The deceptive promise of growth.
Domestic product records the value that is produced and sold, and invoiced. The goods and services that are swapped or paid informally are not included (though they are estimated in the grey economy). The value produced is exchanged for money, so that there is proportionality between the amount of value and the quantity of money in circulation. Money (cashor credit) changes hands more or less quickly, but technology and the passage from metal to paper and to digital have greatly accelerated the process, so that financial speculation sees vast sums move back and forth in seconds. Whatever the speed of circulation, however, an increased production of value needs more money as the go-between for the growing number of exchanges.
The supply of goods and services to the market must find a solvent demand. And both must grow together to keep to the narrow path between inflation and deflation, thereby maintaining price stability. Goods and services are produced by bringing together the means of production and labour.Their quantity increases when more means and labour are broughttogether, or when the same means and labour increase theirproductivity. In the first case the increased investment increases demand. This balances the extra supply, and the monetary creation in the form of credit is invested (1). The second case is more complex. Gains in productivity should automatically bring down prices, as these are theoretically founded on production costs. But productivity grows with innovations that are covered by property rights and do not advantage every one. The innovator can cut his prices, expand his share of the market and ruin some of his competitors. Alternatively he can maintain prices and increase his profits. In this case thes ame production with more productivity signifies less labour and means of production brought together, less investment and less demand.
Productivity is the troublesome partner of growth, as it can easily perturbe thedelicate balance between supply and demand. All the more so thatgains in productivity can be obtained artificially by cutting wages,taxes, social levies and environmental obligations, thereby reducing production costs (outsourcing is usually motivated by these possibilities). In general, it seems that improved productivity is spread both ways. It raises profits and brings down prices, but thecost price is still lower than the market price. If this surplus value is invested in increased production, the balance of supply and demand is maintained. But the means of production tend to overcapacity, because the surplus value increases investments and forgets that mass production exists for the consumption of labour. This does not happen if the profits are used to increase consumption (e.g. by retired shareholders). However, if they go abroad, or to speculative investments on the stock, real estate and commodity markets, then the balance of supply and demand will be upset.
Even in a perfectworld, steady constant growth of the value produced is probably impossible. The influence of innovation causes accelerations that arenot foreseen and cannot be controlled. And, anyway, it is becoming obvious that the environmental impact of certain forms of growth is making the planet uninhabitable (e.g. fossil fuel consumption). Nonetheless, the illusion of constant growth is possible because of sleights of hand, and because the periodic upheavals they provoke are blamed on other factors. The classic method is for a nation to export finished and semi-finished goods, and to import raw materials and other means of production. The end product is consumed elsewhere, and surplus value can be invested, without leading to over capacity, for as long as this external consumption is maintained. The English cotton industry in the 19th century practiced this methodby importing raw cotton and exporting spun cotton, and it generated huge quantities of surplus value thanks to the new technology of steam powered machines. As the consumption was taking place elsewhere – India was le largest market – English labour could be paid starvation wages. All the more so that the ranks were constantly filled by rural exiles pushed out of employment by the mechanization of agriculture and the extension of sheep rearing. The cotton market,however, was subjected to periodic slumps (decennial according to KM). It had trouble absorbing such growth, as Indian hand-spinners became redundant and indebted. While vast fortunes were made and lost in England, numberless Indians were deprived of work and income. The process finally stabilized, but India had lost countless jobs and the value they added, to the benefit of English industrial development.
This exchange between England and India in the mid-19th century seems strangely familiar because it has been repeated by others several times since, though never with such absolute contempt for the labouring masses. The United States practiced the same trade pattern before and after the Second World War. Then Japan, Germany and the ex-colonial nations adopted the idea, followed by Korea, Taiwan and their fellow Dragons. And, last but not least, the Group of Five --with China taking the lion’s share -- has applied the method to an unprecedented globally unified market. The scale of the enterprise dwarfs all past attempts. And, as an extra benefit, when investments are imported and all the consumption that results is exported then,however small the value added, the trade balance is always positive. More value is sold than is bought.
The unbalanced exchange between investment and consumption allows the accumulationof capital on one side and the destruction of jobs on the other, and it produces a constant trade surplus/deficit. On one side of the equation are an exploited work force and industrial development, on the other are unemployment and debt. And when the debt reaches acertain level, it can no longer grow and the system goes into recession. All that is happening was programmed by the laissez faire open-market deregulated ideology that has imposed its universal dictate since the end of the Cold War. Market forces, free enterprise, tax cuts et cetera were shallow slogans that hid the wider picture. As usual, profit and the unlimited accumulation of wealth were the driving motives, and egocentric hubris was the dominant mode. Now that the house of credit-cards is collapsing, these same megalomaniacs cannot recognise that their model is faulty.Their deafening claim that growth is the only solution shows they are insatiable and prohibits change. Or, as J. Stiglitz put it, the argument that the response to the current crisis has to be a lessening of social protection is really an argument by the 1% to say, “We have to grab a bigger share of the pie”. Clutching their riches, their power and their mind-sets, they are pushing the worldoff the cliff into chaos and mayhem.
1. I have developed the different consequencesof investment credit and consumer credit in a previous piece. http://lelezard.blogspot.fr/2010/08/binary-production-of-wealth.html
The supply of goods and services to the market must find a solvent demand. And both must grow together to keep to the narrow path between inflation and deflation, thereby maintaining price stability. Goods and services are produced by bringing together the means of production and labour.Their quantity increases when more means and labour are broughttogether, or when the same means and labour increase theirproductivity. In the first case the increased investment increases demand. This balances the extra supply, and the monetary creation in the form of credit is invested (1). The second case is more complex. Gains in productivity should automatically bring down prices, as these are theoretically founded on production costs. But productivity grows with innovations that are covered by property rights and do not advantage every one. The innovator can cut his prices, expand his share of the market and ruin some of his competitors. Alternatively he can maintain prices and increase his profits. In this case thes ame production with more productivity signifies less labour and means of production brought together, less investment and less demand.
Productivity is the troublesome partner of growth, as it can easily perturbe thedelicate balance between supply and demand. All the more so thatgains in productivity can be obtained artificially by cutting wages,taxes, social levies and environmental obligations, thereby reducing production costs (outsourcing is usually motivated by these possibilities). In general, it seems that improved productivity is spread both ways. It raises profits and brings down prices, but thecost price is still lower than the market price. If this surplus value is invested in increased production, the balance of supply and demand is maintained. But the means of production tend to overcapacity, because the surplus value increases investments and forgets that mass production exists for the consumption of labour. This does not happen if the profits are used to increase consumption (e.g. by retired shareholders). However, if they go abroad, or to speculative investments on the stock, real estate and commodity markets, then the balance of supply and demand will be upset.
Even in a perfectworld, steady constant growth of the value produced is probably impossible. The influence of innovation causes accelerations that arenot foreseen and cannot be controlled. And, anyway, it is becoming obvious that the environmental impact of certain forms of growth is making the planet uninhabitable (e.g. fossil fuel consumption). Nonetheless, the illusion of constant growth is possible because of sleights of hand, and because the periodic upheavals they provoke are blamed on other factors. The classic method is for a nation to export finished and semi-finished goods, and to import raw materials and other means of production. The end product is consumed elsewhere, and surplus value can be invested, without leading to over capacity, for as long as this external consumption is maintained. The English cotton industry in the 19th century practiced this methodby importing raw cotton and exporting spun cotton, and it generated huge quantities of surplus value thanks to the new technology of steam powered machines. As the consumption was taking place elsewhere – India was le largest market – English labour could be paid starvation wages. All the more so that the ranks were constantly filled by rural exiles pushed out of employment by the mechanization of agriculture and the extension of sheep rearing. The cotton market,however, was subjected to periodic slumps (decennial according to KM). It had trouble absorbing such growth, as Indian hand-spinners became redundant and indebted. While vast fortunes were made and lost in England, numberless Indians were deprived of work and income. The process finally stabilized, but India had lost countless jobs and the value they added, to the benefit of English industrial development.
This exchange between England and India in the mid-19th century seems strangely familiar because it has been repeated by others several times since, though never with such absolute contempt for the labouring masses. The United States practiced the same trade pattern before and after the Second World War. Then Japan, Germany and the ex-colonial nations adopted the idea, followed by Korea, Taiwan and their fellow Dragons. And, last but not least, the Group of Five --with China taking the lion’s share -- has applied the method to an unprecedented globally unified market. The scale of the enterprise dwarfs all past attempts. And, as an extra benefit, when investments are imported and all the consumption that results is exported then,however small the value added, the trade balance is always positive. More value is sold than is bought.
The unbalanced exchange between investment and consumption allows the accumulationof capital on one side and the destruction of jobs on the other, and it produces a constant trade surplus/deficit. On one side of the equation are an exploited work force and industrial development, on the other are unemployment and debt. And when the debt reaches acertain level, it can no longer grow and the system goes into recession. All that is happening was programmed by the laissez faire open-market deregulated ideology that has imposed its universal dictate since the end of the Cold War. Market forces, free enterprise, tax cuts et cetera were shallow slogans that hid the wider picture. As usual, profit and the unlimited accumulation of wealth were the driving motives, and egocentric hubris was the dominant mode. Now that the house of credit-cards is collapsing, these same megalomaniacs cannot recognise that their model is faulty.Their deafening claim that growth is the only solution shows they are insatiable and prohibits change. Or, as J. Stiglitz put it, the argument that the response to the current crisis has to be a lessening of social protection is really an argument by the 1% to say, “We have to grab a bigger share of the pie”. Clutching their riches, their power and their mind-sets, they are pushing the worldoff the cliff into chaos and mayhem.
1. I have developed the different consequencesof investment credit and consumer credit in a previous piece. http://lelezard.blogspot.fr/2010/08/binary-production-of-wealth.html
posted by le Lézard at 7:15 AM
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