No tomorrows
Investment and consumption are the two extremities of production. Investment starts off the process and consumption ends it. But production is a repetitive cycle in which the price paid for consumption renews the investment, which in turn pays consumption, and so on. Productive investments are primarily labour, past labour in the form of means of production and present labour to transform those means of production. Investments are labour’s income, which is consumed to renew the investments. However, the value consumed is greater than the value invested, because of the profit margin. Profit that allows the accumulation of more investments, more profits and more consumption in continual expansion, and the gap between investment and consumption gets ever bigger. Filling that gap seems to have only two solutions. One is to export the profit part of consumption and transform it into investments abroad. A classic example was muzzle-loaders exchanged for slaves, and a present-day one is missiles for crude oil. Consumption is traded for investments. But the widening gap reaches a point where overseas trading is no longer enough and consumer credit is introduced. The profit part of consumption is paid for with debt.
Profit,
or in Marxian terms surplus value, is sometimes seen as added on, as
when something is bought and sold for a profit, without being
transformed in any way and occasionally being mover from A to B, or
as Marx explained, it is the value produced by unpaid labour. In both
cases – and both exist, think of the value added by patents and
copyrights – more value must come out of the market than has been
put in. The value to be consumed exceeds the value that has been
invested to produce it.
Trading
consumption for investments abroad is a very ancient practice,
possibly as old as foreign trade itself. It consists in exporting
goods for which there is no demand and importing goods for which
there is a demand. This can easily become exporting goods the poor
cannot afford and importing goods the rich can afford. However the
general intention is to transform consumption into investments or
currency that can be invested. But this form of foreign trade is
unbalanced because one nation accumulates investments while the other
consumes without investing, one has employment and wealth creation,
while the other has neither. It is the trade that exists between
developed and developing nations. It is where industrial giants
compete and confront one another, and its capacity to absorb surplus
consumption is limited.
Borrowing
to consume also has a long history. For ages it was reserved to those
who offered the guarantee of property, and to kings for war
consumption. But the advent of mass production, the growing gap
between value invested and value to be consumed, and the limits of
foreign trade, finally led to the extension of consumer borrowing to
the propertyless. But borrowing to consume more today means consuming
less tomorrow when the debt is paid back, not only less than today,
but less than yesterday unless income has risen. If incomes are
stable, consumer borrowing grows faster than consumer spending (1).
This means that larger and larger sums must be borrowed to maintain
the growth in consumption. The result is a debt bubble, with
defaults, bank failures and bail outs.
Borrowing
to invest goes back far in time too. Remember Shakespeare’s
Merchant of Venice and Shylock’s pound of flesh. Some investments
go wrong (a shipwreck), but the general expectation is that they
return their value with a profit. This means that invested debts grow
at the same rate as their investments. But these investments are
added to those that proceed from the accumulation of profits,
interest or rent. The total grows until it exceeds the growth
capacity of productive investments and their consecutive consumption.
From this point the effect of increasing investments on production is
more and more marginal. The main effect is to push up the price of
existing investments, in stocks, commodities or real estate. These
markets become increasingly speculative, form bubbles and crash more
or less severely.
The
best case for employment and wealth creation is the trade of
consumption for investments (see above). This is how industrial
nations have accumulated capital, though it began as colonialist
consumption and plunder. But the most spectacular example is China.
The Chinese imported investments and exported consumption so fast and
so massively that they became the world’s second richest nation in
2010, up from 11th in 1990, though their per capita income
is still way behind (74th). China has dutifully followed
the path of capitalist accumulation, having recourse to trade instead
of colonial plunder. The process was very successful, but having
reached its limits China proceeded to the second stage of consumer
credit. So capital has the whole planet in its grip, and future
incomes are being spent as though there were no tomorrows. At the
present rate of things, there cannot be that many anyway.
1.
Neglecting interest.
Consumption:
Credit Demand
1 1
3 2
6 3
10 4
15 5
Etc.
Investments:
Credit Demand
1 1
2 2
3 3
4 4
5 5
Etc.
In
the wake of the financial crisis, Chinese authorities unleashed a
lending spree that more than quadrupled total debt to $28tn at the
end of 2016. The IMF issued a warning that China’s “credit
efficiency” had deteriorated sharply over the past decade, with
ever larger amounts of money needed to generate the same amount of
growth. “In 2008, new credit of about Rmb6.5tn (approx $1 trillion)
was needed to raise nominal GDP by Rmb5tn,” the fund said. “In
2016 it took Rmb20tn in new credit.”
&
According
to figures from the Institute of International Finance (IIF), global
levels of debt held by households, governments, financials and
non-financial corporates jumped by over $US70 trillion in the past
decade to a record high of $US215 trillion, equating to 325% of
global GDP
posted by le Lézard at 12:17 AM
0 Comments:
Post a Comment
<< Home