Commentary on Political Economy

Friday 9 December 2016

Postcard From Prague - Capitalism as Kafkaesque Nightmare


No-one has ever truly understood Franz Kafka until he or she understands Wittgenstein’s enucleation of his maxim: “The law always catches the criminal”. Because if the law “always” catches the criminal, then it is no longer “the law” but becomes instead an inexorable fate. The aim of bourgeois economics is, as it were, to square the circle, to present a specific historical reality – that of the capitalist “market” where human beings alienate their living activity – as an inexorable fate. By reducing this “political” reality to an inexorable fate, bourgeois economics is then able to turn social relations of production into inescapable mathematical formulae and equations that yield “economic equilibrium”. But the very “success” of this operation – the “ful-filment” of its conditions, their “satis-faction” or “com-pletion” – leads to the con-clusion (German, Voll-endung, full-ending) and de-pletion of their con-tent: in other words, the algebraic formulae of bourgeois economic equilibrium, just like the law in Kafka, lose all meaning and content of their categories at the precise instant that they seem to capture it.

This is how capitalism has turned from a specific oppressive historical institution into a Kafkaesque nightmare of ecological suicide for the human race. Even the Classical economists limited the extent of capitalist production and profitability to the exertion of “labour” – in the sense that Classical Political Economy (Adam Smit, David Ricardo and J.S. Mill) could envision the limit of capitalist accumulation as the political choice made by workers to exert their “labour”. Such was the “positive” metaphysical slant of the Labour Theory of Value that Karl Marx himself (!!) in the entirety of his theoretical work could never envisage the eventual destruction on the part of capitalism of the entire ecosphere through sheer human overpopulation!

The Classical Political Economists could see that “goods” in vast abundance – such as water and air – did not and could not carry any “value” – and therefore could not form the basis of capitalist profitability. In its “constructivist” and “objectivist” slant (the labour theory of value poses value as a positive objective quantity), this theory could not lead to the “negative” subjectivist inversion of the theory of value operated by Neoclassical Economic Theory (from Menger to Jevons to Walras) that would lead to the nihilistic Schopenhauerian “renunciation” of life itself – and therefore to the conceivable annihilation of human life on earth. This nihilism of Neoclassical Theory is best captured by the notion of “scarcity”. Where the Classical labour theory of value put value as “wealth through labour”, the Neoclassics erected “wealth through privation”, - that is to say, scarcity as the origin of wealth. But whereas for Classical Political Economy labour, and therefore wealth, were finite quantities easily exhausted, for Neoclassical bourgeois economic theory, wealth becomes an inexhaustible downward spiral of selfish appropriation of resources!

As Bohm-Bawerk put it, “the first law of physics is that in the universe nothing is created and nothing is destroyed: everything is transformed”. For the Neoclassics, the self-interested individual is the centre of the universe. All the Labour in the world – like the Sisyphean Arbeit in Schopenhauer – cannot positively create any “wealth”. Wealth can only be the transferral or “exchange” of possessions or properties from one individual to another – and then only if some individuals “renounce” their right to present consumption “in exchange for” future consumption. “Scarcity” is the inexorable fate of a society that has put the unquenchable thirst for the accumulation of social resources as the endless pursuit of the self-interested individual! Scarcity is the end-result of Wicksell’s “universally free competition” amongst self-interested individuals. In the Neoclassical bourgeois capitalist economy, nothing is created, everything is transformed or delayed. In this “exchange” nothing is “positively” created – selfish individuals have only re-balanced their current legal claims to property into the indefinite future. As Keynes himself put it, “money is a bridge between the present and the future”. For the capitalist, money is the legal claim to future human living labour. Capitalism is a hypothecation, a mort-gage (French, morte, death, and gage, pledge – dead pledge) on the future life of workers.

But the result of this endless capitalist hypothecation of future human activity can only entail the ceaseless exhaustion of social resources through relative overpopulation – that is to say, through a human population of living labour that constantly exceeds the means available for its reproduction, for the survival of the human race. The constant “scarcity” of social resources engineered by the capitalist economic system must perforce engender the depletion of the ecosphere through human overpopulation. The erstwhile saying “Socialism or Death” may yet come to reveal a hitherto unknown facet – one that even the great fatidic Karl Marx could not envisage.

Friday 2 December 2016

Over-population and Secular Stagnation

To introduce the next post, I can really do no better than to quote our friend Dan's last comment on pur previous post - a comment that, if I may, is once again striking for its perspicacity - either that or the rest of us are too lazy and nonchalant or have too little time to reflect on the reality of capitalist production and society - or else are too greedy and corrupt and irresponsible to care:

Thanks for the reply to my previous comment! If I may add one comment to the present analysis, I think we must also consider the role that innovation plays in increasing relative overpopulation. To use Marx's terminology, relative overpopulation can be increased through innovations that decrease the socially necessary labor time embodied in commodities, which cheapens the means of subsistence and frees a portion of the existing labor force to absorb the surplus product. So theoretically capital can remain profitable in spite of a stagnant population if it is able to sufficiently increase productivity on a continual basis. There is much talk lately of a coming automation revolution (e.g. self-driving cars) that will eliminate millions of jobs. However, those hopes may not be realistic, and even if innovation could prop up the rate of profit sufficiently, the environmental threat that you mention would remain because consumption per person would have to grow.

As we have seen in our previous posts, the Wicksellian notion of “the natural rate of interest” has two main purposes: one is ideological in the sense that it seeks to justify capitalism and profit (Wicksell’s “natural rate of interest” is an equilibrium average rate of profit) as if they were “natural” phenomena. But the other purpose, the one that seeks such ideological justification in the “physiological” relationship between the social conflict that capitalism and the wage relation engender (“universally free competition”), is truly enlightening in that it reveals how the “universally free competition” needed for the natural rate of interest to obtain is really a level of social antagonism that may lead to the “unnatural” demise of civilization.

The reason for this link between the natural rate of interest as “universally free competition” and the demise of civilization at the hands of “market forces” or capitalism is simply this:
If indeed profit can exist only by means of the capitalist “saving” or “renouncing” present consumption for the sake of “future” consumption – and if this “renunciation” is then indefinite because the capitalist never ends up consuming the “saved” product – then in that case it is clear that the entire aim of “saving” is for the sake of accumulating social power over the living activity of more and more workers. Here, workers stand for the people who do not save and therefore are forced to sell their living activity to pay for their immediate consumption.

Extrapolating from this schematic social relation of production, we can then conclude that the effect of capitalism is to increase the “excess” population on the planet – and therefore to destroy the environment in order to keep alive this “excess” population. This population is in “excess” because it exists not in order “to produce” – because its production would not be “profitable” – but rather in order to suppress the part of the population that is actually employed by capitalists – so as to force these workers “to sell” their living labour “in exchange” for part of the product they produce!
As Thomas Friedman once said, “the Earth cannot afford 8 billion Americans” because, if the living standards of Americans are what is needed to maintain capitalism as a system of production, then the “excess” population needed is such that the environmental demands to keep it alive are simply impossible to meet! When economists beginning with Larry Summers and Paul Krugman among a myriad others complain that capitalism has entered a phase of “secular stagnation” because of “the ageing of the population”, what they really mean is that the “excess” population needed for workers to be employed profitably is no longer environmentally and politically “sustainable” – and therefore neither is capitalist industry and society!

In this regard, let me quote what I believe is one of the most important passages in the entirety of Karl Marx’s work – a passage that ought to be read and parsed more carefully than any other in the history of humanity if we are to protect our future survival on planet earth:

It is the law of capital, as we have seen, to create surplus labour, namely, disposable time [free time not needed for the reproduction of workers or not employed for their leisure]. And it is able to do so only to the extent that it creates more necessary labour – that is to say, to the extent that it exchanges dead labour [produced goods] with the worker [fresh living labour, that is, for human beings who are also forced to work]. The tendency of capital therefore is as much to create more [necessary] labour as is possible [in absolute terms, that is, in terms of numbers of workers], as it is to reduce the [amount of necessary] labour [needed for the reproduction of each individual worker relative to disposable labour] to the minimum necessary. Capital therefore tends both to increase the working population and to reduce incessantly part of it to the condition of over-population – as population that is superfluous [useless] until the moment that capital can utilize it [to create surplus value]. (From which we derive the truth of the theory of overpopulation and of surplus value.)

Capital tends both to render human labour (relatively) superfluous and also to push it beyond all boundaries. Value is nothing other than objectified labour, and surplus value (the valourisation of capital) is nothing other than the excess of objectified labour on the amount necessary for the reproduction of the labour force. But living labour is and remains the fundamental requisite of objectified labour and of surplus value, while surplus labour [disposable labour] exists only in relation to necessary labour, and therefore only to the extent that there still is necessary labour. Capital must therefore incessantly create more necessary labour [in absolute terms] to create surplus labour [and therefore surplus value]. It has to multiply surplus labour (by means of simultaneous working days [by means of more individual workers]) in order to multiply surplus value. At the same time, capital has to suppress necessary labour so as to turn it into surplus labour…

It is for this reason that the capitalist seeks the increase of the working population. And it is the actual process of reduction of necessary labour that enables the capitalist to employ new living labour [new workers] (and therefore create surplus labour [that is, surplus value]). (In other words, the production of workers becomes “cheaper”; and therefore it is possible to produce more workers in the same measure as the time for necessary labour decreases or the time needed for the reproduction of the labour force decreases....) – K.Marx, Grundrisse, 3.2.25)

Sunday 20 November 2016

Finis Mundi: Capitalism, Overpopulation and the Destruction of the Biosphere.

Let us draw together the complex threads of our analysis of “the natural rate of interest” and “relative overpopulation”. It is not the ageing of the working population that is the real cause of the falling “natural rate of interest” or “secular stagnation” – as Lawrence Summers and Paul Krugman and many other bourgeois economists have wrongly opined. (How untenable this thesis is can be desumed quite simply by considering that the global labour force has doubled[!] in the last thirty years.) Nor is it the “immiseration thesis” that Thomas Piketty has incorrectly attributed to Karl Marx. Nor is it Piketty’s own thesis of “income inequality” – a hackneyed Keynesian leftover relic at best [the allusion os to Keynes calling gold “that barbarous relic”] -, none of these catch the true essence of the problem of capitalist society. Here we will deal with the first leg of our thesis: the second leg will come in our next post.

The maximization of profit on the part of capital implies the relative suppression of wages or “necessary labour time”. But then, the excess of production over what can be sold on the market for surplus value to be “realized” – this excess means that the capitalist bourgeoisie needs an “excess population” that can be “purchased” with the excess production from the previous cycle of production. But this “excess population” of workers needs to be paid – and so its “wages” correspond to an absolute expansion in “socially necessary labour time”.

It is this contradictory tendency of capitalism – on one hand, to create unemployment so as to suppress wages, and on the other to expand the absolute size of the exploitable labour force -, it is this contradictory tendency or dynamic that is leading us toward the apocalypse – the destruction of the biosphere.

“Universally free competition” means that the participants to a market are “freely” entitled to exchange their possessions for whatever other possessions available from other participants. The problem with this conception of competition is that on this basis, and on the assumption of “universal freedom” excepting coercion, and the further assumption of universal knowledge (or “common knowledge” in game theory), it is absolutely impossible for a capitalist to make a “profit” from exchange – and therefore there can be no “rate of interest”, natural or otherwise. The only way in which a market participant can become a “capitalist”, and therefore make a “profit” from exchange, is if he can “exchange” his possessions or goods for the “labour” or living activity of other market participants. In that case, the capitalist will be able to buy the living labour of workers and exchange it with less of their product than the workers actually produce. The difference between the value of the products produced by the workers and what the capitalist pays to them in wages is called “profit”.

But the question now arises: what can the capitalist do with this “profit”? He can sell the excess production: but obviously there will be no new buyers because the only market participants who can buy these excess goods are workers who are already so “poor” that the only exchange good they can sell is their own living activity, their “labour”. What this means, quite obviously, is that for the capitalist to be able to sell his “profit”, he must be able either to expand the size of the market with new exchange values from belonging to populations not yet within the capitalist market sphere, or else he has to use it as a hypothecation, as a “mortgage”, on any “future labour” that may be available on the market.

Marx rightly stresses the difference between value and capital – because although all capital is “exchange value”, in the sense that it is capable of being exchanged, not all exchange values are capital: because capital, unlike other “exchange values”, is “value” capable of “valourising” itself. Thus, as we are about to see, capital is a historically specific form of exchange value: its peculiarity is that for capital to exist it must be “exchanged” with a unique “good” – human living labour – that is capable of “valourising” capital by expanding existing production. In other words, the existence of capital implies not only the existence of human living labour available “for exchange”, as if human living activity were yet another “good” or “consumable output”, as if it were a mere material “product”; but also, it implies the constant expansion of the pool of available living labour!

Money, to the extent that it exists already as capital, is therefore simply a policy [a legal claim] on future (new) labour. Objectively it exists only as money. Surplus value, the added objectified labour, in itself is money; but money now exists as capital, and as such it is a policy on future labour. Here capital enters a relationship no longer with existing labour, but also with future labour. It also presents itself no longer as consisting merely of its simple elements in the process of production, but also as money; but no longer as money that is simply the abstract form of social wealth, but again as a policy [as a claim] on the real possibility of general wealth – on the labour-force, or better on the labour-force in actu. In this form as a policy or claim on potential labour-force, its material existence as money is irrelevant and may be substituted by any other claim on the labour-force. Just as with public credit, each capitalist possesses, in the value already appropriated [as product or objectified labour], a claim on the future labour-force; by appropriating living labour in its present form as objectified labour, the capitalist has already appropriated a claim on future labour-power…. Here is already revealed the ability of capital to exist as a social power separate from its objective material existence. Here is already implicit the existence of capital as credit. Its accumulation in the form of money therefore is not at all an accumulation of the material conditions of labour [of the means of production], but rather of the legal claim to living labour [on workers]. This means posing future labour as wage labour, as use value for capital. For tĵhe new [objectified] labour created [the product] there exists no equivalent [that is, no existing exchange value]; its possibility [to be valourised] exists only in a new labour force. (K. Marx, Grundrisse, 3.2.21)

The capitalist must expand the available pool of living labour for capital, the labour force, to keep yielding profits and therefore for capital to be valourised. In other words, the existence and meaning of “interest” or “average profit” requires that the pool of living labour available to capitalists must constantly expand! This is the clear link between “the natural rate of interest” and “relative overpopulation”. Whenever capital is unable to expand the reserve army of workers the natural rate of interest or profit must decline. In other words, the rate of profit is dependent on the existence of “relative overpopulation” because surplus value in the form of objectified labour can be realized as profit only when exchanged with money, and in the form of money or credit it can only be valourised if and when it can be exchanged with fresh labour-power.

Reply to a Reader on the Theoretical Link between "Natural Rate of Interest" and "Relative Overpopulation" in the Capitalist World Economy

Hi Dan,

Thanks for your comments which, with your kind indulgence, are as always  perspicacious in two senses, intelligent and far-sighted. The ideological kernel of "the natural rate of interest" is that it presents profit (or "the average rate of profit", which is its Marxian equivalent) as the result of a "natural" social order - which, as you point out, is infantile nonsense.
But the other, more serious and realistic aspect of this notion is that it may be possible for this "natural" rate to be un-naturally low - and thus for capitalist production to stagnate. This is a tendency that the neoclassical theory seems to discount - because it would be "un-natural" for the "natural" rate of interest to fall to zero - and yet simultaneously opens up as a possibility or threat to the "natural" order of society. Apart from his aphorism about "the long run" (....we're all dead), Keynes saw this intuitively ("money is a bridge between the present and the future", in the GT) and also sociologically - the General Theory is a treatise on the ultimate stagnation of capitalist industry as what he called "the marginal efficiency of capital" declined.
It is a known fact that people like Lawrence Summers and Paul Krugman and many other "bourgeois" economists are pointing to the ageing of the labour force as the main factor behind "secular stagnation". So clearly the Wicksellian theory of "the natural rate of interest" can lead to interesting "negative" conclusions about the future of capitalism even when all the while it seeks to hide the social and political violence behind "interest" or "profit".

The all-important point to which I am getting now through Marx's analysis in the Grundrisse (yet, importantly, not in Das Kapital) is that once we unmask the rate of interest as the average rate of profit, with all the sociological and political consequences of this debunking, we can then tie our theory of the average rate of profit to "relative overpopulation" - precisely because "money is a bridge between present and future" in the sense that "money" (read "capital" and therefore "profit") involves a "hypothecation" - a "deposit" - not just on the "present" labour force, but also on the future and potential labour force!

The implications of this - which, I will argue, not even Marx himself could quite foresee, not in the Grundrisse and certainly not in Das Kapital - are immensely (and frighteningly) far-reaching because of what this "relative overpopulation" means in terms of social conflict internationally due to "the world market" or "globalisation" - but above all else in terms of the future of planet Earth, that is, in environmental terms! It is here, I think, that there is a serious confluence between the environmental threat that capitalism poses to the planet - to our very survival on earth - in terms of environmental devastation through "relative overpopulation", on one hand, and the declining average rate of profit as prognosticated by Marx, on the other. It is the complex interaction between the falling rate of profit due to the capitalist need to expand the "surplus labour force" so as to lower the "socially necessary" part of the working day (wages), and the inability to lower this "socially necessary" portion without exasperating global "overpopulation" (meant to absorb the "surplus" portion of the working day) to the point of environmental catastrophe - it is this catastrophic contradictory tendency on the part of capitalism that Wicksell's theory points to (in terms of the conflict implied in "universally free competition" [Thomas Hobbes] - and the "organic" or "physiological" limits implicit in the notion of a "natural" rate of interest [nothing expands "naturally" forever])- it is this complex and catastrophic series of theoretical links that obviously I am seeking to highlight. Your observations, if I may, go very much and far in this direction:

" I can think of two destabilizing responses to low interest rates: One, low rates don't provide enough return for the "savers"--who really invest to increase their wealth and not to balance their time preference--so instead of increasing their consumption, their response is to pursue speculative investments. With an abundance of speculative investments, the average rate of return on capital can actually become negative--an absurdity by the time preference theory! But then we see the other response to low interest rates, that money is hoarded and not invested at all, and all sorts of deflationary problems result. So...[that is] what the natural interest rate theorists miss--the permanent crisis (secular stagnation) that results once demographic changes push the interest rate below a certain level..." (question mark omitted! I have taken the liberty to turn your question into a statement.)

If I had to summarise my argument tersely and pithily. I could not do better than Thomas Friedman and his tremendously perspicacious observation that "the Earth cannot afford 8 billion Americans!" The theoretical framework I am developing - one that Marx clearly foresaw in the Grundrisse without, alas, being able to see the truly apocalyptic implications of his theory in environmental terms - seeks to capture this complex reality - through which we are already living.

Monday 14 November 2016

The True Meaning of "The Natural Rate of Interest:

We saw in the previous post how bourgeois economists are quite aware of the fact that “value” is not a “physical property” of the means of production – of what they mistakenly call “capital” and thus, by so doing, inviting the confusion between the social relation “capital” and the physical, objective means of production. But then, once they have acknowledged that economic value – and therefore profit and therefore interest, which is the average rate of profit – is not a physical property, bourgeois economists find themselves at a serious loss: because if one acknowledges that value is not a physical property, then it must follow that it is a political category based on power relations in a society. “Capital” therefore can no longer refer to the physical means of production but rather to the “legal claim over production” that comes from the capitalist’s “ownership” of the means of production. The insurmountable difficulty for bourgeois economics with this realization is that capitalism loses its “natural” status and becomes merely a political reality – a social institution that is either entered into freely by the members of a society or else is enforced violently by some (the capitalists) over others (the workers). It is at this juncture that bourgeois economists balk – because to acknowledge that capitalism is a political rather than a “natural” reality is immediately to call its existence into question and its rationale into doubt. That is why bourgeois economists must perennially oscillate between the notion of “capital” as physical means of production and “capital” as exchange value!

Now, on the assumption of “universally free competition”, we would have to conclude that capital could simply not exist because universally free exchange would mean that no “rate of interest”, natural or monetary, could ever apply to capital. For capital to attract “interest” (read, “profit”) it must be able to be exchanged with an entity that can increase its “value”: but what can that “entity” be? Clearly, that entity can only be the living labour of workers who use the means of production or “capital” made available by their owners, the “capitalists” or “employers”. But again such an admission is anathema to bourgeois economists because that would be tantamount to admitting that there is no “exchange” possible between “capital” as a “thing” and living labour as the living activity of workers. Therefore, bourgeois economists are thrown back to finding a “property” of capital that makes such an “exchange” politically justifiable.
On the assumption of “universally free competition”, the only ways in which one individual, the capitalist or “employer”, is able “to purchase” or “exchange” existing products or “goods” for the living activity of another individual, the worker or “employee”, are two: - either the capitalist already owns the means of production and is therefore able to force the worker to sell his living activity; or else the capitalist renounces his present consumption and exchanges it for the living labour of workers who wish to consume his goods immediately. Of course, in neither case is the capitalist system of production justified, because in the first case, where capitalists already own the means of production, their prior ownership is not explained or justified, and in the other case, where they purchase the living activity of workers by “delaying” or “sacrificing” their present consumption, that may justify the current “exchange” by workers to capitalists, but it certainly does not justify the enslavement of all future generations of workers to capital!
But in this second instance, the rationale for capitalism is that the capitalist is the stronger person, the ascetic who is willing to wait, to deprive himself, to sacrifice present consumption in exchange for the living labour of those who cannot wait – and who therefore become “employees” or workers. (No less a thinker than Joseph Schumpeter espoused this patently flawed rationale.) This capitalist claim to “property” is called “time preference” in bourgeois economics. Thus, bourgeois economists are able to mix the subjective (time preference) with the objective (the contribution of the means of production to the product): there is almost a Freudian “transference” of capability from the clearly political ownership of the means of production to the “metaphysical” or “physiological” contribution of the means of production to the creation of the product itself!
Here is Marx on this precise point and this precious equivocation on the part of bourgeois economists to justify the violence of the wage relation well before the Marginal Revolution came to pass in economic theory:

Altri, anch’essi economisti, come per esempio Ricardo44, Sismondi45 ecc., dicono che soltanto il lavoro e non il capitale, è produttivo. Ma in tal modo costoro lasciano sussistere il capitale non nella sua specifica determinatezza formale, ossia come rapporto di produzione riflesso in sé, ma pensano soltanto alla sua sostanza materiale, alla materia prima ecc. Ma non sono questi elementi materiali che fanno del capitale il capitale. D’altra parte poi essi si accorgono che il capitale per un suo verso è valore, quindi qualcosa di immateriale, di indifferente alla sua sostanza materiale46. E allora Say afferma: «il capitale è sempre di natura immateriale, giacché non è la materia che costituisce il capitale, ma il valore di questa materia, valore che non ha nulla di corporeo» (Say, 21)47. Oppure Sismondi: «Il capitale è un’idea commerciale» (Sismondi, LX)48. Ma a questo punto si accorgono che il capitale è anche una determinazione economica diversa da quella di valore, perché altrimenti non sarebbe nemmeno possibile parlare di capitale a differenza del valore, dato che, se tutti i capitali sono valori, non tutti i valori in quanto tali sono capitale. E allora si rifugiano di nuovo nella forma materiale che esso assume entro il processo di produzione, come fa per esempio Ricardo quando definisce il capitale come «lavoro accumulato impiegato per la produzione di nuovo lavoro»49 ossia come mero strumento o materiale di lavoro. In questo senso Say50 parla addirittura di «servizio produttivo del capitale» su cui si baserebbe la sua remunerazione: come se lo strumento di lavoro in quanto tale pretendesse il ringraziamento dell’operaio, e come se non fosse invece proprio in virtù di quest’ultimo che esso è posto come strumento di lavoro produttivo. In tal modo l’autonomia dello strumento di lavoro — che è una sua determinazione sociale, vale a dire la sua determinazione di capitale — viene presupposta per dedurne i diritti del capitale. (Grundrisse, 3.2.12)

The point here is that bourgeois economists must present capital as the most “natural” of values. And to do so they have to try and fuse two aspects of capital – that of being a social relation whereby the capitalist is able “to purchase” human living activity as “labour power”, and that of being “embodied” in physical commodities or “goods” – means of production and products that can be “exchanged” with human living labour as it the latter itself were a “good” or commodity exchangeable like an object. Thus, capital becomes “objectified or dead labour”. Wicksell’s notion of “the natural rate of interest” widely adopted in bourgeois economics is nothing other than the most nefarious, wicked and brutal apology for the bestiality of capitalist oppression.

Tuesday 1 November 2016

The Natural Rate of Interest As "Universally Free Competition"

The nature of the natural rate of interest on capital, and the causes that are responsible for determining its level, should by now have been made sufficiently clear—on the assumption, of course, of universally free competition. No distinction has been made between the original (uncontrolled) rate of interest and the contractual (lending) rate of interest. (Wicksell, Interest and Prices)

Bourgeois hypocrisy when it comes to capitalism as a social system is encapsulated in the notion of “capital” – because, on one hand, for the bourgeoisie the word capital describes the wealth owned by them expressed in monetary terms, whilst, on the other hand, it applies also to the “physical” objects that make up both the means of production and the products. The hypocrisy involved concerns the undying belief of the bourgeoisie that it is “capital” that creates “wealth” – and that therefore it is the “owner of capital” who is entitled to “its” product. But anyone with a slice of brain can see that “physical” production and “legal” ownership and entitlements are two categorically different things: the one cannot ever lead to the other conceptually or in any other way. Yet it is the necessity for the bourgeoisie to believe in this totally inexistent “link” between “physical” production and “legal entitlement” to it that makes it impossible for the bourgeoisie to penetrate the real and essential political meaning and function of money in a capitalist society. The “veil” of money befogs the bourgeois theory of money – and necessarily so because a true understanding of the meaning of money as capital would lead to a thorough immediate demystification and debunking of capitalist social relations of production – something that the bourgeoisie understandably opposes and eschews.
As can be clearly discerned from the quotation above, Knut Wicksell – who was a mathematician and engineer long before he became an economist – the “real” link between the contractual rights to capitalist production (lending) and the physical production (which is “uncontrolled” politically) lies ultimately in the existence of “universally free competition”. In other words, it is only when the ideal goal of “universally free competition” is achieved that the natural and the monetary rates of interest coincide – only because the “lending” or “controlled” or, if you like, political and “artificial” monetary rate of interest is “compressed”, “crushed” if you will, into the “natural” rate of interest by the forces of “universally free competition”. Competition between individuals in society therefore must be “universally free” for “the economy” to function “naturally”, that is, “universally free” from all political and monetary interference with “the real economy”.
Here the crushing brutality of bourgeois economic theory is revealed in all its stark bestiality. To put it with “the bitch”, Margaret Thatcher, in this view “society is nothing”: there is no “society” apart from a “contract” freely entered by all “individuals” to set up a State or political convention that protects their “natural rights” to any “capital” or more broadly “estate” or “property” they possess.

It is the existence of “contract”, then – this convention of civil society, this legal fiction, this political interference with the “original” or “uncontrolled” human economy – that determines the divergence of the monetary interest rate from the natural rate. For Wicksell, money exists only as a social fiction, as a convention; it does not belong to the real economy. And it is this contractual aspect, this political side of the economy that determines and effects a deleterious divergence between monetary and natural rates of interest. And money arises only because of “lending”, only because individuals are willing to let others borrow their capital instead of utilizing it directly. Lending and money effect therefore a “separation” between production and individual utilities. Were it not for this “separation, this “veil” between “real” production and individual utilities, there could be no divergence between rates of interest. Indeed, on the assumption of “universally free competition”, there would be only one rate of interest, the natural rate of interest. It follows therefore that the natural rate of interest is one that is calculated and depends on the existence of such competition. And it follows that money and credit interfere fictitiously with such naked competition, with the “state of nature” of naked conflict: Here is the Hobbesian state of nature opposed to the state of society based on a social contract.

Here therefore, clearly there arises an unbridgeable hiatus between the “real” nature of interest expressible in quantitative terms of physical consumable output or “product”, and the “contractual” side that determines individual rights to products that are made through the contractual separation of means of production and output. And yet, once again, if we reflect but an instant, it is clear that all “production” is contractual in nature because there will always be a separation between the act of production and the social legal claim to its output. Wicksell totally fails to comprehend that the “natural” or physical consumable output or product has no “natural” relation to the means of production, but has only a social or political or legal and contractual relation. Wicksell tries at every step to turn what is a social political reality into a physiological one in terms of subjective utilities and then even into a physical or real objective one based on the marginal contribution of physical objects called ‘capital’ to productivity. And this real side of capitalist production, Wicksell attributes as the ultimate reality of universally free competition! What can he mean by this curious phrase?

Tuesday 25 October 2016

More on "Relative Overpopulation" and "the Natural Rate of Interest"

As friends know, we have been running a series of posts on the connection between capitalism as "relative overpopulation" and the meaning of "the natural rate of interest" in the context of the recent debate over "secular stagnation" of capitalism. Our discussion has been followed up recently - is it only a coincidence? - by two illustrious writers in the London Financial Times, whom we respect quite a lot: - Gavyn Davies and John Authers. Here are their articles published this week, well after we had already drawn at length the nexus between "relative overpopulation" and the decline of the so-called "natural rate of interest". Indeed, the substance of our thesis is that there is no meaning attached to "the natural rate of interest" as a bourgeois economic concept, first introduced by Knut Wicksell one hundred years ago, except as a means of hiding the vital and essential dependence between "capitalist enterprise, industry and markets" and "relative overpopulation" of the reserve army of labour power. And this is, of course, an explicitly and exquisitely "political" link that the "natural rate of interest" concept wishes to hide from view - and, with it, the equally explicit and not-so-exquisite political role of central banking in setting "monetary" interest rates...Enjoy!

Gavyn Davies Opinion in Financial Times:

James Carville won the Presidency for Bill Clinton in 1992 with a sign in the campaign’s headquarters saying “The economy, stupid”. Maybe there should be a sign in the Federal Reserve saying “Demography, stupid”.
Central bankers, like investors, have usually tended to ignore or underplay the influence of demographic factors over the short and medium term. The size and age distribution of the population changes very gradually, and in a fairly predictable manner, so sizable shocks to asset prices from demographic changes do not happen very often.
That does not mean that demography is unimportant. The cumulative effects can be very large over long periods of time. Apart from technology, there is a case for arguing that demography is the only thing that matters in the very long run. But demographic changes usually emerge very slowly, so they do not trigger sudden fluctuations in the determinants of asset prices, notably the economic cycle and monetary policy.
However, there are exceptions to this rule, and we may be living through an important exception at the present time. It seems that the Federal Reserve is starting to recognise that the decline in the equilibrium interest rate in the US (r*) has been driven not by temporary economic “headwinds” that will reverse quickly over the next few years, but instead has been caused by longer term factors, including demographic change.
Because these demographic forces are unlikely to reverse direction very rapidly, the conclusion is that equilibrium and actual interest rates will stay lower for longer than the Fed has previously recognised. Of course, the market has already reached this conclusion, but it is important that the Fed is no longer fighting the market to anything like the same extent as it did in 2014-15. This considerably reduces the risk of a sudden hawkish shift in Fed policy settings in coming years.
Furthermore, greater recognition of the permanent effects of demography on the equilibrium real interest rate has important implications for inflation targets, the fiscal stance and supply side economic policy. These considerations are now entering the centre of the debate about macro-economic policy.
The relationship between demography, growth and interest rates has been studied by economists ever since the days of Malthus, but it has played relatively little role in mainstream macro-economic discussion in the last few decades. Recently, however, several important studies (summarised below) have emerged from central bank economists, emphasising the link between demography, GDP growth and r*.
These links are obviously related to the work of Lawrence Summers on “secular stagnation”, and more particularly to the work of Alvin Hansen on population growth in the 1930s. The different forms of secular stagnation have become increasingly influential among policy makers. Last week, Fed Vice Chairman Stanley Fischer accorded an important role to demography in an important speech on the causes of the decline in r*. Since Fischer was among the most hawkish members of the Fed’s Board when he wanted to “normalise” interest rates last year, this could mark a significant change in the thinking of the FOMC.
Why is there a link between r* and demography? Remember that the equilibrium real rate of interest is that which ensures that savings and investment in the economy are equal in the long run. If ex ante savings exceed investment, r* declines, and vice versa. Since the savings behaviour of households is clearly affected by the age distribution of the population, and the investment behaviour of the corporate sector is affected by the labour supply, it is obvious that demography matters a lot for the determination of r*.
In recent work, three aspects of the population statistics have emerged as important in explaining the decline in r* in the developed economies. These are:
  • The growth rate in the labour supply.
    Most models (though not all) produce a relationship between real GDP growth and r*, and also allow GDP growth to be impacted by a change in the supply of labour. The labour force is now slowing down rapidly in most advanced economies. Since the capital stock is fairly fixed for lengthy periods, this will increase the capital/labour ratio in the economy, and the “abundance” of capital will both reduce the rate of return on capital, and the attractiveness of new investment projects. This reduces real interest rates.
  • The dependency ratio within the population.
    When the number of dependents (young and old people) relative to those of working age is low, the savings rate in the economy tends to rise, because workers save more than retirees. When the bulk of the baby boomers were in the labour force before 2000, this caused a large rise in savings in the advanced economies, which triggered a drop in r*. This will shortly start to reverse as the baby boomers retire.
  • The life expectancy of the population.
    If lifespans are expected to lengthen, while the retirement age remains unchanged, then people will choose to save more while they are in employment (or delay expenditure when retired, which is more difficult) in order to remain comfortably off until they die. This increases the savings ratio and reduces r*.
Although recent economic studies do not completely agree about the relative importance of these three factors [1], there is a consensus that, together, they have accounted for a significant part of the decline in r* since 1980. For the world as a whole (including emerging markets), Bank of England authors calculate that demographic composition and labour supply growth has reduced r* by about 1 per cent in the past 30 years. Carvalho, Ferrero and Nechio estimate that the demographic transition has reduced r* by 1.5 percentage points in developed economies since 1990. And Federal Reserve authors, in a significant recent paper, conclude that their demographic model accounts for 1.25 percentage points decline in r* and trend GDP growth since 1980. They say this is “essentially all” of the decline in these variable in the US over this period. Stanley Fischer quoted this estimate with approval in his speech last week. Although the retirement of the baby boomers may soon start to cause a drop in the US savings ratio, other demographic factors are expected to keep r* abnormally low for a long time to come. The Federal Reserve authors calculate that the current level of the underlying equilibrium real interest rate, based on the state of demography alone, is only 0.5 per cent. This compares with the latest FOMC estimate of 0.9 per cent for r*. That official estimate includes several economic forces other than demography that are also keeping interest rates down, so r* may well be reduced further in coming FOMC meetings. In any event, as investors and policy makers absorb the latest macro-economic research, demography may assume an increasingly important role in their thinking about fiscal and monetary policy. I will return to the policy and financial market implications on another occasion.——————————————————————————————————Footnote [1]There are also other ways in which characteristics of the population can affect r*. For example, ever since Kuznets, it has been suggested that a larger, faster growing or younger population can result in faster productivity growth, which is uniformly regarded as a key determinant of r*. Some economists therefore believe that the aging of the population in recent years has reduced productivity growth and consequently r*.

John Authers Article in Financial Times:

The Federal Reserve has an awful hunch. It suspects that the world’s shifting demographics, as longer lifespans and reduced birth rates combine to increase the proportion of the aged within western societies, have rendered central banks powerless to raise long-term interest rates.
That was the conclusion of a paper published this month by economists from the Fed’s research division, capping a debate that has intensified over the past year. Citing an example based on the changing age structure of the US population, they said: “The model suggests that low investment, low interest rates and low output growth are here to stay, suggesting that the US economy has entered a new normal.”
This has already created ripples. Last week Stanley Fischer, the Fed’s deputy chairman, said US interest rates were low in part for reasons beyond the central bank’s control, and added: “An increase in the average age of the population is likely pushing up household saving in the US economy.”
There is widespread agreement that the steady ageing of western populations over the past few decades — as the postwar baby boom generation neared retirement and birth rates among their children declined — has contributed to historically low interest rates. But there is an intense debate among investors and economists over how the pattern will play out.
All agree that society’s choices over how they treat the old will go beyond the obvious moral and social implications, but could also determine whether deepening inequality can be reversed, and whether the world can escape from low yields and low growth.
“The ageing issue is very emotional: who’s going to look after grandma?,” asks George Magnus, chief economic adviser at UBS. “As an economic issue it looks dark and impenetrable. But demographics is not destiny. We need political courage to do this, and we need more of it.” Measures such as later retirement, incentives for carers and part-time workers and more immigration can all mitigate the effect of an ageing population.

Impact on growth

The mechanics of how we arrived at this point are straightforward. People save most during their working years. This prompts them to buy bonds either directly or mostly through pension contributions, pushing down yields. Then in retirement they consume more than they save — and in the final few months of life tend to consume more, in expensive healthcare, than at any other time. Greater longevity has accentuated this by ensuring more people live to see an incapacitated and expensive old age. This tends to push yields upwards.

The effects of demographical change on the labour market are also pronounced. When there is a bigger proportion of workers in the population, there is more competition for work. This pushes down labour’s negotiating power, and reduces both wages and inflation. Inflation is a critical driver of the bond market: when it is low, investors will accept a lower yield from their bonds. So again, a large population in work tends to push interest rates down, and a growing retired population should push them back up again.
The new Fed paper suggests that “demographic factors alone account for a 1.25 percentage point decline in the natural rate of real interest and real gross domestic product growth since 1980”. This is a huge claim, as it implies that demographics — rather than fiscal or monetary policy, technology or other changes in productivity — are responsible for virtually all of the decline in economic growth over the past 35 years.

As this period also saw increased savings activity as baby boomers scurried to get ready for retirement, slow economic growth was accompanied by long bull markets in both stocks and bonds in the US. Thus the phenomenon of ageing baby boomers helped to explain rising inequality. Increasing asset prices raises the wealth of those who already have savings, while a lack of bargaining power kept wages down for the rest.
But as the chart (top left) shows, the US, western Europe and Japan have all reached the “tipping point” when the numbers of people in work compared with old and young dependants has peaked and started to fall. In all three examples, that moment came just as the country suffered a major market crash. But the growing weight of the elderly in society has not, yet, started to push up interest rates, which remain at historically low and sometimes negative levels.
The Fed research paper suggests the effects could be permanent. It is common to blame either loose monetary policy or the overhang of debt from a crisis. But the Fed economists warned of a “risk that permanent effects of demographic factors could be misinterpreted as persistent but ultimately transitory downward pressure on the natural rate of interest and net savings stemming from the global financial crisis”.

In short, low yields may be unavoidable and much of the current policy debate may be misguided.
Their suggestion that the “scope to use conventional monetary policy to stimulate the economy during typical cyclical downturns is more limited than … in the past” makes deeply uncomfortable reading for central banks already throwing everything they have at obdurately low growth.
Investors and traders have taken note. Marc Chandler, who heads foreign exchange strategy for the investment bank Brown Brothers Harriman, says conventional theories suggest that monetary or fiscal policy can increase aggregate demand, while the demographic hypothesis is more sombre.
“America’s working population is unlikely to materially increase over the next 20 to 30 years,” he says. “That means that periods of low growth and interest rates will last for a long time and is the material basis for the new normal. Moreover, the demographic forces at work in the US are also present in many other countries in Europe and Asia.” 

Lifting "the Veil of Money"

The biggest set of lies perpetrated and peddled by the bourgeoisie and its acolyte economists revolves around this “obscure veil” (Nietzsche applied the phrase to Kant’s “mere appearances” or “phenomena” opposed to the “thing-in-itself”) that separates mystically the “real world” of “goods” and the “apparent world” of money. Of course, if indeed money is “mere appearance”, then it is impossible to explain why it exists in the first place – just as every “appearance” must be more than a mere phantom, for the simple fact that it exists (here is the entire foundation of Schopenhauer’s attack on Kant’s metaphysics, and then of Nietzsche’s). If money is indeed only a “veil”, how then can there be any relation whatsoever between money and “the real thing”, the Kantian “thing-in-itself” or the “goods” that the bourgeoisie puts at the centre of capitalism?
Of course, what we are arguing here is that money is not a “token” representing the “things” or products it helps exchange. In fact there are no “real things” in capitalism; there are no “real products”: there are only socio-political relations of production. As a matter of fact, even bourgeois economists must accept this fact eventually – that is to say, the political nature of money and of “things” or products or “goods” be they “consumable output” or “factors of production”. Let us see how Wicksell deals with this Kantian antinomy or dichotomy between the “veil of money” and the “real world” of products it represents.

It is possible for a considerable difference between the uncontrolled rate and the contractual rate to persist, and consequently for entrepreneur profits to remain positive or negative, as the case may be, for a considerable period of time. It has already been mentioned that this possibility arises out of the fact that the transfer of capital and the remuneration of factors of production do not take place in kind, but are effected in an entirely indirect manner as a result of the intervention of money. It is not, as is so often supposed, merely the form of the matter that is thus altered, but its very essence.

For Wicksell, then, quite correctly, the intervention of money in the exchange of goods in a capitalist economy is something that transforms that exchange not just in “form” but also and above all in its very essence. But what does he mean by “essence”? If indeed transactions in a capitalist economy took place “in kind”, through a simple exchange of “things” or goods, then there could only be one “rate of interest” in the economy – the “natural” or “uncontrolled” rate. Unfortunately, due to “the intervention of money”, there is a rate of interest – the money or “contractual” or “controlled” rate – that is monetary in form and that can diverge from the “natural” or “uncontrolled” rate.
Yet, if money constitutes an “essential” departure from the “real” economy, from the “natural” economy, it is because money plays an “essential” role in a capitalist economy. The question then becomes: why is money “essential” in a capitalist economy, and how is it essential?

But money, which is the one thing for which there is really a demand for lending purposes, is elastic in amount.1 Its quantity can to some extent be accommodated—and in a completely developed credit system the accommodation is complete—to any position that the demand may assume.

We can see quite clearly here that Wicksell tries to explain “how” the monetary rate of interest differs from the natural rate: - it is because “there is really a demand [for money] for lending purposes”. But clearly he does not explain “why” “there is really” such a demand for money! Wicksell bundles together the empirical “observation” of the existence of money in a capitalist economy with the scientific explanation of why money is necessary to a capitalist economy. Why is money “needed” in a capitalist economy? Wicksell proffers no answer, and he merely uses the “existence” of money as an explanation for its existence. Now, I may know that something works. But does that tell me why it works? Hows often serve to conceal whys and wherefores.

The two rates of interest still reach ultimate equality, but only after, and as a result of, a previous movement of prices. Prices constitute, so to speak, a spiral spring
which serves to transmit the power between the natural and the money rates of interest; but the spring must first be sufficiently stretched or compressed. In a pure cash economy, the spring is short and rigid; it becomes longer and more elastic in accordance with the stage of development of the system of credit and banking.

The nature of the natural rate of interest on capital, and the causes that are responsible for determining its level, should by now have been made sufficiently clear—on the assumption, of course, of universally free competition. No distinction has been made between the original (uncontrolled) rate of interest and the contractual (lending) rate of interest.
P.135, top:
In dealing with most economic questions, it is legitimate to make this simplification. For the difference between the two rates, which constitutes the entrepreneurs' profit as such, constantly tends towards zero under the influence of competition among entrepreneurs; or at least it tends towards a certain small amount which is not very different from zero. There is only one case in which the difference cannot be neglected. This arises when it is a question of a change in the average level of commodity prices expressed in money. For such a change takes its real origin in the existence of such a difference between the two rates of interest. This has already been explained, and will now be dealt with in a more systematic manner.

In other words, if transactions took place only in kind, then there would be only one interest rate. But because money intervenes, then prices of commodities can diverge from “real” prices. Yet, the objection to this thinking is obvious: if transactions took place “in kind”, then there could absolutely be no “prices” attaching to commodities because each exchange would be sui generis, absolutely and utterly unique – one apple for two pears, one pear for half an apple…. In other words, there would be simple “barter” but no “prices”!

Actually the complications are greater. We have been making the implicit assumption that the relative values of commodities in exchange remain unaltered. But they are, of course, affected by the change in the conditions of production, and they in their turn exert an influence on the conditions of production. The only scientific method of dealing with the problem consists in paying simultaneous regard to all these factors, in the manner first demonstrated very clearly by Leon Walras.1

But “simultaneity” of exchanges does not resolve the problem of price. Certainly, simultaneity ensures the certainty of calculating the relative rates of exchange between commodities and their expression in a numeraire. But once again this “simultaneity” does not yield “prices” – it gives us only instantaneous ratios in terms of a chosen commodity. The “timelessness” of the equated “values” ensures that these “values” are entirely meaningless (this was the kernel of Hayek’s early critique of Walrasian equilibrium). Therefore, such a simultaneous calculation of exchanges only gives us, as Wicksell rightly notes, “the relative values of commodities” – relative to one another at a fixed moment in time – but it will never reveal the “value” of the commodities as a common “property” that can be expressed in a “price” that is “separate” from the exchange ratios of commodities. For there to be “prices” that can express economic value in monetary terms, the commodities exchanged must be commensurable: they must have a common property that makes them equivalent, a common property that can be expressed in a universal “price”, not in a numeraire. Because the notion of “economic equilibrium” can yield only a numeraire, it is a purely formal mathematical equation that does not reveal the material “content” of economic activity. And money, far from being a “veil” or a convenient means of exchange, just a “token” – money is in fact the very embodiment of this “material content”, of this common property, of this “value”. What can that common property be?

Thursday 20 October 2016

Capitalism as Relative Overpopulation - Part 2

The thesis we have been advancing in the last few interventions is that the essence of capitalism is "relative overpopulation". Here are two recent articles in support of our more theoretical analysis.The first is by Satyjat Das on the so-called "sharing economy", which is anything but what it calles itself - if only I could get hold of the neck of those rotten bastards that run airbnb and the pigs that sponsor them and the likes, I would then not be responsible for my actions, friends.

The second is more directly on the projected overpopulation of conurbations by a technocratic architect who can see the problem but has not a clue about its real cause. Here they are:

The sharing economy benefits its creators, but this may be at the expense of those who do the work or provide the service — as well as the broader economy.
The real reasons for the sharing economy are simple.
The existing industries targeted by these platforms are frequently inefficient. Over time, regulations have accreted, evolving to serve narrow interests rather than to maintain service standards and protect users. Competition has fallen, and development has been impeded.
Proponents argue, with justification, that sharing-economy competitors frequently provide a superior product. This highlights the need to reform existing regulatory frameworks. It is not self-evident that replacing the existing system with non-professional service providers and substituting a new monopoly for an existing one is the optimal response.
The sharing economy has developed in response to weak economic growth and a depressed labor market. Workers unable to find work or needing supplemental income use these platforms to earn additional income.
The arrangements are intended to avoid labor laws that cover minimum wages, working conditions and benefits. Technically, the worker isn't “employed” but a “contractor” not subject to these regulations, though there is debate in some jurisdictions about the exact legal status and rights of sharing-economy workers.
The sharing economy is part of the trend to contractual and temporary work, which masks the real health of the employment markets. It is also part of a global process of reducing overall labor costs.
The development affects both unskilled and skilled work. Professionals, such as engineers, radiologists and designers from Eastern Europe, Asia, Africa and Latin America, are undercutting peers in advanced economies. It is what financier Jay Gould once envisaged: “hire one half of the working class to kill the other half.”
Sharing-economy platforms exploit these factors. In the latest gold rush, venture-capital investors are betting that low prices — due to paying providers less and avoiding expensive regulations — will create mass markets for services once reserved for the wealthy. Uber has raised more than $15 billion in equity and debt, valuing the business at around $70 billion despite the fact that the company’s car-sharing business isn't currently profitable.
Cheerleaders frame the sharing economy in lofty utopian terms: The sharing economy isn't business but a social movement, transforming relationships between people in a new form of internet intimacy and humanitarianism.
Exchanges are economic. Buyers are primarily concerned about access to services at low costs rather than social objectives. Providers are motivated by money, using their assets and labor to get by in an unforgiving and poor economic environment.
Read: 11 things fans of the sharing economy get wrong
The major financial backers of the sharing economy aren't philanthropists. They are Wall Street and Silicon Valley’s 1%, related venture-capital firms and a few institutional investors, such as sovereign-wealth funds. The amount of capital provided is substantial. Given the normal five-to-seven-year cycle for such investments, the pressure to deliver results will increase, bringing it into conflict with the social or altruistic objectives espoused.
Ultimately, the sharing economy will influence how traditional businesses operate. Traditional automobile makers could offer a car-sharing service, such as BMW’s Drive Now. Users can access a car as needed, paying only for usage. These types of changes may decrease rather than increase revenue as it substitutes hiring arrangements for outright purchases.
But perhaps the real issue is that the sharing economy reverses progress in labor markets. Whatever the gains from increased efficiency, it recreates a Dickensian world for a part of the population. Formal employment protects labor from exploitation and deprivation to varying degrees. The sharing economy transfers the risk of economic uncertainty from the employer to the employee with potentially tragic consequences.
Most important, the underlying economic premise is false. Consumption constitutes 60%-70% of activity in advanced economies. In 1914, Henry Ford doubled his workers’ pay from $2.34 to $5 a day, recognizing that paying people more would enable them to afford the cars they were producing. Reduction of income levels and employment security ultimately reduces consumption and economic activity, impoverishing most within societies.

And here is the second contribution from "The Guardian":

This week in Quito as many as 45,000 people have gathered for Habitat III, the global UN summit which, every 20 years, resets the world’s urban agenda.
Why should we care? Well, to start with, in the next 20 years, we will witness more than two billion more people moving to cities. Depending on what we do to accommodate them, this could be good – or very bad – news.
It’s good news because people are demonstrably better off in cities than outside them. For the poor, cities are efficient vehicles to satisfy basic needs. Having people in a concentrated space makes the implementation of public policies more effective (think of access to sanitation, and the consequences for reducing child mortality and epidemic disease).
For the middle class, meanwhile, cities are a concentration of opportunities for jobs, education, healthcare and even recreation. They offer the promise of social mobility. And for a certain elite, cities are a powerful vehicle to create wealth; their critical mass generates the appropriate environment for knowledge creation and prosperity in the broadest sense of the word.
In short, cities are like magnets, with the potential to take care of everything from the most basic needs to the most intangible desires.
Now for the bad news, which we could call the “3S menace”. The scale and speed of this global urbanisation, and the scarcity of means with which we must respond to it, has no precedents in human history.
Of the three billion urban dwellers today, one billion live below the poverty line. In two decades’ time, five billion people will be in cities, with two billion of them below the poverty line.
To accommodate such growth humanely, we would need to build a city of one million people every week, spending no more than $10,000 per family. If we don’t solve this equation, it’s not that people will stop coming to cities; they will still come, but they will live in awful conditions.
What’s at stake here is not just poverty but inequality too. Cities express in a very concrete and direct way the distance between the haves and have-nots.
Urban inequalities are often reflected in brutal ways – from the distance people must travel to work every day, to the lack of quality public spaces, urban amenities and civic services. No wonder so much anger and resentment is accumulated in the peripheries.
Of course, this is problem is not exclusive to developing countries. Rich countries, despite having solved all their basic needs, experience a similar accumulation of social pressure as if it was a ticking time bomb. 

Tuesday 18 October 2016

Capitalism as Relative Overpopulation

Let us look once more at that quote from Knut Wicksell’s Interest and Money because it displays vividly the utter incomprehension of the bourgeoisie and its acolytes of exactly what kind of monstrous social system they have erected – one that, as is clearly visible to all who dare look – is heading fast toward the precipice of catastrophe:

The two rates of interest [the natural and the monetary] still reach ultimate equality, but only after, and as a result of, a previous movement of prices. Prices constitute, so to speak, a spiral spring [136] which serves to transmit the power between the natural and the money rates of interest; but the spring must first be sufficiently stretched or compressed. In a pure cash economy, the spring is short and rigid; it becomes longer and more elastic in accordance with the stage of development of the system of credit and banking. (Interest and Money, pp.135-6)

Prices, then, are the monetary expression of an underlying substance of economic reality. Prices are like Platonic shadows, like Kantian phenomena, to which is opposed a physical reality that can be distorted when prices diverge from the “real” value of underlying “goods” – but a reality that will “ultimately” impose itself on these “mere phenomena” on these monetary “disturbances”. Here is once again the dichotomy between “appearance” and “reality” that Nietzsche so fiercely derided as symptomatic of the deleterious hypocrisy of Christian-bourgeois society.

For, if it is possible for money to distort prices from their “ultimate equality”, then it is blindingly obvious that there is no such “ultimate equality”, that indeed capitalism is a world of mere shadows in which prices – far from heading toward the ultimate equality of underlying use values – are the expression of social relations of production, of political relations between human beings. There is no “real economy”, therefore.

Neoclassical economics, with its “marginal utility” and “marginal efficiency of capital” (a notion absurdly entertained by Keynes of all people) and of “factors of production” – neoclassical economics is one giant metaphysical construction whose pernicious influence over socio-political analysis and social policy over the last one and a half century is slowly but surely leading capitalist society to self-destruction.

If there is one reality that is coming prepotently to the fore, it is this: the capitalist economy is based on the accumulation of social resources on the part of the bourgeoisie to enable it to expand its political control over a greater number of human beings to be used as labour power for the expanded production of those resources. Capitalism is entirely dependent therefore on the relative growth of overpopulation, that is, of an excess workforce able to depress the living standards and political emancipation of the existing labour force. On one hand, the bourgeoisie seeks to co-opt its labour force with higher real wages whilst on the other it must create the conditions necessary for the expansion of the potential labour force, the reserve army of the unemployed and underemployed, to ensure the political subservience of those already in employment. This is the essence of capitalism: relative overpopulation.

So why must this come to a brutal end, to a war of all against all? Because the bourgeoise on one side relies on the allegiance of workers in its metropole to exert its domination over the periphery. But at the same time, the bourgeoisie also needs the periphery to exert dictatorial powers over the greatest portion of the world’s population – precisely in order to ensure that the workforce in the metropole remains loyal. It is evident therefore that there is a devastating, explosive contradiction between “liberal democracy” in the relatively underpopulated “West”, and utter crushing dictatorship in the relatively overpopulated “emerging economies”. This contradiction that was always present but was either suppressed or distorted is now becoming so explosive that its blinding truth can no longer be hidden from view!

Overpopulation as the real essence of capitalism is bringing about the devastation of the planet. As Tom Friedman once far-sightedly put it, “The Earth cannot afford 8 billion Americans”! In other words, no matter what the apologists of this insane social system might say about “capitalism is dragging billions of people out of poverty”, the reality remains that the living standards of workers in the metropole are collapsing. And they have to collapse! Because the Western bourgeoisie can accumulate capital through the complicity of inhumane dictatorial regimes the world over. Far from the end of the Cold War, we have now entered the most lethal “Hot Peace” whereby vast populations languishing in the periphery (China, India, Africa, Middle East) seek to compete with Western labour forces. The quicker we understand this self-destructive dynamic of capitalism, the higher will be our already very slim chances of surviving the madness of capitalist social relations of production.