Supply or demand is not the question

Nationalism had overshadowed both World Wars and would then spread to the rest of the planet. Independence was sought after energetically, though alignment with one of the two military super powers was inevitable. Only France, the birthplace of chauvinism, pretended to go it alone. During the war years and for post-war reconstruction governments had come to dominate the economies of the developed world. It was a period of demand economics, with the state as the major consumer. It was also a time of tariff and currency barriers, and of monetary inflation, rising wages and historically low income inequality.

Capitalism had taken a beating with the 1929 Crash and the ensuing depression. Demanding support from the state and the public purse was the only survival strategy, but it required some concessions to labour and the promotion of national unity. By the end of the 1970s global trade and foreign investments were changing the prospects of capitalism and reducing its dependence on a national base. Corporations became multi-national, producing and selling their goods and services worldwide. This led them to put states and labour forces in competition with one another, with the consequence of reduced taxes and stagnant wages. Consumption remained a problem that was resolved by credit, mortgages and Treasury debts. This solution is reaching its limits.

Eighty years ago the New Deal saved capitalism and set it on course for another cycle of expansion. Now that the curve is waning, where will salvation come from? So far the policy has been to encourage supply and to transfer large sums into corporate pockets. The argument was that investments would generate jobs and hence demand. The reasoning was fallacious as production capacity largely exceeded actual output, but the money was accepted and went straight to the stock exchange, making the rich that much richer. So demand stands still, and deflation discourages production, investment and employment.

Ismael Hossein-Zadeh argued recently that “public policies are more than simply administrative or technical matters of choice, they are class policies”. (1) The interests of the 1% obviously dominate government strategy. The rest is the hot air of demagogues seeking election. As for the law, a New York banker toasted the Supreme Court in 1895: “I give you, gentlemen, the Supreme Court of the United States – guardian of the dollar, defender of private property, enemy of spoliation, sheet anchor of the Republic.” (2) But this small very influential group has its own historic contradictions that are the sharing of surplus value between rent, interest and dividends.

When private property of the means of production started to replace feudal vassalage, nobles became land owners with control of raw materials and armed might, merchant-bankers protected by their off shore activities controlled trade and credit, and artisans possessed secret procedures that gave them control of manufactured products. For a while the landowners dominated, making the law to their convenience and enforcing it. Then, as trade developed in Europe and around the world, and as credit became essential for waging war, bankers also influenced legislation and its execution by governments. War also encouraged the industrial production of muskets and uniforms, of ships, cannons and sails. And the acceleration of movement brought by the steam engine soon put industry on a par with land and credit for a share of profits that were multiplied by ever faster manufacturing techniques.

The means of production were the property of three groups opposed by their particular interests and their social origins. Landowners were aristocrats and gentry who held sway over the judiciary and the army. Bankers were cosmopolitan and could muster gold but not troops. Industrialists were middle class and employed a host of workers. The first group was ideologically and politically conservative and reactionary, the third group was liberal and progressive, while the group in between, the intermediary of all their transactions, remained neutral or sided with the strongest of the other two. This situation was the basis for bipartisan forms of government where power is held alternately by both sides.

Capitalism’s origins have blurred with time, as have its early divisions. The incomes from land, commerce and industry are still distinct, but their beneficiaries have the anonymity provided by investment and pension funds, by insurance and banking services, by financial institutions that mix everything up and distribute odourless cash. Capital has reached its pure indeterminate stage, where the intermediary has the power. Land, commerce and industry are completely dominated by complex manipulations played out on the global market for a maximum return. Algorisms have replaced money, and this dematerialisation makes its presence seem more ubiquitous than ever and breaks down all barriers to its multiplication. Wealth has distanced itself from the material world to become an abstraction. The median human income is about $5 a day, which makes a total at the age of sixty of $100 000, the price of a car for some. And what is that for someone who measures wealth with ten digits? Capital must face its ultimate contradiction, the one it was destined to confront from the outset, with production and consumption on one side and finance on the other. Having multiplied the production of wealth at an ever increasing rate for two centuries, industry is the subordinate of finance. The material world of producing and exchanging is ruled by ethereal money.

Government needs consent. This is obtained by controlling education and media outlets and by patronage. It can be minimal, the army and security organisations or just the later, but the generally accepted consent is between a third and a half of the votes counted. The rule of finance means that the divisions between conservative and liberal has lost its signification. They are the residue of a power struggle that no longer exists, as both are held in the same grip and have the same dependency. The real confrontation is between the capacity of human hands and minds to transform the planet and the inhuman law of profit, between all productive forces and the totalitarian tyranny of money. The financial house of cards is on the verge of falling apart, and the task of survivors will be to find another resolution to the trilogy of land, industry and exchange.

1. http://www.counterpunch.org/2014/08/26/keynes-is-dead-long-live-marx/

2. Mentioned by Howard Zinn, A People’s History of the United States, chapter eleven, (Harper Perennial) page 254