A
profit is made by selling something for more than it has cost. That
can be done by extracting unpaid surplus value from labour, or by
just buying to sell. In both cases more money is obtained than has
been spent. Labour does not have it, nor does the first seller, but
that extra money must come from somewhere. This puzzled Marx, but in
1913 Rosa Luxemburg concluded that it came from colonial plunder (1).
Bullion, raw materials, land grabs and forced labour were paying the
profits of imperial powers. As the planet is limited geographically,
this
looting brought the imperialists into conflict with one another and
resulted in two world wars. After the second one the two victorious
nations became adversaries, forcing the world to line up behind one
or the other. Then, following Stalin’s death, the rift between
Russia and China brought about an ephemeral non-aligned coalition
(2). Its demise isolated China up until the 1970s.
War
had interrupted the profits of empire, and it was followed by
colonial unrest and armed struggles for independence. But governments
had generously provided for those absent profits with public debts.
During the war and its aftermath, government borrowing kept profits
rolling in, and inflation was constantly shrinking those accumulated
debts. And strong economic growth was reducing their proportions.
Meanwhile booty from the South was flowing again under slightly
different circumstances. Administration and lifestyles were
transferred to faithful local vassals. Profits were realised as
investments, and consumer goods were exchanged for raw materials.
Though the USSR and China were excluded from these transactions,
competition between industrial nations was quite strong, even if the
US was taking the lion’s share. By the end of the 1970s, however,
it became obvious that more consumer demand was needed.
Realising
profits with consumer credit was not a new practice, but in the 1980s
it became increasingly widespread. From everyday spending to
durables, cars and housing, growing numbers were consuming their
future incomes. Governments also increased their borrowing, and all
this monetary creation, albeit from the future, was not inflationary.
The price of housing did rise, but inflation in general was low. The
expansion of consumer debt coincided with the outsourcing of
production, and those reductions in production costs were keeping
prices down. Outsourcing production also meant job losses for those
sectors that could be moved abroad. The well-paid unionised factory
jobs began to disappear, leaving industrial waste-lands and the
miserable uncertainty of gig employment in the service sector.
Salaries grew for executives and wages shrank for workers. On average
things were stable, but workers had to compensate their lost income
with credit, while executives invested their increased earnings and
only changed their consumption spending marginally. Growth in
consumer demand came to depend almost exclusively on credit and debt.
Profits
need a solvency that is not there, and must create it artificially.
Credit is the perfect solution as long as it is renewed, to the same
borrower or a different one. If it is not, its repayment reduces
demand. So debts are rolled over and piled up, at which point the
payment of interest is such that it cancels new credit, and this can
only be resolved by reducing interest rates to zero. Free perpetual
credit can keep things going, but can it have a future if that future
is already spent? This absence of a future is reflected in
environmental pollution and resources exhaustion. A toxic depleted
world with spent incomes and rising temperatures is tomorrow’s grim
inheritance. Today’s youths are understandably angry.
1.
See “The Accumulation of Capital”, especially the third section
for those not familiar with Marxist economic theory.
https://www.marxists.org/archive/luxemburg/1913/accumulation-capital/index.htm
2.
The 1955 Bandung Conference brought together representatives from
China, India and 27 other Asian and African nations.
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