SNNS 63

 

Northern Soul Classics - Stay Close To Me - The Five Stairsteps & Cubie

 

Anti-Duhring, Part III – Socialism, II – Theoretical - Part 14

The role of the boards of Directors, is to represent the interests of shareholders, not the company. As set out before, shareholders, as owners of interest-bearing capital/fictitious capital, seek to maximise their revenue in the form of interest/dividends. The interest of the company, however, is to maximise its profit of enterprise/retained profit, and so to minimise all other deduction from profit, such as rent, interest/dividends and taxes.

A company that simply borrows money from a bank, or in the bond market, pays only the going, competitive rate of interest on the money it borrows, though, as Marx describes, the worker cooperatives always found they were charged higher rates of interest. But, precisely because shareholders have control over companies, and appoint the boards of directors that set the dividend payments, they are able to pay themselves more than any such competitive market rate of interest. The consequence is that, where a company agrees a higher dividend pay-out, other owners of loanable money-capital seek to obtain it. By buying the company's shares. That causes the market price of those share to rise, and consequently the dividend yield (dividend/share price) to fall back towards the average.

But, in the same way, the speculative money that flows towards these shares flows away from other shares (and other speculative assets). The market price of those shares/assets then would fall, and so on. Speculative money moving to buy shares would cause bond prices, property prices etc., to fall, with a corresponding rise in bond yields, rental yields and so on.

Shareholders, therefore, simply by assigning to themselves a larger amount of interest/dividends than would represent a competitive market rate of interest, bring about changes in all asset prices and yields. But, as Marx sets out in Capital III, Chapter 23, it is still constrained by the laws of capital.

“It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.”

Shareholders cannot simply continue to pay themselves more out of profits as interest/dividends. On the one hand, the process described above creates a vicious circle. Dividend/interest payments rise, asset prices rise, yields fall, but, also, if more and more profit is simply shelled out as dividends/interest, less is available as profit of enterprise/retained profit, so, at some point, the actual industrial capital that creates the profit out of which that interest is paid does not grow. If industrial capital does not grow, i.e. if the social relation it represents does not expand, so that more labour is exploited, surplus value does not grow, and so the profit out of which all those revenues (interest/dividends, rents, taxes and profit of enterprise) are taken does not grow.

It is those laws of capital that have imposed themselves on the ruling-class over the last thirty years. They, also, found nuance, reflection and contradiction in the political sphere. The drawing of ever greater interest/dividends from profits, in the old imperialist state, showed up as deindustrialisation and asset stripping, but the other side of that was a combined and uneven development of large-scale industrial capital in China/Asia, Latin America, and later Africa. The globalisation of production, of which this was part, itself facilitated the continuation of the delusion in the West. It reduced unit costs, and facilitated trade, raising profits. In the same way that Britain, in the 19th century, used its surplus money profits to provide credit to those countries that used it to buy British exports, so China and other countries, now, ploughed money into western credit markets. They loaned money to he US, buying US bonds and so on, pushing up their price and reducing yields.

In the West, the US and UK in particular, the process of deindustrialisation led to a resurrection of the petty-bourgeoisie. It is most noticeable in the UK where, since the 1980's, it has grown by 50%. Napoleon called Britain a nation of shopkeepers, but, since the 1980's, it has been a nation of precarious, self-employed traders, symbolised by “white van man”. That includes those traders involved in the growing trade in illicit substances, home-made porn etc. The majority of adverts on Youtube etc., now assume that their audience are all involved in some kind of small business activity.

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Anti-Duhring, Part III – Socialism, II – Theoretical - Part 13

This introduces a further contradiction, which is obscured by the fact that, other than in the worker-cooperative, control over the socialised capital is exercised, not by its collective owners (the associated producers, i.e. the workers), but by a section of its creditors, i.e. the shareholders. That is true of a consumer cooperative and a nationalised industry, just as much as with a limited company. Indeed, with nationalised companies, the state, although the only shareholder, itself obtains the money-capital by borrowing on the bond markets, giving the private owners of fictitious capital an indirect influence on those companies.

Similarly, the Directors of those companies are appointed to represent the interest of the state as shareholder/creditor, and not the interests of the company – let alone its workers, as the real collective owners of it. It is no surprise, then, when the state appoints the very same Directors that circulate around the boards of limited companies, to carry out that role.

Marx points out that, in relation to the joint-stock companies, the revenues (new value created) resolve into wages, rent, interest and profit of enterprise, as with all industrial capitals. But, the fact that these companies employ professional managers, who act as “functioning capitalists”, means that the actual payments do not coincide with these revenues. A part of what is actually profit of enterprise/retained profit, which should be available for capital accumulation, as the property of the company, instead appears as “wages” for some of the company Directors, and, also, appears as “interest/dividends” to shareholders.

In these socialised capitals, the professional managers, or “functioning capitalists”, i.e. those that perform the functions of entrepreneur, by bringing together the factors of production efficiently, exercising day to day control over production, distribution, sales and marketing, etc., are drawn from the working-class, which is why this industrial capital, in its imperialist phase, requires an extension of “free” public education, to ensure the supply of this managerial/administrative/scientific/technical labour-power. Again, these welfarist concepts, associated with social-democracy, mushroomed from the latter part of the 19th century.

“The general relaxation of conventional barriers, the increased facilities of education tend to bring down the wages of skilled labour instead of raising those of the unskilled." (J. St. Mill, Principles of Political Economy, 2nd ed., London, 1849, I, p. 479.)”

(Capital III, Chapter 23, Note 79, p 389)

As Marx sets out, these actual functioning capitalists/professional managers etc., who are the personification of this socialised capital, are not to be confused with the Directors and CEO's, CIO's etc., that are set in place by shareholders to sit above them. For these Boards, as representatives of the shareholders, the actual functioning capitalists, are a potential threat to the interest payments and fictitious wealth of the ruling-class/shareholders.

“On the basis of capitalist production a new swindle develops in stock enterprises with respect to wages of management, in that boards of numerous managers or directors are placed above the actual director, for whom supervision and management serve only as a pretext to plunder the stockholders and amass wealth. Very curious details concerning this are to be found in The City or the Physiology of London Business; with Sketches on Change, and the Coffee Houses, London, 1845.

'What bankers and merchants gain by the direction of eight or nine different companies, may be seen from the following illustration: The private balance sheet of Mr. Timothy Abraham Curtis, presented to the Court of Bankruptcy when that gentleman failed, exhibited a sample of the income netted from directorship ... between £800 and £900 a year. Mr. Curtis having been associated with the Courts of the Bank of England, and the East India House, it was considered quite a plum for a public company to acquire his services in the boardroom' (pp. 81, 82).

The remuneration of the directors of such companies for each weekly meeting is at least one guinea. The proceedings of the Court of Bankruptcy show that these wages of supervision were, as a rule, inversely proportional to the actual supervision performed by these nominal directors.”

(ibid)

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Forward To Part 14

Anti-Duhring, Part III – Socialism, II – Theoretical - Part 12

In other words, the accumulated stock of fixed capital has assumed mammoth proportions. Any large scale technological revolution that causes a significant moral depreciation of fixed capital brings about a big capital loss for the owners of that fixed capital. At the same time, however, this same fact of the mammoth scale of the fixed capital, relative to the circulating capital, means that, each year, as the fixed capital reduces in value – not from depreciation but from wear and tear – it brings about a corresponding rise in the rate of profit, for the firms using this existing fixed capital.

Large-scale socialised capital, therefore, has an interest in ensuring that this fixed capital can be fully and continuously employed, over a long duration, so that it recover its value in wear and tear, as quickly as possible. So, this socialised capital, whether controlled by workers or shareholders, requires the kind of long-term planning, and attempts to achieve stability, that social-democracy represents. As Engels put it in the Critique of The Erfurt Programme,

“I am familiar with capitalist production as a social form, or an economic phase; capitalist private production being a phenomenon which in one form or another is encountered in that phase. What is capitalist private production? Production by separate entrepreneurs, which is increasingly becoming an exception. Capitalist production by joint-stock companies is no longer private production but production on behalf of many associated people. And when we pass on from joint-stock companies to trusts, which dominate and monopolise whole branches of industry, this puts an end not only to private production but also to planlessness.”

The position of shareholders is, then, typically contradictory. Like the private industrial capitalists, and unlike the workers, they only see a justification in the introduction of machines/technology, where the cost is lower than the wages saved. But, like the worker and unlike the private industrial capitalist, they see the need to plan production, and, via the capitalist state, the economy so as to avoid crises. Publicly, of course, they proclaim their belief in the free market, and opposition to central planning, except, of course, when it comes to the central planning done by central banks, and their belief that such institutions can control the price of capital! In the heyday of imperialist capital in the 1930's to the mid 1970's, the ruling class made no secret of their corporatist belief in such economic planning.

As owners of fictitious-capital, (interest-bearing capital, i.e. shares, bonds etc.) shareholders stand in a contradictory and antagonistic relation to the owners of industrial capital, be they private industrial capitalists or the workers/associated producers as collective owners of socialised capital (again be it in the form of a cooperative, joint stock company/corporation etc.) As Marx notes in Capital III, Chapter 23,

“It is indeed only the separation of capitalists into money-capitalists and industrial capitalists that transforms a portion of the profit into interest, that generally creates the category of interest; and it is only the competition between these two kinds of capitalists which creates the rate of interest...

“The lending capitalist as such faces the capitalist performing his actual function in the process of reproduction, not the wage-worker, who, precisely under capitalist production, is expropriated of the means of production. Interest-bearing capital is capital as property as distinct from capital as a function. But so long as capital does not perform its function, it does not exploit labourers and does not come into opposition to labour.

On the other hand, profit of enterprise is not related as an opposite to wage-labour, but only to interest.”

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SNNS 62

 

Northern Soul Classics - Hungry For Love - The San Remo Strings