Capitalism today

 

Karl Marx has constantly been criticised for predicting an inexorable drop in the rate of profit. He reasoned that the value added by labour would not grow as fast as the overall investment, and that the unpaid part of this added value would follow the same trend. He had not imagined that productivity would increase as fast as it has since his time. Internal combustion and electrification were still in their infancy, not to mention all the rest. So the rate of profit has maintained itself, with highs and lows in the boom and the gloom years. But what is profit, and how does it function?

Marx divided the exchange value produced into three parts. Constant capital represents the cost of the means production used up. Variable capital is the cost of labour. And surplus value is the unpaid part of labour’s added value. According to this model, c + v + s, workers only receive a fraction of the value they produce, the rest going to the owner of the means of production who employs them. This could function for pre-industrial landlords who lived off the produce of their serfs or tenants, plus some more for exchanges with products made elsewhere. The surplus value was largely consumed by the lord and his court instead of by those who produced it. However, industrial surplus value must be sold on the market and exchanged for money before its proprietor may consume (or invest) it.

Commercial profit comes from buying and then selling at a higher price. Sometimes there is transport and storage between the two transactions, but often, as on the stock and commodity markets, there is no modification whatsoever between the two different prices. So profits can result from increased prices or from unpaid work – though the first could be a consequence of the second – but in both cases more money is demanded from the market than has been put in. The first wants more money than he has paid, and the second wants to sell more goods or services than he has paid for. As both seem to succeed more often than not, there must be a flow of extra cash coming from somewhere.

More money is needed on the market to pay for profits. Capital is not about to pay for something it already owns, so more money needs to be created, either by printing material banknotes or by granting scriptural credit. Central banks supervise the printing and are lenders of last resort for credit-granting private banks. Though there have been abuses in the past, printing banknotes is parsimonious, whereas credit is massive, more massive and growing faster than the profits it pays for. Creating a demand for profits is self-defeating, because at some stage the new credits that are granted are insufficient to cover profits, the renewal of past credits and the growing sum of interest.

Profits need to be converted into money, but their ultimate goal is investment and the accumulation of capital. This can be achieved without having recourse to money by foreign trade. Though there are international systems of payments (BRI), and the US dollar is a sort of universal legal tender, foreign trade is still a form of barter, quantity for quantity rather than price. This means that unsellable profits, for lack of a solvent demand, can be exchanged abroad for sellable investments. The nations that have accumulated capital have all benefited from importing raw materials and other investments, and exporting finished goods for consumption. At the start of the industrial era England was exemplary in importing bales of cotton and exporting thread and cloth. More recently, China has imported means of production, from crude oil to whole factories, and has exported clothing, hand-tools, electronics, etc., taking advantage of constant technological advances. However, this drain of investments and flood of consumption can only function for a few to the disadvantage of the many. The other side of the coin is an outflow of investments and the local production of consumer goods being submerged by imported ones, which bring unemployment and extreme wealth inequality.

Having determined that surplus value was unpaid added value, Marx went on to construct a model with two departments of production, one for investments and the other for consumption. It is quite obvious that some goods and services exchanged on the market go back into the production process and either transmit their value or acquire more value, while others are just consumed. There are some marginal crossovers - probably more now than then - such as cars or computers, or financial services, where one can be part of a company’s investments and another identical one be part of a household’s consumption. But on the whole, some production goes back to production and some does not. In the wealthier industrial nations, between two thirds and three quarters of the value produced is consumed by households and government agencies. So Marx’s model for simple reproduction (i.e. without growth) looks like this:

Value produced by department I: c1 + v1 + s1

Value produced by department II: c2 + v2 + s2

It follows that the demand for consumption of department I must equal the demand for investments of department II. And that v1 + s1 = c2 represents the exchanges between the two departments. But this model does not include capital accumulation, where s is invested to increase c and v. Just supposing capitalists disappear as a class and join the wage earners, so that s becomes ac + av. Then capital accumulation can be equated as follows.

Department I: c1 + v1 + a1c + a1v

Department II: c2 + v2 + a2c + a2v

In this case, v1 + a1v = c2 + a2c, and the variable capital in department I must grow at the same rate as the constant capital in department II. The variable capital v uses constant capital c to produce the value of c + v + a, means of production plus labour plus accumulation. Accumulation is unpaid added value, just as surplus value was before, but a part of the accumulation is in means of production, and only the rest is consumption. The proportion between constant and variable capitals has a wide range. But, in general, department I is more constant capital intensive and department II is more variable capital intensive. Making thread and cloth is almost completely automated, whereas making clothes still needs a sewing machine and very agile fingers. This means that constant capital is larger than variable capital in department I, and the same goes for the two parts of accumulation. And the converse applies to department II. So a small a1v exchanges for a small a2c. And, if department I accelerates its accumulation of constant capital by slowing down its accumulation of variable capital, then department II will have even less constant capital to accumulate, and will grow much more slowly than department I. This was the case in Soviet Russia where, except for weapons, consumption was grossly underfunded. Considering its poverty rate, the same may be said of the US today.

The accumulation of capital tends to favour department I. But building factories to make factories, or steel works to build more steel works, cannot go on indefinitely. The people demand bread, not iron-smelters and war-machines. But, for consumption to grow, department II must increase its investments. Consequently, department I must accumulate less constant capital and more variable capital, for department II to get a larger share of constant capital. The exchange a1v = a2c must increase. However, the fundamental function of machines is to reduce labour’s time and effort, all the more so in department I with its extractive and heavy industries. So consumption grows slowly, barely keeping up with demography, and in department I there is overproduction of its own constant capital. Things grind to a halt, and the government intervenes by employing lots of people, and paying them with money created by printing and credit. This incitement of consumption with credit increases the demand for constant capital by department II. But the proposed exchange with department I is money, not consumer goods. Department II can increase its constant capital without department I increasing its variable capital.

To increase its constant capital faster than the increase in variable capital of department I, department II needs another demand for consumption, which it can only obtain by credit or foreign trade. Once these are in place – especially credit, as foreign trade has its limits – department II is able to expand at an accelerated rate. An expansion based on promises of future goods and services, not present day goods and services. Promises turned into money by the magic of credit. Granting consumer credit, to increase demand for consumption, allows department II to grow without depending on the state of employment in department I. But, just as foreign trade reaches the boundaries of competing nations, so credit has its own limitations. For consumer demand to keep on growing, credit at term must be constantly renewed by new credit, which must also cover the charges of interest. As credit piles up, credit granted is increasingly a renewal and payment of interest, and decreasingly supplementary consumer demand. The same amount of credit granted has less and less effect on consumer demand and, at some stage, becomes null.

The production of consumer goods and services by department II can grow beyond demand from department I thanks to credit and, for a few nations, foreign trade. This results in a vast finance and insurance sector that was responsible for a quarter of US GDP in 2018 (1), which supposes that bankers add value when they grant credit for a car sale, a mortgage, a merger, an initial public offer, or for government overspending. The financial sector certainly employs a lot of people, but does their labour actually add anything to a nation’s material, intellectual or spiritual wealth? In any case, they have become indispensable, even though their industry is fatally flawed. Bankers can grant credit in unlimited amounts, but borrowers feel the drain on their incomes of interest payments. It is the demand for credit that falters the first. And when that happens, growth in consumption stalls from lack of fuel, and slowly comes to a standstill before regressing, which is where the world is right now. Market capitalism failed, and credit capitalism is failing. Something else will have to be invented, if climate disruption and warmongering do not destroy everything first.

The accumulation of capital begins with department I extracting as much surplus value as possible to increase its constant capital. The second period is when department II grants credit to fuel consumer demand. The third stage occurs when borrowers are so overburdened with credit that they start to default. Then the mountain of debt is shown to be worthless and faith in currency is lost, so exchanges are hampered and their volume contracts. What follows is impossible to predict. It could be another bailout - if that is still possible - or total chaos. Capitalism craves accumulation. There must always be more tomorrow than today, more surplus value and more credit. But that infinite expansion has reached, or passed, the point where the planet’s environment is being overwhelmed, and where credit can no longer insure a growing demand. Capitalism today has reached its ultimate stage.

1. https://wolfstreet.com/2019/03/21/finance-insurance-hits-it-out-of-the-ballpark-no-slowdown-in-the-huge-services-sector/

Ideas oppress and liberate

The revolutions of the past are no longer exemplary. The overthrow of an established power structure by the force of arms has always resulted in armies fighting a civil war with the intensity of a foreign one. The government in place has armed forces at its disposal, and some of these may join the revolutionaries. But the military are trained to obey orders, and wise governments closely control their generals. However, whenever two armies could be constituted there was war and its ensuing misery, destruction and uncertain outcome. Also these previous experiences were intent on ending absolute monarchy and feudal aristocracy. They were the expression of a change in economic power from land to industry, and from the countryside to the towns. The structures of government and the rules of property had to change to allow industrialisation to expand without constraints. Capital needed free labour it could employ and dismiss, as well as access to land and exploiting its rivers, soil and anything underneath. Land and labour became commodities, priced on the market according to supply and demand. And supplies had to grow to keep ahead of demand. The US had a continent to expand into. Holland, Britain and France were obliged to reach overseas to Africa and Asia. These early “republics” were expansive and imperialist because capital accumulation demanded it. Meanwhile, labour was kept plentiful by rural exodus in Europe, bonded workers until industrial capitalism proscribed them, and immigration.

Whatever their discourse may have been, the revolutions of the past opened the way for the expansion of capital. They brought down the old world order of divine right and feudal land ownership, and constituted the rule of interest and profit over a global market. They have nothing to teach about the future demise of the system they put in place. Alexander Berkman was already quite clear about this ninety years ago. “How do you imagine a revolution could be fought in these days of armoured tanks, poison gas and military planes? Do you believe that the unarmed masses and their barricades could withstand high-power artillery and bombs thrown upon them from flying machines? […] And no less ridiculous is the suggestion that the workers should form their own regiments, “shock troops” or a “red front”, as the Communist parties advise you to do. […] It is time to have done with this obsolete idea of revolution. Nowadays government and capital are too well organised in a military way for the workers to be able to cope with them. It would be criminal to attempt it, insanity even to think of it.”(1) He promoted a General Strike, because “you can shoot people to death, but you can’t shoot them to work.” However, people can be, and generally are, starved to work. And, though general strikes have obtained concessions, they have never threatened capitalism for want of an alternative vision. Workers can show they control production, but this does not give them control of the state apparatus. Stopping production is a strong bargaining tool that cannot contest the structures of power and wealth, as they are doing the bargaining. At best it obtains a more generous distribution.

Past revolutions consecrated the reign of capital, albeit unwittingly. Monarchic divinity was transmuted into prosaic gold. Instead of power bringing wealth, wealth bought power. Armed might no longer commanded merchants, merchants commanded armed might. A new force confronted the old, and vanquished, though two centuries later some nations are still ruled by autocrats. It was the victory of finance and industry over the land-owning aristocracy. However, the novelty of the 1800s is now worn out and beyond repair. The profit factor is ruining and poisoning life on the planet. It must be restrained and eventually terminated. And, though it commands force and has recourse to extreme violence, profit (and interest) is just a concept, an idea that became an ideology, and it must be combated on those terms. Future revolutions will be won by the force of ideas, not the force of arms. Profit needs to be denigrated, and shown to be irrational and opposed to the common good, just as an extraordinary accumulation of wealth should be seen as a mental pathology presenting a danger for society, and obsessive consumption be treated as a psychiatric illness, to paraphrase J.M. Keynes (2).

1. The ABC of Communist Anarchism (1929), Ch. XXVII, p. 229, (Red and Black Publishers)

2. https://www.marxists.org/reference/subject/economics/keynes/1930/our-grandchildren.htm

Submission or destruction

Competition and cooperation are contradictory. Competition means there are winners and losers, whereas in cooperating everyone gains, or shares the loss when things go wrong. It seems that existence on Earth is partly a struggle for life between predators and preys and, more generally, a vast cooperative shared among species and between species. An amusing example is the African bird (greater honeyguide) that leads humans to a bees’ nest because it is very fond of the honeycombs they leave after eating the honey. Resources are a cause of competition, and many predators have a territory they defend against members of the same and/or other species. And the whole food chain is about eating and being eaten, from the microscopic to the gigantic. Early humans would also have been food for the larger carnivores. But, as they learnt to make ever more effective weapons, they reached a stage where their only serious competitors were other humans. Having submitted nature sufficiently to provide their needs, agricultural and pastoral societies went on to submit one another.

Prehistoric Stone Age societies probably resembled those found by European conquerors in the Americas, Australia and the remoter parts of Africa and Asia, from the primitive Bushmen and Aboriginal hunter-gatherers to the sophisticated Aztec and Inca empires. At some point one group began to dominate those around it, taking tribute, sacrificial victims and slaves. The Aztec warriors were continually at war to provide captives for their gory rituals. Humanity’s rule over other forms of life led to its dominion over those of its own kind who happened to be a little different. The Bronze Age concentrated power in the hands of those who controlled the sources of copper and tin. Helmets, shields, body-armour and sharp spears and swords made them as invincible as Achilles. They organised trade and tribute, and invented accountancy and writing. Then, towards the end of the second millennium BCE, they were swept into oblivion by invaders from the north armed with iron. Dominion was technological from the start.

From the end of the 15^th century, Europeans went about conquering the world. But why the Europeans and not the Arabs, Indians or Chinese, who were just as developed if not more so? Going back a bit, Western Europe had not been subjected to the devastation of Mongol invasions in the 13^th century that had ravaged the Middle and Far East. Also the Latin alphabet applied itself easily to movable-type printing. Finally, perhaps, the Reformation and the reaction it provoked transformed the general perception of religion and hierarchy. By the 17^th century, Europeans were turning to scientific observations for a coherent understanding of the universe. This did not happen elsewhere, as religious orthodoxy prevailed. The quest for laws regulating the material world became exclusively European. The result was technological advantage and world dominion.

Since prehistoric times human groups have accumulated wealth and power at the expense of others. Weaker nations were subjected to tribute, or plunder and slavery. Six European nations practiced this on a global scale, and divided the planet to their convenience. However, the technology that made this possible began to circulate and the hold was broken. The first to break away were the European colonials in North and South America. Their cultural background made this easier. But it took two world wars and the destruction of Europe’s (and Japan’s) wealth and status, along with a new balance of power between Soviet Russia and the United States, before the other nations of the planet were able to try to govern their destinies. For some it was a long and bloody struggle, and few managed to escape the controlling forces of Western technology and finance. They obtained seats at the United Nations General Assembly, but their leaders were the vassals of Washington or Moscow.

Life on Earth evolved in such a way (was there any other?) that the strong preyed on the weak all the way down the food chain. Herbivorous species preyed on the vegetable kingdom and carnivores preyed on them, while omnivorous animals had the best of both worlds. Humans belonged to this latter group and could digest meat as well as fruits and nuts. And, as cooking techniques developed, they added grains and tubers to their diet. The stock of food determines the population of those who eat it. If the stock is over-harvested, its supply will diminish. And so the population of predators will grow until it is forced to contract by a shrinking supply of food. And some food sources are cyclical. Chestnuts and acorns can be plentiful one year and practically inexistent the following year or two. Reliance on specific food sources kept populations within a sustainable range. But those natural constraints were progressively pushed aside by human technology. Fire, weapons and clothing allowed a wide variety of food and habitat, raw and cooked, hot and cold. Population could expand (“increase and multiply”, Genesis IX, 7) indefinitely by occupying new territories in different latitudes and longitudes.

Humans learnt to dominate, shape and domesticate their natural surroundings by mediating them with tools and weapons. And they applied the same rules to their own kind, reducing them to vassalage or chattel. Agriculture meant staying put, accumulating wealth and defending it against raiders. These raiders were pastoral nomads, who sometimes stayed and replaced the previous rule with their own. And, as agriculture urbanised, cities would make war on one another. All this violence had little to do with survival. It was essentially driven by the acquisition of wealth and power. Hereditary, elected or self-proclaimed war-lords competed for dominion over their own and other nations. And so it has been ever since. Kings and consuls, princes and presidents, leaders of all kinds making war and taking plunder, with complete disregard for those who die or starve, or lose their limbs or their livelihoods. Dominion over nature led to totalitarian dominion over everything, a wild hubris that offers a choice between submission and destruction. But nature is not submissive – were it so it would have ended long ago – and it is being destroyed at an accelerating rate. And that imminent ruin will not bypass humanity. From the beginning the submissions of nature and humans were associated, and the looming extinction of nature will take humanity with it. Competition for wealth and power (celebrity?) is a struggle of all against all that produces violence and destruction. An improbable turnaround to cooperation might still be able to save the planet, but time is running out.