Wednesday, 1 February 2012

Civil War In The Capitalist Class

There seems to be a simmering Civil War taking place within the ranks of the Capitalist Class. The removal of the knighthood, for Fred Goodwin, is a manifestation of it. As with other Civil Wars, the actual banners raised, under which the opposing sides fight, are not a reflection of the real reason for the conflict. The war is being fought out under banners such as “Moral Capitalism” or “Responsible Capitalism” or “Predatory Capitalism” and other such meaningless nonsense. But, the real conflict is one between the interests of Big Money Capitalists based in the City of London, and Wall Street, and the interests of Big, and not so big industrial capitalists.

In Capital, Marx's analysis demonstrates, not only the fundamental contradiction between the interests of Labour and Capital. Particularly in Vol. III, where he looks at Capital as a whole, he also sets out the conflicting interests between the Productive Capitalists, whose activities create Surplus Value, and the Commercial Capitalists, Money Capitalists, and Landlords, who claim a share of this Surplus Value for themselves in the form of commercial profits, interest and rent. In the 19th century, as Marx and Engels described, the Productive Capitalists were, in fact, able to form an alliance with Labour against the old ruling class, the landed aristocracy, precisely on this basis, of the former asserting its interests over the latter. Commercial Capital, makes profits through buying commodities from the productive capitalists below their value, and selling them at their value. The productive capitalists agree to this because they would otherwise have to lay out additional Capital themselves, to ensure the sale of their commodities. The Merchant Capitalists, through specialisation, can achieve this more efficiently, thereby providing the productive capitalists with a saving on their costs. The same is true in relation to the Money Capitalists, who reduce the productive capitalists' costs, by minimising the Money Capital they have to hold themselves. The Landlords, extract rent from the Capitalists as a result of the monopoly ownership of land. Moreover, wherever a particular piece of land facilitates the Capitalist in making above average profits, because of its location or fertility, the Landlord is able to extract a Differential Rent, which reduces this surplus profit down to the average.

Just as the Capitalists have an interest in reducing the Value of Labour Power, so as to lower wages, and thereby increase profits, so Productive Capital has an incentive in minimising the share of Surplus Value they have to hand over to the Commercial Capitalists, the Money Capitalists and the Landlords. Historically, as I set out in previous posts there has been a connection between Money Capitalists – the Financial Aristocracy – and the Landlords – the Landed Aristocracy. Indeed, both extract a form of rent. The latter for lending out their land, the former for lending out their Money. For a long time from the latter part of the 19th Century, the Productive Capitalists had the upper hand. It was manifest in the rise of Fordism, and the Social-Democratic consensus, by which Big Capital co-existed with the working-class via the intermediary of the Trades Unions, and parties which developed and sustained Welfare States, and Keynesian policies. That broke down in the 1970's and 80's with the end of the Long Wave Boom, when Keynesianism showed it could not deal with the crisis. The decline of Productive Capital, and the ending of Keynesianism, was mirrored by the rise of Money Capital, and of Neo-Liberalism, which represents its ideological interests.

For the period of Long Wave downturn, Money Capital, and its Neo-Liberal ideology have been dominant. That dominance has been reflected in the political representation and links that the Money Capitalists were able to form within the political elites, within the corridors of the State, and within sections of the media. For the same reasons as its rise arising out of the end of the last Long Wave Boom, its position was bound to come under challenge once the new Long Wave Boom started around 1999. The fact of the Financial Meltdown, and the role of Money Capital in bringing it about, was bound to provide a basis for its rule to be attacked. What we are seeing is the playing out of this conflict, a struggle for dominance within the ranks of Capital, between the Money Capitalists and the Productive Capitalists.

There was an interesting example of that yesterday. Howard Dean, Chair of the Democratic National Committee, said on CNBC that one of the Republicans top spin doctors had advised candidates in the GOP primary elections not to use the term “Capitalism”, because it was a dirty word. However, he said, using the term “free enterprise” was okay. The difference is that the former is associated with Wall Street, whereas the latter is associated with all of the firms, especially the smaller firms who were actually engaged in making stuff.

Over the last 30 years, we have seen a secular trend of falling interest rates. That is an indication of the way the dominance of the Money Capitalists has led to its interests being met by the State. Of course, to an extent, low interest rates, benefited Capital as a whole, because it made possible a continuation of spending by workers during a period when their wages were stagnant or falling. But, the main beneficiary was Money Capital. The reason is as follows. If interest rates are high, then the demand for credit by businesses and consumers will be less than if they are lower. The lower this demand for credit, the more competition, between lenders, will force them to reduce their margins, in order to win the available business. The higher the interest rate, the Banks and Finance houses have to pay, to borrow in the Money Market, the higher the interest rate they have to charge for commercial credit. For example, if the Banks have to pay 5%, they may only be able to lend at 8%, because, at these levels, demand is choked off. But, at 1% they may be able to lend at 3%, because the demand will be higher at this lower rate. Although, in the first case, the margin is bigger in absolute terms (3 percentage points), in terms of profit it is lower, because it is only 60% more than their borrowing cost, whereas in the latter it is 200% more than their borrowing cost.

When Money Capitalists had to rely on savers depositing funds with them, their costs were higher, because they had to offer high enough deposit rates to attract savers. Today, they do not, because they obtain the funds to lend from the Money Market. And, at the moment, they are able to obtain longer term funds, from the Central Banks, who, in order to pump liquidity into markets, to avoid a recession, are lending money at historically low rates. In fact, for the Big Productive and Merchant Capitalists this is probably a disadvantage under current conditions. The Big Capitalists are generally able to raise their own funds, through Bond issues, as well as for some of them, like Microsoft, being extremely cash generative in their own right. That is also true for Merchant Capitalists like Tesco. Facilitating consumer credit is only useful to these capitalist to an extent.

Today, with huge levels of private and household debt, even at historic low interest rates, large amounts of income goes, not to purchase commodities, but to pay interest on credit card debt etc. The other effect of the money printing, and unsustainably low interest rates, has been a bubble in asset prices. The most notable of these has been the pumping up of house prices to around four times where they should be. Housing comprises a significant proportion of household expenses, and therefore, of the Value of Labour Power. Bloated house prices, and consequently bloated levels of rents, mean that upward pressure is put on wages, which in turn reduces profits. The beneficiaries are the Money Capitalists, and the sectors associated with them, such as the Estate Agents, as well as the Landowners, who see the amount of Absolute and Differential Rent (Capitalised in Land Prices) balloon up on the back of the surplus profits of housebuilders, arising from bloated house prices.

Not only the mass of workers – especially those seeking to buy for the first time, or to move up the housing ladder – but also Productive Capitalists would benefit from a collapse in house prices, and the attendant collapse in land prices, because it would mean that this important element of the Value of Labour Power would be restored to affordable levels, reducing pressure on wages, and therefore, profits. It would also be a far more equitable and efficient means of reducing the amount paid out in Housing Benefit than the Liberal-Tories vindictive proposals to cap it.

Fred Goodwin's knighthood is an irrelevance, not just because of the distasteful nature of the Honours System, but because it is quite clear that he is being scapegoated. The removal of his knighthood, along with the pressure put on Stephen Hestor not to accept his bonus, and the further pressure being put on other bankers, is really just a part of the skirmishes between these different fractions of Capital. After all, there have been many more CEO's in the rest of industry who have seen their salaries rise by 50% in the last year.

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