Credit, credit, everywhere

All forms of payment are credit, but some credit is the result of past transactions and some is the result of putative future transactions. There is the value of work done and the value of work to be done, and both are valid for exchanges in the present. Past value is that of past production, and the corresponding credit allows that produce to be exchanged. Introducing future value means more credit and more exchanges, an extra demand that is either invested or consumed. However, investments must grow or increase their productivity, before there is any increase in consumer supply (1).

Supposing the value from the future is invested, it employs idle labour and thereby increases consumer demand before (there are always several stages of production preceding the consumption stage) the increase of consumer supply. This could be resolved if the extra work force shared the past credit of the existing work force until the extra consumption became available. It would be a part of the general fund set aside for the part of society that does not participate directly in the production process, the young, the old, the disabled, the dreamers, etc. As that is not the case, investing future credit is inflationary.

The other problem with investing future credit is its property and that of the investment. Pas credit is the promise to pay of an exchange that has taken place. Future credit is the promise to pay of an exchange that has yet to take place. This future event has a probability, a degree of risk that gives the creditor the excuse for insurance, for interest and “a pound of flesh”. Future credit is the exclusive dominion of banks. They have the power to increase or reduce demand, because they know that the volume of future credit can grow indefinitely as long as accounts at the clearing houses are balanced. And, as future credit pays interest, banks are inclined to grant more and more. Past credit is supervised by central banks. They make the fiat money, coins and notes as well as scriptural, that symbolises the value of work done. The two credits criss-cross the market and become confused, with the past paying the future and vice versa.

Future credit can be based on a future return and be invested, or it can be based on a future income and be consumed. Past credit is the value of work done, which is divided in three, the work that made the investment, the work that used the investment and the work unpaid of surplus value. The first share of past credit is for investment maintenance and renewals. But the renewal cycles of some investments last years or even decades, during which time the accumulated past credit is put to other uses. The second share is the consumption needed to perpetuate the work force and rule over it. The third share is unpredictable surplus value. It can be consumed with aristocratic splendour, and it can be invested with bourgeois sobriety. So that, apart from the upkeep of state and labour, the destiny of past credit is uncertain.

Past and future credits change hands on the market (change accounts) indistinguishably. Except that past credit buys property rights, whereas future credit only buys the appearance of property as interest must be paid to the bank. This being so, the past credit of surplus value tends to increase investments. At which point an ideological programme is propagated. As surplus value fuels growth, the more there is of it the better for everyone. Meanwhile, prior to any trickledown, more surplus value means less past credit for state and labour who try to preserve their upkeep with future credit. And the addiction to wealth accumulation prohibits the trickle. And when production outgrows future credit, when supply is superior to demand, invested surplus value turns to speculation in real estate, carbohydrates and hydrocarbons, art works, precious stones and metals, shares and bonds, all the non-productive investments that inflate bubbles and sting the latecomers when the balloon bursts. This is a concentration process that takes wealth from the many and gives it to the few.

Growth cycles need to increase demand, first for investment, then for consumption. The first stage employs more labour with the same consumption. The second stage supplies more consumption. But consumer demand can only increase if it has the wherewithal, that is a creation of more past credit. But by then it has become a habit to invest past credit in increasing employed labour, and the same goes for the monetary emissions. This could be a social model for growth, were it not for the divisions of private and national property. It requires a planet held in common by all its inhabitants, where only usage is personal, an egalitarian Utopia that can only be aspired to, never reached. In the real world, uncountable cross-border differences give private capital the opportunity to move in search of greater profit for the owner, wherever he is domiciled.

The nature of private capital, as unpredictable past credit in search of profit, is regulated and constrained, but the rules and laws are ignored or evaded however restrictive they may become. And nobody wants closed frontiers and embargos. An alternative is the possession and control of capital by the labour that uses it to produce value. But a very active minority with unlimited means does not want that.

1. Sometimes new machines are cheaper than their less productive predecessors. In the case of digital technology this has applied form the start, though the microchip may be approaching its ultimate stage.