Capital accumulation and credit

All goods and services are exchanged on the market for more than they have cost. More money is obtained from the market than has been paid in. This surplus must come from somewhere. Though it did puzzle him, Marx set aside the money question and imagined two departments – one for investments and the other for consumption – exchanging their productions. This model worked quite well and could accommodate growth, but it did not explain who was paying the surplus value when it was brought to market. Later, Rosa Luxemburg concluded that it was paid with colonial plunder. Then the post-colonial period would show that there is an exchange of consumption for investments, essentially raw materials. This follows the basic rule of capitalism, which is to accumulate wealth instead of consuming it.

Employers only pay their employees for a part of the value their labour has added to production. The rest is kept by the employer who must transform it into a capital investment. Companies that produce investments can exchange their surplus value among themselves, investment for investment. Whereas those that produce consumption must transform it into investments abroad, guns and cars for minerals and oil. Or they can grant consumer credit. Undamaged by WW2, America’s industry was the first to partly convert from supplying war time consumption to supplying peace time consumption. For a decade or so, American companies held the market for consumer goods. But by the mid-1960s, Europe and Japan were back to producing their own. This constriction of the world market (the post-colonial market was not yet in place) meant a necessary expansion of America’s interior market. It was made possible by a massive development of consumer credit. And this was such a success that it was copied by other industrial nations, except those under “communist” rule who would come to it at the end of the century.

Buying now and paying later means consuming more today and less tomorrow. This consecutive fall in demand can be compensated by another credit being granted, with always more new credit being consumed than old credit being paid back, and so on exponentially. Consumer credit allows the surplus value of consumption to be exchanged for money and accumulated as capital. In the decades following WW2 growth was also stimulated by real wage rises from a distribution of productivity gains. Since the 1970s wages have stagnated and growth in consumer demand has depended increasingly on consumer credit. However, invested credit returns its value, often with a bonus, whereas consumer credit is consumed. The credit that allows the exchange of the surplus value of investments accumulates capital. The credit that allows the exchange of the surplus value of consumption also accumulates capital, but it piles debts on debts. And an increasing portion of the credit granted merely renews past credits, while an ever smaller share goes to increasing demand. When everyone has all the credit they can or want to have, that is when subprime lending gets out of hand.