Commentary on Political Economy

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?