Appearance and Reality
Mike McNair seems to have completely missed the point of the argument I made in my article “Overcoming The Power of Capital”. In so far as Mike's confusion is attributable to me not setting out my argument clearly, I take responsibility for that failing. However, I also have to say that any failing, on my part, in that regard, also seems to have been aided and abetted by Mike's own tendency to pick out just one aspect of an argument, and to run with it, rather than examining all of the aspects of the argument presented, so as to understand the actual point being made. He may think he has slayed several dragons, but, in fact, his response amounts to one instance after another where he simply caught a glimpse of a windmill, set his lance, and charged headlong towards it.
An example, of the way Mike's confusion leads to him getting completely the wrong end of the stick is his comment,
“... comrade Bough buys into the pro-capitalist jurists’ (and ‘new institutional’ economists’) ideologies of formal legal property rights, and the idea that the capitalist state ‘defends property rights’ generally, without considering what operative rules and practices lie behind these formal legal property rights.”
But, the very opposite is the case, and was the heart of what I was arguing! In fact, part of the reason for me arguing in the way I did was to simply reverse Mike's own reliance on such legalistic formulations about property ownership. Following on from Marx’s method, in Capital and elsewhere, I analysed, first, the underlying objective material reality, and the laws that govern it, on the basis of Marx's own analysis of those laws. I divided that into two parts; first an analysis of the underlying economic relations between the interest-bearing capital and the productive-capital, second an analysis of the legal property rights which flow from that, and which are themselves set out in law, but I then, thirdly, analysed the phenomenal form of the actual relations which exist, which contradict what should flow from these first two, and derive not from their objective economic or legal basis, but precisely from the exercise of political power!
The Laws of Commodity Exchange
I provided an analysis of the division of the surplus value into interest and profit of enterprise, on the same basis that Marx does, so as to determine what “economically”, the share and bondholders, and other money-capitalists are entitled to receive, as interest on their loaned money-capital, and what should remain as profit of enterprise for the socialised capital. So, I described the objective underlying material reality of socialised capital, i.e. that form of capital described by Marx in Capital III, as being no longer capital as private property, but capital which is itself the collective property of the “associated producers” within the firm, whether that firm takes the form of a co-operative, or of a joint stock company.
In the case of the joint stock company, again following Marx, I considered the question of the money-capital provided to the company. That money-capital, whether it is in the form of money provided by shareholders, in return for a share certificate, by bond holders in return for a bond, or by a bank in the form of a loan, is a commodity, as Marx describes. That commodity, Marx explains, is the use value of capital as capital, its ability to self-expand, to produce the average rate of profit. If the average rate of profit is 10%, then an industrial capital (which includes both productive and merchant capital, because both take part in the determination of the average rate of profit, and thereby claim it) of £1 million has the potential to produce £100,000 of profit. It is this use value, the ability to produce £100,000 of profit, that the owner of loanable capital gives up (whether, as Marx says, this capital is in the money form, or is in the form of a building, machine etc.), and sells to the industrial capitalist.
But, it is precisely that which occurs; the sale of this use value, and such sale entails, according to the laws of commodity exchange, an alienation of the use value itself, from the seller, and its transfer to the buyer. The buyer of this use value, thereby becomes its owner, with all of the property rights which flow from such ownership, to use and dispose of it. Those property rights no longer belong to the seller. Instead, they have disposed of them, in exchange for a certain amount of money, the market price of the use value they have sold. That market price for this use value, Marx once again, explains, is the average rate of interest, and is determined by the demand for, and supply of this money-capital, which itself arises because of the division of capital into these two opposing camps of industrial capital, and interest-bearing capital.
Interest-Bearing Capital v Industrial Capital
“It is indeed only the separation of capitalists into money-capitalists and industrial capitalists that transforms a portion of the profit into interest, that generally creates the category of interest; and it is only the competition between these two kinds of capitalists which creates the rate of interest.” (Capital III, Chapter 23, p 370)
But, it is also this contradictory relationship that undermines the central thesis of Mike's argument that today, financial capital is dominant, because the fact is, as Marx sets out, aside from periods of crisis, where capital demands money to stay afloat, to pay bills, the upper limit for the rate of interest is set by the rate of profit, and indeed, were the average rate of interest to even come close to the rate of profit, industrial capital would stop borrowing for investment, and would simply convert itself into interest-bearing capital. But, that in itself would undermine the basis of the interest-bearing capital. As Marx puts it, directly challenging Mike's thesis,
“It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.” (Capital III, Chapter 23, p 378)
The Laws of Bourgeois Property
Having set out this underlying objective material reality of the economic and property relations of the owners of interest-bearing capital and industrial capital, and what revenues each is then entitled to receive as interest or profit of enterprise, I then considered the position, set out in law, of who the owners of this socialised capital are. Mike objects that I chose to refer to Shaw v Shaw rather than Salomon v Salomon. The reason I did so was that a) the former was a decision of 1935, whereas the latter was 1896, and b) the issues involved in the latter were more complicated than in the former. Either way, nothing is changed by this objection, because the legal position remains the same that for such socialised capital, the capital itself is the property of the company, as a legal corporate entity, and not to any capitalist or group of capitalists, be they shareholders, bondholders, debenture holders, or other lenders of money-capital. As Lord Halsbury LC, put it, when the House of Lords considered Salomon v Salomon,
“Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon, who is often referred to as Soloman. If it was not, there was no person and no thing to be an agent at all; and it is impossible to say at the same time that there is a company and there is not.”
The legal position then is also established that the “business”, i.e. all of the productive-capital, along with the commodity-capital, and money-capital in the firm's cash box and bank accounts is the legal property of the company as a corporate entity, and not the property of any individual or group of shareholders, or other owners of money-capital loaned to the company. That is true whether this company has the form of a joint stock company, or a co-operative. That property of the company is then at its disposal to be used by the company to produce profits, and out of those profits are then paid the interest on the money-capital loaned to the company, by shareholders, bondholders, banks and so on, the rent to any landlords, taxes to the state, with what is remaining being the profit of enterprise, available for accumulation.
Corporate Governance
The question then is, what forms of corporate governance exist, so as to make the company decisions over how to use this capital so as to make these profits from which these other revenues are derived. Logically, if the capital itself belongs to the company, and the company can be nothing other than “the associated producers” existing within it, at any particular time, such corporate governance should consist of a form of democracy by which those associated producers take decisions over the use of that capital. And this was the whole point of this discussion, which Mike seems to have grasped from completely the opposite end of the stick. The amounts that the company must pay for rent are determined by those laws on rent, analysed by Marx, and thereby far from some arbitrary amount to be deducted. The taxes that the company must pay are themselves determined by statute, and far from being some arbitrary amount. The amount that should be paid as interest, should also be determined by those laws which Marx analyses in Capital III, and so should also be far from arbitrary.
Indeed, to the extent that the firm borrows money from a bank, it borrows along with every other borrower in the money market, at the prevailing market rate of interest. To the extent that it borrows on the capital markets, by issuing corporate bonds, it again does so at the prevailing market rate of interest, by setting a coupon amount of interest on the bond, and then selling that bond at the corresponding market price, so as to provide the average yield. Should the company pay the bank more interest than so determined, or send out cheques to bond holders for larger amounts of coupon interest than prescribed, questions would be asked about such activity by the Fraud Squad.
I found it rather amusing that Mike wrongly ascribes to me a willingness to take “superficial ‘black letter’ legal statements about ownership at face value” (when in fact the purpose of the argument was to do the opposite) and then proceeds in his argumentation to give us a series of such “superficial ‘black letter’ legal statements” dating back to “The Institutes of Gaius, written around 160 AD”!
And yet, even after all of his citation of these “black letter legal statements” over who the legal owner of corporate capital is, Mike can come up with nothing more than statements to the effect that shareholders “in certain respects” may be “like ‘equitable owners’”, or “under which in some circumstances the company can be identified with its shareholders”. Hardly a ringing endorsement of the legal case that Mike wants to present for such ownership, according to the superficial “black letter legal statements” of English law.
Mike's comments about the difference between joint stock companies and limited liability companies, and about private capitals that operate via a corporate shell are pedantic. As Engels comments, Marx discusses joint stock companies because at the time Capital was being published, limited liability companies had not really taken off. Engels sets out in his Annex on The Stock Exchange, in Capital III, that such a transformation did not commence until after 1865. But, Mike's point is pedantic, because what Marx is setting out is the basis upon which such a framework of socialised capital, whether it be of the joint stock/limited liability company, or the co-operative, represents the fact that production had gone beyond the fetters imposed by capital as private property, and provided a framework for bursting those fetters asunder, especially as the use of credit facilitated the expansion and extension of such socialised capital.
The argument is addressed by Professor Aubrey Silbertson, who uses a similar analogy to the one I have used, and indeed, which corresponds to the argument Marx puts forward in relation to the alienation of the commodity “capital” by the money-lender to the industrial capitalist. Silbertson relies on the exposition of AM Honore. Using these criteria of ownership, Silbertson asks what this implies in relation to whether BT shareholders “own” BT. He concludes,
“But none of this means that the owners of BT shares own BT – after all, investors own BT bonds, landlords own BT premises, and lessors own BT equipment, but no-one would suggest that BT itself is owned by these investors, landlords or lessors. The claim that BT is owned by its shareholders implies that there is something special about their contract with the company which means that they are owners, not just of that contract, but of the company itself.”
Political Struggle
The point here, and the point I was making in my original response, which is a point I have made in many other articles, is that even within the confines of social democracy, the question of corporate governance is an arena for political struggle. It was certainly an arena for political struggle in the 1970's, as witnessed by the development of Enterprise Boards, the concept of Planning Agreements, the Bullock Report, the EU's Draft Fifth Company Law Directive and so on. The fact that many of these aspects of corporate governance already exist in Germany, that the issue has been raised by Haldane and Clinton, and so on, indicates that it is not at all against the interests of industrial capital, or unrealistic to raise such issues.
Companies have no such limitations on the amount of interest they pay as dividends to shareholders, or other forms of capital transfer to them. Moreover, unlike other lenders of money-capital to the firm, such as banks, or bondholders, the shareholders, and in reality the very small number of shareholders who own or control a large proportion of the shares, have appropriated to themselves the right to appoint their own representatives on company boards, which sit above the functioning-capitalists. It is the functioning-capitalists who run the business on a day to day basis, as professional managers, but it is the company boards of directors, and executives, which sit above them, which make the strategic decisions on the use of the company's capital, and who do so, not on the basis of the interests of the company, but on the basis of the interests of the shareholders, not on the basis of the material interests of productive-capital, and its self expansion, but on the basis of the material interest of the owners of fictitious-capital, and their desire for revenue, and for capital gain.
Forward To Part 2
Forward To Part 2
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