Profit driven capitalism on the eve of default

Capitalism begins when merchants trade for money, when an exchange of equal value, commodity-money-commodity, becomes an unequal exchange, money-commodity-more money, when selling to buy becomes buying to sell at a profit. In its early stages this profitable trade concerned exotic goods from afar – it would later spread to all exchanges – and was associated to various transport monopolies on land, sea and rivers. As commerce developed some merchants became bankers and exchanged money for more money, without the trouble of intermediary commodities. On a parallel course was the age-old exploitation of labour. This had been monetised by slave trading, demonetised by serfdom and remonetised by “free” labour at the end of the Middle Ages. Labour could be bought and its produce sold for a profit, a process that was hugely accelerated by mechanisation.

Capital, whether in production, trade or finance, requires a profit. Its rule is that the selling price is greater than the buying price, and their difference is used to increase the capital outlay. Capital grows and needs ever more profits, but it cannot reveal where they are coming from. To constantly get more money out of the market than is put in, there must be a constant increase in customers with money to spend. Capital’s growth was nourished by colonial expansion and plunder. Profits, the unpaid part of production, went abroad and were transformed into land rights and forced labour or precious and raw materials.

All goods and services produced and sold either go back into the production process, or they do not. They are investments or consumption, and a portion of both categories is profit. But capital expansion only seeks investments, so the surplus consumption supplies colonialists with arms and goods in exchange for the products of the colony’s agriculture and mining. With time, however, the cost of a colonial presence outweighed the investments obtained. This signalled the end of colonial dominion and the installation of equivalent (less costly) exchanges with local ruling powers. Kipling’s notion of a white man’s burden, of bringing enlightenment to the natives, was abandoned, but the exploitation and pillage continued unabated, supervised by indigenous tyrannies.

Capital grows by investing profits. When the profits are investments all is well, but when profits are consumption they must be transformed into investments. This mutation occurs on foreign markets but that does not suffice. For growth to continue a homeland transformation is necessary, so the profit part of consumption is monetised by granting consumer credit ever more widely, from the Treasury downwards. Henceforth capital growth depends more on financial investments than on productive ones. Lending future incomes at interest avoids all the hazards of making things and selling them. Banks had been partly eclipsed by the industrial revolution, as compared to their Renaissance splendour. The credit revolution gave them control of all transactions, and digital technology enhanced their power by making paper money redundant and ending the distinction between credit and cash.

Exchanging consumption for investments on foreign markets has its limits, so capital resorts to credit for the monetisation of its profits. But, in this process, the capital accumulation is financial, not industrial. The profit of consumption is exchanged for credit, not for means of production. And the credit is already an investment that pays interest, without all the trouble of making and selling. At this point capital accumulation takes the form of debt, while the capital for production is stable due to digital cost reductions and productivity gains. This in turn increases profitability and the necessary consumer credit. The whole thing can only spiral out of control and then collapse in default, which is more or less where the world is right now.