital which he had invested in the purchase of the land.

Rent is the way in which land realizes itself economically, and whilst rent itself is not interest (i.e. money paid for the use of capital), it is influenced by the rate of interest, as also is the buying and selling of land. Naturally, market conditions intervene because of the monopoly of landlords (sellers) and the demand from other portions of the capitalist class (buyers), particularly competition for building sites in city centres where any price may be paid. During periods of inflation the price of land will rise with other prices, not only because the value of money has fallen but because ownership of land provides a certain protection against the depreciation of money. The price of farmland rose from approximately £50 per acre in 1949 to £800 per acre in 1973, due to inflation. Prices are now falling. They fell 22 per cent, in the first half of 1974, and are expected to fall to £582 per acre towards the end of 1974. (Farmland market, Farmer's Weekly: The Times 3rd February 1975). Mr. Donald Campbell, editor of the report, said “The market is highly volatile; only a few years ago changes in value were gradual and their range was small.”

Over a period, the yardstick for measuring the price of land is by a capitalization of the rent. That is, by assuming that the rent represents the interest on an imaginary capital. If the prevailing rate of interest is 10 per cent, and the landlord receives a ground rent of £500 p.a., that £500 would represent the interest on an imaginary capital of £5,000. Were the rate of interest to fall to 5 per cent, the £500 p.a. would represent the interest on an imaginary capital of £10,000. The price of land is arrived at under normal conditions by the number of years it would take for the rents to reach the capital sum. In the first case the price of land would be £5,000 i.e. 10 years’ ground purchase. The external rate of interest can and does influence the price of land. During a period of low interest rates, the price of land will tend to rise, and during a period of high interest rates the price of land will tend to fall, without affecting the rent at all. In England particularly, land is usually sold at so many years’ purchase, usually twenty years or more.

A value is therefore conferred on land by circumstances outside, i.e. the rate of interest, and does not arise from the land itself, simply because those who own the monopoly can prevent others from having access except on terms and conditions decreed by them. In this the landlord is joined by capitalists generally who operate in the same way by excluding society at large from access to the means of production and distribution, as well as monopolizing the social wealth. As society develops, and the population increases, and there is a growing demand for land for all purposes, the landlord will share in the fruits of this social progress without contributing anything at all. The industrial capitalists who dominate the political machinery take legislative measures to curb the appetite of the landlord, but you cannot abolish rent without abolishing private property in land, and as this forms the basis of the capitalist system of production, you cannot abolish private property in one sphere and retain it in another.

Private property includes State property, which will be dealt with later.

Jim D'Arcy

Occupy ideas (2013)

Pamphlet Review from the January 2013 issue of the Socialist Standard

The Little Book of Ideas. By Occupy London’s Economics Working Group. 

This 60-page booklet has been produced to mark the first anniversary of the Occupy camp outside St Paul’s. It is not a manifesto nor a policy document but ‘a small handbook which explains complex economic terms and theories in simple language’ so that people can understand what’s gone on and take part in discussions about what to do. The terms are dealt with alphabetically from ‘Austerity Measures’ to ‘Tax Havens’. When it comes to proposed reforms, the case for and the case against are presented though it is generally clear which side they are on. For instance:

  ‘Supporters of the banking system say that it has been the means by which industrial development has been so successful. However others contend that reckless lending by the banks is an inevitable consequence of a financial system driven by profit at all costs, and an alternative banking and monetary system is essential to wrest power and wealth away from the banking interests which precipitated the current crisis.’

What ‘others say’ here could be seen as the underlying theme of the whole booklet, i.e., that the current economic downturn was caused by the behaviour of the banks and so offers a purely monetary explanation.

It is true that in a system ‘driven by profit at all costs’, when things are going well and it seems that this will continue, ‘reckless’ behaviour in pursuit of profits will be an inevitable consequence. But this applies to the economic system as a whole and not just to its financial sector. In such a situation banks overlend. Corporations involved in the real economy overproduce. In fact, it is this latter that causes the financial crisis and subsequent general economic downturn.

Surprisingly, in view of the efforts made by currency cranks to influence Occupy, the booklet does not reflect the views of any of these. In fact it gives a not too inaccurate description of how banks work (‘acting as financial intermediaries between sellers and buyers, asset holders and lenders, in order to guarantee payment’) and even of so-called fractional reserve banking (‘banks are forced to keep a fraction of their deposits in case depositors want their money back’).

Their argument — not so different from the conventional view — is that ‘in recent years the system has got out of control’. Which suggests that downturns like the present could be avoided if in future banks are subjected to adequate regulation. The booklet, not being a policy document, only mentions various proposed reforms: separating retail and investment banking, ‘full-reserve banking’, peer-to-peer lending, banning short selling and trading on margins.

But what if (as Marxists contend) the banks did not cause the crisis, but at most only made it worse when it broke? Then, any ‘alternative banking and monetary system’ would be irrelevant as a means of avoiding future slumps. A more radical change away from the whole economic system based on production for profit would be required.

Adam Buick

Why prices go up (1964)

From the February 1964 issue of the Socialist Standard

It is not the purpose of this article to go into the basic questions of the relationship of value and price. It is sufficient to remind the reader that there are underlying factors which determine why different articles have different prices; why, for example, an ounce of gold sells for more than an ounce of silver, or a pound of bread, or a ton of coal.

This article will only explain why prices and the general price level change from time to time, apart from the underlying value factors.

There are a number of popular beliefs about prices, all of them wrong. One is that prices go up because trade unions ask for higher wages. Another is that prices are determined by manufacturers, wholesalers and retailers having a free hand and being able to charge what they like. Another is that high prices are caused by taxation. Lastly there is the belief that prices always go up.

The last can quickly be disposed of. After the first World War, prices reached their peak in 1920 and then came down with a run. Within a few months they dropped by a third, and the decline went on more slowly for several years. And during the nineteenth century there were several periods of falling prices.

Pinning the responsibility for high prices on the trade unions is just as easily disproved by the facts. Trade unions are always “asking for” higher wages, so if this belief were correct prices too would always go up; which they don't. In 1921 when trade unions were forced to accept wage cuts of about 33 per cent., the members were still passing resolutions asking for wage increases.

“Asking" isn’t the same as “getting." When trade is bad and prices are falling, employers fight trade union demands and stand up to strikes and resort to lock-outs. If they didn't, their profit would disappear and they would go out of business. Under Labour Government, from 1947 to 1951, wage rates were not even keeping up with the rise in prices, partly of course because many workers were influenced by government appeals to them not to strike for higher wages. The rise of prices then obviously could not be explained by what the unions were doing.

If, in all the years since the war, it has been easier for trade unions to get higher money wages than it was before the war, this is due partly to low unemployment but also because, for other reasons which will be explained later, employers have been able to count on a more or less continuous rise in the prices of what they were selling.

The people who think that price rises are caused by the trade unions say that they know this to be true because they can see it happening: a rise of wages, then a rise of prices. What they overlook is that when two events happen more or less at the same time it does not have to be true that one thing causes the other. They can both be the result of some other change, and this is often the correct explanation of price rises and wage rises. When a period of slack trade, falling production and heavy unemployment is followed by a recovery of sales, expanding production, and falling unemployment, manufacturers and retailers are in the position of being able to put up their prices, and at the same time the unions are better able to press for higher wages. It just happens that sometimes one comes first and sometimes the other. This has been given striking proof in the recent increase of engineering wages and the way the employers have reacted to it.

The manufacturers have, it is true, used the increase of wages as their justification for putting up their prices, but as has been pointed out by those in a position to know, many of the price increases have been larger than the additional wage costs which are supposed to have caused them.

The President of the Purchasing Officers’ Association, in a recent letter to the Daily Telegraph, complains that while the wage increase on an annual basis represents a rise of 3.9 per cent., members of his Association “have reported demands for increases in the prices of many goods varying from 2½ per cent. to 8 per cent. Our inquiries show that the average wage claim is in the order of 7 per cent.” What in fact has happened is that the market for their products has improved and the manufacturers are able to take advantage of increased demand by putting up prices; the wage increase is just a handy excuse.

But not all of them are in this favourable situation. The Birmingham Small Arms Company which makes motor cycles, scooters, machine tools, etc., is not putting up its prices. This isn’t because it has not the same excuse as the others, but because its particular market won't bear it. The engineering wage increase will add over £300,000 a year to B.S.A.’s wages bill and according to the Chairman other costs are rising too. So why not put up their prices? The Chairman, Mr. Eric Turner, thought of this but found it could not be done. He told his shareholders at their Annual Meeting on December 5th last that for B.S.A. “almost all the additional costs would have to be borne out of profits, as it was not possible to increase the majority of their selling prices.” (Daily Telegraph, December 6th, 1963.)

This, of course, is the answer to those who think that manufacturers can fix what prices they like. A year earlier the Chairman of B.S.A. had reported that the firm’s profit had dropped to nearly half what it had been because of shortage of orders.

Then we have the belief that high prices are caused by taxation. The firms which use wage increases as an excuse for putting up prices will just as glibly use the excuse of high taxes. The cinema proprietors are a case in point. The Daily Mirror on January 3rd announced that Ranks are putting up prices of admission by 3d. or 6d. Granada are doing the same. But the interesting thing about it is that although rising costs are given as the reason, something which must affect all of them, Ranks are putting up prices only at 190 out of their 390 cinemas and A.B.C. “have no plan for a rise in prices.” The reason for this selective treatment was indicated in the Financial Times on January 4th. It is that while in the industry as a whole the trend is still in the direction of falling attendance at cinemas, "Many cinemas have been doing better business in recent weeks, stimulated by a run of popular films.”

In short, where the proprietors can hope to be able to get more revenue by higher charges they are putting up the prices and where they can’t they leave them alone in spite of their rising costs. In some areas the closing down of some cinemas enables the others to charge more.

Before I960, when the cinema tax was abolished, the cinema proprietors used the existence of the tax as an excuse for their prices. This is worth looking into. In 1956, the year in which Government revenue from the cinema tax was at its peak, it reached £34 million, but with the rapid decline of audiences (largely caused by the competition of television) hundreds of cinemas were closed. The Government then progressively reduced the tax before eventually ending it. And according to the Ministry of Labour, this is what happened to cinema prices. In 1957 tax reduced; cinema prices go up. In 1958 tax reduced again; cinema prices unchanged. In 1959 cinema tax again reduced; cinema prices go up. In 1960 cinema tax abolished; cinema prices unchanged but go up in 1961 and 1963 and now again in 1964. Just before its abolition in 1960 the tax was bringing in revenue to the Government of £8 million a year.

When it was ended in the 1960 Budget the Daily Herald (April 5th, 1960) had two news items. One was “prices will stay the same.” The other was a statement by Rank’s managing director: "I’m absolutely delighted,” as well he might be. £8 million might be hardly worth the cost and trouble of collection to the Government but was a godsend to the companies. In the years after the war the cinemas had a near monopoly of popular entertainment and where there is monopoly control of supply together with a big demand, prices can be pushed up to produce abnormally high profits. In such a situation the Government can step in with a tax to skim off all or much of the excess profit. It was not the cinema tax that caused prices to be high in the boom years, but the near monopoly. When the cinemas lost their appeal and much of their audiences, they were no longer getting abnormally high profits capable of providing a worthwhile special item of Government revenue.

Many of the aspects of prices so far dealt with applied in the nineteenth century and apply today, but there is one factor operating now which was absent then. In the nineteenth century the currency was by law fixed at a constant relationship with gold, a gold sovereign contained approximately a quarter of an ounce of gold. Bank of England notes were freely convertible into gold and notes could be obtained for gold. The general price level was in consequence affected by changes in the value of gold. A rise in the value of gold (assuming that the values of other commodities remained unchanged) would show itself in a corresponding fall in the general price level, and a fall in the value of gold (due to the discovery of more easily worked deposits, or improved methods of extraction) would show itself in a rise of the general price level, as happened round about the beginning of the century.

But in the past thirty years the note issue has not been convertible into gold and the gold equivalent of the currency notes has been progressively reduced.

The stages in this process have been the devaluing of the pound from being the equivalent of $4.86 to $2.80; the reduction of the gold content of the dollar itself to about one half in 1934; and the steady and enormous increase of the number of pound notes in issue that has gone on since 1938. In effect the pound now represents about one-twelfth of an ounce of gold in place of approximately one-quarter of an ounce at which it was fixed in the last century. The effect has been a more or less continuous rise in the general price level so that retail prices are now over three times what they were in 1938.

This is the major cause of rising prices: not the trade unions, or the unfettered will of manufacturers, or the amount of taxation, but the currency policy of successive governments.

Edgar Hardcastle

50 Years Ago: Bugs are Capitalists (1977)

The 50 Years Ago column from the November 1977 issue of the Socialist Standard

We are fairly well acquainted with that type of anti-Socialist to whom all tools are capital and consequently all tool-owners are capitalists, no matter whether it be plain Bill Smith who has “set up on his own” as a plumber, or romantic Robinson Crusoe, when he discovered the utility of a hammer.

Sir Arthur Keith, however, presents us with a rather interesting variation of this fantasy.

According to him, any means of subsistence not immediately consumed is capital. Thus the bees which store up honey, fowls which lay eggs, our mothers when in a certain condition (with milk available) are all really capitalists, little though they may dream it. One can imagine the bosom of the speculative investor swelling with pride at finding himself classified with such time-honoured institutions.

We fear, however, that Sir Arthur has been too well brought up to be sufficiently comprehensive. For instance, he omits entirely to mention those interesting examples of industrious capitalists, the bug and the common flea. It is a matter of observation that they cannot pursue their activities indefinitely but make periodic retirements in order to consume the sanguinary fluid which they have so assiduously acquired and stored up within the appropriate portion of their anatomy.

[From an article “The Anatomy of Capital—Sir Arthur Keith’s Economics”, by Eric Boden. Socialist Standard, November 1927.]

Anarchist economics (2012)

Book Review from the June 2012 issue of the Socialist Standard

The Accumulation of Freedom: Writings on Anarchist Economics. AK Press. 2012

Anarchists have a reputation for being weak in economics. This collection of articles is an attempt to refute this. It doesn’t succeed entirely and in fact tends to confirm that most modern-day anarchists get their economic ideas from Marx (as did Bakunin who was once going to translate Capital into Russian). Some of the writers don’t seem to be anarchists at all, in particular Robin Hahnel and Michael Albert, the inventors of a blueprint for an ideal future society they call “parecon”. Hahnel seems to be a Keynesian, advocating more state intervention (yes!) as a way out of the present crisis and of avoiding future ones. Albert is a supporter of President Chavez of Venezuela, and urges people to vote for him.

Even so, the book does give a view of the range of opinion amongst anarchists. Some – the modern-day followers of Proudhon – are “market anarchists” who hold that there is nothing wrong with production for the market, except that the competitors should be worker-cooperatives rather than capitalist corporations and there should be no state to interfere in it. This is a minority view these days (though well represented in the US), but there are other anarchists who are against full, free-access communism (known as “collectivists” rather than “communists”) who favour instead relating people’s consumption to the amount of work they do.

Marx himself sort of endorsed this for the very early days of post-capitalist society and some in the Marxist tradition still argue for labour-time vouchers. We don’t. Neither do some anarchists. In fact, two contributors to this book describing themselves as “libertarian communists” – Deric Shannon and Scott Nappalos – argue against this in the same terms that we do. Nappalos even quotes from our pamphlet Socialism As A Practical Alternative.

Nappalos says that, as a libertarian communist, he stands for “a society based on the abolition of remuneration in the form of wages and democratic control” and “an economy based on the destruction of the wage system, and a de-linking of the value of labor in production from the distribution of society’s wealth to its members.” He makes the valid point that it is not possible anyway to measure an individual’s contribution to production. He writes “in our time, production is largely social. The contribution of an individual is very difficult to isolate from the contributions of countless others that make work possible”. Any such attribution can only be arbitrary, as in the parecon blueprint, of which he says: “having co-workers judge each other’s work would turn gossip and infighting at work presently from an annoyance into a system of power over wages.”

Shannon’s criticism is directed more at “market anarchists”. He quotes another libertarian communist, Joseph Kay:

  “The assets of a co-op do not cease being capital when votes are taken on how they are used within a society of generalised commodity production and wage labour. That is to say there remains an imperative to accumulate with all the drive to minimise the labour time taken to do a task this requires, even in a co-op.”

Other articles describe anarchist economic practice such as factory occupations, setting up vegan cafés and campaigns directed at particular capitalist firms (called PEDCs or “political-economic disruptive campaigns”). However, these are not specifically anarchist activities, only activities in which some anarchists engage.

Adam Buick

"Capital" Going Abroad (1930)

From the September 1930 issue of the Socialist Standard

A reader asks us to explain what is meant by the statement that capital is leaving the country. Does it mean “gold and copper coins, or war-bonds or factories and machinery, or what?”

The cry, “Capital is leaving the country,” is intended to signify that capital is being withdrawn from industry here and sent abroad. Capital is money invested for the purpose of profit, and it is invested by the buying of shares in a company. If a capitalist wishes to withdraw his capital from an undertaking he must sell his shares to realise their value. As he must sell his shares to another capitalist, which is all he can do, then capital has not been withdrawn. The only change that has taken place is one capitalist has been replaced by another in a given industry. As shares are constantly changing from one hand to another capitalists are constantly changing from one industry to another, or the amounts of capital they have invested varies in different industries at different times. At one time a given capitalist might own twenty shares in an oil company and ten in a soap company; at another time he might own ten in the oil company and twenty in the soap company.

To grasp the matter clearly it is only necessary to ask oneself the following question: If the bulk of the capitalists in this country decided to withdraw their capital, or, what comes to the same thing, sell their shares for cash, to whom would they sell them? It will then be seen how absurd is the claim that the capital which is sent abroad is being withdrawn from industry.

Capital, however, does go abroad, and it also comes from abroad. Briefly the position is as follows, leaving technicalities out.

The exports of a country are paid for by the imports either in goods only or in goods and services. For instance if the total exports of a country amount to £1,000, then payment is made by an import of the equivalent value of goods only or of goods and services. In the days when England was the carrying nation of the world, payment for services rendered to foreign merchants by carrying their goods was accomplished by the import into England of goods to the value of these services. When ordinary merchandise imported or exported is not sufficient to balance accounts between nations then the balance against one or the other nation has to be made up by the export of gold.

If a capitalist in England has accumulated dividends to such an extent above his spending power that he has a large balance at the bank and decides he will invest a portion of it in a company in Brazil, then he must proceed in one of the following principal ways:

(1) Buy gold and have it transported to Brazil.
(2) Buy merchandise and send it out to be sold in Brazil to realise the amount of his proposed investment.
(3) Pay a Brazilian debt in England and have the amount credited to him in Brazil.
(4) Get a bank to arrange the matter. This they would do by the mutual cancellation of debts or mutual exchange of capital between England and Brazil, or, the same thing at bottom, by a roundabout exchange or cancellation through other countries.

Each and all of these methods involves at bottom the mutual exchange of goods or goods and services. Fundamentally it is the exchange of the work of the working class of one country for the work of the working class of another, as far as the principal countries of the world are concerned. So that all that happens is, for instance, some Brazilian exploiters draw some of their unearned incomes from England and some English exploiters draw some of their unearned incomes from Brazil.

The answer to the question, therefore, is that when capital goes out of the country capital comes in; capital goes out in the form of goods and services and capital comes in in the form of goods and services in exchange for what has gone out. It being understood, of course, that it is only when goods are sold and the money realised is invested in an enterprise with the object of deriving profit from it that such money has become capital. It is not the thing, money, but the use it is put to that makes it capital, for capital is only one way of using money, and money is only the name applied to gold or representatives of gold used in a certain way.

Gilmac

Karl Marx's Legacy (2018)

Karl Marx in 1859.

From the March 2018 issue of the Socialist Standard

5th May 2018 marks the two hundredth anniversary of the birth of Karl Marx in Trier, in what was then Prussia and is now Germany. Marx went on to become a major figure in the founding of the modern socialist movement and many will be marking the event with reverence. But so what, you might ask? Surely Marx isn’t relevant today? Why do socialists today want to read and talk about the ideas of a nineteenth-century philosopher?

Marx has two main legacies for socialists today. Firstly, Marx helped us to understand the economics of capitalism by explaining that it is a system based on the exploitation of workers by capitalists that occurs during the process of the production of commodities, as opposed to the point of sale. Secondly, he developed a view of history that placed people and their social and economic development at its centre and not religion or any other notion of an ideal society that floats apart from real life. Today this is more or less how most people think of and understand history and the world around them, although many people simultaneously hold religious views and some argue for secular, ‘postmodern’, diluted versions of idealism.

Critique of political economy

Marx’s major work, Capital, was a critique of economic thought up to that time (1867). The classical political economists, such as Adam Smith and David Ricardo (who Marx regarded as the last of the scientific investigators of capitalist political economy) had argued that labour was the source of value. Following on from this conclusion, critics of capitalist competition like John Gray, Thomas Hodgskin, William Thompson, and John Francis Bray reasoned that what was wrong with capitalism was that an unequal act of exchange was taking place outside of the process of production – workers were not receiving the full value of their labour. From the working class perspective this infant labour theory of value was a great stride forward in understanding the relation of labour to capital. The claim that labour was the source of value and that workers therefore had the right to the value that they created was a bold step towards explaining why it was that capitalists, who did not work and so created no value, were getting richer; whilst those who laboured, and so created value, were getting poorer (often absolutely, always relatively). From the capitalist standpoint this was the Achilles heel of classical political economy, and the reason why it was abandoned in favour of a view of economics as the study of the competition of choices for the allocation of scarce resources, which is still the basis of modern mainstream economics.

The enduring legacy of Karl Marx was that he developed the arguments of the classical political economists to their conclusion (which they themselves had avoided) and was able to develop a withering criticism of capitalism. Classical political economy had been unable to explain profit convincingly. After all, how could profit be accounted for if the value of a commodity was the labour embodied in it and labour had been sold at its value by the worker? This was why the early critics of capitalism placed so much emphasis on the idea that a portion of the value of their labour was being corruptly usurped by capitalists, merchants, bankers and the like who were taking over from the landed aristocracy and the ‘old corruption’ of court politics to become the wealthiest members of an increasingly industrial society.

Marx argued that the classical political economists had missed a crucial link in understanding how capitalism works and what profit actually is. Rather than workers being paid for their labour, Marx argued, they were in fact paid for their labour-power. The value of this labour-power varies according to (1) the cost of reproducing labour-power (in other words the cost of feeding and housing workers and their dependants) and (2) the amount of labour embodied in the labour-power of a given worker (in other words the value of a doctor’s labour is more than an unskilled machinist because the many hours of education and training received by the doctor are bound up in their labour, unlike the machinist who performs only simple labour). The crucial point is that the difference between the value of what workers produce and what they are paid in exchange for their labour-power is the source of surplus-value, otherwise known as profit. This was the source of increasing capitalist wealth and not unequal exchange. Workers are paid an equivalent; not for their labour, the product of which is owned by the capitalist, but for their labour-power which they sell at a price around its value (sometimes more sometimes less depending on the given state of the labour market in a given branch of industry).

Materialist Conception of History

Marx’s view on history can be gathered from different parts of other critiques and historical works he put together. They can be summed up by the first line of the Communist Manifesto (1848) ‘The history of all hitherto existing society is the history of class struggles’ and in the Preface to A Contribution to the Critique of Political Economy (1859):

  “In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.”

An awful lot has been written about what became known as ‘historical materialism’, particularly in the second half of the twentieth century when it became fashionable among Marxist academics. It is not determinist as it critics insist – it does not suggest that change happens automatically, that ideas mechanically reflect technological and economic change, after all these changes often require new ideas and political interventions. Marx is merely arguing a rather simple point, that ultimately the material world provides the limits of our perception. Our thoughts must always relate to the real world, to the necessity for food and shelter and social production and to current social and economic relationships and the struggles associated with them. Although thought obviously feeds back into how we perceive the world and therefore act, thought itself does not exist independently of material reality.  Marxian socialists accept the importance of ideas in creating social change but reject the notion that ideas can come from outside experience, as a vision, and transcend it to establish a new social reality.

Marx was challenging the religious views prevalent in the nineteenth century that the material world was shaped by our ideas, which ultimately were derived from God. Marx countered this by asserting that, on the contrary, our ideas emerge from our experience of the material world. These ideas then feed back into our experience by acting to re-shape it through social and political struggle. Limits are placed on the actions of individuals by their social and economic context – so changing the social and economic basis of society is therefore, for Marx, the fundamental point of political action. This is what industrial capitalists in the nineteenth century were doing to displace landed capitalists as the dominant power amongst their class – in the process creating a new theory of society (modern economics) to further propel it and justify it. It is also, crucially, what Marx thought that socialists needed to do to create a new society. Ideas without a change in the economic basis of society could not result in a socialist society. This economic change is not pre-determined and requires class conscious political action to make it a reality – capitalism would not collapse on its own or evolve itself into a new form of society.

For Marx, capitalist production involved the production of commodities for exchange, wages, and profit. Its opposite was a society with rational, planned production for use, with co-operative labour under conditions of free association. In other words, there would be no need for exchange in socialism and therefore no reason for money to exist – given that its reason for existence was as a facilitator of exchange. But socialist revolution won’t happen by itself – we need to make it happen.

Among the dead-end political movements that followed in the century after Marx’s death in 1883 were Labour governments and nationalised industries and the Bolshevik revolution and other so-called ‘Marxist’ regimes around the world. These political projects attempted to create a fairer world, which they called ‘socialism’. Marx – read in his own words – helps us to understand that they could not deliver the societies they sought because they left the capitalist process of production intact. The lesson for the supporters of Corbyn’s Labour party should be obvious.

Colin Skelly

Democratic scarcity? (2013)

Book Review from the April 2013 issue of the Socialist Standard

Remaking Scarcity: From Capitalist Inefficiency to Economic Democracy, by Costas Panayotakis. Pluto Press, 2011

Economics, as taught in schools and colleges, defines itself as the study of the allocation of limited resources amongst competing wants where these are greater than resources and teaches that markets and prices arose as the best way to do this. In fact, since it assumes that human wants are infinite, it teaches that scarcity – and markets and prices – will always exist.

Panayotakis rejects the traditional socialist argument that ‘scarcity has been conquered’ because ‘the problem of production has been solved.’ He sees scarcity as a fact but argues that free market capitalism is not the most efficient way to deal with it. Naturally, he has no difficulty in showing that capitalism does not allocate resources efficiently to meet human needs.

This, he points out, is due to the fact that ‘the true goal of capitalist economies is not to satisfy the wants of consumers, but to pursue profit and a never-ending accumulation of capital.’ This ‘logic of capital accumulation escapes people’s control and subordinates them to its imperatives,’ including even the owners and top executives of capitalist firms:

‘... the pressure of capitalist competition means that, even to preserve their capital and continue enjoying the privileges, prestige and power associated with their class position, capitalists must tirelessly pursue profit and capital accumulation.’

This makes them essentially ‘functionaries of capital,’ who don’t have a free hand to do what they might want, but only a greater power than the rest of society ‘to influence the terms under which they and all other socio-economic groups are subordinated to the logic of capital.’ So far, so good.

Panayotakis’s thesis is that capitalism fails to deal with the problem of scarcity efficiently because it is an economic oligarchy. The alternative to capitalism is, then, an ‘economic democracy’ where everybody would have an equal say in how scarce resources are used. He recognises that this implies that the means of production should no longer be owned and controlled by a minority but seems to favour particular productive units being run by workers’ co-operatives or councils.

The two models of ‘economic democracy’ he discusses in detail are so-called ‘market socialism’ (as in David Schweickart’s proposal) and Michael Albert’s ‘Parecon.’ He can see the drawbacks of retaining production for the market, but doesn’t make the point that, with market competition, workers’ co-operatives too would be forced to behave as ‘functionaries of capital’ if they wanted to survive.

He is more favourable to ‘Parecon’ but mentions one critic’s description of it as an ‘off the shelf utopia.’ As indeed it is, though ‘off the wall’ might be a better description given its endless form-filling and voting to try to fix prices and pay that conform to some ideal allocation of scarce resources.

Panayotakis and the others have got themselves into this position of discussing how to calculate prices and pay because they reject the traditional socialist view that, given the abolition of capitalism, enough to satisfy people’s needs could be produced and that therefore a socialist society would not have to price or ration goods but could implement the principle of ‘from each according to their ability, to each according to their needs’.

Adam Buick

Cooking the Books: Beyond Economics (2016)

The Cooking the Books column from the October 2016 issue of the Socialist Standard

This year is also the 50^th anniversary of Star Trek. Although not the main theme, or even a minor one, it is clear from the characters’ behaviour and occasional asides (at least in the first two series) that it’s a money-free world. Set in the 23^rd and 24^th centuries, scarcity no longer exists as anything material needed to meet human needs can be produced by ‘replicators’. This prompted one trekkie, Manu Saadia, to write Trekonomics: the Economics of Star Trek that appeared earlier this year and which sparked a discussion on ‘post-scarcity economics’.

Actually, ’post-scarcity economics’ is a contradiction in terms as academic economics defines itself as the study of how societies and individuals allocate scarce resources. The opening chapter of a typical American textbook (Economics by Byrns and Stone) is headed ‘Economics: The Study of Scarcity and Choice’. Paul Samuelson, in his much more widely-used textbook of the same title, invents ‘The Law of Scarcity’:

‘If an infinite amount of every good could be produced, or if human wants were fully satisfied, it would not then matter if too much of a particular good were produced. Nor would it then matter if labor and materials were combined unwisely… There would then be no economic goods, i.e., no goods that are relatively scarce; and there would hardly be any need for a study of economics or ‘economizing’. All goods would be free goods, like air.’

This is not a ‘law’ but a definition and an odd one at that. In its normal sense ‘scarcity’ means there’s not enough of something, that it’s in short supply. But economics defines it as a situation where Samuelson’s ‘infinite amount of every good’ cannot be produced, i.e. as the absence of sheer abundance.

For Byrns and Stone  ‘a world in which all human wants are instantly fulfilled is hard to imagine.’ But this is just what Star Trek  does imagine and what its creator, Gene Roddenberry, insisted should be a background assumption. It is thus a direct challenge to economics and economists.

Accusing Roddenberry of espousing ‘utopian socialism’, a certain Gardner Goldsmith asserted that a ‘no-money society’ was a fantasy:

‘Like Roddenberry, many thinkers have tried to envision a world in which there is no need for money, no market exchange, and no property. And every one of those thinkers, whether be they followers of John Lennon, Michael Moore, or Karl Marx, has overlooked one key insight: man’s nature does not change.’

As if we hadn’t heard that one before! Paul Krugman made a more intelligent point that, while replicators might be able to produce material things in demand, they wouldn’t be able to provide services.

Star Trek is of course fiction. But Roddenberry’s assumption raises the question of what humans would do (besides exploring space) if they didn’t have to work to satisfy their needs. Provide services for each other perhaps?

Even in 2-300 years time humans will still have to put in some work to satisfy their needs, if only to maintain the replicators. But this doesn’t undermine the case for a society based on common ownership of the means of production where exchange and money would therefore be redundant and where people work at what they do best and take according to their needs.

Scarcity has already been conquered, not in the economists’ eccentric sense of the absence of sheer abundance, but in the sense that the resources, technology and human skills already exist to produce enough satisfy likely human needs and wants. No need to wait for the invention of replicators to establish this down here on Earth in the 21^st century.

What is marxian economics? (1980)

From the November 1980 issue of the Socialist Standard

At the moment output is falling, unemployment is growing, prices are rising all things that no one wants to happen, but which nevertheless do. What this means is that the human social activity of producing and distributing wealth is not under the conscious control of human beings. They do not control the conditions under which they produce and distribute wealth but, on the contrary, are subject to laws which, while not themselves laws of nature, operate as if they were, as an external force governing human activities. Economics is precisely the study of “the laws” which govern human activity in the field of wealth production and distribution.

An important point must be made straight away: economic laws only come into operation under certain social circumstances—when, in fact, the production and distribution of wealth is not under conscious social control. When, as today, the means of production are monopolised by a section only of society and are used to produce wealth to be sold on a market with a view to profit. In other words, economic laws are the laws of capitalist production and they will not operate when capitalism has been abolished through the establishment of socialism (when production will be for the direct use of the whole community). This is why we said that these laws are not natural laws.

To say that they are would be to assume that capitalism was the natural form of human society. Which is the mistake made by the early theorists of economics or “political economy” as it was then called, such as Adam Smith and David Ricardo who Marx criticised for doing so. Indeed this is what Marx’s Critique of Political Economy (the title of a book he published in 1859 as well as the sub-title of Capital) basically amounts to. Nevertheless, as long as capitalism exists, these laws exist and operate just like natural laws; they govern human activity in the field of wealth production and distribution and act as external constraints on what humans can do.

An understanding of these laws is very important; it is in fact a basic part of our case since it leads to the conclusion that capitalism just cannot be reformed so as to serve the common interest and therefore must be abolished if today’s social problems are to be solved. Our interest in economics is simply to understand how capitalism works, and not at all to recommend policies for governments to pursue. This is an important point since “economics” and “economists” today are regarded, and regard themselves, as policy advisers.

How, then, does capitalism work? The man who first analysed this in an adequate way was Karl Marx in his work Capital, first published in German in 1867. He wrote a number of other works on economics too, but the best introduction is the talk he gave in 1865 which was published after his death under the title Value. Price and Profit (also known, in some reprints, as Wages, Price and Profits). As far as economics is concerned, we are Marxists as Marxian economics is an integral part of our theory.

If you look at the way capitalism works, the first thing that strikes you is that everything is bought and sold. Goods are all produced to be sold and nobody can get what he wants or needs except by buying it. Capitalism, then, is a buying and selling society in which wealth takes the form of an immense accumulation of items for sale, or commodities. This is why Marx begins his analysis of the capitalist mode of production by examining the commodity. A commodity is not simply an item of wealth, something useful; it is an item of wealth that has been produced for exchange, for sale. Commodities were of course also produced before capitalism existed, but in the past were only a secondary feature. Capitalism is the commodity society par excellence, where everything, including the mental and physical energies of human beings, is bought and sold.

Commodities exchange with each other in fixed proportions and Marx set out to discover what determined the exchange-value of a commodity, what determined, in other words, the proportions in which they exchange one for another. He came to the conclusion that the exchange-value of a commodity was determined by the amount of socially necessary labour needed to produce and reproduce it. This Labour Theory of Value is the basis of Marxian economics and without a knowledge of it it is impossible to adequately understand the other aspects of capitalist economic life such as money, prices, the rate of profit and crises.

This theory is explained in the pamphlet Some Aspects of Marxian Economics which we have just published and which is available for 40p from our Head Office, 52 Clapham High Street, London SW4 7UN.

Ridiculous economic moonshine (1981)

From the July 1981 issue of the Socialist Standard

Economists zigzag from forecasts of gloom and doom on the one hand to rosy reassurance on the other. In the first group, we should include Dr. Ralf Dahrendorf of the London School of Economics who asserts that we shall never again see unemployment as low as 2 million. His crystal ball seems distinctly murky. In the other group is Arthur Seldon, doyen of the Institute of Economic Affairs. It is his view — stated in a debate against the SPGB recently — that capitalism is going to continue, whether we like it or not. Since he is a supporter (and publisher) of Dr Hayek — a firm believer in the benevolence of the market economy — Seldon can be termed an optimist.

Seldon told his audience that according to Adam Smith man has a “natural urge” to exchange things. (What did Smith know of genetics, or even biology?) This “natural urge” could only be overcome by “unselfish love” as preached by Christians. We note, in passing, that the Christian religion has featured conflict in Northern Ireland, and that most of those in the West who have developed and stockpiled nuclear weapons are Christians.

Seldon had a startling approach to economics. He told the audience that if we owned any property we should be regarded as capitalists, and even suggested buying a car or a house on the never-never as a means to become so. Even a push-bike would qualify one, it seemed. If the Seldon theory is right, it follows that we workers must be crazy to work for wages — giving away so much unpaid labour every working day. After all, if we are the capitalists, we could just sit back and wait for the dividends to accumulate without any effort from us, as they are derived from the unpaid labour of the philanthropic working class. (If every car, bike or house buyer is a capitalist, who are the working class?) In fact, capital is wealth which is used to create profits. A car owned by a car-hire firm is capital; one owned by a worker to help him get to work is not.

The prize for the silliest statement on economics must go to a Labour Council candidate who quoted from a textbook he claimed to have studied when learning how to be a banker. Here it is:

Money is a “medium of exchange for goods and services, without intrinsic value" (our emphasis).

It seems, then, that humans have a “natural urge” to exchange commodities of real value (a house, car, bike, or our time and labour) for something of no value! The way the system actually works is surely quite crazy enough without these potty professors and pundits giving us confusion worse confounded.

Obviously, money has some value. To start with, it has a use-value, derived from its function (at least in a market economy) as a medium of exchange, as the “universal equivalent”, so that we no longer have to barter goods, swapping TV sets, carpets, cars and coats-as children swap conkers and marbles. Money also has exchange value. This is measured by the amount of socially necessary labour-time used up in producing it. Whether solid gold sovereigns or today’s paper flotsam, money always costs some labour time to produce. It is an indication of how debased our much-inflated currency has become that economics students, would-be bankers, Chancellors of the Exchequer and the like, are actually taught that money is “without intrinsic value”.

One would have to be daft as a brush — or a Labour Councillor — to believe that such a statement holds good in the real world. Do we pay the same amount of money for 6 eggs as for 1 dozen? If our money has no value, why should the shopkeeper ask us to pay at all for these eggs? If the money we get as wages has no value, why do our employers object to giving us more of it? Indeed, if the money we earn as wages has no value, why should we sell our labour power for money we should insist on payment in kind, in goods which do have a value. And how strange it is that bank managers are so reluctant to give away these tokens “without intrinsic value”.

An unusual industrial dispute is going on in London where workers at the Time Out magazine are on strike. It seems that the owners want to scrap the existing agreement. All workers at Time Out get the same pay — switch-board operators and editors are all paid the same. The owners, far from being proud to have pioneered such an egalitarian policy, are rather ashamed of themselves. Maybe Thatcher and the CBI have expressed disapproval. Whatever it is, both sides are now locked in dispute on this point.

The fact is that, however agreeable it may seem for all workers to earn the same, there are economic factors which make this impossible as a general rule. At Time Out, editors are earning less than they could get elsewhere while switchboard operators and other “menials” are earning more than the going rate. Result: while Time Out is a switchboard operator’s idea of a well-paid Paradise (probably there is a queue for the next vacancy) the owners may well find it hard to keep their editors. It takes more to train a good editor than a competent switchboard operator: the one requires a high level of education and a long and specialised training, the other is a job which can be taught relatively fast to almost anyone. Labour power is a commodity and its value (and consequently its price) will depend generally on its cost of production and reproduction.

“Equal pay” carried to the Time Out extreme is economic moonshine, almost as ridiculous as Arthur Seldon’s idea that owning a car can turn a worker into a capitalist, or the textbook’s teaching about money being without value. The only sensible approach to the economics of capitalism and the world we actually live in is one based on Marx’s labour theory of value, which shows us why money does have value and why different workers earn different rates of pay under normal conditions. And it is this theory which shows how we, the working class, the wealth-creating class, are exploited by giving away our unpaid labour to the capital-owning class.

Charmian Skelton

(A pushbike owner)

From Political Economy to Vulgar Economics (2015)

From the December 2015 issue of the Socialist Standard

The history of economic research came up as an independent science in the seventeenth century. However, that didn’t happen all of a sudden. Long ago since ancient times, the process of rudimentary conceptualization and formation of political economic ideas had begun cropping up. The ancient Egyptians, Greeks, Hindus and other peoples were already acquainted with such economic categories as commodity, exchange, money, price, loan interest, commercial profit, and others. There are very interesting ideas and data in ancient Egyptian papyri; the code of Hammurabi, the ruler of Babylonia; the Vedas of Ancient India; Homer’s Odyssey and other works of the ancient Greek poet; the writings of Xenophon, Plato, Aristotle and other philosophers of Greek antiquity, and so on. However, what the ancients knew about economic categories was just embryonic.

The history of economic thought begins with the works of Xenophon, Plato and especially Aristotle, who made the first step towards a theoretical understanding of the economy of the ancient Greek society (which was at the stage of demise of the primitive-communal system and the rise of slavery), and articulated some remarkable ideas on value, commodity exchange, and the earliest forms of capital: trading (merchant’s) and usury capital.

Capitalist structures first took shape not in production, but in trade and monetary operations in the late sixteenth and early seventeenth centuries. Eventually this evolutionary process of the upcoming capital came to be known as Mercantilism that expressed the interests of merchant’s capital in England, Italy and France. Its principal spokesmen were William Stafford (and Thomas Mun in England, Antonio Serra in Italy and Antoine de Montchrestien in France).

The term 'Political Economy' was first coined by the French mercantilist Antoine de Montchrestien in his Treatise of Political Economy (1615), which contained recommendations on how to run the state economy and multiply the country’s wealth. The term was derived from three Greek words: 'politikos' – state, social; 'òikos'- household or its management; and 'nomos' – rule of law, and so meant 'the laws of state management'.

Later on, in the eighteenth century, bourgeois political economy was developed by the Physiocrats: Francois Quesnay, Turgot, and others. François Quesnay was a French economist of the Physiocratic school. He is known for publishing Tableau économique (Economic Table) in 1758, which provided the foundations of the ideas of the Physiocrats. Turgot, Baron de l'Aulne, commonly known as Turgot, was a French statesman (and economist in his own right) heavily influenced by Quesnay.

In contrast to the mercantilists, they switched the emphasis in economic research from the sphere of circulation to the sphere of production.

Bourgeois political economy in that period [from the 17th century to the 1830s] was advanced by William Petty (1623 – 1687) in England and Pierre Boisguillebert (1646 – 1714) in France. They were the pioneers in formulating the labour theory of value. They were in effect the founders of classical political economy, which reached its peak in the works of the Scottish economist Adam Smith in the eighteenth century and the English economist David Ricardo in the early nineteenth century.

Karl Marx observed in 1859 in the section 'Historical Notes on the Analysis of Commodities' in A Contribution to the Critique of Political Economy: 'The decisive outcome of the research carried on for over a century and a half by classical political economy, beginning with William Petty in Britain and Boisguillebert in France, and ending with Ricardo in Britain and Sismondi in France, is an analysis of the aspects of the commodity into two forms of labour – use-value is reduced to concrete labour or purposive productive activity, exchange-value to labour-time or homogeneous social labour.' In Capital (1867) he defined political economy: '… by political economy I understand the economy which since the time of W. Petty has investigated the real relations of production in bourgeois society'.

Marx made a distinction between such men as Petty, Smith and Ricardo and their successors. He wrote of the former that they devoted their efforts 'to the study of the real interrelations of bourgeois production', while the latter were 'content to elucidate the semblance of the interrelations' and to act in effect as apologists for the capitalist class. He called them 'vulgar economists'.

Engels had already warned, and shown great foresight, in 1843 when he wrote in his Outlines of a Critique of Political Economy: 'The nearer to our time the economists whom we have to judge, the more severe must our judgment become. For while Smith and Malthus found only scattered fragments, the modern economists had the whole system complete before them: the consequences had all been drawn; the contradictions came clearly enough to light, yet they did not come to examine the premises and still accepted the responsibility for the whole system. The nearer the economists come to the present time, the further they depart from honesty'.

Binay Sarkar