Burnham's Dead Cat Bounce - Part 9 - Burnham Facing Reality In The Era of The Gamblers, (1) When The Chips Are Down

Part 9 - Burnham Facing Reality In The Era of The Gamblers, (1) When The Chips Are Down

In the last few days, the news has been full of reports of the fall in the price of Nvidia shares, much of which has centred around the sexual affairs of its CEO, Jensen Huang. The CEO sits atop that pyramid of Directors, appointed by shareholders, to represent their interests, as against the company interest, by maximising shareholder value. So, its no wonder that the news reports, representing, themselves, the interests and views – the ruling ideas of the age – of that ruling class of speculators/gamblers, have expressed alarm at the fall in the price of the shares, especially as it ties into a renewed concern about the likelihood of astronomically inflated asset prices facing another crash, centred around a few large tech stocks, and chip makers like Nvidia.

But, those news reports, also, have presented the fall in the share price of Nvidia as being a fall in the value of the company itself. In other words, the idea that it is fictitious-capital that is “real capital”, whereas the actual real capital, the industrial capital which produces surplus-value and profits, is simply a collection of things to be managed. That is not true, as Marx set out long ago. Its not the company that has lost money or value, as a result of the fall in its share price. It has exactly the same money in its bank account it had before. The value of the components of its industrial capital – the buildings, machines, materials, and workforce – are completely unchanged.

The losers are only the shareholders, whose shares, if they sold them, would be worth less. It is only their inflated paper wealth that has been reduced, not the value of the company. Indeed, whilst the existing shareholders would lose out, if they sold their shares, today, the new buyers of those shares would, equally, be the beneficiaries. If the bank that loaned you money to buy your house, went bust, it would not change the value of your house, or its use-value. Another lender would buy up its business on the cheap, and you would just pay your mortgage payments to them.

As Marx put it,

“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.”

(Theories Of Surplus Value, Part 2, p 496)

Its only insofar as companies, also, buy the shares of other companies that a fall in share prices would affect them, as a shareholder, like any other. If the current share price of company A, drops by 50%, then, if it seeks to raise additional money-capital, via a share issue, it would have to issue twice as many shares, compared to prior to the fall, to raise any given amount of money. If the amount of dividend per share remained the same that would be equal to a doubling of the yield on those additional shares. It sums up the delicious nature of the problems of the ruling-class of gamblers/coupon clippers, and of conservative social-democracy as their representative, in seeking to both have their cake and eat it.

On the one hand, they want to have higher yields on their financial and property assets, but, now, those higher yields can only come from a fall in the price of their assets, i.e. share, bond and property market crashes, upon which their whole paper wealth, and the ideology of conservative social-democracy (neoliberalism) has been built in the last 40 years.

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Anti-Duhring, Part III – Socialism, II – Theoretical - Part 32

As I predicted would happen, the surge in liquidity created during lockdowns – precisely at a time when output was deliberately and administratively reduced as government policy, and so where less currency should have been thrown into circulation – led to the high levels of commodity price inflation that occurred when lockdowns were ended, and so those depreciated money tokens flooded into the market. So, the idea that the government could just print money tokens, and, then, spend them has numerous problems.

Firstly, it depends what the government spends those money tokens on. It is only if it spends them on things that actually create new value, and which, then contribute to the economy via exchange that it would increase growth, rather than just be inflationary. Military, spending, for example, would just be inflationary. Spending on welfare benefits would similarly be inflationary.

But, as noted earlier, even if the government could direct these money tokens into value creating activity, for example, repairing crumbling roads, which can be accomplished quickly, it would take around 18-24 months before this becomes manifest, and during all that time, the government would face attack from the capitalist media, pointing to a falling Pound, rising interest rates and prices, and falling stock, bond and property markets.

If, however, the working-class, collectively, controlled the money in its pension funds, some of that could be avoided. The working-class could directly fund capital accumulation in cooperative production. Directly elected supervisory boards of workers, controlling their own pension funds, would make long-term decisions based on heir own interests for employment and economic security, rather than the short-term interest of the ruling-class speculators in inflating asset prices.

For that very reason, the ruling-class will resist tooth and nail allowing the working-class to democratically control its own money and property. Still less will they allow workers to exercise democratic control over their own collective property in the joint stock companies/corporations. For that very reason, the statist, social-democratic demands for nationalisation are not only utopian and reactionary, in the era of global imperialism, they act as a distraction and a misdirection of workers. In the era of global imperialism, nationalisation, i.e. control of socialised capital by the capitalist nation state, is utopian and reactionary. It requires, at least, statisation by a much larger, multinational state, for example, the EU.

But, the idea that even such statisation represents control by workers is a dangerous delusion, as Marx and Engels describe. It represents only a more centralised and effective control of the workers' collective capital, as a means of depriving the workers of that control.

The ruling class, as a class of owners of fictitious-capital, have, therefore, become a fetter on the further development of capital itself, just as previously, the monopoly ownership of private industrial capital, in the 19th century, had become a fetter on its development, and was burst asunder, as those private industrial capitalists were expropriated by large-scale socialised capital.

“In one way or another, with trusts or without, the state, the official representative of capitalist society, is [finally] constrained to take over the direction of production. This necessity for conversion into state property first appears in the big communication organizations: the postal service, telegraphs and railways.” (p 358-9)

But, as noted above, it is an indication of the overripe conditions, and failure of the labour movement to assert its rightful democratic control over its own collective property, itself a result of the failure of its political leadership to address that property question, which means that the era of “nationalisation” has, now, also, been eclipsed by history. In the early 1980's, as the era of social-democracy peaked, its failure to address that property question and carry through to the rational conclusion the proposals for industrial democracy, led to it being rolled back. It was not just the usual to and fro between a more progressive social-democracy and conservative social-democracy, but a dynamic in which social-democracy as a whole, ate itself and a growing petty-bourgeois mass asserted itself by utilising its numbers, at the polls, to turn the clock backwards 200 years.

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Burnham's Dead Cat Bounce - Part 8 - (Digression) The Era of Speculation and Gambling (5) – Capital, Profit and Capital Gain (Concluded)

Part 8 - (Digression) The Era of Speculation and Gambling (5) – Capital, Profit and Capital Gain (Concluded)

Money is simply the universal equivalent form of value, a way of expressing the value of all other commodities in the form of one single commodity, rather than in labour hours. It is why money is not the same thing as money-tokens/currency/credit money. Money is always potentially capital – Marx calls capital money raised to a higher power – but not all money is capital. Money and money-capital are two different things, just as money and money tokens (currency) are two different things.

Money only becomes money-capital when it is used to replace or accumulate industrial capital, i.e. when it enters the circuit of industrial capital, and so expands the mass of surplus-value/profit. Most money-capital is simply the money-form of the value of the consumed productive-capital, realised in exchange, and thrown back into circulation to replace that consumed productive-capital (C-M-C). Most of the additional money-capital, similarly, is simply the money form of the surplus-product/surplus-value/industrial profit, created in that production, and thrown back into circulation to accumulate capital (c-m-c). In Capital II, Marx sets this out in his diagrams of the expanded form of the circuit of industrial capital.

Of course, you would not know this is the case, because bourgeois economics, and ideology promotes the myth that all of this money-capital, somehow, is thrown into circulation, from outside, by banks, shareholders and so on, without questioning where they acquired it from in the first place. Its like some kind of cornucopia that keeps magically filling their pockets with money. But, the reality is that the money that banks lend, the money that bond and shareholders lend, itself came from the payment of interest/dividends to them, and that interest/dividend was only possible because real capital produced surplus-value/profit. Some, of course, comes from savings, mostly, itself from companies that throw their unused money reserves into the capital markets, so as to not have the money lying sterile.

Profit is the money form of the surplus product. But, as stated earlier, this money profit is, then, divided. Some is appropriated as rent by landlords, some as taxes by the capitalist state, some as interest by lenders of money-capital, and only what is left is profit of enterprise/retained profit. In the era of the monopoly of private capital, the industrial capitalist owner had to use some of the retained profit for their own personal consumption, be it of necessaries or, increasingly, luxuries. Only what was left after that could they use as money-capital to expand the business.

Some of the revenue of the private industrial capitalist did, indeed, constitute wages for their labour in organising production, but a growing part of it simply reflected their role in policing and exploiting the labour of the workers. In the worker cooperative, this latter function disappears. If workers exercised control of their collective property in the corporations, it would, likewise disappear. The professional day to day managers would simply perform the function of conducting the labour process and be paid wages accordingly.

But, it is also to ensure that those day to day managers – especially as they are drawn from the working-class, and form unions etc. - do not assume solely that function that the ruling-class creates tiers of Directors above them, whose role is to promote the interests of the shareholder – shareholder value as even bourgeois commentators describe it – rather than the interests of the company itself.

It is this interest, the interests of the shareholders, of fictitious-capital, of the ruling-class and its state that conservative social-democracy represents, and has tried to protect. By contrast, progressive social democracy, in its own confused manner, represents the interests of the real industrial capital itself, as refracted through the lens of that layer of professional day to day managers. The latter had its heyday in the period after WWII (1945-74), but its inherent contradiction, in seeing the interests of capital and labour as compatible and negotiable, meant it would ultimately fail.

Marx described socialised capital as the transitional form of property between capitalism and socialism. Social-democracy is the appropriate transitional political regime that goes with it, but, at some point, the transition must end, the limits are reached and become a fetter that must be burst asunder. Social-democracy, even in its progressive form, cannot reconcile itself with that, and that is why the politics of a Corbyn, Benn, Sanders, Melonchon, let alone of a Burnham, even given its most generous evaluation, will quickly run up against reality.

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Forward To Part 9

Anti-Duhring, Part III – Socialism, II – Theoretical - Part 31

But, those conditions ended, in the mid-1970's, precisely because the economic expansion no longer created the sufficiently rising profits to facilitate the rising payments of interest. Interest rates rose, but the mass of interest grew more slowly than before, because the amount of profit grew more slowly, as capital accumulation slowed, and more of that profit was required for capital accumulation/profit of enterprise, leaving less for interest payments, rents and taxes. Capital was overproduced relative to labour supply/social working-day, so relative wages rose, relative profits fell.

In the 1950's and 60's, it was not that interest rates/dividend yields rose, as the basis of the ruling class revenues rising, on the contrary, interest rates and dividend yields were falling. The increased revenues came from a rapidly growing mass of profit, as capital expanded rapidly, during the post-war, long-wave uptrend. Similarly, in the mid-60's, and through to the mid-80's, interest rates rose, precisely because capital grew faster than labour supply/social working-day. Wage share/relative wages rose. Workers used those higher wages to demand more wage goods, and some of what had previously been luxury goods, as Marx describes in Capital II, and elsewhere, always happens in these conditions.

Competition, then, forced firms to respond to that higher demand, for fear of missing out, and losing market share. As Marx pointed out in response to Ricardo, capital does not need higher rates of profits or prices to get it to do that, competition forces it to do so, even as the consequence is a lower rate of profit, because, the alternative if to lose out in the competitive struggle.

“... the extension of cultivation to larger areas — aside from the case just mentioned, in which recourse must be had to soil inferior than that cultivated hitherto — to the various kinds of soil from A to D, thus, for instance, the cultivation of larger tracts of B and C does not by any means presuppose a previous rise in grain prices any more than the preceding annual expansion of cotton spinning, for instance, requires a constant rise in yarn prices. Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production.

The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors.”

(Capital III, Chapter 39)

Marx explains the process, also, in Value, Price & Profit, where he shows that a rise in relative wages, does not cause higher prices/inflation, but shifts capital towards the production of wage goods, and away from the production of luxury goods. To increase supply of wage goods, firms employed more workers, bought more machines, materials and premises, even though those higher relative wages meant lower relative profits. The higher demand for all these Department I (producer) goods, also, then, meant Department I had to increase its output, accumulate additional capital. Capital, as a whole, therefore, was forced to expand, but, in conditions where its expansion, now, created an even greater relative shortage of labour, rising wage share and squeezed profits. A greater proportion of those profits, therefore, now had to go to funding capital accumulation, rather than the payment of interest/dividends. So, interest rates rose.

By the mid 1970's, the ruling-class and its media were complaining about the problem of “crowding out”. That is, because the government could borrow money-capital in the market and pay whatever lenders demanded, the consequence, as the supply of money-capital fell, was that firms faced interest rates that precluded their own expansion. The increased liquidity/supply of money tokens and credit, in this period, did not lead to lower interest rates – precisely because money tokens are not money, and money is not money-capital – but led, instead, to rising commodity price inflation, as output failed to grow proportionate to the expansion of liquidity.

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Burnham's Dead Cat Bounce - Part 7 - (Digression) The Era of Speculation and Gambling (4) – Capital, Profit and Capital Gain (Cont'd)

Part 7 - (Digression) The Era of Speculation and Gambling (4) – Capital, Profit and Capital Gain (Cont'd)

In the 19th century, as Marx describes, capital increasingly became seen as synonymous with loanable money-capital. Even before the private industrial capitalists abandoned their functional role in production, and became mere coupon clippers, the concept developed that it was the money-capital advanced that was the real capital, and the “natural” return to this capital, was not “profit”, but “interest”. The actual capital, i.e. the elements of the productive-capital, bought with that money-capital, and which is the real source of profit, i.e. surplus-value, was increasingly seen only to produce “profit” as a form of wages to the entrepreneur, a reward for their skill in buying low and selling high, or organising production more efficiently.

This sets up the ideological framework for the transition to the era of socialised/imperialist capital. The collective owners of that socialised/imperialist capital are the “associated producers”, i.e. the working-class in each enterprise. Just as with an orchestra, these associated producers still require someone to direct their actions, i.e. they require require day to day professional managers who are themselves drawn, increasingly, from the working-class. It is they that take on the “functional” role of the capitalist, and so its no wonder they are assigned only a form of wages as their appropriate revenue.

In fact, by the 20th century, as this army of white collar workers swelled to carry out the expanding functions of management, planning, administration, bookkeeping and so on, they were seen as receiving wages like other workers, apart from it being called a salary, and paid monthly etc. In turn, like other workers, they formed unions such as ASTMS, AUEW-TASS and so on.

But, this acts to emphasise the idea that these functioning-capitalists are only workers managing things, whereas the “real” capital is the money loaned to the company, be it by banks, the bond market or shareholders. The natural return to this “real” capital is not profit, but interest/dividends, and, as Marx says, this return is seen as accruing to it in the same way that plums are the natural fruit of the plum tree.

Yet, the reality is that this interest, like rent or taxes, could not exist unless surplus value is created in production, i.e. unless surplus labour is undertaken, the bourgeois form of which is industrial profit. Interest, rent, taxes and profit of enterprise, as Marx sets out, are just subdivisions of this industrial profit, created in production and realised in exchange.

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Anti-Duhring, Part III – Socialism, II – Theoretical - Part 30

Since then, states and central banks have done all they can to prevent growth from rising, for fear it will cause higher interest rates and another crash in asset prices. Ironically, they are getting the higher interest rates, anyway. The main levers in that economic activity are the capital accumulation of the multinational corporations, and the spending by governments. As far as the latter is concerned, we have seen that, to restrict economic growth, they cut their spending and raised taxes, some of which went, directly, to fund their bailouts of financial institutions, whose paper wealth crashed along with the prices of the assets on their books.

As far as the former is concerned, it is where the control of that socialised capital by shareholders, rather than by its collective owners – the workers – plays its part. Those shareholders, the ruling-class, clearly have more concern to protect their paper wealth than they do in economic growth, the consequence of which is, then, to cause interest rates to rise, and asset prices to crash. In addition, since 2000, it has become clear that, even what growth there has been, has caused the demand for labour to rise faster than supply, causing relative wages to rise and relative profits to fall. It is marginal compared to what occurred in the 60's and 70's, but it still acts to cause the demand for money-capital to rise relative to supply, and so, again, for interest rates to rise, and asset prices to fall.

It is part of the problem any government seeking to engage in even mildly expansionary policies will face. The ruling-class, which controls all of the loanable money-capital, even those huge sums in pension funds etc. it does not own, simply exerts its power via the global capital markets. A government would, therefore, see its borrowing costs rise. Its currency would fall on foreign exchange markets and so on. As all that happened, and its stock market and property market fell, the bourgeois media would present all this as a condition of crisis, even if, in reality, the government was able to divert this money into an expansion of real economic activity!

The proponents of the Magic Money Tree (MMT), of course, argue that, instead of borrowing to finance this spending, the government could just “print” more money, as for example was proposed by John Law and the Perreire Brothers, with such disastrous, but predictable results, as again repeated in Weimar. As I have described, elsewhere, this mistakes money for currency/money tokens. As Marx described it, its like confusing the picture of a cow for the cow itself. Simply producing more pictures of cows does not mean you create more cows. Its true, as I have noted earlier, and discussed elsewhere, if the government were to print more money tokens, it would not lead to a depreciation of those tokens – inflation – if the increase in the value of output was, at least, proportionate to it.

But, that assumes that the government has the ability to direct the economy, and to direct the currency it has just printed into real capital accumulation, so as to increase output. The government in China might have something approaching that level of control; the soviet government, in the 1920's, thought it had that control, but no western governments have it. Indeed, in the 1920's, as Trotsky pointed out, the soviet government printed large amounts of money tokens, and despite there being rapid economic growth, it was not as rapid as the depreciation of the currency, leading to inflation and instability. In China, the printing of money tokens, as in the west, has led to the same asset price bubbles, and the same problems that large property empires, now, face collapse, requiring the creation of even more money tokens to keep them afloat.

Moreover, as I have noted, elsewhere, in the 1950's – 70's, where Keynesian intervention acted counter-cyclically, an increase in liquidity did lead to increased output, but, that increased output did not manifest until around 18-24 months later. At that time, still with the memory of the mass unemployment of the 1930's fairly recent, and with Keynesian demand management the dominant theory of the ruling-class, governments faced little resistance to such an approach. At that time, after all, the ruling-class still saw its wealth and power flowing from its ability to obtain interest/dividends and recognised that the best conditions to do so flowed from continued economic growth and so increasing profits.

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SNNS 68