A fork in the path ahead

Having formulated the value produced as c + v + s, Marx remained puzzled by it to the end. Constant capital (c) was invested in means of production. Variable capital (v) was invested in labour. But where did the surplus value (s) come from? Surplus value is capital’s share of production. But if capital does not pay for it, what does? At the beginning of the 20^th century, Kautsky edited and published Marx’s notes on surplus value and Luxemburg analysed all the arguments, concluding that surplus value had its source in capitalist expansion. However, without contradicting Luxemburg’s deductions, the solutions to the enigma seem to be credit and trade.

In the 19^th and early 20^th centuries, gold and silver coins still circulated as legal tender. Monetary creation and its circulation were still problematic, and the realm of commercial credit was very secretive. All that has changed. Nowadays cash is created electronically without a mint or a printing press, and credit has spread to become the usual form of payment. And the virtuality of electronic money has blurred the boundary between them. Things were not so obvious a hundred years ago. But the exchanges inside department I (producing means of production) and II (producing consumer goods), and the exchanges between departments could grow on credit, then as now. And they did, provoking the habitual periods of growth and recession. Credit is a wager on future growth. It expands the market by supplementing incomes. It stimulates demand, and thereby encourages supply and investment. Credit increases spending capacity, but the increase is conditional and provisional, and it pays interest. Credit to businesses is essentially commercial, discounting future payments. For investments, long term and perpetual financing with bonds and shares is preferred. For consumers, credit is the only possibility. But consumer credit, both private and public, multiplies much faster than the demand it generates and regularly overstretches itself. This means that growth based on credit – as opposed to the growth that results from the enhanced productivity of new technology with its own secular rhythms – is a predictable cycle of ups and downs, with the different time scales of credit moving sometimes in unison and sometimes in opposition. Credit can supply the missing surplus value, but when several bubbles burst simultaneously the consequences are chaotic.

Foreign trade may refer to a monetary standard, but it does not concern actual currency. It is an exchange of goods and services, a form of barter that makes the settling of trade deficits so problematic. It needs a transfer of bullion or, for the happy few, of Treasury bonds. (The European common currency gave this possibility to 17 separate nations, with dire results). But, even if the value of trade is balanced, another aspect can have perturbing effects. This is due to the division of production into departments, where a part of the produce is consumed while the other part goes back into the production process. The import and export balance of these two categories has far reaching consequences.

Department I: c + v + s = Means of production

Department II: c + v + s = consumer goods

The added value (v + s) of both departments represents the nation’s disposable income that can be consumed or invested. But this sum of added values equals the value produced by department II for consumption. And investing part of it results in consumer demand being insufficient. For department I to accumulate capital, it must invest its surplus value and increase its means of production, which means that department II has an excess of consumer goods. And, as department I increases its production, it also exceeds demand because department II is already producing too much. The only solution is foreign trade. Consumer goods are exported and come back as means of production. The end product is transformed into the primary product to which more value can be added. Consumption is exported and raw materials are imported, and accumulation by both departments goes uninhibited. And, as ever more consumers are abroad, labour’s share of added value can be reduced to the advantage of capital’s surplus value. Nations that export their consumption accumulate capital quickly, but their workers and their commercial “partners” pay the price.

Consuming surplus value goes against the ethics of capitalism. Investing it makes demand for consumption insufficient. This dilemma is resolved when consumption is exchanged abroad for investments. The most obvious trade of this kind is guns, luxury cars and air-conditioning for crude oil, but it can also be sports-ware for factories. In all cases, one side accumulates and the other consumes. One side adds value and the other uses it. One side expands its production, the other has no incentive to do so and would be unable to compete anyway. On the one side a part of consumption is not distributed, on the other that part is distributed to regime supporters. Everywhere there is wealth surrounded by poverty. This unfair trade was to accumulate capital in a few industrial nations and leave the others undeveloped. Then, a couple of decades ago, commercial competition and the obsession with profit opened a breach. Outsourcing department II to low salaried and environmentally indifferent places became a necessity. But trading factories for clothing inverted the exchange. Jobs and capital went elsewhere and consuming became a problem.

Capital is a parasite that feeds off society. But it can only draw wealth from the social body when its exchanges of goods and services are expanding. If they contract, the parasite loses its source of nourishment. When this began to happen, and when its lackeys announced that the people had no money, capital replied, “Let them use credit”. And, as is common with parasites, capital was oblivious to the fact that it was killing its host. Having bloated the world with debt to expand its dominion and its profits, capital has reached the point where it is treading on thin air. Society’s major task will be to avoid collateral destruction from an imminent fall of capitalism at its highest stage. For the time being it looks like a toss-up between a post-capitalist non-profit interconnected world and a post-imperial dark age. Either humanity makes an imaginative jump into the future, or it regresses to its sombre past.

P.S. For an interesting Keynesian analysis of the end of accumulation by Alan Nasser, which does not take into account credit and imperial expansion : http://www.counterpunch.org/2013/05/03/the-economics-of-over-ripe-capitalism/