Thursday, 21 June 2018

The Chinese Dictatorship’s Belt and Road to Nowhere

Perhaps the greatest ominous sign of the tremendous crisis that is about to hit global capitalism - in line with what we argued in our previous post - is the desperate convulsive attempt by the Chinese Dictatorship to keep its command economy afloat through imperialist (and racist) expansion abroad. This attempt is already failing. Here is an extract from a recent post in the Wall Street Journal that summarises the unfailing signs of the coming catastrophe:

While the sell-off in currencies of emerging markets with insufficient foreign exchange (forex) reserves and wide current account deficits — such as the Argentine peso and the Turkish lira — is still picking up steam, there is relative calm in China. The yuan is trading well off its recent multi-year lows.
On the surface, the yuan has plenty of forex reserves (over $3 trillion) and its current account has been in surplus for over 20 years. But under the surface, it very well may have some serious issues.
The natural question is: If there is no need for external financing, why did China lose $1 trillion in forex reserves between mid-2014 and mid-2016 before briefly arresting that decline? The decline has now resumed (see chart).
Danger for China
There is a bonfire burning in the Chinese financial system because the bulk of rampant dollar borrowing in emerging markets in the past 10 years has come from China, because of the sheer size of the Chinese economy, which was $11.94 trillion in 2017 — second largest in the world. Furthermore, unlike in India where GDP growth is driven by self-sustainable internal domestic demand, in China GDP growth is driven by accelerating dollar borrowing (see chart) and aggressive mercantilist tactics.
Chinese over-leverage
Furthermore, unlike in India where GDP growth is driven by self-sustainable internal domestic demand, in China GDP growth is driven also by accelerating yuan borrowing. As Chinese GDP has grown 12-fold over 20 years, its total financial leverage has grown over 40-fold. That means the GDP-to-total-debt ratio in China has grown by a factor of nearly 4 times. Such estimates include shadow banking leverage, which is excluded from all official figures, but by estimates from credible sources including the Brookings Institution is as large as the official Chinese economy (see report).
If a trade war were to escalate, the fragile balance in the Chinese economy could be tipped and we may very well experience a second Asian crisis, which ironically, was also driven by rampant dollar borrowing. The important difference here would be that China’s GDP is many times larger than the total GDP of all countries involved in the first Asian crisis in 1997-1998 (when China’s GDP was barely above $1 trillion).
While the sell-off in the Turkish lira and Argentine peso is generating headlines at the moment, it is hard for the Chinese yuan to get the same attention as there are still plenty of forex reserves to stop the yuan from depreciating further. One could say that because of the bigger war chest of the People’s Bank of China, the yuan is not necessarily a similar market indicator to other emerging markets currencies whose central banks are in considerably less fortunate positions.
The key here remains forex reserve outflows, in which a pickup similar to what we saw in 2015 after the crash of the Shanghai Composite (and faster than the present pace) would be the major red flag.
Other market-driven indicators
The Shanghai Composite Index SHCOMP, +0.27%  has fallen this week already to as low as 2,907 points. It sure looks to have experienced a bad “crack” in 2018. I have previously referred to the rally off the January 2016 lows of 2,650 as “the mother of all dead cat bounces,” or MOADCB, a bear market rally that could not recover in two years what it lost in a single month (January 2016). The index is now unwinding that MOADCB rather expeditiously (see chart).

I am aware that the Shanghai Composite is not as good a reflection of the Chinese economy as India’s Sensex is for the economy of India, as China’s economic growth does not necessarily translate into profit growth due to the much bigger government intervention in the economy in the best interest of “social stability,” as the Chinese like to say. Still, the troubling developments in the Shanghai Composite cannot be ignored when forex reserve flows have resumed and there is a rather unconventional man at the wheel of a kerosene truck headed for the blazing bonfire of the Chinese financial system.

Tuesday, 19 June 2018

THE WINDS OF WAR

The winds of war are upon us. They blow with greater intensity as the days, if not the hours, go past. The causes of this will be familiar to all the friends who have followed this blog attentively. In our few last instalments especially, we have sought to demonstrate how the antagonism of the wage relation which is central to the mode of production we call capitalism leads to two inseparable developments. On one side, workers seek to make all their work “necessary” so that the “surplus” part of the working day available to the capitalist is diminished whilst, on the other, capitalists seek the opposite either “absolutely” by extending the working day or by employing more workers side by side (Marx’s “simultaneous working days”) - or else again, the capitalist will seek to shift the antagonism of the wage relation to other capitalists and workers through technological innovation, or else again “to export” the antagonism either within his own nation or else to other nations with weaker working populations relative to the governance of those nations (of course, dictatorial and authoritarian regimes are preferred! As a result, technological innovation is highest in those nations where workers’ autonomy is highest - because innovation always reflects the need of the capitalist to avoid working-class antagonism over the wage relation. 

The inevitable result is that once the pressure valves of the export of antagonism, of expansion of the working population and of technological innovation are exhausted, nations will come into conflict. The irrefragable aim of the capitalist to continue to exist as a capitalist is to maximise surplus value - and then to find more working populations that can be put to work for this surplus to be absorbed. But in all these cases the capitalist will need to increase the working population absolutely! The reason for this is that without such a reserve army of the unemployed the capitalist’s accumulated profits and capital will not be put to use and such failure to reinvest will amount therefore to a colossal destruction of capital!

Already with the collapse of Bretton Woods in 1971, the long arch of capitalist accumulation that had begun after World War Two had come very close to catastrophe because of the exhaustion of profitable avenues of investment. The most visible expressions of this exhaustion included not just the fall of the Gold Exchange Standard erected at Bretton Woods, but above all the frightening inflationary parabola that took place in the 1970s and the intensification of antagonistic political movements throughout the world. What came to the rescue of global capital was the propitious opening of China to Western investment occasioned by the visit of President Nixon to Chairman Mao early in the 1970s. That visit opened access for Western capital not just to a working population of well over one billion people - but above all to a working population that had been politically annihilated by the Maoist Cultural Revolution and now in the complete subjugation of the most brutal bloodiest and truculent dictatorship ever known to humanity! 

What followed was the dictatorial “mobilisation of resources” (human, physical and environmental) with the consequent destruction of human communities that this wretched planet has ever known in all its nightmarish history! What Ben Bernanke called “the Great Moderation” - that is to say, the unprecedented expansion of capitalist accumulation from 1980 onwards - coincided with this equally unprecedented, socially and environmentally catastrophic expansion of the wage relation to over one billion Chinese. The consequence was a global glut of “savings” - the profits derived from investment in China - and also the empowering of the Chinese Dictatorship, which sooner or later was going to emerge as a powerful challenger to Western capitalists. The initial hope was that the Chinese dictators could be persuaded eventually to normalise relations with the West and relent on exploiting their workers through the expansion of democratic guarantees. But we know now most certainly since the accession of the most rotten dictator of all in 2012 - Xi Jinping - that this was only a pious wish!


What Western capital failed to see was that once the Chinese Maoist dictatorship ran out of options with its colossal “mobilisation of resources”, it would then (like all dictatorships, it it wished to preserve its totalitarian power) urn to the export of the growing domestic antagonism - and that it would do so in two wholly predictable ways: (a) imperialist expansion through military coercion, and (b) imperialist expansion through heavy capital investment and financial loans aimed at politically subjugating weaker nations with sympathetic dictators and huge excess working populations, especially in Africa! It is this last lunge by the Chinese Dictatorship to save its skin in the face of growing domestic and international working-class antagonism that we are witnessing even as we write: the Chinese stock market and the renminbi are in free fall; US dollar and yen are rising putting intolerable stress on “emerging market” currencies. Soon, we shall see the collapse of the Chinese financial and banking system, already overburdened with unsustainable debt levels and “imperialist” expenses ($65 billion dumped in Venezuela alone!); the lot made worse by the Trump Administration’s unquenchable will to power through the imposition of punishing tariffs that will destroy Chinese export industries and decimate employment. Soon we shall also see a new exodus of Chinese capital as the rats in China try desperately to rescue their ill-gotten criminal gains, and as more Chinese rats seek to jump off the sinking ship that is the Chinese economy! Sauve qui peut! (More to follow, folks!)

Saturday, 16 June 2018

The Dynamic of Capitalist Accumulation: Uneven Development and Global Conflict

We open Karl Marx’s Grundrisse at the part dealing with surplus value. Marx is trying to elucidate to himself in these notes the ultimate meaning of profit - and therefore of capitalism. The essence of capitalism, at least superficially and tangibly and visibly and measurably is the production of use values for profit. Use values, explains Marx, are not necessarily exchange values; they are not necessarily “goods” or “commodities”. The production of use values becomes one exclusively of exchange values (goods, commodities) only in a capitalist system of production whereby use values are produced not for use but for exchange. And this exchange must take place in such a manner that the capitalist can derive a “profit” from the production and sale of the goods: in other words, the revenue derived from the final sale of the goods must be superior to the value invested in the means of production (tools, raw materials, and labour-power) for their production. But where does this “surplus value” (the difference between the end value of the goods and the original value of the means of production) come from? Marx says, quite correctly as ought to be obvious, that value cannot arise from the objects used in the process of production. Instead, value can only be created by a use value that has a political element to it: - labour-power, the commodified form of human living labour. 

It is a law of capital, as we saw, to create surplus labour, disposable time; it can do this only by setting necessary labour in motion—i.e. entering into exchange with the worker. It is its tendency, therefore, to create as much labour as possible; just as it is equally its tendency to reduce necessary labour to a minimum. It is therefore equally a tendency of capital to increase the labouring population, as well as constantly to posit a part of it as surplus population—population which is useless until such time as capital can utilize it. (Hence the correctness of the theory of surplus population and surplus capital.) It is equally a tendency of capital to make human labour (relatively) superfluous, so as to drive it, as human labour, towards infinity.

One important consequence arises from this: for if indeed surplus value - all value - can arise only from living labour, then it is equally obvious that value - and therefore profit - can only have any meaning at all if and only if it is applied to the command of human living labour. Of course, the monetary equivalent of surplus value, profit, can be applied to the purchase of goods other than labour-power (the commodified form of living labour). But such a purchase can b applied capitalistically (for the purpose of making a further profit, that is, for the purpose of capitalist accumulation) if and only if it goes toward the production of goods that, in turn, yield more profit - and therefore ultimately only if they yield more command over living labour.


Value is nothing but objectified labour, and surplus value (realization of capital) is only the excess above that part of objectified labour which is necessary for the reproduction of labouring capacity. But labour as such is and remains the presupposition, and surplus labour exists only in relation with the necessary, hence only in so far as the latter exists. Capital must therefore constantly posit necessary labour in order to posit surplus labour; it has to multiply it (namely the simultaneous working days) in order to multiply the surplus; but at the same time it must suspend them as necessary, in order to posit them as surplus labour. As regards the single working day, the process is of course simple: (1) to lengthen it up to the limits of natural possibility; (2) to shorten the necessary part of it more and more (i.e. to increase the productive forces without limit). But the working day, regarded spatially—time itself regarded as space—is many working days alongside one another. The more working days capital can enter into exchange with at once, during which it exchanges objectified for living labour, the greater its realization at once. It can leap over the natural limit formed by one individual's living, working day, at a given stage in the development of the forces of production (and it does not in itself change anything that this stage is changing) only by positing another working day alongside the first at the same time - by the spatial addition of more simultaneous working days.


The result is that whilst capitalist accumulation - profitability - depends on the reduction of the proportion of production that goes to workers in wages (necessary labour), for the capitalist to be able to reinvest the profit or surplus value there needs to be a corresponding increase in the population of workers! But because human beings work for the capitalist - that is, sell their living labour as labour-power to him - if and only if they are forced to do so - in other words, if they are still subject to necessary labour -, then it is obvious that an increase in the population is also an increase in necessary labour. On one hand, workers seek to increase their wages and reduce their working hours, and so lower the surplus value available to the capitalist by making more of their labour “necessary”; on the other hand, the capitalist seeks to reduce the wages of his own workers, and so the necessary labour, and increase the surplus value or profit available to him. Thus, the greater surplus value or profit can be reinvested by the capitalist only by employing more workers with less of the goods they produce - with lower wages. 

This is why capital solicits the increase of population; and the very process by means of which necessary labour is reduced makes it possible to put new necessary labour (and hence surplus labour) to work. (I.e. the production of workers becomes cheaper, more workers can be produced in the same time, in proportion as necessary labour time becomes smaller or the time required for the production of living labour capacity becomes relatively smaller. These are identical statements.) (This still without regard to the fact that the increase in population increases the productive force of labour, since it makes possible a greater division and combination of labour etc. The increase of population is a natural force of labour, for which nothing is paid. From this standpoint, we use the term natural force to refer to the social force. All natural forces of social labour are themselves historical products.) It is, on the other side, a tendency of capital—just as in the case of the single working day—to reduce the many simultaneous necessary working days (which, as regards their value, can be taken as one working day) to the minimum, i.e. to posit as many as possible of them as not necessary. Just as in the previous case of the single working day it was a tendency of capital to reduce the necessary working hours, so now the necessary working days are reduced in relation to the total amount of objectified labour time.

The result is that capitalist profitability or accumulation is essentially the increase of “simultaneous working days” by a growing working population - whether that population is located in the nation where the capitalist invests or in a foreign nation. The ultimate purpose of the capitalist is to maximise surplus value (profit); the ultimate aim of the worker is to maximise wages by working less and increasing leisure time. But the aim of the capitalist in maximising surplus value is not and cannot ever be to increase the leisure time of workers! Emphatically no! The aim of the capitalist is to increase the number of individual workers that his accumulated capital can command! The purpose of capitalism is to increase the command of dead labour (goods) over living labour (the population of workers). And the more the capitalist increases profit by reducing the length of the working day through productivity growth - and therefore paying less wages for the same amount of product -, the more the same capitalist will need an ever greater number of workers to exploit for his capital to be reinvested profitably! The net effect, paradoxically, is that while the capitalist seeks to reduce the amount of necessary labour for the reproduction of his own workers, at one and the same time either the single capitalist or the class of capitalists as a whole will need to expand the workers that they employ by a proportionately higher number so as to be able to accumulate more profit.

The devastating conclusion is that capitalists need to perpetuate necessary labour by constantly growing the excess working population - the army of the unemployed - so as to be able to command more workers at lower wage costs. This is the complex process whereby capitalism expands the global population to ecologically unsustainable levels! Capitalists can increase their exploitation of workers either “absolutely” by forcing the same number or a greater number of workers longer with the same machinery (technology). Or else, capitalists can increase the productivity of workers “relatively” through more advanced machinery if the antagonism of workers over wages is especially high. In this second case, the antagonism of workers (a) forces capitalists to replace machinery and, (b), forces capitalists to increase the population of workers to a higher degree proportionate to the bargaining power of workers in raising the “necessary” part of the working day.

Surplus time is the excess of the working day above that part of it which we call necessary labour time; it exists secondly as the multiplication of simultaneous working days, i.e. of the labouring population. (It can also be created - but this is mentioned here only in passing, belongs in the chapter on wage labour - by means of forcible prolongation of the working day beyond its natural limits; by the addition of women and children to the labouring population.) The first relation, that of the surplus time and the necessary time in the day, can be and is modified by the development of the productive forces, so that necessary labour is restricted to a constantly smaller fractional part. The same thing then holds relatively for the population. A labouring population of, say, 6 million can be regarded as one working day of 6×12, i.e. 72 million hours: so that the same laws applicable here.



The repercussions of this dynamic on inter-national relations are obvious: capitalists in a given nation-state seek to unload the antagonism of the wage relation in their state to the working populations in other states. This dynamic works on several levels. For one, capitalists select those countries other than their own (!) where working conditions and governance are worst - either dictatorships or authoritarian countries; and especially nations with large and growing excess populations. The advantage for capitalists is, first, that nominal wage payments in their nations can be kept low; second, at the same time, real wages in their nations can grow through the import of cheap products from the less emancipated nations. By virtue of this process, capitalists buy social peace at home and “export” class antagonism to other more repressive governments and their workers.

Wednesday, 13 June 2018

From List to Weber: Capitalist Uneven Development and Global Conflict

Value Creation and the Coming World War

The world is moving inexorably toward a global conflict, one that will see the capitalist market economies of the West confront and crush the Chinese Dictatorship and its Russian counterpart - the latter already enfeebled by economic crisis, and the former already experiencing insurmountable challenges on the financial and eventually on the industrial and political fronts. The reasons for this seemingly apocalyptic conclusion can be drawn almost with the linearity of logic from the study we have just conducted of Friedrich List’s political economy. To be sure, List’s insightful analysis of the intrinsic conflictuality of capitalist industry still left room for his avowed goal of a community of nations that could finally embody the idealistic premises of what he called the “cosmopolitical economy” of the Anglo-Saxon economists from Adam Smith to J.B. Say. In reality, however, whilst he correctly identified the different “stages of economic development” as being the central reason for existing conflict between nations, List completely failed to enquire into and to enucleate the meaning of “economic development” itself, as distinct from just describing the extrinsic ectypal forms of these progressive “stages”. In the end, List’s political economy amounts to a mere “classification” of stages of development which he mistakenly thought could lead to the convergence of national economies without ever penetrating the essential politico-economic meaning and dynamic of capitalist development that leads - again, inexorably - to the divergence of national economies and eventually to open warfare. Of course, the antagonism implicit in the wage relation - the violent “exchange” of living labour with dead labour - is always tendentially leading to conflict - within nations, first, and then, as nations seek to externalise this internal antagonism, also between nations. The challenge is to identify the circum-stances, the con-ditions, that is to say, the surrounding events, the ingredients that lead to war between capitalist nations. 

Is there something in the notion of “value”, then, in the antagonism between workers and capitalists, that leads all the way to international conflict and war? Let us first examine the more visible notion of “profit”. Profit is the monetary difference between total investment and total revenue. For a capitalist enterprise to be profitable, the products it sells must amount to more than the cost of producing them with the cost of capital added (interest at the prevailing rate over the period of production and sale). This means that in the process of production the inputs have been “valorised” - their value has grown - and this is then reflected in the “realisation” of the value through the sale process. But how can the components of production acquire value? after all, objects (means of production - raw materials and machinery) are only inert objects and they cannot possibly possess or acquire “value”. It is obvious that value, and the value added in the process of production, can only be derived from living labour. Two things follow from this conclusion: the first is that the value of a particular commodity cannot be determined until after it is actually sold on the market - until its potential value is “realised”. And the second is that this value is determined ultimately by the ability of this realised value “to purchase” labour-power on the market as if it were a commodity like any other. 

We have therefore a “double character” (Doppelcharakter) of human living labour: - on one side it is the only possible source of value as living labour - that is its use value; and on the other it can be “purchased” as labour-power through the violence of the wage relation “on the market” like any other commodity through its exchange with produced commodities, that is to say, with “dead labour”. Herein, therefore, lies the “specificity” of the Economic in a capitalist society, that is to say, in the ability of capitalists to dominate living labour - workers - not through explicit coercion but rather through a complex set of institutions that force workers to exchange their living labour for the objects that they themselves have produced, with “dead labour” - again, not through direct coercion from a particular capitalist toward particular workers - the capitalist does not “own” the workers as is the case with slavery or with feudal relations where the “serfs” are tied to the land, the feud or glebe. Nevertheless, it is equally obvious, first, that the wage relation is one of violence in that workers would never accept to sell their living activity in exchange for the product of their labour - that is surely an “exchange” that amounts to fraud (if unwitting) or violence (if workers are aware of it) - Marx. But, second, it is also true that workers could not preserve their “formal freedom” under the law if they rebelled against this oi lent coercive transaction - one based on “th need to work”, “o put food on the table” - and the very fact that workers are willing to work for “a fair wage” means that the capitalist mode of production does have a minimum of legitimacy (Weber). Nevertheless, legitimacy does not mean absence of conflict: capitalist society is founded on social antagonism between capitalist and workers - and specifically on the antagonism of the wage relation. The question then arises of why the antagonism of the wage relation has not exploded into open social conflict - into civil war in many advanced industrial capitalist societies. The answer has to do with capitalist growth and development. Let us see how this works.

Profit and Uneven Development

Profit in capitalist enterprise, and therefore surplus value, makes absolutely no sense at all unless it is seen as value that can be (a) increased through the process of production or “valorisation”, and (b) “realised” through the process of market sale. But for profit or surplus value to be “realised” through sale, this profit realised by capitalists can be absolutely no meaning unless it can be expressed as monetary purchasing power over fresh living labour! This means that the process of realisation of profit can have meaning only through the exertion of capitalist command over fresh living labour, over an ever-expanding population of workers. In turn, this entails the presence of a reserve army of the unemployed that (a) provides competitive tension on employed workers to drive down wages, and (b) provides a repository of further investment for capitalists to expand their command over society so that there may be what is called “capitalist accumulation”. In other words, capitalist accumulation through surplus value and its monetary equivalent, profit, is nothing other than the expansion of excess labour-power through overpopulation.


Thus, if we wish to understand why the global population keeps growing to the point where it is becoming unsustainable for the ecosphere - then we have only the capitalist mode of production to blame. But, the objection will be promptly moved, if that is so, why is it that the most advanced capitalist countries are beginning to experience stable or stagnant or even declining populations? The answer is relatively simple: as capitalist accumulation grows, the process runs against political and environmental limits as capitalist ruling classes attempt, first, to keep their own national populations pacified through rising living standards relative to other nations (!) - but then, second, this first condition requires the presence of other nations (especially if under the control of authoritarian dictatorships) where populations of potential workers are present that can absorb the profits accumulated in the more advanced industrial capitalist countries. This model of international capitalist division of social labour is premised therefore on the “uneven development” of national economies - not just in terms of the level of “industrial” development, but also and above all in terms of the “political-democratic” development of the nations involved! As nations become more advanced from an industrial viewpoint, they also are left with no choice but to emancipate their own working classes. Yet at the same time, these more advanced capitalist nations need to find less advanced nations whose working populations they can exploit and expand through higher rates of fertility! It goes without saying that this process of “uneven development” gives rise to tremendous conflicts between the more advanced and the less advanced capitalist countries - in all sorts of directions from migration pressures, to international tensions as each capitalist nation seeks to unload its domestic wage antagonism on other countries.

Sunday, 3 June 2018

June 4, 1989 - In Memoriam

Our final instalment of “From List to Weber” is dedicated to those young innocent souls who were martyred by the brutal murderous Chinese Dictatorship on this woeful day in 1989 - as many as 10,000 or more, savagely butchered by these cowardly murderers. We shall have no peace, we shall not rest a moment, until we see these callous murderers either be executed as brutally as they took these young lives, or else be imprisoned for as long as they live for crimes against humanity. The savages in the Beijing Chinese Dictatorship do not deserve to walk the earth and breathe its air like the rest of us. Fight them we shall to our last breath until we obtain the justice we seek!!


The antagonism of workers and capital ensures that capital incessantly seeks to eliminate workers or at least to replace skilled workers with less skilled ones to reduce wage costs. Thus, what is called technology is really the process whereby capital wishes to emancipate itself from workers by either eliminating them or, given that this is impossible to do entirely, by lowering the wage costs – and this is achieved by “de-skilling” workers through the transformation of the means of production or “innovation”. But innovation itself requires the creation of new machinery that renders skilled labour superfluous. Thus, we have a tension in the division of social labour between skilled and unskilled workers – and ultimately between “intellectual” and “manual” labour. Capitalists use this division of roles and remuneration between workers as one of the most powerful tools to maintain their hegemony over society.

All labour is necessarily “social labour” – which in fact makes this phrase a pleonasm, but we insist on its use precisely to avoid the reification of “labour” as a material quantity divisible into parcels. Labour can only be divided into “tasks”, not into quantitative slices: once we look at the division of social labour as one of different “tasks”, we are better able to perceive its necessarily “social” character. Hence, when we consider the division of social labour we must also consider its inter-national dimension, because it is here that its centrality to international trade comes to the fore. We saw with Weber that it is the formal freedom of workers that (a) necessitates the existence of many capitals, (b) the existence of money wages (no payments in kind), (c) competition among capitalists and workers in production and in consumption, (d) the democratisation of political representation, of government.

Yet, this market mechanism can make a given capitalist society powerful vis-à-vis other nations only if its advancement in the skilled category does not prevent it from abandoning “strategic” options and choices! (Recall, for instance, that for strategic purposes the steel industry is not the same as the tourist industry.) A nation that is more advanced in the division of labour and whose “market mechanism” - by which we mean both Demokratisierung and Rationalisierung outlined above - is operative will be far more powerful than less advanced nations (in terms of its “productive powers” or “ability to produce wealth”) - especially if it can trade with those other nations. The obstacle that can come between this power and its exertion is purely strategic - in other words, such a nation may have neglected its military provisioning, may be too reliant on trade or indeed on intellectual labour without access to its military conversion.

The cosmopolitical theory of economics denounced by List assumes that nations do not exist; indeed, it assumes that the power of a nation can be developed according to economic laws that are universal and independent of national political power. This is obviously false. Yet, the cosmopolitical theory derives its intellectual force precisely from its attempt to abstract from the political - the nation - to the strictly economical - the marketplace society or civil society. The question now is: what are the universal features of civil society that feed its power as independently or autonomously as possible of the Nation vis-a-vis other nations? The power of a nation depends as much on its internal powers of production as it does on other “strategic” actions such as military appropriation or imperialism. 

This internal strength is what we call the specificity of the economic - which is why Lenin could attribute superiority to the Economy over the Political. The question returns to “Value” as a category of free and therefore rational choice (Weber). The question that List fails to address is: given that we cannot expect nations at different stages of economic development to engage in “free trade” because of the necessarily “unequal exchange” that this trade involves to the detriment of “less developed” nations - given all this, what does “development” mean? This is the question that List fails to address! And this is indeed the question that the “cosmopolitical” economists were seeking to address in “universalist” terms - precisely because they neglected the “political” essence of economics, and therefore of economic growth and development. This is the cardinal issue that both the cosmopolitical economists and List himself fail to address, albeit for divergent reasons, as we have seen. 


Why or how did manufacturing powers  arrive at that power before other nations? List assumes that there are agricultural and manufacturing nations - but never explains why and how some nations grew into manufacturing powers and other nations languished as agricultural powers. Indeed, he never tackles the question of the real political reality behind various types of industrial production of human needs - agricultural, manufacturing, “tertiary” or “services’ or (the latest faddish description) “artificial intelligence” (let us call it “robotics”). List simply assumes that unequal exchange led to this international division of labour. Thus, he never poses himself the question of the superiority of industrial capitalism for nations considered solely in terms of their “ability to produce wealth”. He never poses the question of industrial capitalist development. This is precisely what the “cosmopolitical” economists were seeking to do. Their answers fell short because, as List correctly argued, economics is not a “scientific” mode of exchange or production - it is not about “quantities” - but rather is intrinsically political. It is obvious that we must turn to the analysis of “value” to discover the meaning of this internal dynamic.

Tuesday, 22 May 2018

From List to Weber - Workers and Capital

It is our personal misfortune that, from being raucous critics of capitalism, we are now forced to come out in its defence by the appearance on the global scene of a monster - the Chinese Dictatorship   - that the international bourgeoisie is solely responsible for creating in the first place! Given the defeatist and often treasonous chorus of voices - again from the bourgeoisie itself, keen to undermine democratic institutions -, it is almost tragic that we are impelled to sing the praises of “the market mechanism” and, specifically, its clear superiority over any kind of autocratic “command economy” such as the one that the Chinese Dictatorship and its Western saraband of traitors would like to foist upon us! Enjoy.

We saw in our previous post that List’s implicit critique of the Leninist-Marxist axiom “Politics is a concentrate of Economics” is entirely correct. List’s own work, in the tradition of the German Historical School of Economics, provides a healthy corrective to the later degeneration of economic enquiry leading to Neoclassical and Marxist economics - and particularly their erroneous and presumptuous scientistic attachment to “the Law of Value” according to which economic value is a quantifiable entity that can be priced by “free markets”. Yet, List’s work and that of his predecessors and successors in Political Economy fails to identify what Max Weber (in true neo-Kantian fashion) called “the specificity of economics”. Here we argue that Weber himself, despite taking the analysis of economics a sociological step forward from Marx’s great oeuvre, still fails to hit the mark, but with the indisputable advantage, as we are about to discover, of highlighting and uncovering essential truths and insights into the nature of modern market capitalism. Thus, we can surely affirm, contrary to Lenin, that Economics is a concentrate of Politics. But there is a sense in which Politics is a concentrate of Economics because the rise of capitalism has shown that the ability of a society to produce wealth is dependent on its focus on the satisfaction of material needs. This is the strict sense in which Lenin’s dictum has validity! 

Stricto sensu, Lenin’s facile reduction of the Political to Economics is valid for societies, such as a capitalist one, in which the satisfaction of material wants and needs has attained overriding importance. In this specific context, the centrality of work, of labour, in Judaeo-Christian societies is undeniable.  A careful revision of Weber’s insuperable work on the sociology of Western society, following Marx’s own impressive foundations, reveals at once the centrality to Western societies of what Hegel called “the system of needs”, and what Weber was later to fashion as “the iron cage”. The ubiquitous misunderstanding is that by “the iron cage” (stahlharte Gebaude) Weber meant the end-result of the Western Rationalisierung. Nothing could be further from the truth! A meticulous reading of the Protesantische Ethik quickly reveals that by “iron cage” Weber meant the evolution of the Hegelian “system of needs” in the sense of individualistic material consumption. Even in the negatives Denken, Schopenhauer’s “renunciation” (Entsagung) of the Arbeit (labour) for the Sisyphean futility of its satisfaction (Voll-endung) of human needs, for its meretricious character, for its being futile operari, does nothing else than confirm, precisely in its absolute negation of Labour, the  equally absolute centrality of it to the nascent capitalist society - a centrality that Schopenhauer’s pessimism steadfastly “renounces” with its “withdrawal from the world” (Welt-flucht) and search for the self-abnegation of Nirvana.

If, then, the Economic is precisely the study of how “the system of needs” or “the iron cage” has evolved historically and institutionally, it is to the work of Marx and Weber - not to List and others - that we must turn. Max Weber never understood the strictly economic meaning of capitalism. He figured that profit - and therefore value - was the monetary difference between investment and revenue. Unlike Marx, he never examined the nature of “value” - its dependence on the commodification of human living labour into labour-power; and therefore he never understood the nature of money in capitalism and of profits, or of what Marx called surplus value, as its essential aim. 


Weber’s “iron cage” referred specifically to the “system of needs” - which in turn required “the rational organisation of the labour force” - and that again in turn the rise of “rational socialism” as a Problematik raised peculiarly by capitalism as a specific form of social relations of production requiring an organised labour force or working class.

In a nutshell, whereas Marx focused his sharp critical gaze on the antagonism of the wage relation as the defining social and political reality of the capitalist mode of production, Weber’s vast scholarship was concerned rather with understanding (Verstehen) the institutional means from which capitalist industry derived its social and political legitimacy. Where Marx’s union of theory and practice (praxis) sought to justify scientifically the necessity of revolution as the resolution to capitalist exploitation arising from the internal contradictions of the wage relation, Weber reflected wissenschaflich (sine ira et studio!) on the reasons for the political endurance of capitalist industry and bourgeois parliamentary regimes in the face of the rising organisation of the industrial workforce into a political class represented by mass socialist parties within bourgeois parliamentary regimes. Revolution as catharsis from capitalist alienation on one side, democratisation and legitimation of bureaucratic governance to stabilise bourgeois elitist rule on the other: hence, Marxian Praxis vs. Weberian Objektivitat

Yet, because Weber followed his insuperable sociological bent, unlike Marx, he never forgot that capitalism is not at all “economics”; instead, economics is a set of social institutions concerning the social production of material wants and needs - and these invariably involve the organisation of labour. Marx identified the causes of capitalist exploitation in the “separation” (Trennung) of workers from the means of production; Weber instead took both this separation and exploitation as a given of social life - indeed, as a requirement of complex technical processes whereby experts assume control and ownership over the means of production:

Everywhere we find the same thing: the means of operation within the factory, the state administration, the army and university departments are concentrated by means of a bureaucratically structured human apparatus in the hands of the person who has command over (herrschaft) this human apparatus. This is due partly to purely technical considerations, to the nature of modem means of operation - machines, artillery and so on - bur partly simply to the greater efficiency of this kind of human cooperation: to the development of ‘discipline’, the discipline of the army office, workshop and business. In any event it is a serious mistake to think that this separation of the worker from the means of operation is something peculiar to industry, and, moreover, to private industry. The basic state of affairs remains the same when a different person becomes lord and master of this apparatus, when, say, a state president or minister controls it instead of a private manufacturer. The ‘separation' from the means of operation continues in any case. As long as there are mines, furnaces, railways, factories and machines, they will never be the property of an individual or of several individual workers in the sense in which the materials of a craft in the Middle Ages were the property of one guild-master or of a local trade cooperative or guild. That is out of the question because of the nature of present-day technology.

Weber constantly confuses technical knowledge with legal ownership - despite the fact that he ultimately conceded their profound inter-dependence in the late Munich lecture on Science (Wissenschaft als Beruf), specifically the dependence of scientific research on the industrial needs of capitalism and ultimately on “the iron cage”. It is the inevitability of the technical stratification of production, between management and workers, between intellectual and manual labour, that induces the equally inevitable necessity of profit as the unequal distribution of the social product. 

What, then, is socialism in relation to this fact? As I have already mentioned, the word has many meanings. However, what one usually thinks of as the opposite of socialism is a private economic order, that is a state of affairs in which provision for economic need is in the hands of private entrepreneurs and is so arranged that these entrepreneurs procure the material means of operation, officials and labour force by means of contracts of purchase and wage contracts, and then have the goods made and sell them on the market at their [281] own economic risk and in the expectation of personal gain. Socialist theory has applied the label ‘anarchy of production' to this private economic order because it is unconcerned whether the personal interest of the individual entrepreneurs in selling their products (the profit interest) functions in such a way as to guarantee that those who need these goods are indeed provided with them. Historically, there has been a change in the question of which of a society’s needs should be taken care of by business (that is privately) and which should be supplied not privately but socialistically in the widest sense, in other words by planned organisation.


Having identified, correctly, the specificity of economics in the production and distribution of material goods and services, Weber now seems to move much closer to the specificity of capitalist industry within the category of economics. 

What characterises our current situation is firstly the fact that the private sector of the economy in conjunction with private bureaucratic organisation and hence with the separation of the worker from the means of operation (Betriebsmitteln), dominates an area that has never exhibited these two characteristics together on such a scale at any time in history, namely the area of industrial production. Secondly there is the fact that this process coincides with the introduction of mechanical production within the factory, and thus with a local concentration of labour on one and the same premises, with the fact that the worker is tied to the machine, and with common working discipline throughout the machine-shop or pit. Above all else, it is this discipline which gives our present-day way of 'separating' the worker from the means of work (Arbeitsmitteln) its special quality. It was life lived under these conditions, this factory discipline, that gave birth to modern socialism. 

It is not socialism that explains capitalism, argues Weber in his lecture on Sozialismus; to the contrary, it is capitalism that explains socialism. In this forceful riposte to Marx’s saying that “the steam engine explains the windmill”, to which he had already dedicated a long essay in honour of Werner Sombart, Weber prepotently inverts Marx’s historical-materialist dialectic: it is socialism, not capitalism, that is the weaker side in this historical and epochal confrontation. The “separation” of workers and tools has always existed and always will exist - as will the exploitation of workers on the part of the owners - in the army as in public administration as in the mediaeval fief, as in the latifunds of Antiquity. It is not the case therefore that the Sozialismus of social-democratic and communist parties, or indeed the anarcho-syndicalism of trade unions, will replace capitalist industry anytime soon! Instead, presses Weber in his harangue, it is this Sozialismus that is a temporary historical accident of capitalist industry and of parliamentary democracy. The reason for this is that the sphere of industrial production serves to satisfy individual physiological and intellectual needs - at least this regard, the labour market and the industrial process operate in a manner entirely similar to that of natural selection in biology:

Socialism of the most diverse kinds has existed everywhere at every period and in every country in the world. The unique character of modem socialism could grow only on this soil. This subjection to working discipline is felt so acutely by the production worker because, in contrast to, say, a slave plantation or enforced labour on a manorial farm,12 a modern production plant functions on the basis of an extraordinarily severe process of selection. A modern manufacturer does not employ just any worker, just because he might work for a low wage. Rather he installs the man at the machine on piece-wages and says: 'All right, now work! I shall see how much you earn.' If the man does not prove himself capable of earning a certain minimum wage he is told: 'we are sorry, but you are not suited to this occupation, we cannot use you. He is expelled because the machine is not working to capacity unless
 Weber: Political Writings
the man operating it knows how to utilise it fully. It is the same~ or similar, everywhere. In contrast to the use of slave labour in antiquity, where the lord was tied to whatever slaves he had (if one of them died, it was a capital loss for him), every modem industrial firm rests on the principle of selection (Auslese).  On the other hand this selection is driven to an extreme of intensity by competition between entrepreneurs, which ties the individual entrepreneur to certain maximum wages; the inevitability (Zwangslaufigkeit) of the workers’ earnings corresponds to the inevitability of discipline.


The Darwinian and Nietzschean roots of Weber’s theoretical paradigm are absolutely unmistakeable. It is competition between workers and capitalists and then again competition among these social classes that imposes the industrial labour discipline on which capitalism is founded! The market mechanism is a set of institutions that above all preserve the formal freedom of the labour force - even down to the point where it organises or it is allowed by the State or the bourgeoisie to organise as a political class! Not only is this crucial in terms of dictating the direction of production through the relatively free choice of consumption by workers, but it is also a powerful mechanism for mustering the productive force of workers. The market mechanism is a set of institutions that regulate social conflict around these needs. It s the continuation of politics by other means.

If the worker goes to the entrepreneur today and says, ‘We cannot live on these wages and you could pay us more', in nine out of ten cases - I mean in peacetime and in those branches of industry where there is really fierce competition - the employer is in a position to show the workers from his books that this is impossible: 'My competitor pays wages of such and such; if I pay each of you even only so much more, all the profit I could pay to the shareholders disappears from my books. I could not carry on the business, for I would get no credit from the bank.' Thereby he is often just telling the naked truth. Finally, there is the additional point that under the pressure of competition profitability depends on the elimination of human labour as far as possible by new, labour-saving machines~and especially the highest-paid type of workers who cost the business most. Hence skilled workers must be replaced by unskilled workers or workers trained directly at the machine. This is inevitable and it happens all the time.

This is a process of selection that operates as much among capitalist owners and managers as it does among workers. As Maurice Dobb showed (in his seminal Studies in the Development of Capitalism), the development of capitalism in Britain owed much to the rise of individual workers and craftsmen as capitalist employers. The working class is the real motor of capitalist development in driving productivity gains both in terms of expertise and know-how in the sphere of production, and in terms of wage antagonism in the sphere of consumption. The New Deal is - as a crisis of capitalism - very instructive in this regard. Then it was the capitalist State that had to legislate the organisation of the labour force so as to revive consumption (aggregate demand) and investment (higher productivity). This is what constitutes the Demokratisierung as a central concept in Weber’s theorisation of industrial capitalism. The other central concept, of course, if the Rationalisierung of industrial production made possible by the “exact calculation” (exakte Kalkulation) of profit in monetary terms through the discipline of the market mechanism - enabled in turn, as we saw above, by the formal freedom of workers.


Two elements, then, two ingredients characterise the specificity of capitalism: - the first is the production of social needs through the privatisation of social means of production and most important of the labour force through market forces, through private bidding. And the second is the satisfaction and determination of these needs through the mechanism of the market as well! But in both cases it is the formal freedom of workers that guarantees (a) the existence of multiple capitalists and thence the competition for workers among capitalists; (b) the free antagonism between workers and capital in the process of production; and (c) the relatively free choice of consumption by workers. The market mechanism is all here. The formal freedom of workers is the political and institutional framework that sets up the market mechanism by (i) ensuring that workers do not own means of production; (ii) workers are forced to sell their labour-power; (iii) that they do so as individuals and not in associations; (iv) that workers are paid money wages and not through barter or other arrangements with capitalist employers; (v) as a corollary, workers are free to purchase products with their wages from any owner.

Thursday, 10 May 2018

From List to Weber: Economics and Politics

Pg.109: In order duly to estimate the influence which liberty of thought and conscience has on the productive forces of nations, we need only read the history of England and then that of Spain. The publicity of the administration of justice, trial by jury, parliamentary legislation, public control of State administration, self-administration of the commonalties and municipalities, liberty of the press, liberty of association for useful purposes, impart to the citizens of constitutional states, as also to their public functionaries, a degree of energy and [110] power which can hardly be produced by other means. We can scarcely conceive of any law or any public legal decision which would not exercise a greater or smaller influence on the increase or decrease of the productive power of the nation.

With admirable prescience, Friedrich List foreshadows a most incisive and valid critique of the labour theory of value first expounded by British political economy (Smith, Ricardo, Mill) soon to be perfected by Marx, and also - as a corollary of that critique - he advances an early version of the neoclassical value theory (Goss, Menger, Jevons) that will rise out of the German negatives Denken (Schopenhauer, Kierkegaard, Nietzsche, Weber). List sees quite correctly that capitalism is not about wealth but rather about “the ability to produce wealth”. And he sees also that capitalism is not about “economics” but rather about social and political institutions. In this precise regard, List is contradicting what was to become one of Marxism’s main items of faith. Lenin’s maxim that “politics is a concentrate of economics” lends itself to two possible interpretations - one false and the other quite plausible. The first interpretation sees this maxim in light of Marx’s theory of human historical social development as arising from “the law of value” whereby human history is the tale of development of social relations of production that constitute an “economic base”, a solid rock of reality upon which is erected a “political superstructure” of ideological constructs from religion to culture and the State. In this optic, the history of human society is one of conflict over the distribution of social wealth which, in turn, gives rise to different modes of production. These conflicts represent diverse forms of social antagonism that will ultimately result in the attainment of a communist republic that will see spontaneous social harmony replace the violence of the State as the cement of social life. The compression of socially necessary labour time for the reproduction of society as a result of the antagonism between capital and workers will ultimately ensure that private property and the State, which ensure the violent separation of workers from the means of production become “a miserable basis” for social existence such that they are no longer legitimate and sustainable. 

Central to this dialectical - quasi eschatological - interpretation of human history is the notion that the amount of labour time socially necessary for the reproduction of society is quantifiable for a given state of technology and, therefore, that the social needs of a specific social formation are also materially quantifiable. In this Marxian perspective, it is clear that given that social needs and the labour time socially necessary to satisfy them are both quantifiable entities, then the political superstructure becomes a function of the distribution of the available social surplus and therefore clearly deducible if not calculable from the economic base, that is to say, from “the law of value” - which is why politics cannot but be... “a concentrate of economics”.

Apart from being a non sequitur (why should political institutions be determined by the production of social wealth?), what is false in this Marxist reading of human social history is that not only are human needs unquantifiable, and therefore it is impossible to determine what labour time is “socially necessary” for the reproduction of society - and not only is “labour time” itself a concept impossible to define with any clarity - but also and above all the very definition and identification of what are “social needs” is an exquisitely political question that makes the reduction of politics to economics wholly devoid of sense, let alone truth!

List’s attack on labour theory of value is entirely valid and it relies intrepidly on challenging the erroneous reduction by the political economists (British and Marxist) of all “value” to a quantifiable entity, and then again to the conflation of intellectual and manual labour or, in other words, the reduction of skilled labour to manual labour:

Pg.110: If we consider merely bodily labour as the cause of wealth, how can we then explain why modern nations are incomparably richer, more populous, more powerful, and prosperous than the nations of ancient times? The ancient nations employed (in proportion to the whole population) infinitely more hands, the work was much harder, each individual possessed much more land, and yet the masses were much worse fed and clothed than is the case in modern nations. In order to explain these phenomena, we must refer to the progress which has been made in the course of the last thousand years in sciences and arts, domestic and public regulations, cultivation of the mind and capabilities of production. The present state of the nations is the result of the accumulation of all discoveries, inventions, improvements, perfections, and exertions of all generations which have lived before us; they form the mental capital of the present human race, and every separate nation is productive only in the proportion in which it has known how to appropriate these attainments of former generations and to increase them by its own acquirements, in which the natural capabilities of its territory, its extent and geographical position, its population and political power, have been able to develop as completely and symmetrically as possible all sources of wealth within its boundaries, and to extend its moral, intellectual, commercial, and political influence over less advanced nations and especially over the affairs of the world.

The impossibility of reducing intellectual labour to its manual labour components is merely an expression of the utter senselessness of reducing the question of value to mere quantities (the Law of Value whereby values can be reconciled with prices). Once again, this is the precise reason why politics cannot be reduced to economics:

Pg.110: The popular school of economists would have us believe that politics and political power cannot be taken into consideration in political economy. So far as it makes only values and exchange the subjects of its investigations, this may be correct; we can define the ideas of value and capital, profit, wages, and rent; we can resolve them into their elements, and speculate on what may influence their rising or falling, &c. without thereby taking into account the political circumstances of the nation. Clearly, however, these matters appertain as much to private economy as to the economy of whole nations. We have merely to consider the history of Venice, of the Hanseatic League, of Portugal, Holland, and England, in order to perceive what reciprocal influence material wealth and political power exercise on each other.


Quite simply, the notion of “economic value” is inseparable from that of political power: the word “value” itself (from the Latin valor, strength) has obvious political and even psychological connotations. Yet there is a specificity to the sphere of economics at least to the extent that it involves what List himself describes as “the productive power of the nation” - and that is the point where the Political can be narrowed down to the Economic. For someone who must have come across neo-Kantian thought, List fails almost completely to confront the crucial issue of what, if anything, constitutes the discrimen - the distinction - between economics and politics. It is certainly true that the Political cannot be reduced to Economics. But then, we still have to tackle the very relevant question of what precisely constitutes the specificity of what we call Economics. To do that, we will turn to the work of the great sociologist Max Weber in our next post.