Tuesday, 26 January 2016

Capital III, Chapter 24 - Part 3

“In the reproduction process of capital, the money-form is but transient — a mere point of transit. But in the money-market capital always exists in this form. Secondly, the surplus-value produced by it, here again in the form of money, appears as an inherent part of it. As the growing process is to trees, so generating money appears innate in capital in its form of money-capital.” (p 393)

Luther's onslaught against usury was naïve, therefore, Marx says, because Luther objected to the fact that compensation was sought not just for the fact that a payment had not been made, but that, as a result, the capital had missed the opportunity to produce a profit. But, as Marx has demonstrated, it is precisely this utility, of its ability to produce profit, that interest is paid for, as the price of that facility, whether the facility is used or not.

But, similarly, Marx shows that the power of compound interest to create wealth, was not like some, such as Dr. Price, thought it to be. Yet, there are some today who still allow themselves to believe that money invested at compound interest can simply expand to the stars, irrespective of the growth of value.

Price believed, and convinced Pitt, that the means of dealing with the National Debt was to borrow at simple interest, and then to lend the borrowed money at compound interest! How this was to be done he didn't explain, because of course, as Marx explains, if I borrow £100 at 5% interest, and then lend this £100, even if I can obtain 5% return on it, at the end of the year, I have to repay the £105. It would only be possible to repay the £105 and accumulate an additional sum, if the £100 borrowed had been used to produce a value greater than £105. In that case, it is not compound interest that is the basis of the expansion, but the actual expansion of value resulting from the production process.

In 1786, Pitt got the Commons to pass a bill raising £250,000 in tax, "until, with the expired annuities, the fund should have grown to £4,000,000 annually." (p 396), which was increased in 1792, and although, as Marx says, Pitt mentions Britain's productive power, as a contributor to its wealth, he reserved the primary cause for “accumulation” to compound interest. Yet, despite the fact that Pitt attributes this principle to Adam Smith, in fact, where for Smith this accumulation was the accumulation of productive-capital, for Pitt, as with Price, this accumulation had become nothing more than the accumulation of money-capital, whose expansion was now completely divorced from the expansion of productive-capital.

Yet, there is no shortage of financial analysts, and media pundits, on the business channels, for whom the accumulation of national wealth is synonymous with the ever higher levels of stock markets, no matter how much these paper valuations are removed from the actual productive power of the real economy. The economics of the Federal Reserve Bank, Bank of England, and George Osbourne, therefore, found their precursor in Price and Pitt.

“With Dr. Price's aid Pitt thus converts Smith's theory of accumulation into enrichment of a nation by means of accumulating debts, and thus arrives at the pleasant progression of an infinity of loans — loans to pay loans.” (p 396)

The accumulating debts are represented by the increasing nominal values of financial assets, for example the rise in stock markets.  This rise is presented, however, as equivalent to a rise in real social wealth, even though the opposite is the case.  The reality is that stock markets historically have an inverse relation to the real economy.  Consider the following, for example.

Between 1950 and 1980, US GDP rose 850%, an average rise of 28% a year. During that period, that is more or less the period of the post war boom, the Dow Jones rose 312%, the S&P 500 rose 537%.

By comparison, in the period 1980-2000, US GDP rose by just 250%. But, the Dow Jones rose by 1300%, whilst the S&P 500 rose by 1260%!  In other words, as Marx described previously, money-capital was massively depreciated during this period, so that around $20 are required today to buy the same number of shares that $1 would have bought in 1980.  It is that huge depreciation of the value of money-capital that is reflected in the collapse of yields.

Yet, whenever the stock market shows any sign of declining, the representatives of this money-capital, insist upon additional supportive action, through money printing, state measures to support property prices and so on, no matter how much these measures actually damage the real economy.

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