Bonapartism, Reaction v Progressive Social Democracy
Conservative social-democracy rested on the delusion that capital gains from inflating asset prices represented the creation of real wealth. It reflected the fact that conservative social-democracy represents the interests of the owners of fictitious capital, in particular, the big shareholders in the large multinational companies. The interests of fictitious capital are, as Marx describes, fundamentally antagonistic to the interests of real socialised capital. The former seeks to maximise its revenue from interest/dividends, which means that profit of enterprise is thereby reduced. The interest of socialised capital is to maximise profit of enterprise, because it is from the latter that it generates additional capital, and real capital must accumulate or die, because it is the basis for gaining or retaining market share, and for producing on a larger scale, so as to produce more competitively.
But, as Marx sets out in Capital III, Chapter 23, fictitious capital, or interest-bearing capital, is ultimately subordinated to real capital, because it is only the latter that produces profits, and without profits there can be no payment of interest. Similarly, without growing profits there can be no sustainably growing interest. Interest may grow at the expense of profit of enterprise, but that simply means that capital accumulates more slowly, so that the mass of profit grows more slowly, which further undermines the basis of interest. If fictitious capital satisfies its lust for interest by sucking out even greater proportions of profit as interest/dividends, it only undermines the accumulation of capital, and growth of profit even further. And, that is what has happened over the last forty years. As Haldane pointed out, in the 1970's, dividends accounted for just 10% of profits, whereas today, they account for 70% of profits. As he describes it, this is capital eating itself, though more correctly it is fictitious capital eating real capital.
In Capital III, Chapter 23, Marx notes,
“The idea of converting all the capital into money-capital, without there being people who buy and put to use means of production, which make up the total capital outside of a relatively small portion of it existing in money, is, of course, sheer nonsense. 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.”
The validity of this analysis can be seen from what has happened in the last 40 years. More and more capital has been converted into interest-bearing capital, i.e. fictitious capital. The money-capital itself has thereby been massively depreciated, i.e. it buys only a fraction of the shares, bonds, property, or their derivatives that it did 40 years ago, because all of these assets have experienced a massive hyperinflation. The yield on these assets was then forced down. Ordinary people with savings in the bank, today get either nothing, or less than 1% interest on them, which, with inflation of 2-3%, means that, in real terms, their money is continually depreciating. In some cases, in some countries, savers are actually being offered even nominal negative interest rates, i.e. having to pay to keep their money on deposit. That in itself has caused them to look for other forms of speculation, so as to get a higher overall return, such as becoming a buy to let landlord. But, as money flowed into these other assets, the yield on those fell too. For example, even with rapidly rising rents, rental yields fell, because the price of the property bought to rent rose proportionally more than the rent. What Marx did not account for was the possibility that shareholders could exercise their control to increase dividends for some time, to compensate for falling equity yields, and that at a certain point, what becomes more decisive for them is not the yield but the capital gain from inflating asset prices. In turn, the inflating asset prices can be continued for some time, if central banks act as buyer of last resort of those assets whenever their prices fall, and continue to print money in order to buy them.
First, as speculation drove asset prices higher, yields, which are inversely related to asset prices, fell. Shareholders, who exercise control over Boards of Directors, responded by having those Boards increase the proportion of profits going to dividends. When dividend yields still fall, Boards of Directors find other ways of converting capital into revenue, and handing it to shareholders. Large firms can raise money-capital by issuing additional shares, or bonds. The more shares that are issued, the lower tends to be the share prices, because the supply of shares increases, and because the profit per share falls accordingly. So, we have seen fewer share issues taking place. In addition, firms have used the profits they made not to invest in additional capital, but to buy back their own shares, as well as to speculate by buying the shares of other companies. This raises the share price, because the supply of shares falls, and the profit per share increases. This flatters the actual performance of the company. Directors also like this policy, because most of them also own share options – the right to buy the company's shares at a fixed price – so that by inflating the share price, they guarantee themselves a capital gain, by exercising their share options at prices below this inflated price. In addition, firms, even those with huge amounts of cash on their balance sheets, have issued additional bonds, to raise money, and this money can then also be used to buy back shares. This cash on the balance sheet can then be used either to pay additional dividends, or to make capital transfers to shareholders in other forms. The issuing of these additional bonds, reduces their price, but companies have always then been able to rely on the central bank to engage in QE, and buy these bonds themselves, or to pump the additional liquidity into the banking system, so that the commercial banks use it to buy up these commercial bonds, as part of their assets, thereby reflating bond and share prices.
But, this process has continued for so long, and on such a scale, that we now have a situation, where central banks, around the globe, hold a large portion of the total bonds in circulation, as well as a large portion being in the hands of commercial banks that have bought those bonds with liquidity pumped into them by central banks, via policies of QE, LTRO and so on. The ECB has bought so many of the available bonds in Europe that it is now having difficulty finding bonds that meet the required criteria, to be able to buy. It is why $15 trillion of global bonds, around 25% of the total, now have negative yields. 2008, represented the end of the line for the delusions on which conservative-social democracy rested, and yet we have seen that, since 2008, stock markets have not just recovered their previous highs, but surpassed them, more or less doubling from their highs, and quadrupling from their 2009 lows.
But, it has only been possible by this grotesque distortion of the capital markets, undertaken by the central banks. In Capital, Marx notes that a crisis of overproduction cannot be resolved by having the central bank buy up all of the excess production, but, via QE, what the central banks have done is to repeatedly buy up all of the surplus fictitious-capital, so as to prevent its price collapsing. The consequence of them doing so is to destroy currencies, by increasing the supply of currency by astronomical proportions, to destroy the proper functioning of capital markets, because the price of assets bears no resemblance to risk adjusted capitalised revenues, and thereby to create the ridiculous situation in which lenders pay borrowers to take money off their hands. It has not just depreciated money-capital, but has reduced its value to below zero. Appearance is simply disguising reality, and in such conditions it is only a question of when the two are brought into alignment, and the means for bringing that about is a violent financial crisis.
What has been happening since 2008 is that the representatives of the owners of that fictitious capital have been trying to avoid such a crisis recurring, after it broke out in 2008. The sustainable solution for the owners of that fictitious capital is for profits to rise. There are two ways that can happen; either more capital and labour is accumulated, or the rate of surplus value must rise, so that more surplus value is produced. But, the problem of the latter has already been discussed. One reason that the financial crisis in 2007/8 erupted was that the accumulation of capital was already leading to wages rising. Today, although unemployment is not yet down to the 1-2% levels seen in the 1960's, it is down to around 4%, a level not seen since the early 1970's. Moreover, because we are now at a stage in the long wave cycle where intensive accumulation has been replaced by extensive accumulation, the growth in productivity has also slowed. Even with relatively slow growth, unemployment rates will fall further. In the US, the number of new jobs being created continues to rise, each month by about double what is required to soak up additional labour supply. So, rather than absolute or relative surplus value rising more quickly, it is rising more slowly.
The only way of expanding profits, therefore, is for real capital to accumulate more rapidly, but that too will increase employment, cause wages to rise, and profits to be squeezed. Another way of achieving that, whilst utilising existing capital and labour more efficiently, is to increase the concentration and centralisation of capital, which means larger capitals appropriating the plethora of small private capitals at an accelerated pace. As seen earlier, one means of achieving that is a rise in the general wage level, or what amounts to the same thing, an improvement in conditions, and reduction in working-time. That puts the large socialised capital, and the owners of shares in that capital in direct antagonism with the owners of the plethora of small private capital.
In addition, in order to raise profits, and to make additional capital investment a worthwhile proposition, the large socialised capitals require an extension of the social-democratic state, and the planning and regulation of the economy, it brings. It means reducing the cost of capital, and means raising the rate of turnover of capital, by reducing existing frictions. All of these require an extension of those social-democratic principles at an international level. It is what has been seen in North America with NAFTA, it is what has been seen in Latin America with Mercosur, in Asia with ASEAN, and now in Africa, with its new economic and political union that covers 1.3 billion people. It is what large-scale socialised capital, and the owners of fictitious capital that derives its revenues from that capital, requires in Europe. That is why Brexit becomes such a bitter struggle between these two fractions of the ruling class, between the owners of fictitious capital requiring this extension and intensification of the integration of the EU, as against the reactionary sections of the ruling class, comprising the millions of small private capitalists and their families.
Over the last 20 years, the latter have been increasing their influence in the Tory Party. It began with Thatcher, in her last years in office, as she became Eurosceptic. It continued under Major, as the “Bastards” attempted to undermine him. It broke through with Hague, Smith and Howard, all of whom led from a position of reactionary Euroscepticism, and all of whom lost badly against Blair's conservative social democracy, which was able to corral the support of the large-scale owners of fictitious-capital, as well as that of the working-class. Even Cameron, who attempted to occupy this same Blair-right centre-ground, as the only hope of the Tories winning an election, and who promised that the Tories had to “stop banging on about Europe”, was forced to appease the reactionary elements that continued to dominate the party. He took the Tories out of the EPP centre-right grouping in the European parliament and joined with other crackpot, ultra nationalists, and neo-fascist groupings instead, and he committed to giving the reactionaries a Brexit referendum, even though, for the vast majority of the population, the EU was not a pressing issue.
The Tory Party, therefore, represents the reaction. It is wholly under the domination of that plethora of small capital, comprising around 5 million small private businesses, and their families. Its interests lie in a political counter-revolution to overthrow the social-democratic regime that has existed for the last century and a half. They seek to return capitalism to the stage prior to that, when this plethora of small private capital, and rampant free market competition characterised the economy, enforced by a liberal, bourgeois state. It is the fantasy of Hayek and Mises, and of the Austrian School Libertarians of the type of Rees-Mogg. But, it is precisely that a fantasy. No modern economy could survive and prosper on that basis. It was utopian and reactionary when the Russian Narodniks wanted to proceed on that kind of basis, more than a century ago, and even when Sismondi promoted it, more than half a century before that. Capitalism is a globalised system, and although its true that the vast majority of British capital does not engage at all in international trade, the reality is that the economy cannot survive without it. The firms that dominate the economy, that provide the foreign earnings with which necessary imports are bought, do engage in such trade. A British capitalism reduced to small firms would simply get eaten by larger, foreign companies when it comes to such trade. Outside the EU, even large British firms will suffer severe competitive disadvantages, not just because of tariffs, and non-tariff barriers, but simply because of the additional costs from all of the frictions that a non-EU capital will face compared to EU capital.
Its why, whatever Boris Johnson might say, now, sooner or later, he will stab his erstwhile allies from the ERG in the back, just as the Austrian fascists stabbed the Miseans, and their liberal supporters, in the back, in the 1930's. A British economy outside the EU would even more need to centralise and concentrate capital into large units, and to increase planning and regulation, as the Nazis did, in order to compete. The truth is that the plethora of small private capitalists, like the peasantry, are a disorganised rabble, with no common set of interests and principles around which they can organise. They comprise maybe 12-15 million people, forming also the vast bulk of those that voted for Brexit. In addition to them, they are supported by a further disorganised rabble comprising those elements that Marx called the lumpenproletariat, as well as the Bohemians, and declassed elements, particularly amongst those retired workers who often had only a tendential relation to the labour movement, and who now, have no relation to it whatsoever. These are the elements that always form the support base for Bonapartism. Only a Bonapartist, a strong leader, mobilising state forces behind them, can enforce any kind of common agenda on this rabble. That is the function that Boris Johnson represents in Britain, and Trump represents in the US. The same phenomenon can be seen with Bolsonaro in Brazil, Putin in Russia, Netanyahu/Gantz in Israel, Erdogan in Turkey, Orban in Hungary, Duterte in Indonesia, and so on.
What is more, even concatenating all of these disparate elements does not provide majority electoral support, which is why neither Hague, nor Smith, nor Howard could mobilise electoral majorities. Nor could Cameron, initially, without Liberal support, and, as I wrote at the time of the 2015 election, although it resulted in the Tories obtaining a majority on their own, it was done by obliterating the support for their coalition partners. The overall majority, of 80, that the combined Tory-Liberal coalition obtained in 2010, was slashed in 2015 to just 12 for the Tories, with the Liberals almost wiped out. The shift represented the fact that, even more, the population was polarising, with the Tory vote hardening around its reactionary core, and the conservative social-democratic support for their Liberal allies recoiling, and gravitating towards Labour, the Greens et al.
The British state remains a social-democratic state. Its interests lie in promoting large scale socialised capital, and all of those measures required to achieve that, including continued membership of the EU. But, the state itself is not some homogeneous, single entity. Marx described it as the Executive Committee of the ruling class, but like any such committee, it is made up of committee members themselves representing different interests and views, and thereby aggregating those interests into some common agenda. At the heart of the state resides the permanent civil service, which itself is highly influenced by the Treasury. Its ideological influence also spreads out by a thousand golden threads to other arms of the state, such as the military, police force, judiciary and so on. But, the modern state comprises other influential arms, not least of which is the ideological arms represented by the mass media.
The divisions within the ruling class are much more apparent in this realm. Its no surprise that the Financial Times is heavily pro-EU, whilst those newspapers whose readership is concentrated amongst those reactionary, core Tory voters, and the declassed sections of the working-class, are the most vituperative proponents of Brexit. In large part, that is simply a question of knowing which side their bread is buttered, on. The same papers that support Brexit today, are the same ones that supported Mussolini and Hitler in the 1920's and 30's. The Daily Mirror, which has generally seen its audience amongst the mainstream Labour voters, has adopted an anti-Brexit stance, and yet the Mirror Group, having taken over the Daily Express, has not, in any way, changed the Express's visceral anti-Europeanism, or racism. The TV channels, whose news output now is itself a form of light entertainment, and often a means of promoting its presenters into the realm of celebrity, also needs to attract and retain viewers. That is why it is has, throughout, promoted Brexit spokespeople like Farage, Evans and so on, way in excess of any support they had amongst the electorate. That is even more the case with the shysters of the former RCP/Living Marxism and now of the Koch financed Spiked Online. They have been backed up with right-wing nationalist academics in the Universities, and their pseudo theories about the citizens of somewhere and nowhere, and so on.
So, the Brexiteers, whilst lacking the support of the most important sections of the state, have, instead, utilised those elements of the state that are more reliant on trying to accommodate the interests of the core Tory base. The same has been true in the US, with Trump's use of Fox News, and of all the reactionary Talk Radio stations. In typical Bonapartist fashion, it is used to try to brow beat the other sections of the state into quietude. Remain supporting MP's are harangued; they and judges are branded as traitors and enemies of the people, and so on. The problem for the Brextremists is that whilst they have been able to corral this core vote behind the Tory Party, and on one day in 2016, to obtain a small majority in the referendum, it is both fragile and passive. Mark Francois predicted on TV that, if Brexit did not happen on October 31st, Britain would explode. Well it came and went, and Britain did not explode. The octogenarian Tory supporters of Brexit are not going to undertake a General Strike, as separatist Catalan workers have done, and nor are they going to take to the streets in open revolt. That is far more likely to be the response to Brexit itself from millions of workers, particularly young workers that will feel betrayed, and increasingly angry at the impact it has on them. They will not at all be sympathetic to those like the Labour leadership that allowed that to happen to them.
Almost immediately after the referendum, polls showed a majority in the other direction, and have continued to indicate that ever since. That is why the Brextremists are desperate to get Brexit done, now, because they know that this is their last chance. The old Tory voters that voted for Brexit are literally dying out, whilst, a million or so new young voters who both oppose the Tories, and oppose Brexit, by a margin of 4 to 1, are joining the electorate each year. It is the anti-Brexit forces that have history, dynamism, and momentum on their side. Over 7 million signed the online petition demanding that Article 50 be revoked, whilst only 300,000 signed a pro-brexit petition; on two occasions, more than a million people have marched demanding another referendum, whilst the Brexiteers have managed only to turn out a few thousands EDL'ers and other fascists insisting that Leave Means Leave.
The main advantage for the forces of reaction has been the fact that the Labour Party itself, under Corbyn, has advocated a reactionary pro-Brexit stance. That means that the progressive forces opposing Brexit have been divided. The reactionary nationalists have a sizeable rabble on their side, but it is heterogeneous and largely passive. It is motivated to vote, but little else. The supporters of conservative social-democracy also represent a minority, now that the political centre has collapsed. Given the liberal, middle class nature of this conservative social-democracy, it is also driven to respond in passive ways, such as in votes and peaceful demonstrations. It too has no desire to awaken a sleeping giant, by calling on the organised working-class to back it with a General Strike to stop Brexit, or more radical action. Instead, for now, this conservative social-democracy, representing the interests of the dominant section of the ruling class, the owners of large-scale fictitious-capital, can utilise its supporters within the capitalist state. It can rely on the permanent civil service, particularly that part around the Treasury, and to back up its representatives in parliament, it can rely on the Judiciary, as it did in insisting that parliament had a meaningful vote, in striking down Johnson's proroguing of parliament etc. In other words, it has avoided an all out class battle to stop reaction, which would require mobilising the working-class, by instead handing over power to unelected judges. This rule by ruling class judges is just as much a resort to Bonapartism as is the resort to authoritarian measures by the government, along with its resort to direct appeals to the mass, via its supporters in the reactionary Tory media.
Workers have no reason to be complacent or to accept either of these forms of Bonapartism. The failure of Corbyn and the Labour leadership to adopt a principled socialist internationalist stance on the question of Brexit, is an historic betrayal. It has meant that, on this crucial class issue of the generation, there has been no sizeable, independent socialist voice. The field of battle has been vacated, and left open to our class enemies, to fight it out as to which of its sections will predominate. But, such battles never end simply with one of those parties claiming victory and then peace breaking out. If the forces of conservative social-democracy prevail, it will be an unstable peace, because the conditions upon which conservative social-democracy rests no longer exist, resulting in the political centre having collapsed. As with the victory of Macron in France, it will only lead to further failure, and resentment, which opens the door to an even more virulent reaction, which is seen in France with the Gilets Jaunes. If the forces of reaction prevail then the consequences for workers are even worse, and more immediately.
If Boris Johnson tries to implement the kind of Brexit that is currently proposed, it will immediately require a strong state, and increasing authoritarianism. He would have to turn on the elements within the permanent state that support the dominant section of the ruling class, as Trump has done in the US. A crash out No Deal would see, the Pound and financial markets collapse, and a strike by capital. The chaos would result in civil unrest, and a requirement to use the Civil Contingencies Act. A managed No Deal, which is what Johnson might attempt to negotiate, during a transition period, would avoid immediate chaos and catastrophe, but would still involve a significant hit to the economy, with growing social unrest that would be met, first by further restrictions on unions and civil liberties, moving increasingly towards more authoritarianism. The Austrian School/Libertarian ideal is unachievable, and as that became manifest, trying to continue down that path would require even greater repression and reaction. Not for nothing did Hayek say that they do not fetishise democracy over liberty, by which he meant the liberty of exploiters to exploit.
But, Johnson almost certainly does not believe all of the Austrian School claptrap. That is why his programme involves public spending and borrowing on a scale that Ed Miliband would have been vilified for proposing. Johnson's economic nationalism, in that regard, is simply a throwback to the kind of agenda of the Mosely memorandum of the 1930's. It is the same kind of economic nationalism based upon Keynesian intervention that characterised the regimes of Hitler and Mussolini. Such a strategy would mean that having obtained office, Johnson would have to ditch the ERG, in the same way he has ditched the DUP. It would mean ditching the interests of that plethora of small capitalists, and swing behind the interests of building real socialised capital, in order to promote the growth of the economy. But, that would mean not only expelling the Spartans in the same way he expelled the 21 Remainer Tories, it would also mean him taking on the 100,000 or so rank and file Tory members, and their voter base. That again would mean that his regime would have to rest upon the state itself for support, which requires a high degree of authoritarianism.
As I have described in the past, this is actually the conservative rather than reactionary nature of fascism. It is conservative because it attempts to defend the existing social relations of social-democracy, whereas the reaction wants to smash them up. The regimes of Mussolini, Hitler and Stalin, were all, in essence, social-democracy without the democracy. But, that fact alone should be a warning for workers, because each of these regimes, however much they used the state to regulate and plan production, to utilise state funds for investment in infrastructure, and capital accumulation, were hell holes for the working-class.
Workers need their own independent response to Brexit. We cannot support the use of the ruling class's judges as arbiters of this process, even as they are utilised by its dominant section to frustrate the ambitions of its reactionary sections. The failure of the Labour leadership to provide such an independent, principled, international socialist alternative is an historic betrayal. It is now up to rank and file socialists to provide that alternative, and in the process to rebuild and renew the labour movement itself.
Back To Part 16
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