Profit driven capitalism is failing again

Production occurs when past and present labour are brought together, when present human activity adds value to the means of production that result from past human activity. This supposes that a part of production is for future use, that some is for investment and some is for consumption. This division of production is inherent and it is behind the contradictions of profit driven capitalism. Just about anything can be an investment, on a movie set for example, but most products and services are predestined to either transmit their value by going back into the production process, or lose it by being consumed. With some overlapping there are two departments of production, one is selling investments and the other is selling consumption. This is not a problem for society as a whole, but it is a major obstacle for the private accumulation of capital.

Capitalist accumulation transforms surplus value (unpaid added value or profit) into investments. Members of the department that sells investments can do this by swapping their various surplus values. Members of the department that sells consumption, whose surplus value is consumption, only have consumption to offer and are left out of investment swaps (1). This surplus consumption may be traded for investments abroad or it can be sold for credit at home. The domain of foreign trade is very competitive and subject to tariff barriers, and if some nations exchange consumption for investments, others must accept the reverse exchange to their disadvantage. The consumption department’s capital accumulation and growth are hindered by the consumer form of its surplus value, which the investment department does not need. Transforming it into money with consumer credit is a solution because money can buy investments. The trouble is that consumer credit grows faster than consumption and wanders into subprime territory.

Surplus value is value added by labour that has not been paid for. So labour cannot buy surplus consumption, except with credit, and capital neither wants nor needs it. Consumer debt and credit, for governments and households, expand into a gigantic financial structure built on countless promises to pay with future incomes. When wages and taxes are rising, nominally because of inflation or really because of productivity gains and trickle down, the accumulation of debts compared to GDP is fairly constant. When wages and taxes are stable or regressing, credit needs to stimulate demand all the more, so the accumulation of debt accelerates and grows faster than GDP. Capitalism is not just production and surplus value. It includes land and rent, finance and usury, though it all depends ultimately on the value added by labour and the way it is divided up. Agriculture, mining, industry, services, commerce, utilities, transport, communications, etc. share the value obtained on the market in proportion to their contribution to the value added. The surplus value extracted varies from one sector to another and from one stage of production to the next. For example branding a product does not add value, but it extracts a lot of surplus value. Rent is also a part of added value that labour cannot spend on consumption. The banking sector grants consumer credit to compensate rent, balance the capitalisation of surplus value and maintain consumer demand. And the credit obtains interest that must be compensated by more credit.

Capitalist accumulation has to transform consumption into investments. It does this by foreign trade (e.g. guns for oil) and by getting more money out of the market than it puts in, thanks to consumer credit. But the accumulation of capital is not just about the means of production. Capital also accumulates as interest paying debts. Instead of being invested in developing production, disposable capital is lent to local and central administrations to sustain their growing consumption. They borrow instead of taxing, allowing surplus value to be invested in government consumption. Investment in production is subject to cyclical growth. New technology, new markets and expanding credit result in growth cycles, but once they are in place productive investments stop growing, while surplus value keeps coming in and must be accumulated. This is when the financial sector takes over from the industrial sector, when paper investments replace bricks and mortar. It is also when employment moves from industry to services, from jobs that need a lot of capital to jobs that need very little capital, with consequent productivity and wage losses. Credit and debt become the only factors of growth and the only expanding investments. But the whole structure is based on consumer credit and has been paid for with future incomes, so that settling accounts puts everyone in the red and provokes a general default.

Contrary to invested debts, whose value is returned with a profit, consumed debts can neither be paid back nor pay interest without a reduction in demand. Supposing someone who spends 100 a year borrows 10 to be paid back in five end-of-year instalments. The first year he spends 108, and for the next four years he spends 98. And, if interest is added, his spending over the five year period will be less than if he had not borrowed. Constantly increasing consumer demand with credit needs a constantly growing number of borrowers. These expanding circles of debt end up including borrowers whose creditworthiness is doubtful, with a predictable result of multiple defaults. One way or the other, credit fuelled growth in consumption reaches a limit that is the prelude to recession. Profit driven capitalism must plunder foreign markets for investments in exchange for consumption, or it must force its homeland into cyclical indebtedness, or both for industrial nations. It leads to war and debt bondage, which may not be humanity’s natural destiny. The alternatives of communal property and investment credit are conceivable, where added value belongs to labour, not to the owners of property, where the accumulation of past labour is present labour’s heritage. In tribal societies territory has a common ownership, with rotating allotments or traditional family usages. It was the universal practice of hunter-gathers, herdsmen and sedentary farming communities (2). The passage to private property has always been violent, and it is still going on with the same savagery in the few remaining tribal regions of the world. Reintroducing a common property of the means of production, in an industrial and financial context with huge concentrations of transnational wealth and power, is not worth considering. But, because of the frailty of its credit foundations, the present capitalist structure is on the verge of being ruined. Reconstruction could be transformation.

1. It seems that investment department swaps can only exclude consumption for a time, though including it is a difficult transition, see Soviet Russia.

2. Rosa Luxemburg has described this process in America, India and Algeria:

[…] the accumulation of capital, seen as an historical process, employs force as a permanent weapon, not only at its genesis, but further on down to the present day. From the point of view of the primitive societies involved, it is a matter of life or death; for them there can be no other attitude than opposition and fight to the finish – complete exhaustion and extinction. Hence permanent occupation of the colonies by the military, native risings and punitive expeditions are the order of the day for any colonial regime.

‘The bill submitted for your consideration’, said Deputy Humbert on June 30, 1873, in the Session of the National Assembly as spokesman for the Commission for Regulating Agrarian Conditions in Algeria, ‘is but the crowning touch to an edifice well-founded on a whole series of ordinances, edicts, laws and decrees of the Senate which together and severally have as the same object: the establishment of private property among the Arabs.’

https://www.marxists.org/archive/luxemburg/1913/accumulation-capital/ch27.htm

This book should be on the curriculum.