Tuesday, 18 April 2017

Social-Democracy, Bonapartism and Permanent Revolution - Chapter 9 – Wealth and Affluence

Chapter 9 – Wealth and Affluence

In the Grundrisse, Marx makes the distinction between being rich and being affluent. It is the distinction between stock and flow. Someone who is rich has a sizeable stock of wealth, whereas someone who is affluent has a sizeable flow of revenue. Someone who is rich may also be affluent. If the wealth is productive wealth, in other words, it produces industrial or commercial profit, as in the case of an owner of a factory, a shop, or some other commercial enterprise, the flow of revenue – profit – will depend, on average, on the size of the capital, and the average rate of profit.

A small capitalist, or a self-employed person may then be richer than an industrial worker, who owns no such stock of wealth, but may be less affluent. In other words, the wages and profit of the former, may be less than the wages of the latter. The larger the capital, the less likely that is to be the case.

But, it may also be the case that the rich person owns wealth that is not productive. I may own a £1 million house, but it produces no revenue for me. It is merely an expensive use value, a durable commodity I consume over a long period, no different, in that respect, than a car or a chocolate bar.

Finally, the wealth may take the form of a revenue producing asset such as a share, a bond, a mortgage, or a piece of land or property, which I rent out. None of these have real value, unlike say a factory or a machine. Their value itself depends on the revenue they produce, and the potential for producing that revenue is dependent on factors external to them, in particular, the general annual rate of profit.

A worker may be affluent, because they have a well-paid job, and yet, as Marx explains, as capital develops, this affluence rises, as productivity rises, but the worker becomes relatively poorer, because it becomes harder and harder for them, individually, to own capital effectively. As capital develops, this becomes true for capitalists as well.

“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.”

Capital III, Chapter 27

The workers can only own capital effectively on a collective basis. That is because the rise in productivity, which raises living standards is the other side of the concentration and centralisation of capital, which continually raises the minimum effective size of productive-capital.

“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.”


In Capital III, and in Theories of Surplus Value, Marx also discusses the further significance of this distinction. Every society must reproduce its means of production, it can only consume its revenue, i.e. the new value produced by labour during the year. In Capital III, Marx cites the example of a rich nation that undertook no production, and simply consumed its existing stock. Even the richest nation might survive for only a couple of years before it had consumed all its wealth, and in so doing would have removed also all of its potential to produce, and thereby create revenue. A farmer has to reproduce rather than consume, their seed-corn, in order to produce the following year. You cannot have your cake and eat it. It is why, as Marx says, Adam Smith and subsequent economists are wrong to believe that the value of national output resolves only into revenues. It divides into capital and revenue, stock and flow, the former which has to be maintained and reproduced, and the latter which is consumed out of wages, profit, interest, rent and taxes.

But, this applies also to wealth held in the form of financial assets, and other non-productive assets, like land and property. If I have £1 million in bonds, that pay £20,000 p.a. in interest, I can, each year, consume this £20,000 with no detriment to my capital, and its ability to keep producing £20,000 of interest.

I can consume £120,000, but only by also consuming £100,000 of my capital, which means that the following year, I will have only £0.9 million, producing only £18,000 of revenue. To continue to consume at the same level, I would then have to consume £102,000 of capital, so that my capital is increasingly consumed, at a faster rate, and its capacity to produce revenue undermined along with it.

For capital that is in an illiquid form, such as land or property, the consumption of it takes the form of borrowing against it. That is one way, as Marx describes, that sections of the old landed aristocracy were dispossessed as they borrowed against their estates, in order to raise the money required to continue to finance their lavish lifestyles. A basic form is the mortgage, but, in recent years, pensioners who had built up wealth in the form of their home, were conned into borrowing against it, to obtain money from so called equity release scams. Sometimes, this was done to borrow money to lend to their children to use as deposits on grossly overpriced houses, thereby facilitating those prices being sustained, by artificially inflating demand.

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