In Part 1 I demonstrated that it was no part of Marx's argument that
Capitalism immiserates workers. That idea put forward by the
Lassalleans - “The Iron Law of Wages” - was opposed by Marx. In
fact, consistent with Marx's views set out as early as in The
Communist Manifesto, and elaborated in more detail in Capital, about
the historically progressive and revolutionary role of capitalism in
transforming the means of production, Marx saw it as inevitable that
workers real living standards would rise under capitalism. In order
to continue expanding production, and selling commodities to workers,
who were Marx said increasingly becoming the vast majority of
consumers, capital would be forced to continually introduce new types
of use value, new commodities that could be sold to workers, when
their demand for previous types of commodities had been largely
satisfied. Some of these commodities sold to workers would also be
in the form of education and culture. In The Grundrisse, Marx
describes this tendency as the “Civilising Mission of Capitalism”,
and he links it to the changes in the nature of the working class,
that would make it fit to become the new ruling class.
In Part 2, I argued that Marx's view of crises of overproduction is
not at all premised on the notion of under consumption by workers
based upon their low level of wages, or the need of capital to
continually immiserate workers, driving them to some subsistence
level in order to maximise profits. The crisis can be seen as
deriving from two related factors. On the one hand, capital expands
rapidly, its productive capacity rises sharply, producing masses of
commodities, all of the same type, looking for a buyer. The same
expansion of capital creates a rising demand for labour-power, which
pushes wages higher. The latter has two effects. Firstly, it means
that workers' demand for the main commodities they consume is largely
satisfied, so getting them to buy more of these commodities, requires
their prices to be lowered by larger and larger amounts, which
squeezes profitability. At the same time, the demand for
labour-power, pushing wages higher, makes it more difficult for
capital to extract either absolute or relative surplus value, which
squeezes profits from the other direction. Both these tendencies
could be witnessed in the late 1960's as the post war Long Wave Boom
began to falter.
In Capital, Marx and Engels describe this situation in terms of the capitalism of their day, which was still largely based on a large
number of small to medium sized firms. Seeing, their profits being
squeezed, each firm attempts to secure its own position, by
accelerating those tendencies, which have created that very
condition, but which, from the perspective of each individual firm,
seem to be the means of increasing its own profitability and market
share. That is they seek to expand their production even further, in
order to obtain the benefits of economies of scale, which reduce unit
costs. Each firm attempts to increase its output and thereby reduce
its costs, but, because all or most firms attempt that same solution,
the result is that the overproduction becomes even greater. It
causes a sudden collapse in the rate of profit. Firms go bust, and
even when they don't they lay off workers, they stop or severely
reduce their purchases of machines, and materials, which in turn
causes the markets for those companies to collapse. Where commercial credit has become established, this might delay the onset of such a
crisis – and where the crisis is only partial or only limited, it
may even prevent such a crisis breaking out altogether – but, the
consequence is that the underlying over production is allowed to
become even worse before it becomes manifest, and so when it does, it
is even more pronounced. As demand for all these commodities not
only ceases to rise fast enough, but actually collapses, it gives the
appearance that its cause is insufficient demand, insufficient money
in the economy.
To be clear, in saying that the workers demand for these commodities
is relatively sated, its important to note that this is only a
relative not an absolute condition. It is not that workers overall
needs are met, on the contrary, they may be at a relatively low level
of living standards. All that is relatively satisfied is the workers
existing, limited range of consumption. There are always other
commodities that workers could or may want to consume. But, once
again, it is not the workers low level of wages, which prevents a
resolution of this situation. For example, every worker might want
to own a Rolls Royce, but if their wages were high enough to enable
them to buy one, then that would mean that no capitalists employing
masses of workers would be able to make profits. In the end, this
comes down again to The Law of Value, that is given existing
productive conditions, society does not have sufficient available
social labour-time, to enable everyone to buy a Rolls Royce. But,
this changes over time. At one time, it was only the rich who could
afford to buy any kind of car, to have foreign holidays etc.
Consider Robinson Crusoe again on his island. He has to allocate a
certain proportion of his available labour-time to producing as a
priority those things which are vital to his survival, such as food
and shelter. Having produced shelter, he may only need to allocate
time for its maintenance or improvement, but each day he has to
produce the food he requires. He may want to provide himself with a
heated swimming pool, but the labour-time required for its production
is simply too great given the hours he has available in the day. It
is not that all his wants are satisfied, then, but the ones that make
up his current range of consumption may well be. If, he finds a
means of satisfying his need for food more easily, he may then have
hours left over in the day. But, still unable to meet his need for a
swimming pool, he may decide to use most of the saved hours to rest
rather than increase his production of food much. In other words,
the amount he is prepared to pay in terms of his increased
expenditure of his labour-time for more food diminishes. This does
not mean that he is in any way affluent or wealthy! In order that he
might decide to allocate his newly available labour-time to producing
something else, it has to be something that can practically be
produced in that available time, and the utility from which is such
as to persuade him that it is worth the expenditure of his time.
For an entire society, with gradations of wealth and income, however,
it is clearly the case that the demands of the wealthier and more
affluent people for commodities that require the expenditure of large
amounts of labour-time can be met, even though they cannot be met for
everyone. It is only when the productive forces have been developed
further, so that the labour-time required for the production of these
commodities has fallen significantly, and when the total labour-time
available to society has expanded further, that these commodities can
be sold to workers en mass. Although, a crisis of overproduction is
then an absolute over production in capitalist terms, it is not
absolute in the sense that the forces of production have been
developed too far, or that society has become too wealthy. On the
contrary, such a crisis occurs even though the needs of the masses of
the population remain unmet, for a whole range of commodities, and
when from an absolute standpoint, in order to meet those needs, the
forces of production have not been developed enough!
As Marx points out the fact that there are some very wealthy, very
affluent people in society is not an accident, but is itself a
function of the way society goes about producing the goods it needs,
and allocating the available labour-time. Capitalists have lots of
money because they own the means of production, and are able to
exploit labour. Workers do not for the opposite reason. Because, capitalists have lots of money, they can also have a disproportionate
effect in a market economy based on monetary demand, on what
activities labour-time is devoted to, because it will be devoted to
those things for which there is sufficient monetary demand. But, we
should not fool ourselves into thinking that it is solely the wealth
and affluence of capitalists or the rich that cause all of what we
see as inequitable, or irrational allocations of labour-time, or that
this could be resolved by some kind of democratic planning.
That is because any kind of democratic planning depends on people
voicing their preferences rather than expressing those preferences in
the market, by how they spend their money. A simple example is the
payment for different types of workers, which in turn determines the
prices of different types of products. In numerous surveys, when
asked who they think should be paid most money nurses tend to come
near the top. If we were to democratically plan an economy, then the
result would be to allocate a high proportion of available
labour-time to be able to pay nurses high salaries i.e. enable them
to buy or receive a high proportion of society's output. In these
surveys, they frequently come above footballers. Yet, this is very
far from the reality of today. But, as Marx says the value created by the labour of skilled, complex workers, such as footballers, is itself a
function of how consumers – which today is mainly us as workers – value the product of that labour compared to the products of simple,
unskilled labour. It is a function of how we decide in reality to
spend our money. The reality is that whatever they say, taken as a
whole, consumers value the product of footballers, and pop stars and
other such highly paid labour, much, much higher than they do that of
nurses.
In practice, then, its likely that if resources were actually
allocated in line with people's voiced preferences rather than their
actual preferences there would be a misallocation of resources. That
is why, wherever resources have been allocated by such methods, for
example under rationing, or according to some other form of plan,
consumers actual demands fail to be met, and so black markets arise.
Another example is the way allocation of tickets for events always
leads to a thriving black market for tickets, which sell at prices
way above their face value.
In the BBC programme, Madsen Pirie, of the Adam Smith Institute,
argued that the current Debt Crisis had nothing to do with the low
wages of workers, or any crisis caused by the inability of workers to
consume. Fundamentally, he is right. Fundamentally, when he says
that the cause of that crisis was that governments printed way too
many money tokens, which enabled banks and finance houses to lend
recklessly, which blew up bubbles in property, and financial markets,
which are in the process of bursting, and which has left a huge
overhang of debt, because the assets are no longer worth as much as
the debt used to purchase them, he is again right. But, he misses
one important point, which is why governments, going back at least to
Thatcher and Reagan, decided to print all those money tokens, and to
encourage the banks to lend recklessly and so on!
In fact, all that this amounts to is swapping one form of crisis –
an economic crisis in the 1980's/90's – for another – the debt
crisis of the noughties through to today. In the 1980's and 90's, as
the global economy suffered a long wave downturn, following the long wave, post war boom, that crisis in the West could have taken the same
form as that of the 1920's/30's. Its possible to argue that western
governments, having learned the lessons of the 1920's and 30's, and
still facing, in the early 1980's at least, powerful labour
movements, as well as the USSR, developed a strategy to avoid it. I
think that is too conspiratorial.
By the mid 1980's, the economic downturn, and the fact that none of
the labour movements were provided with any practical ideas about how
to deal with it, had meant that the working class were largely
defeated. By the late 1980's, when the turn to Monetarism was made,
and the monetary spigots were opened wide, to stimulate economies,
not only were workers defeated, but the USSR and its satellites were
also in rapid economic decline. Capital and its representatives did
not need to rescue capitalism to prevent revolution, nor did they
need to turn to fascism, as they did in the 1930's. Rather they
sought to create the conditions for increasing the rate of profit,
and that is what the loose money policies did.
But, there was another aspect to this. In the 1920's and 30's,
workers had very little in the way of savings or assets. Few people
owned homes, had pensions, or savings, let alone money in mutual
funds, shares and other forms of investments. Consequently, there
was little or nothing for them to borrow against. Although people
did borrow money from the tally man and so on, it was small scale
compared with recent decades, and being in rented accommodation,
people who got into too much debt resorted to the moonlight flit.
There was no way then that workers consumption could be sustained by
borrowing. But, by the 1980's that was not the case. During the
post war boom workers had bought houses, some who bought in the early
1960's did so at prices that were quickly inflated away as wages rose
in the 1960's and 70's. But, even those who bought in the 1970's
benefited in this way to a great extent. In addition, large numbers
of people, particularly in the state capitalist sector, acquired
pensions, and were able to save money in a range of products.
So, in the late 1980's and through to the credit crunch, people were
encouraged to see these reserves they had built up as means of
maintaining their consumption, whilst their actual real wages
remained flat or even falling. They were encouraged to take out
second mortgages, to re-mortgage if their house was paid for, in
order to be able to buy all those things they had always wanted, to
engage in the Equity Release scam, whereby they effectively give
their house away to financial shysters in return for an annual income
to top up their pension. Where they were moving house, they were
encouraged to take out the maximum mortgage and even 125% mortgages,
in order to provide themselves with what was almost presented as
“free” money, to spend as they liked. And, this was extended not
just to people who had equity in their existing houses, who had
savings, and so on, but was applied to people who already had debts
but no savings, who were buying their first homes, and who frequently
had insufficient income even to make the repayments.
When unemployment rose again, as well as interest rates in 1990,
house prices collapsed by 40%, and tens of thousands of people lost
their homes. But, then the money printing continued once again under
Nigel Lawson and other Tory Chancellors, as well as under Alan
Greenspan in the United States, and the bubbles were blown up once
again, but this time even bigger than before.
But, the effect of all this borrowing, which indeed created the
current Debt Crisis, and which will cause, another huge crash of
property and stock markets, did have the effect of preventing the long wave downturn of the 1980's/90's from turning into the kind of depression of the 1920's/30's. It did so whilst having other
consequences. The credit taken out on the back of these assets
enabled consumption spending to largely be maintained even though
wages were falling, but the spending did not go to sustain production
in the US, UK etc. On the contrary, the process of
de-industrialisation continued apace. But, capital was able to take
advantage of this.
Merchant Capital makes profits as a consequence of buying commodities
below their price of production from the producer, and then selling
them at the price of production. The producer is prepared to do
this, because it saves them the costs involved in selling their
commodities. The fact that merchants specialise in this, means they
can do it cheaper, so the producer's net profit is greater than if
they took on the costs of selling themselves. So, when masses of
production moved to China, and Chinese producers were able to make
huge profits, from exploiting cheap Chinese labour-power, merchant capitalists, in the UK and US, were able to get their share of these
huge profits by selling Chinese products in their home markets.
British and US workers were thrown out of many manufacturing
industries, as the products they previously produced were now made in
China. The US and UK workers (or frequently, in the case of the
largely male, manual workers, from coal mining and steel production
etc., their wives or children) exchanged their higher paid jobs, for
low paid jobs in retail palaces established around the country –
often on former collieries and steel works – to sell the mass of,
now much cheaper, manufactured goods coming in from China. The
difference in wages was made up through borrowing – either against
their accumulated assets, or else against the paper, and grossly
fictitious, value of houses they had only recently taken out
mortgages on.
On this basis, the influence of productive capital was gradually
weakened, whilst that of merchant and money capital rose. What was
really going on was that workers, who had built up real property, in
the post war period, were being robbed of it, by being persuaded to
borrow money against it. It was a similar kind of robbery as that
which robbed the peasants of their property via the Enclosure Acts,
or the French peasants in the 19th century, via taxes and
high interest rates. Nick Clegg's proposal to get parents and grand
parents to put up their own houses as security, in order that young
people can continue to buy grossly inflated property, and so keep the
banks afloat, is a continuation of that scam.
At the same time as merchant capital was able to prosper, under this
arrangement, so too was money capital. It did so in two different
ways. On the one hand, money dealing capital derives profits in a similar
way that merchant capital does. It saves industrial capital the
costs in holding capital in its unproductive money form. On that
basis, it is able to charge industrial capital for doing so. Secondly, money capital operates as interest-bearing capital, lending money to industrial capitalists at interest. Even where interest-bearing capital lends to consumers, rather than producers,
it is a deduction from the surplus value of productive capital,
because the money the consumer pays to the money lender is money that
otherwise could have gone to the producer, as part of the price of
the commodity they have bought. Because London and New York are the
global centres of finance, money capitalists, in these countries, were
also able to make profits and obtain interest by lending to producers in China and
elsewhere, and by acting as the main centres of money dealing and movement of payments.
The third way in which the money capitalists and Financial Services
Industry was able to make profits was as productive capitalists
themselves. Marx describes productive labour as that which exchanges
with capital, and produces surplus value. Suppose I employ a
gardener to do my gardening. He does not exchange his labour with capital, but with revenue i.e. money from my income, and so he
is not a productive labourer. However, if I engage a gardening firm
to do my gardening, and the firm employ the same gardener he then
does become a productive labourer, because he exchanges his
labour with capital and, because his wages will be less than
the value he creates, and the price I am charged by the firm, for the
gardening service, he will produce surplus value.
One of the
consequences of the Financial Big Bang of the 1980's, was that there
was an explosion of financial products that were created, and sold
both to individuals and to companies as commodities. A service to
tend and cultivate your finances, is just as much a commodity as is a
service to tend and cultivate your garden. Consequently, these
activities constitute productive activities from the standpoint of capital, and those workers employed in producing these commodities,
even, or especially those that are very highly paid, are just as much
productive labourers as is the gardener. In fact, just as the highly
complex labour of a David Beckham is capable of producing huge
profits for the capitalists that employ him, so the highly complex
labour of a financial analyst etc., in producing high value financial
commodities is able to produce large amounts of surplus value for the capitalists that employ him/her. After, the Big Bang the massive
growth of these financial commodities created scope for huge profits
in selling them across the globe for the capitalists in London and
New York where these industries were based.
The fact that there was massive speculation in some of these
commodities after they had been created does not change the fact that
they are commodities, any more than the fact that there is
speculation in corn, oil etc., on commodities markets, changes the
fact that these are commodities, or that speculation in houses means
that a house is not a commodity, or the builder who built it in the
first place was not a productive capitalist!
So, there were very good reasons why capitalist governments in the UK
and US would print money to reflate their economies, and thereby
facilitate an increase in the rate of profit. There were very good
reasons why, as the process of de-industrialisation proceeded, merchant capital was able to grow like Topsy, as new cathedrals to
consumerism sprang up around the country, selling cheap Chinese
manufactures, sold to workers who maintained, or even extended their
consumption, on the back of vast amounts of cheap credit. And, there
were good reasons why money capital was also able to grow rapidly on
the back of these same conditions. It is also why these sections of capital have dominated over productive capital for the last 25 years
or so, reflected in the ideology of Neo-Liberalism, and why they
still hold sway in political circles, despite those conditions having
ended.
But, Pirie is correct that the current Debt Crisis is precisely that,
and not a crisis of overproduction as described by Marx. If we look
at the capitalist system as it must be viewed as a global economy,
none of the aspects of overproduction described by Marx and Engels
are visible. In the last ten years, capital has certainly expanded
rapidly. Global GDP has doubled, global fixed capital formation
(fixed capital accumulation) has also doubled. At the same time, this huge
accumulation of capital has seen the size of the global workforce
rise by around a third, equivalent to 500 million workers drawn into
the sphere of capital, and to quote Marx in The Communist Manifesto,
“rescued from the idiocy of rural life.” Yet, there is no sign
that this growth and accumulation of capital has reached anything
like a condition of over accumulation. Nor should we expect it to do
so, because typically a long wave boom lasts for around 25 years, and
we are only 12 years into this boom.
Outside, Europe and North
America, growth, although having recently slowed as part of a
cyclical slowdown, continues at a rapid pace, considerably above the
average of the previous 25 years. Moreover, company profits continue
to grow, whilst increasing demand for commodities as that growing,
global working-class rapidly raises its living standards in Asia,
Latin America and Africa, means that far from falling and squeezing
profits, prices are rising. At the same time, profits are being
enhanced as the introduction of vast new swathes of new technology
raises productivity levels, thereby facilitating an increase in relative surplus value. Finally, that same technology is bringing
forward, on an almost daily basis, whole new ranges of commodities,
that are encompassed into workers consumption patterns, and as
rapidly creating not just new firms, but whole new industries.
The Debt Crisis, is essentially a North Atlantic crisis, though if it
is not resolved, and certainly if it is exacerbated by wrong headed
decisions by politicians, still following a Neo-Liberal mantra, the
crisis that could result from it, would inevitably affect other parts
of the world. In Volume I of Capital, Marx describes the difference
between these two types of crisis, one a real economic crisis caused
by an overproduction of capital, the other a purely financial crisis,
whose origins arise in the financial world, and whose real effects
are played out there, and affect the real economy only indirectly.
“Herrenschwand’s
fanciful notions amount merely to this, that the antagonism, which
has its origin in the nature of commodities, and is reproduced in
their circulation, can be removed by increasing the circulating
medium. But if, on the one hand, it is a popular delusion to ascribe
stagnation in production and circulation to insufficiency of the
circulating medium, it by no means follows, on the other hand, that
an actual paucity of the medium in consequence, e.g.,
of bungling legislative interference with the regulation of currency,
may not give rise to such stagnation.” (Note 1 p 122)
“The
monetary crisis referred to in the text, being a phase of every
crisis, must be clearly distinguished from that particular form of
crisis, which also is called a monetary crisis, but which may be
produced by itself as an independent phenomenon in such a way as to
react only indirectly on industry and commerce. The pivot of these
crises is to be found in moneyed capital, and their sphere of direct
action is therefore the sphere of that capital, viz., banking, the
stock exchange, and finance.” (note 1 p 137)
The debt crisis afflicting Europe, the US and the US is definitely of
this latter variety. It is not a crisis of overproduction. Its
roots lie in the build up of debt during the period of long wave
downturn of the 1980's and 90's – and, contrary to all the media
reports, this is largely private debt not public debt – and the
attempts to prevent the bubbles created by that debt in property,
stock and bond markets from bursting, in order to protect money capital, by the continuation of similar methods to those which
created those bubbles in the first place i.e. unsustainably low
interest rates, huge money printing, attempts to maintain
unsustainably high property and other prices by government, and
other state intervention.
In the US and Ireland, the property bubbles have burst with house
prices falling by around 60-70%. And now, those property markets are
stabilising, and even showing signs of recovery. In the UK, Spain, and other parts of Europe, where property prices have bubbled up, that
crash is yet to happen, but inevitably will. On CNBC the other day,
one analyst said property prices in Spain probably have to fall
another 50% from current levels – which will mean that the latest
stress tests on Spanish Banks will way underestimate how much of a
bail out they require. In the UK, the IMF and OECD say that house
prices are 40% above historic levels, and on any metric they are
grossly over priced. In the past, any correction has been double
what the over pricing was. In 1990, for example, they were
overpriced by 20%, but fell by 40%. On that basis UK house prices
need to fall by 80%, before they will stabilise at sustainable
levels.
In the US, UK, Germany and Japan, the search for safe havens, as well
as the actions of central banks in printing money, have sent bond prices to record highs, causing yields on those bonds to fall to
levels that have not been seen in three hundred years. That is as
much of a bubble as the bubble in house prices. Sooner or later,
that bubble will burst too, causing all interest rates to jump
sharply, which if it hasn't already happened by then, will certainly
cause the property market to collapse. I am in the process of
analysing the performance of global stock markets in comparison to
GDP growth, on a cursory view, it appears that despite all of the
money printing stock markets may not have risen disproportionately in
the last ten years. That is not surprising given the crash of 2000.
It appears that the greatest excess of stock markets, however,
against GDP was during the 1980's and 90's, which means that those
markets too may be over valued on a longer term historical basis.
But, all of these things are aspects of that latter kind of crisis
described by Marx, a financial crisis rather than an economic crisis.
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