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Reconstituted Socialist Party of Great Britain - Marx Studies - Pulling Money out of the Magician’s Hat

Scene: The bleak and windswept area in front of Mercer’s Hall, Cheapside, situated in the heart of the City of London.

Those present: Karl and his assistant; the one and only Proletarious. They are standing in front of a large empty screen alongside a battered and much travelled empty suitcase.

Slowly out from what was once Gropecount Lane, an audience begins to assemble, curious to find a magician turning a magic trick for absolutely nothing in an area of London known only for its insatiable and rapacious greed and conspicuous and fetish-like consumption of the best that money can buy.

Karl (for it is he):

Ladies and Gentlemen, I have here in my right hand an empty bowler hat with the magical symbol M ? M1 (where M1 ? M). My assistant will now come among you and show that the hat is completely empty”.

The assistant moves amongst the audience showing them the empty bowler hat replete with its magic symbol and demonstrating beyond a shadow of a doubt that the hat is indeed completely empty.

Karl: “Ladies and Gentleman I will now take this crisp ten pound note bearing the image of Jane Austen and place the note into the empty bowler hat that I am holding in my other hand.”

“I will now utter the magic word “abracadabra!” and ask a member of the audience to come out to the front of the stage and put his or her hand into the bowler hat


A member of the audience obligingly steps forwards and pulls out from the bowler hat a twenty Pound note bearing the image of Adam Smith.

The audience gasps in amazement. There, in the City of London, amongst all the banks and finance houses; Karl the magician has, as if by magic, transformed the original money placed into the bowler hat into a £20 pound note. An additional £10 seems to have been created out of nothing.

Now is that magic? exclaimed Karl.

How did Karl do it? How did Karl the magician, a performer clearly at the top of the Daily Mail hate list, create more money from the bowler hat than he had originally put in?

Tell us how you got you got more money out of the hat than you put in”, shouted out the audience made up of assorted merchant and investment bankers and their pet back-bench MP’s from the main political parties; hedge fund managers basking in their self-importance as “masters of the universe”, assorted apologetic hustlers from the free market think tanks that encircle the City representing the Banker’s Mayor, Boris Johnson; The Lord Mayor of London, Roger “The City is moving towards a healthier capitalism” Gifford, a plague of financial journalists who cravenly repeat what they are told by PR consultants after a good lunch; the various financial scribblers from the in-house City finance blogs wearing their Ann Rynd badges and T - shirts sporting the slogan “greed is good”; and the thousands of “economists” employed to crudely and vulgarly follow trends in prices, supply and demand curves, and commodity futures markets as though that is the extent of “economics”.

As an economic magician I am bound by the rules of the Magic Circle given in the following command: “indocilis privata loqui” (not apt to disclose secrets), came Karl’s reply.

Tell! Us! Tell Us!”: screamed the audience, who by now were becoming almost rabid in their obsession to learn how it is possible to make more money seemingly out of nothing.

Karl turned to the large screen behind him. With a click of his fingers the screen lit up to display the magical symbol M ? M1 where M1? M and M1 is surplus value (Mehwert).

And then he began his power-point presentation by pointing his magic wand to the board behind him:

And this is what the power point presentation revealed to those present:

M is money but not any form of money. M is money-capital specific to capitalism.

Capitalism is a misunderstood and misused term.

Capitalism is a social system with a beginning and a potential end in class struggle in which capital is a circuit through which money and commodities flow to produce more capital.

The key to understanding capital is value.

Value is the expenditure of the socially necessary labour time necessary to produce commodities under average conditions. Value is another word either misunderstood or supressed by economists in favour of price and supply and demand curves.

Although we have started with money capital, capital has many forms in the circuit from M ? M1 where M1 is greater than M.

Capital can be money, bank balances and credit. And capital can be commodities in the form of raw materials, tools, factories, instruments of production, consumer goods and so on.

We can also refer to the commodity, labour power (LP), sold by the working class to the capitalist class as “variable capital” and the means of production (MP); raw resources, factories, machines and buildings as “constant capital

The working class consists of anyone divorced from the ownership of the means of production distribution and who are, by necessity, forced to enter the labour market to sell their ability to work for a wage and salary.

Whereas the Roman ruling class looked down upon the Proletarious as just mere producers of children, the capitalist class and their economists refuse to even accept the modern day Proletarious are the sole producers of social wealth. They are just considered as just a factor of production, appendages to machines; “hands” or processors of information at computer terminals, mere alienated labour.

Turning reality up-side down economists fallaciously claim that the capitalist class are the wealth creators!

The capitalist class produce nothing. The capitalist class and those who parasitically feed off unearned income like the banker and the rentier are just the personification of capital.

Only money and commodities are capital when they form part of the circuit M ? M1

So to explain the magic of M ? M1 we have to express the circuit of capital as:

M ?C? M1; where C is a commodity, M is the original investment and M1 is a sum greater than the original capital invested.

We can then say:

Money capital is used to buy and sell commodities to make more money capital than was originally invested.

What the circuit of capital is showing is the expansion of value which can go on from one year to the next as an anti-social process in its own right where M1 becomes M2, M3, M4, and so on.

How do the two forms of capital – variable capital (vc) and constant capital (cc) fit into the circuit of capital?

They fit into the circuit of capital in the following way;

Money capital buys constant and variable capital to produce commodities to sell on the market to generate a greater amount of money capital than when first invested.

The circuit expands to reveal:

M? (MP+LP) ? C? M1 Money capital (M) buys means of production (MP) and labour power (LP) and becomes capital in motion. One investment of money capital buys raw materials, pays for transport, energy and so on while another investment of money capital buys labour power in the form of wages which go to the working class.

Why the separation of the commodity, labour power from the commodities that form the means of production? Why is there a fundamental difference between “variable capital” and “constant capital”?

The answer is that the expenditure of labour power, the commodity the working class sells to the capitalist class, and which becomes variable capital within the circuit M ?C? M1, creates additional value or surplus value.

The difference between the cost of labour power and the amount of value produced by labour power is industrial profit. And it is this profit which forms the unearned income of rent, banking interest, commercial profit, and taxation to support the capitalist state and so on. Profit is produced in production through the exploitation of the working class creating additional or surplus value but realised as profit in circulation. The genesis of profit has nothing to do with buying cheap and selling dear, cheating, factors of production, management prowess of the capitalist or those he employs or risk.

There is no magic in the Square Mile that conjures money out of thin air. Instead, one set of commodities (MP+LP) is replaced with a new set of commodities with greater value. This “magic” has happened in the production process (P) not on the Stock Exchange or in the Derivative markets.

The circuit of capital can now be presented as:

M? (MP+LP) ?P… C1?M1

Money capital is used to buy means of production and labour power. Through the production process the workers turn the raw resources into commodities which have a greater combined value than MP+LP.

These commodities are then sold at their new values and when these commodities are sold on the market for profit the capitalist ends up with more money than when he first invested in the process of commodity production and exchange for profit.

Capital has passed from the money form into the commodity form; it has been expanded in the production process and then transformed back into money form. Some of that profit will leave the circuit of capital to become the unearned income going to the capitalist class to be spent on luxury goods. The remaining profit will be re-invested to start the circuit of capital all over again.

For capitalists to reproduce themselves as capitalists requires money capital to be constantly re-invested back into commodity production; profit rather than human need, capital accumulation for the sake of accumulation and the expansion of value as an anti-social objective in its own right.

Money and commodities have no use to a capitalist unless they are being used to create profit, that is, unless they are capital used to accumulate more and more capital. So a capitalist must constantly invest capital back into the circuit of capital: to turn money into commodities and back again faster and more efficiently than his rivals.

There the presentation ended. An explanation had been given on how the initial money capital had become greater than when it was first invested.

The explanation did not go down very well with the audience. They had previously thought the social wealth of society was largely created in the City; in the stock exchange and the merchant banks, in the selling of derivatives and other highly complex financial instruments. They became very angry indeed.

So Karl and his l assistant decided it was time to go. Karl opened the large suitcase and they both got inside and the suitcase sprung shut. The furious crowd closed in and prised open the large case but to their surprise they found it was empty. Now that is Magic.

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