Capital I, Chapter 32

Historical Tendency of Capitalist Accumulation 

The basis of the primary accumulation of capital resolves itself into the expropriation of the direct producers i.e. of the private property of tens of thousands of peasants, and its concentration in the hands of a relatively few capitalists.

“Private property, as the antithesis to social, collective property, exists only where the means of labour and the external conditions of labour belong to private individuals. But according as these private individuals are labourers or not labourers, private property has a different character. The numberless shades, that it at first sight presents, correspond to the intermediate stages lying between these two extremes. The private property of the labourer in his means of production is the foundation of petty industry, whether agricultural, manufacturing, or both; petty industry, again, is an essential condition for the development of social production and of the free individuality of the labourer himself. Of course, this petty mode of production exists also under slavery, serfdom, and other states of dependence. But it flourishes, it lets loose its whole energy, it attains its adequate classical form, only where the labourer is the private owner of his own means of labour set in action by himself: the peasant of the land which he cultivates, the artisan of the tool which he handles as a virtuoso. This mode of production presupposes parcelling of the soil and scattering of the other means of production.” (p 712)

It is this classical form of petty production that gives rise to the ideas of individualism and liberty (i.e. to be left free of interference by the state) of the 18^th Century. Rousseau who epitomises this Libertarian ideology, for example, based his model on the small self-sufficient, Swiss peasant community he was familiar with. It is also no wonder that these kinds of ideas had, and have a powerful grip in the United States, which developed from these kinds of roots.

But, this kind of individualistic petty production is nevertheless doomed. It is by its nature limited and inefficient.

“As it excludes the concentration of these means of production, so also it excludes cooperation, division of labour within each separate process of production, the control over, and the productive application of the forces of Nature by society, and the free development of the social productive powers. It is compatible only with a system of production, and a society, moving within narrow and more or less primitive bounds. To perpetuate it would be, as Pecqueur rightly says, “to decree universal mediocrity". At a certain stage of development, it brings forth the material agencies for its own dissolution. From that moment new forces and new passions spring up in the bosom of society; but the old social organization fetters them and keeps them down.” (p 713-4)

The bourgeoisie is forced to confront those fetters and to destroy them, in order to ensure its own development. As its economic power grows in the towns, so those towns also form the political strongholds for the bourgeoisie, where it creates its own state structures in the form of the Municipal Authorities, which it uses to back up its economic interest.

“Its annihilation, the transformation of the individualized and scattered means of production into socially concentrated ones, of the pigmy property of the many into the huge property of the few, the expropriation of the great mass of the people from the soil, from the means of subsistence, and from the means of labour, this fearful and painful expropriation of the mass of the people forms the prelude to the history of capital. It comprises a series of forcible methods, of which we have passed in review only those that have been epoch-making as methods of the primitive accumulation of capital. The expropriation of the immediate producers was accomplished with merciless Vandalism, and under the stimulus of passions the most infamous, the most sordid, the pettiest, the most meanly odious. Self-earned private property, that is based, so to say, on the fusing together of the isolated, independent labouring individual with the conditions of his labour, is supplanted by capitalistic private property, which rests on exploitation of the nominally free labour of others, i.e., on wage labour.” (p 714)

Once capital has developed beyond a certain point this process is increased qualitatively as the bourgeoisie is able to use not only its economic power, but also its state power to expropriate the direct producers. And, once that process has been completed, then, as described earlier, it is no longer the direct producers who are expropriated, but also the small capitalists via the process of concentration and centralisation of capital.

“This expropriation is accomplished by the action of the immanent laws of capitalistic production itself, by the centralization of capital. One capitalist always kills many. Hand in hand with this centralization, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the cooperative form of the labour process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labour into instruments of labour only usable in common, the economizing of all means of production by their use as means of production of combined, socialized labour, the entanglement of all peoples in the net of the world market, and with this, the international character of the capitalistic regime. Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” (p 714-5)

As a result of 100 years of statism, and particularly of Stalinism, the meaning of this passage has become completely distorted.  What Marx is describing here is the death knell not of Capitalism per se, but of a particular form of Capitalism i.e. of "capitalist private property".  Capitalist private property is that early form of Capitalism where firms were largely owned by private individuals and families.  The process of concentration and centralisation, in which "The monopoly of capital" in the hands of a "diminishing number of the magnates of capital", had its limits.  To go beyond those limits capital itself had to break the monopoly ownership of firms by private individuals, and put in its place socialised or collectively owned, but still CAPITALIST property.

It does so by replacing the old form of individual and family owned businesses with Joint Stock Companies, open to ownership to all who could afford to buy shares with their own resources or by using credit, as well as in the form of Co-operatives.  It is not the expropriation of the expropriators by some kind of top down process carried out by the State that Marx is describing here, but the expropriation of the private capitalists by the collective capitalists!

This process goes along with the abolition of the social function of the capitalists themselves, and their replacement in that role by a class of professional managers, who form a part of a growing middle class, which in itself is one of the sources of buyers of these shares.  Its partly in this regard that Marx describes the Joint Stock Companies as resolving the antagonism between capital and labour negatively, because this ownership of shares continues on an individual basis, and the ownership of shares themselves becomes concentrated in the hands of a rich few.  He says, in Volume III, Chapter 27,

"III. Formation of stock companies. Thereby:

1) An enormous expansion of the scale of production and of enterprises, that was impossible for individual capitals. At the same time, enterprises that were formerly government enterprises, become public.

2) The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself.

3) Transformation of the actually functioning capitalist into a mere manager, administrator of other people's capital, and of the owner of capital into a mere owner, a mere money-capitalist...

This result of the ultimate development of capitalist production is a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property. On the other hand, the stock company is a transition toward the conversion of all functions in the reproduction process which still remain linked with capitalist property, into mere functions of associated producers, into social functions."

He goes on to elaborate the role of credit in this process.

"Conceptions which have some meaning on a less developed stage of capitalist production, become quite meaningless here. Success and failure both lead here to a centralisation of capital, and thus to expropriation on the most enormous scale. Expropriation extends here from the direct producers to the smaller and the medium-sized capitalists themselves. It is the point of departure for the capitalist mode of production; its accomplishment is the goal of this production. In the last instance, it aims at the expropriation of the means of production from all individuals. With the development of social production the means of production cease to be means of private production and products of private production, and can thereafter be only means of production in the hands of associated producers, i.e., the latter's social property, much as they are their social products. However, this expropriation appears within the capitalist system in a contradictory form, as appropriation of social property by a few; and credit lends the latter more and more the aspect of pure adventurers. Since property here exists in the form of stock, its movement and transfer become purely a result of gambling on the stock exchange, where the little fish are swallowed by the sharks and the lambs by the stock-exchange wolves. There is antagonism against the old form in the stock companies, in which social means of production appear as private property; but the conversion to the form of stock still remains ensnared in the trammels of capitalism; hence, instead of overcoming the antithesis between the character of wealth as social and as private wealth, the stock companies merely develop it in a new form."

When Marx speaks above of "The monopoly of capital" becoming "a fetter upon the mode of production" he is not talking about a monopoly in the sense we understand capitalist monopoly today - and he could not have meant that, because such monopolies did not exist at the time he was writing! - but of that specific monopoly in the hands of individuals, as opposed to the collective ownership that arises in its place in the form of those Joint Stock Companies, and of Co-operatives.

In Volume III of Capital, Marx describes this process of expropriation in similar terms to that described in relation to the expropriation of the direct producers. It is private capitalist ownership which disappears. Engels describes what this means in his Critique Of The Erfurt Programme where he argues that by the end of the 19^th Century, this private capitalist property had already come to an end. It had been replaced by collectively owned capitalist property.

“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.”

Marx makes the same point in Vol III of Capital (edited by Engels, and in this section, with none of his usual detailed notes to suggest that what Marx had written earlier had been overtaken by events). Explaining how private capitalist ownership is transformed into collective ownership, Marx writes,

“The co-operative factories of the labourers themselves represent within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actual organisation all the shortcomings of the prevailing system. But the antithesis between capital and labour is overcome within them, if at first only by way of making the associated labourers into their own capitalist, i.e., by enabling them to use the means of production for the employment of their own labour. They show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage. Without the factory system arising out of the capitalist mode of production there could have been no co-operative factories. Nor could these have developed without the credit system arising out of the same mode of production. The credit system is not only the principal basis for the gradual transformation of capitalist private enterprises. into capitalist stock companies, but equally offers the means for the gradual extension of co-operative enterprises on a more or less national scale. The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.” 

But, as the initial development of capitalist production is slow, and isolated, and thereby limited until such time as it can be fostered by other means, so the development of isolated co-operatives is too slow on its own. As Marx put it in the Grundrisse,

"As the system of bourgeois economy has developed for us only by degrees so too its negation, which is its ultimate result." (p 712).

It can only proceed adequately if it is developed on a national (today at least European we would say) basis, which requires not just the use of credit as suggested by Marx above, but also as he pointed out in his Address to the First International, by the Working Class gaining Political Power, in other words, utilising the power of the State, in the same way that the bourgeoisie had done.

This is spelled out by Marx and Engels closest ally within the First International, Ernest Jones. In a letter to a Co-operators Conference, Jones wrote,

“Then what is the only salutary basis for co-operative industry? A NATIONAL one. All co-operation should be founded, not on isolated efforts, absorbing, if successful, vast riches to themselves, but on a national union which should distribute the national wealth. To make these associations secure and beneficial, you must make it their interest to assist each other, instead of competing with each other—you must give them UNITY OF ACTION, AND IDENTITY OF INTEREST.

To effect this, every local association should be the branch of a national one, and all profits, beyond a certain amount, should be paid into a national fund, for the purpose of opening fresh branches, and enabling the poorest to obtain land, establish stores, and otherwise apply their labour power, not only to their own advantage, but to that of the general body.

This is the vital point: are the profits to accumulate in the hands of isolated clubs, or are they to be devoted to the elevation of the entire people? Is the wealth to gather around local centres, or is it to be diffused by a distributive agency?”

But, as Marx sets out, just as the bourgeoisie had to build up its political organisation and alternative state structure to confront the political fetters it faced from feudalism, so the workers would have to build up their political organisations and alternative state organs to confront the opposition of the bourgeoisie. As Marx stated,

“At the same time the experience of the period from 1848 to 1864 has proved beyond doubt that, however, excellent in principle and however useful in practice, co-operative labour, if kept within the narrow circle of the casual efforts of private workmen, will never be able to arrest the growth in geometrical progression of monopoly, to free the masses, nor even to perceptibly lighten the burden of their miseries. It is perhaps for this very reason that plausible noblemen, philanthropic middle-class spouters, and even keep political economists have all at once turned nauseously complimentary to the very co-operative labour system they had vainly tried to nip in the bud by deriding it as the utopia of the dreamer, or stigmatizing it as the sacrilege of the socialist. To save the industrious masses, co-operative labour ought to be developed to national dimensions, and, consequently, to be fostered by national means. Yet the lords of the land and the lords of capital will always use their political privileges for the defence and perpetuation of their economic monopolies. So far from promoting, they will continue to lay every possible impediment in the way of the emancipation of labour. Remember the sneer with which, last session, Lord Palmerston put down the advocates of the Irish Tenants’ Right Bill. The House of Commons, cried he, is a house of landed proprietors. To conquer political power has, therefore, become the great duty of the working classes. They seem to have comprehended this, for in England, Germany, Italy, and France, there have taken place simultaneous revivals, and simultaneous efforts are being made at the political organization of the workingmen’s party.” 

Inaugural Address To The First International

In other words, even if this process were pursued via Parliament, the workers would have to prepare to use extra parliamentary force to put down a “slave holders revolt” as the bourgeoisie attempted to hold on to their power and privileges by force, just as the aristocracy had done when its time was up.

“The transformation of scattered private property, arising from individual labour, into capitalist private property is, naturally, a process, incomparably more protracted, violent, and difficult, than the transformation of capitalistic private property, already practically resting on socialized production, into socialized property. In the former case, we had the expropriation of the mass of the people by a few usurpers; in the latter, we have the expropriation of a few usurpers by the mass of the people.” (p 715)

Back To Chapter 31

Forward To Chapter 33

Back To Index

Northern Soul Classics - Can I Change My Mind - Tyrone Davis

A great smoothy from the much underrated Tyrone Davis, who also brought us "Turn Back The Hands of Time", another northern classic.

Capital I, Chapter 31

Genesis of the Industrial Capitalist

The evolution of the capitalist farmer proceeds over centuries. The creation of the industrial capitalist is much more rapid, though some may have evolved from being guild masters, artisans and even workers.

The Medici were one of the great
Merchant families that developed
in the Mediterranean City States.  But,
Merchant Capital like Usurers Capital
makes profits from unequal exchange,
not from the creation of Surplus Value.  It
sucks the surplus product away from
the producers undermining capitalist
 production.  They drained the peasant
producers so much, that Capitalism proper
was smothered at birth in these states.

“In the infancy of capitalist production, things often happened as in the infancy of medieval towns, where the question, which of the escaped serfs should be master and which servant, was in great part decided by the earlier or later date of their flight. The snail’s pace of this method corresponded in no wise with the commercial requirements of the new world market that the great discoveries of the end of the 15th century created. But the middle ages had handed down two distinct forms of capital, which mature in the most different economic social formations, and which before the era of the capitalist mode of production, are considered as capital quand même — usurer’s capital and merchant’s capital.” (p 702)

As Marx has previously stated, the dominance of these two forms of capital is inimical to the existence of Capitalism proper. Both acts a a drain on surplus value that could be used for accumulation. From the Middle Ages, various laws are passed across Europe restricting the level of interest rates that can be charged. The quote Marx previously gave from Martin Luther, indicates the extent to which these kinds of capitalists were loathed. Shakespeare's “Merchant of Venice” is another example.

Rodin's "The Burghers Of Calais".  Burghers or Burgesses were
the representatives of the rising bourgeoisie in the towns, as they
developed as centres of bourgeois power in opposition to feudalism.

“The money capital formed by means of usury and commerce was prevented from turning into industrial capital, in the country by the feudal constitution, in the towns by the guild organisation. These fetters vanished with the dissolution of feudal society, with the expropriation and partial eviction of the country population. The new manufactures were established at sea-ports, or at inland points beyond the control of the old municipalities and their guilds. Hence in England an embittered struggle of the corporate towns against these new industrial nurseries.” (p 703)

This provides a glimpse of the way this bourgeoisie does not just grow the capitalist mode of production within feudal society, but also at the same time, develops its own geo-political strongholds. Within these strongholds, the bourgeoisie develops its own political and state structures, arising from the economic base, long before any struggle for state power itself is undertaken.

The further elements of primitive accumulation, previously discussed, of piracy, slave trading, and the colonisation and plunder of foreign lands, then all provide impetus to this process.

The first British capitalists were pirates like
Sir Francis Drake, who under sanction from
the British Crown roamed the seas murdering
and plundering.  By these means they accumulated
loot, turned into Money Capital, as well as opening
up Colonial Markets, as they seized foreign territory.

“The different momenta of primitive accumulation distribute themselves now, more or less in chronological order, particularly over Spain, Portugal, Holland, France, and England. In England at the end of the 17th century, they arrive at a systematical combination, embracing the colonies, the national debt, the modern mode of taxation, and the protectionist system. These methods depend in part on brute force, e.g., the colonial system. But, they all employ the power of the State, the concentrated and organised force of society, to hasten, hot-house fashion, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition. Force is the midwife of every old society pregnant with a new one. It is itself an economic power.” (p 703)

Of Holland, which was the main capitalist power of the 17^th Century, Thomas Stamford Raffles, Lieutenant Governor of Java, wrote, it,

“is one of the most extraordinary relations of treachery, bribery, massacre, and meanness”. (p 704)

The same was true of the activities of the East India Company.

“But even in the colonies properly so called, the Christian character of primitive accumulation did not belie itself. Those sober virtuosi of Protestantism, the Puritans of New England, in 1703, by decrees of their assembly set a premium of £40 on every Indian scalp and every captured red-skin: in 1720 a premium of £100 on every scalp; in 1744, after Massachusetts-Bay had proclaimed a certain tribe as rebels, the following prices: for a male scalp of 12 years and upwards £100 (new currency), for a male prisoner £105, for women and children prisoners £50, for scalps of women and children £50. Some decades later, the colonial system took its revenge on the descendants of the pious pilgrim fathers, who had grown seditious in the meantime. At English instigation and for English pay they were tomahawked by red-skins. The British Parliament proclaimed bloodhounds and scalping as “means that God and Nature had given into its hand.”” (p 705)

The colonies played an important role in the process of primary accumulation and transition from feudalism, and its relation to Merchant and Money Capital.

Holland, as the main capitalist power, first had
the main monopoly of the East India trade.  But,
it was supplanted by Britain, through the role
of militarists and colonialists, like Robert Clive
who headed up the East India Company's
private army.

“The colonies secured a market for the budding manufactures, and, through the monopoly of the market, an increased accumulation. The treasures captured outside Europe by undisguised looting, enslavement, and murder, floated back to the mother-country and were there turned into capital. Holland, which first fully developed the colonial system, in 1648 stood already in the acme of its commercial greatness. It was,

“in almost exclusive possession of the East Indian trade and the commerce between the south-east and north-west of Europe. Its fisheries, marine, manufactures, surpassed those of any other country. The total capital of the Republic was probably more important than that of all the rest of Europe put together.” Gülich forgets to add that by 1648, the people of Holland were more over-worked, poorer and more brutally oppressed than those of all the rest of Europe put together.” (p 705-6)

Under feudalism, the Merchants and Money Capitalists, like the landlords, live on a form of rent, in the sense that all secure a share of surplus product of the producers. The landlords obtain their share by Feudal Right, and later on the basis that they are lending out their land, just as the money capitalists are lending out their money. The merchant obtains their surplus from buying low and selling high.

The merchants, especially through Colonialism, both obtain control over foreign territories – the East India Company, which essentially colonised India and other parts of Asia, as well as the Hudson Bay Company, which did the same thing in North America, had their own private armies, and operated under a Royal Charter – which meant landlords now had vast new areas from which they could extract rent, and also also made available whole new ranges of products that those feudal rulers sought after as their consumption increased.

The Money Capitalists were also able to lend money for ventures in the colonies, which were a lucrative source of additional profits. But, contrary to Lenin's argument in Imperialism, The Highest Stage Of Capitalism it is to this period of “Mercantilism” rather than the period of Monopoly Capitalism that Colonialism can be attributed. It is during this period that the world is divided up into these Colonial Empires.

At this time, industrial capitalism has not yet developed – Colonialism is one of the means by which the primitive accumulation takes place that makes the industrialisation possible. And every country that industrialises uses it one way or another.

The United States, for example, turned the southern Confederate States into essentially internal colonies, whilst Russia did the same thing with Siberia.

“Today industrial supremacy implies commercial supremacy. In the period of manufacture properly so called, it is, on the other hand, the commercial supremacy that gives industrial predominance. Hence the preponderant rôle that the colonial system plays at that time. It was “the strange God” who perched himself on the altar cheek by jowl with the old Gods of Europe, and one fine day with a shove and a kick chucked them all of a heap. It proclaimed surplus-value making as the sole end and aim of humanity.” (p 706)

Another means by which primary accumulation was achieved was via the State. The idea of state financing is not something that arose with Keynesianism. Although the Liberals and Libertarians would have us believe that the 18^th and 19^th Centuries were golden eras of freedom and absence of state intervention, nothing could be further from the truth. The State was an active means of bringing about primary accumulation, and the growth of the National Debt, during this period was the means by which this was done.

Today, the Liberal-Tories bemoan the fact that debt to GDP stands at 70%, but in 1800, as this process of primary accumulation proceeds, it stood at 250%!!!

In 1700, as the process of Primary Capital Accumulation gets under way, UK
debt to GDP stood already at around 30%.  By 1725, it had already reached today's
 level of around 70%.  By 1750, when the Agricultural and Industrial Revolution
 commences, it has reached about 110%, and continues to rise.  By the time, the
Industrial Revolution is in full swing, and machine industry is replacing manufacture,
by 1800, it has reached over 200%, rising to a peak of more than 250% shortly after.
  A similar picture of debt build up is seen after WWII, when the new Industrial revolution
proceeded, and large amounts were spent on investment in nationalised bankrupt
 staple industries,on infrastructure in roads, and rail etc. and on the Welfare State,
 to create the conditions for meeting the needs of capitalist expansion.

Its worth quoting at length what Marx wrote about it in this context 150 years ago, given current discussion.

“The system of public credit, i.e., of national debts, whose origin we discover in Genoa and Venice as early as the Middle Ages, took possession of Europe generally during the manufacturing period. The colonial system with its maritime trade and commercial wars served as a forcing-house for it. Thus it first took root in Holland. National debts, i.e., the alienation of the state – whether despotic, constitutional or republican – marked with its stamp the capitalistic era. The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt. Hence, as a necessary consequence, the modern doctrine that a nation becomes the richer the more deeply it is in debt. Public credit becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of the blasphemy against the Holy Ghost, which may not be forgiven.

The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury. The state creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. But further, apart from the class of lazy annuitants thus created, and from the improvised wealth of the financiers, middlemen between the government and the nation – as also apart from the tax-farmers, merchants, private manufacturers, to whom a good part of every national loan renders the service of a capital fallen from heaven – the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy.

At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges they received, were in a position to advance money to the State. Hence the accumulation of the national debt has no more infallible measure than the successive rise in the stock of these banks, whose full development dates from the founding of the Bank of England in 1694. The Bank of England began with lending its money to the Government at 8%; at the same time it was empowered by Parliament to coin money out of the same capital, by lending it again to the public in the form of banknotes. It was allowed to use these notes for discounting bills, making advances on commodities, and for buying the precious metals. It was not long ere this credit-money, made by the bank itself, became. the coin in which the Bank of England made its loans to the State, and paid, on account of the State, the interest on the public debt. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation down to the last shilling advanced. Gradually it became inevitably the receptacle of the metallic hoard of the country, and the centre of gravity of all commercial credit. What effect was produced on their contemporaries by the sudden uprising of this brood of bankocrats, financiers, rentiers, brokers, stock-jobbers, &c., is proved by the writings of that time, e.g., by Bolingbroke’s.” (p706-7)

But, then as now, these huge debts run up in the interests of capital do not fall on capital to repay. It is society at large that must cover these debts, in redemption payments and interest. Then as now, of course, it is not capital that pays the taxes that make these repayments possible. The burden of the taxes falls on the producers.

“As the national debt finds its support in the public revenue, which must cover the yearly payments for interest, &c., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses, without the tax-payers feeling it immediately, but they necessitate, as a consequence, increased taxes. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another, compels the government always to have recourse to new loans for new extraordinary expenses. Modern fiscality, whose pivot is formed by taxes on the most necessary means of subsistence (thereby increasing their price), thus contains within itself the germ of automatic progression. Overtaxation is not an incident, but rather a principle. In Holland, therefore, where this system was first inaugurated, the great patriot, DeWitt, has in his “Maxims” extolled it as the best system for making the wage labourer submissive, frugal, industrious, and overburdened with labour. The destructive influence that it exercises on the condition of the wage labourer concerns us less however, here, than the forcible expropriation, resulting from it, of peasants, artisans, and in a word, all elements of the lower middle class. On this there are not two opinions, even among the bourgeois economists. Its expropriating efficacy is still further heightened by the system of protection, which forms one of its integral parts.” (p 707-8)

Alongside this state intervention in relation to debt and fiscal policy, as Marx says, also comes the policy of Protectionism.

“The system of protection was an artificial means of manufacturing manufacturers, of expropriating independent labourers, of capitalising the national means of production and subsistence, of forcibly abbreviating the transition from the medieval to the modern mode of production. The European states tore one another to pieces about the patent of this invention, and, once entered into the service of the surplus-value makers, did not merely lay under contribution in the pursuit of this purpose their own people, indirectly through protective duties, directly through export premiums. They also forcibly rooted out, in their dependent countries, all industry, as, e.g., England did. with the Irish woollen manufacture. On the continent of Europe, after Colbert’s example, the process was much simplified. The primitive industrial capital, here, came in part directly out of the state treasury. “Why,” cries Mirabeau, “why go so far to seek the cause of the manufacturing glory of Saxony before the war? 180,000,000 of debts contracted by the sovereigns!”

Colonial system, public debts, heavy taxes, protection, commercial wars, &c., these children of the true manufacturing period, increase gigantically during the infancy of Modem Industry.” (p 708-9)

Back To Chapter 30

Forward To Chapter 32

Back To Index

Apple Also Confirms Conjuncture

In a recent post - Gold Price Crash Confirms Conjuncture – I wrote that the gold price crash confirmed the conjuncture as being that between the Spring and Summer Phase of the Long Wave, as I'd previously set out – The Long Wave Summer Has Begun. Yesterday's results from Apple further confirm that analysis.

For the first time in ten years, Apple has recorded a fall in profits. Its profits remain huge, however, and it has a massive balance sheet, containing about $140 billion of cash, some of which it has used to bolster its share price by announcing a 15% increase in its dividend payout, and a large buy back of its shares. Despite that, its shares have fallen now below $400, having been over $700 last year.

The problem for Apple is precisely that I set out in the posts above. What signifies the turn to the Long Wave Summer, is that although the increase in the price of primary products falls, or may even go into reverse, because new supply catches up with and then outstrips demand, the firms that use those inputs, suffer a decline in their productivity gains. That is because this far into the boom, the main advantages obtained from the new technologies and techniques introduced during the Winter and Spring Phases of the Cycle, have been had. Productivity continues to rise, but at a slower pace – what is called the second derivative.

As a result, unit costs reductions slow down. At the same time, the reserve army of labour has relatively been used up, by this stage, so competition for labour-power between capitals raises the price of labour, wages rise. Moreover, for the same reasons as cited above in relation to the slow down in productivity growth, the reduction in the Value of Labour-Power, also slows down, so the growth of Relative Surplus Value slows down with it. The volume of profit generally continues to rise, but at a slowing pace.

But, the other thing that occurs at this point, and which Apple's and other company results have shown, is the other aspect of this change in conjuncture. That is that company's are caught in a typical vice. They can choose to maintain high profit margins, by maintaining high prices for their products, or they can choose to increase their revenues by reducing their prices, and therefore their profit margins. They cannot do both at the same time. The figures for Apple are a classic example of that. Their profit margin has fallen from 47.4% to 37.5%, a 20% reduction.

The reason is again typical of the Summer Phase of the cycle, and Apple has been emblematic of that cycle. During the Spring Phase, a plethora of new products are developed, around the new base technologies brought forward during the Innovation Cycle. There could hardly be a better example of that than Apple. From the late 90's, it brought forward new products one after another, that captured consumers imagination, not to mention their money. These new products were able to sate consumer demand at prices that ensured high profits, in total contrast to all those products that had become mature in the previous phases of the cycle.

But, although, Apple continues to innovate, and new products are forecast to be introduced in the next few months, its clear that the pace of innovation has slowed. But, more than that, of the new products that have been introduced, more recently, instead of adding net new revenue for the company, they have to an extent cannibalised their own demand. Where consumers have not been prepared to pay the higher price for one product, another similar but cheaper product has been launched. But, then many consumers simply decide to buy the cheaper product rather than the more expensive.

Moreover, rather than being totally new products, innovation becomes more a matter of simply a new version of an existing product, or a product that provides much of the same functionality of some other. In order to maintain revenues, prices have to be cut, or not raised so much. That is particularly the case when other large competitors like Samsung are there to steal market share if you get it wrong. That is why profit margins have fallen.

Very large companies like Apple, do not have to expand production, if they do not believe that demand is there to justify it. That is one of the things that distinguishes modern capitalism, from the kind of market driven capitalism analysed by Marx 150 years ago. Indeed, its partly because of that that Apple has $140 billion of cash on its balance sheet, as it has simply hoarded the cash rather than invest it foolishly. Its why, today its using that cash to give to shareholders rather than invest in increased production. But, having geared production to a certain level, such companies are also loathe to cut it back significantly, because that means that billions of dollars of investment would have been wasted.

So, they are caught between two sets of converging forces. To maintain sales and revenues they have to reduce prices, which means cutting profit margins, and at the same time, they face relatively rising costs for labour, and slowing gains from productivity. Profits can continue to grow, but at a slowing pace, and yet, in order to continue to grow the business, which is necessary to avoid losing market share, they have to continue to invest in research and development, and in new production methods to reduce costs and so on.

The consequence is that although the volume of profit rises, the cost of producing that profit rises faster, and so the rate of profit falls. The further consequence at this phase of the cycle is also then that a larger proportion of the profit has to go to cover those costs, and a smaller part is available to be hoarded as cash, paid out as dividends and so on. In short, the demand for capital rises, as the supply of capital falls (relatively). The consequence of that is rising interest rates.

That cannot be altered by central banks printing money, as I will demonstrate in a future post. Banks can print money tokens, but they cannot print capital. Capital has to be created, and the whole point here is that more capital is relatively being demanded, whilst a smaller amount is relatively being supplied. All printing money tokens does under these conditions is to create inflation, which in turn drives nominal interest rates higher.

In fact, if we look back over the last 20 years, what we have seen is precisely that. The prices of commodities have not generally risen. But, that does not mean there has not been inflation. The reason those prices have not risen is because their Values have fallen massively. It is only their Exchange Value against fiat currencies that has not fallen, because the value of those currencies has fallen massively too! In other words, without the money printing commodity prices would have fallen significantly. Some still have.

You can buy a cheap suit made in China today, for the same nominal price I paid for my wedding suit in the 1970's. I bought my first computer in 1985, for £500. It had 512k of RAM. Were it possible to buy the same computer today, it would probably cost something like £50. Put another way, I can buy a computer, 100 times as powerful today, for the same or less nominal price as I paid in 1985. The reason that commodity prices did not rise is because productivity gains, reduced their values, and the increased money tokens were soaked up in a huge increase in the volume of commodities being circulated in the market. In other words, a huge amount of new capital was created.

But, look elsewhere, and you can see that the money printing did cause massive inflation. The property market, the bond market, the share market all rose astronomically. But unlike the real economy, these sectors do not produce any new capital. The rise in prices of these assets its purely fictitious.

No amount of money printing will, therefore, stop interest rates moving higher as this new phase of the cycle progresses, and along with those higher interest rates, will go the bursting of the asset bubbles.

Capital I, Chapter 30

Reaction of the Agricultural Revolution on Industry. Creation of the Home-Market for Industrial Capital

In the towns, the regulations of the guilds restricted the ability of the guild masters to simply become capitalists, and of the journeymen to become proletarians. But, the expropriation of the peasants meant that a constant supply of wage workers came to the town unconnected to these restrictions. Marx compares the process to cosmological processes.

“The thinning-out of the independent, self-supporting peasants not only brought about the crowding together of the industrial proletariat, in the way that Geoffrey Saint Hilaire explained the condensation of cosmical matter at one place, by its rarefaction at another.” (p 697)

Now fewer people were employed on the land, but the revolution in farming made possible by larger farms, meant that output increased. But, this process has wider implications!

“With the setting free of a part of the agricultural population, therefore, their former means of nourishment were also set free. They were now transformed into material elements of variable capital. The peasant, expropriated and cast adrift, must buy their value in the form of wages, from his new master, the industrial capitalist. That which holds good of the means of subsistence holds with the raw materials of industry dependent upon home agriculture. They were transformed into an element of constant capital. Suppose, e.g., a part of the Westphalian peasants, who, at the time of Frederick II, all span flax, forcibly expropriated and hunted from the soil; and the other part that remained, turned into day labourers of large farmers. At the same time arise large establishments for flax-spinning and weaving, in which the men “set free” now work for wages. The flax looks exactly as before. Not a fibre of it is changed, but a new social soul has popped into its body. It forms now a part of the constant capital of the master manufacturer. Formerly divided among a number of small producers, who cultivated it themselves and with their families spun it in retail fashion, it is now concentrated in the hand of one capitalist, who sets others to spin and weave it for him. The extra labour expended in flax-spinning realised itself formerly in extra income to numerous peasant families, or maybe, in Frederick II’s time, in taxes pour le roi de Prusse. It realises itself now in profit for a few capitalists. The spindles and looms, formerly scattered over the face of the country, are now crowded together in a few great labour-barracks, together with the labourers and the raw material. And spindles, looms, raw material, are now transformed from means of independent existence for the spinners and weavers, into means for commanding them and sucking out of them unpaid labour. One does not perceive, when looking at the large manufactories and the large farms, that they have originated from the throwing into one of many small centres of production, and have been built up by the expropriation of many small independent producers. Nevertheless, the popular intuition was not at fault. In the time of Mirabeau, the lion of the Revolution, the great manufactories were still called manufactures reunies, workshops thrown into one, as we speak of fields thrown into one.” (p 697-8)

In other words, the same process which dispossesses the self-sufficient peasants of their means of production and makes them available to be employed as wage labourers, also creates a home market for all those goods the peasant previously produced for themselves, but now needs to buy for their subsistence. The means of production, previously owned by the self-sufficient peasants have now been pulled together, in the same way that cosmic material is pulled together to form stars, planets, and galaxies. The now concentrated means of production, now in capitalist hands, therefore finds both the workers it needs, and a market for its production.

“Formerly, the peasant family produced the means of subsistence and the raw materials, which they themselves, for the most part, consumed. These raw materials and means of subsistence have now become commodities; the large farmer sells them, he finds his market in manufactures. Yarn, linen, coarse woollen stuffs — things whose raw materials had been within the reach of every peasant family, had been spun and woven by it for its own use — were now transformed into articles of manufacture, to which the country districts at once served for markets. The many scattered customers, whom stray artisans until now had found in the numerous small producers working on their own account, concentrate themselves now into one great market provided for by industrial capital. Thus, hand in hand with the expropriation of the self-supporting peasants, with their separation from their means of production, goes the destruction of rural domestic industry, the process of separation between manufacture and agriculture. And only the destruction of rural domestic industry can give the internal market of a country that extension and consistence which the capitalist mode of production requires.” (p 699-700)

But, manufacture cannot carry out this process completely. It continues to be based on handicraft production in the towns, and domestic production in rural areas, which provide manufacture with its raw materials. Only with the development of machine industry is the basis of industrial production – spinning, weaving – in the village completely undermined. At this point, capitalist agriculture can take over.

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Capital I, Chapter 29

Genesis of the Capitalist Farmer

In the previous chapter, Marx had described how the first proletarians had been created as a result of force, and how the State had been employed to ensure that wages were minimised. Now Marx turns to the creation of the first capitalists, in particular the capitalist farmers.

The process of expropriation of the small peasants creates a smaller number of larger landowners. This in itself does not explain the development of capitalist farming. As seen previously, some of these large landowners simply turned over their estates to sheep, and then some to game for hunting. In order to understand the development of the capitalist farmer, its necessary to look at the evolution of other social forces.

“The serfs, as well as the free small proprietors, held land under very different tenures, and were therefore emancipated under very different economic conditions. In England the first form of the farmer is the bailiff, himself a serf. His position is similar to that of the old Roman villicus, only in a more limited sphere of action. During the second half of the 14th century he is replaced by a farmer, whom the landlord provided with seed, cattle and implements. His condition is not very different from that of the peasant. Only he exploits more wage labour.” (p 694)

For a time he shares the means of production with the landlord, each sharing the output on the basis of a contract. But, in England, this is soon replaced with the payment of money rent, as the farmer provides their own means of production and extracts surplus value through the employment of wage labour.

But, the scale of operation here limits the degree to which the farmer can accumulate. On the one hand, the farmer continues to rely on their own labour alongside the employment of wage labourers. On the other, the wage labourers themselves are only dependent for part of their income on wages. They continue to produce some of their own food etc. via their own means of production.

It is the agricultural revolution, that begins in the last third of the 15th Century, which transforms this situation. The gradual usurpation of common land means that the cattle that grazed on this land, also comes into the hands of these farmers at little cost. This also provides them with a supply of manure to improve their soils. Their ability to enclose their own larger farms, as opposed to the open strip system, means the crops are protected, and can be cultivated by more efficient methods.

But, these farmers also benefited from a piece of historical good fortune. In the 16th century, contracts for farms frequently lasted for 99 years.

“The progressive fall in the value of the precious metals, and therefore of money, brought the farmers golden fruit. Apart from all the other circumstances discussed above, it lowered wages. A portion of the latter was now added to the profits of the farm. The continuous rise in the price of corn, wool, meat, in a word of all agricultural produce, swelled the money capital of the farm without any action on his part, whilst the rent he paid (being calculated on the old value of money) diminished in reality. Thus they grew rich at the expense both of their labourers and their landlords. No wonder, therefore, that England, at the end of the 16th century, had a class of capitalist farmers, rich, considering the circumstances of the time.” (p 695)

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