Friday, 16 September 2016

A Crisis Carol - Stave 4 - The Ghost of Crisis Future - Part 2

At the time Marx was describing, in Capital, the majority of productive-capital was privately owned. The individual capitalist, as Marx describes, was somewhat torn. As their business expanded, and they had increased masses of profit, that provided the opportunity to have the same luxurious lifestyle as previous ruling classes enjoyed. At the same time, they knew that they had reached that point by accumulating capital, not by consuming their profits. Moreover, competition meant that unless they accumulated capital, at least as fast, as their fellow capitalists, they would lose market share, and the potential for future profits.

“It must never be forgotten that the production of this surplus-value — and the reconversion of a portion of it into capital, or the accumulation, forms an integrate part of this production of surplus-value — is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence.”

(Capital III, Chapter 15)

But, Marx was aware that, even in his day, the situation was changing. This privately owned capital was disappearing and being replaced by socialised capital, whilst the capitalists themselves were becoming simply money-lending capitalists, bond and shareholders who received their income not as profits, but as interest, from clipping coupons from their shares and bonds. Initially, it was just the giant capitals, like the railway companies, that took this form. But, the effect was significant.

The rate of profit, i.e., the relative increment of capital, is above all important to all new offshoots of capital seeking to find an independent place for themselves. And as soon as formation of capital were to fall into the hands of a few established big capitals, for which the mass of profit compensates for the falling rate of profit, the vital flame of production would be altogether extinguished. It would die out.”

(Capital III, Chapter 15)

“With the progress of capitalist production, which goes hand in hand with accelerated accumulation, a portion of capital is calculated and applied only as interest-bearing capital. Not in the sense in which every capitalist who lends out capital is satisfied with interest, while the industrial capitalist pockets the investor's profit. This has no bearing on the level of the general rate of profit, because for the latter profit = interest + profit of all kinds + ground rent, the division into these particular categories being immaterial to it. But in the sense that these capitals, although invested in large productive enterprises, yield only large or small amounts of interest, so-called dividends, after all costs have been deducted. In railways, for instance.”

(Capital III, Chapter 14)

As Engels points out, in his Supplement to Capital III, after 1865, these big socialised capitals dominated, and, he emphasised this point, in his Critique of the Erfurt Programme.

“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.”

Indeed, its this transformation, as capital is forced to increasingly take on the features of the new society, that creates the material basis for the development of socialist consciousness. Marx says,

“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...

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.”

(Capital III, Chapter 27) 

Kautsky set out the implications in “The Road To Power”.

“It is supported by facts of economic development that show an actual growth toward Socialism. It was Marx and Engels who first set forth these facts and explained the scientific laws that govern them…

“The corporation renders the person of the capitalist wholly superfluous for the conduct of capitalist undertakings. The exclusion of his personality from industrial life ceases to be a question of possibility or of intention. It is purely a question of POWER.

This preparation for Socialism through the concentration of capital is meanwhile only one side of the process of gradual growth into the future state. Along with it there is proceeding an evolution within the working class that is no less of an indication of growth in the direction of Socialism.” 

This division between a socialised productive-capital, which is the source of profits, and a privately owned, interest-bearing capital, which leaches off those profits, is the epitome of the contradiction that Marx describes of socialised production relations and private appropriation.

Over the last thirty years, the private owners of this fictitious capital have held sway in large parts of the globe, and the conservative representatives of that fictitious capital have dominated governments, and ideology. Yet, as Marx describes, in Capital, as soon as industrial capital became dominant, these “antediluvian” forms of capital – interest-bearing capital and merchant capital – along with landed property, become subordinated to it.

Under feudalism, surplus value takes the form of rent. The peasant producer may have sufficient surplus labour-time to produce a small profit, but the existence of this profit, and its size is always conditional on the amount of the surplus labour-time that must be first handed to the landlord as rent. By contrast, under capitalism, the capitalist farmer will only be prepared to pay rent to the landlord if they have first been able to make the average rate of profit on their capital. In other words, they will only pay rent out of any surplus profits, and the higher the average rate of profit, the lower will be any amount of surplus profit, and so rent.

The dominant form of surplus value is then profit, and the payment of rent is subordinated to it, and conditional on it. The same thing applies to interest. In pre-capitalist societies, money is only borrowed in exceptional circumstances. Those who lend money are few in number, and they charge very high rates of interest. The amount charged in interest then has no relation to the demand and supply for money-capital.

But, under capitalism, both the demand and the supply of money-capital is a function of the rate of profit. And the rate of interest is a result of the interaction between this demand and supply. Money-capital can be provided as a result of money hoards being mobilised, as a result of a proportion of money revenues being converted into money-capital. In other words, capitalists might reduce some of their personal consumption, and use the money instead as capital.

However, the majority of new money-capital comes from the realisation of profits. If the rate and mass of profits rises, then the amount of potential money-capital increases with it. One aspect of this, as Marx sets out in Capital III, Chapter 6, is that, if the price of constant capital falls – which is itself a basis for a rise in the rate of profit – any given amount of money profits will then buy a greater quantity of that constant capital. In effect, money-capital is thereby released, increasing its supply.

But, if the rate of profit is rising, this is likely to provide an incentive for firms to expand. They will then demand additional money-capital to fund this expansion. They may achieve this by either using a greater proportion of their own profits for this expansion, or they may go into the money market to borrow the additional money-capital. Marx sets out a series of phases of the cycle, during which both the demand and supply of money-capital is rising, but supply exceeds demand, so interest rates fall; when both are rising but demand begins to exceed supply, so interest rates rise towards the average; when the supply may contract, but demand rises sharply due to crisis, which pushes rates up to their highest levels; and finally, when, during a period of stagnation, the demand for money-capital falls sharply and interest rates fall to their lowest level.

Once again, it can be seen here that it is industrial capital, and the movement of profit that dominates, and interest is subordinated to it.

“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) 

Even today, with yields at record lows, the potential exists for a Gates, Allen, Jobs, Wozniak, Musk etc. to establish a private firm so as to make a large profit, rather than settle for negligible or negative rates of interest. And, herein lies the problem facing the scrooges, which terrifies them.

Back To Part 1

Forward To Part 3

No comments: