However, as with money-capital and interest, things are not entirely that simple, in reality. In the case of money-capital, if it is in such excess supply as to cause interest rates to fall to very low levels, the owners of that money-capital may decide to use it instead as revenue. They may decide to simply spend a larger proportion of their money hoards, and revenues in luxury consumption, or speculation. Alternatively, they may decide to turn themselves into industrial capitalists, metamorphosing their money-capital into productive-capital or commercial capital, in order to directly obtain profit of enterprise. In that way, the supply of money-capital is reduced, which acts to push the average rate of interest higher.
We see that today. Low rates of interest have caused the owners of money-capital to engage in higher levels of luxury spending, but they have also engaged in vast amounts of speculation, gambling on the prices of financial assets, such as shares, bonds and property, as well as in other assets from which they expect to obtain speculative capital gains, such as gold, diamonds, art, and so on. In so far as such speculation has also driven the prices of fictitious capital higher, it has been self-fulfilling, and the more those engaged in such speculation believe that it is likely to continue – especially when for the last thirty years such speculation has been underpinned by central banks – the more they become fixated on a desire for such speculative capital gains, rather than yield. But, that has thereby diminished the supply of money-capital available for the accumulation of real capital.
Similarly, Marx outlines the way landlords are able to divert their land to alternative uses, whenever they feel that the rent produced from it falls to a low level. They can make the land available for other uses, for example, urban development, as well as turning it into recreational areas for hunting and so on, as well as just leaving it uncultivated. And, in the last thirty years, as speculation has driven land prices, particularly development land prices, ever higher, there is an inevitable incentive for landowners – including builders with land banks – to hold on to their land hoards, in the expectation that by doing so they will make large capital gains, on those assets. As Marx notes, this is why huge swathes of land are always uncultivated, because to make them available as additional supply, would hugely depreciate rents, undermining the revenue of the landowners, and also causing the capitalised value of the land to fall significantly, which would thereby undermine the fictitious wealth of the landlords, and of those money-lending capitalists holding mortgages on the land and property.
There is then a difference between the owners of loanable money-capital, and of land, as compared with the owners of industrial capital (productive-capital and commercial capital, including money-dealing capital). As far as industrial capital is concerned, the individual private industrial capitalist is torn, as Marx described earlier. On the one hand, as their profits expand, they are pulled towards wanting to use it as revenue, to enjoy a more luxurious lifestyle. On the other hand, the objective requirement of industrial capital is to expand.
As the market expands, because population expands and living standards rise, new use values are developed, causing a rise in demand for commodities, each individual capital is necessarily driven to try to capture a share of this expanding market. Unless it does so, its mass of profits will fall relative to its competitors, its own competitive position will be undermined, and ultimately it will, thereby cease to act as capital. Consequently, as Marx says, there is no minimum level of the rate of profit, below which capital will stop accumulating. It may be that in the era of private capitalist property, the private capitalist who took their revenue as profit, might choose to accumulate less of it, if the rate fell below a certain level, but as these capitals grew larger it became the mass of profit rather than the rate of profit that became more important to the bigger, private capitalist owner.
If meeting an expansion of the market could only be achieved by an accumulation of capital that resulted in a lower rate of profit, the larger private capitalists would still be led to undertake such investment, both because they could not risk losing market share, and because the increase in the mass of profit obtained was more important for them than the lower rate of profit. Moreover, when the era of private capitalist property ends, and is replaced by socialised industrial capital, in the form of joint stock companies, co-operatives, trusts and corporations the individual private industrial capitalist is replaced by the “functioning capitalists”, the army of professional managers, technicians, and administrators who carry out the previous social function of the capitalist, in organising production efficiently, so as to maximise the production of surplus value, and accumulation of capital. Unlike, the private industrial capitalist, who took their revenue as profit, these functioning capitalists, are salaried employees, who take their revenue as wages, as part of the variable capital of the business. In a more pure form than the private capitalist, they are the personification of the industrial capital itself, and its drive to maximise surplus value, and its accumulation.
No such objective constraints apply to the owners of loanable money-capital, or landed property, i.e. the owners of fictitious capital. The only constraint, which applies to them, is that they are able to obtain sufficient revenue from the ownership of this fictitious capital to afford them the means of subsistence. If someone owns £1 million in the shape of a bond, which produces for them 5%, or £50,000 of interest, each year, and which affords them a standard of living that is sufficient, there is no objective necessity for them to accumulate additional loanable money-capital.
Unlike a productive or commercial capital, that would lose competitiveness if it did not accumulate, this £1 million of fictitious capital does not suffer any competitive deterioration, by not being increased to £2 million. If the average rate of interest is 5%, it will produce this same 5% whether the money-lending capitalist has £1 million in a bond, or £2 million. Here the only difference is the absolute amount of interest obtained - £100,000 rather than £50,000. The only necessity for it to be increased, is if the owner of that capital decides that they desire a higher standard of living than £50,000 provides them, or if the rate of interest were to fall, thereby reducing the revenue produced by it.
The same applies to the rent obtained by a landlord. A capitalist farmer, like any other industrial capitalist is objectively driven to try to expand their capital, and to farm larger expanses of land, in order to maximise their profits, to increase or maintain their market share, and thereby to maintain or improve their competitiveness, so as to survive. But, no such objective compulsion applies to the landowner. Provided the rent they obtain from say 1,000 hectares of land, provides them with sufficient rent to sustain the standard of living they require, there is no objective requirement for them to have to expand their land ownership to 2,000 hectares. The only requirement on them in that respect is a subjective requirement to do so in order to obtain additional rent as revenue, in order to enjoy a higher standard of living.
Of course, that doesn't mean that the owners of loanable money-capital, or landed property are not driven by subjective factors, i.e. greed, social status etc., to accumulate more loanable money-capital, or more landed property, but such subjective drivers are not the same as the objective compulsion for industrial capital to accumulate or die.
I can see a reason for why a person with fictitious capital might want to accumulate: because, in your example, $1 million might not always be enough to live on, not just in a sense of "should I buy a BMW or a yacht?", but in the sense of, "am I going to have to go back to working for wages in order to have food and shelter?" Let's say that the interest rate declines from 5% to 0.5%. Suddenly that $1 million only offers $5000 a year in income. Likewise, there could be price inflation, making that $5000 per year have much less purchasing power. Also, the longer you look ahead, the more you would have to factor in the possibility that a large part of the fictitious capital would be wiped out. So, in the meantime, you would probably want to be accumulating to get to, let's say, $2 million or $5 million in capital, so that if 80% of your fictitious wealth gets wiped out by a future crisis, you will still be at $1 million.
ReplyDeleteMatthew,
ReplyDeleteI think I already said that. For example,
"The only necessity for it to be increased, is if the owner of that capital decides that they desire a higher standard of living than £50,000 provides them, or if the rate of interest were to fall, thereby reducing the revenue produced by it."
And,
" Provided the rent they obtain from say 1,000 hectares of land, provides them with sufficient rent to sustain the standard of living they require, there is no objective requirement for them to have to expand their land ownership to 2,000 hectares. The only requirement on them in that respect is a subjective requirement to do so in order to obtain additional rent as revenue, in order to enjoy a higher standard of living."
The decision as to what is in this respect sufficient, is subjective. Even in terms of some minimum it is subjective in the case of the owners of fictitious capital. For example, a worker might own fictitious capital in the shape of shares or units in a mutual fund. They do not necessarily sell them if the income falls below a certain level, because their main means of subsistence comes from wages. Nor do they feel compelled to acquire more of that fictitious capital if the income from it falls. The same applies to workers who obtain some revenue from rent.
Moreover, for those wholly dependent on revenue from fictitious capital, beyond a minimum level required for their subsistence any requirement to acquire more due to changes in revenue depends upon other changes. For example, as you say it requires that either the cost of living rises so that the revenue becomes inadequate, or else it requires the rate of interest to fall so that the revenue produced falls. I have dealt with the consequences of such changes in previous parts, and do so further in the future parts of this series.
But, the point is that there is always an objective requirement for productive-capital to accumulate, because unless it does so, it becomes uncompetitive with other productive-capitals, and ultimately, therefore, is destroyed.