Commentary on Political Economy

Friday, 4 December 2020

REPLY TO PAUL KRUGMAN - or, THE ECONOMIC AND THE POLITICAL

 

Contrary to what Lenin is said to have quipped, politics is not a concentrate of economics. It is the other way round: economics is a concentrate of politics. In other words, it is not politics that "boils down" to economics; it is economics that can be reduced to a bundle of politics. The important thing is to focus on the meaning of the phrase "a concentrate of" and the phrase "boils down to". What is it that we mean when we say that "in the final analysis" politics is economics or the opposite, that economics really is politics? What kind of "reality" do we refer to when we speak of the ultimate foundations of economics or politics? As we all know, necessity is not just "the mother of invention" - meaning that there are some needs that are so fundamental that they stir up human imagination and inventiveness. Necessity can also be camouflaged and disguised or simply be rationalised away as "virtue": this is what we do when "we make virtue out of necessity". Differently put, we recognize that there are situations in social relations when we are coerced into doing things that either we would rather not do or else "concentrate the mind" to the point of inducing virtue - the acquiescence to necessity as virtue - or inventiveness, the desperate search for alternative solutions.

But in all these cases, in all these instances, what we call ‘necessity’ is a function of social relations, not of physical or physiological necessity. If we accept that our environment offers sufficient resources for human societies to reproduce themselves, then it is evident that economics - which as "the dismal science" is often confused with "the sphere of necessity" - has little to do with physical or physiological necessity but must instead have everything to do with "coercion". The necessity of economics intended as a "science" is therefore in reality the necessity of political coercion. So this is why it is correct to insist that "economics is a concentrate of politics", in the sense that what we describe or circumscribe as a separate field of human activity - "the Economic" - is a specific form of coercion imposed by some people on other people in the sphere of the production of human needs or for their satisfaction. And it is utterly false to claim, with Lenin, that "politics is a concentrate of economics" because accepting this proposition would mean that we accept that economic activity is dictated by a "necessity" that is independent of "coercion", that is physical or even physio-bio-logical in nature – and therefore independent of "the Political". 

In the case of capitalism, the form of political coercion specific to it – its differentia specifica from other modes of production – is that the capitalists are allowed to command the present living labour of workers by means of an “exchange” with their past or dead or objectified labour. It follows that the profitability of capitalists is dependent entirely on their ability to command future living labour. Profit is surplus value that represents a mortgage – the dead hand of the past over the future – on future living labour. (Keynes had an inkling of this insight when he declared in of The General Theory that “money [as a store of value] is a bridge between the present and the future”.) But there is one rider to this definition – one that distinguishes capitalism from the slave mode of production. After all, slavery can also be seen as an “exchange” for the living labour of slaves with their past dead labour. The difference between capitalism and slavery is that the capitalist does not legally own the worker: what defines capitalism is that the living labour of workers “exchanged” for their dead labour is legally free to work or not to work for the capitalist – yes, on condition of starving, perhaps, but if workers starve the capitalist does not make a profit, which means that a political compromise must be reached between workers and capitalists.

The political compromise consists of this: that in exchange for their living labour being paid with their own past labour – that is, in accepting that this “exchange” is really a political coercion forced on them by the fact that capitalists own the means of production and their ownership is enforced by the monopoly owner of the means of violence, the capitalist State – the workers compel the capitalist to improve their living standards materially by increasing the productivity of living labour. Of course, increasing the productivity of living labour serves merely to reduce the real cost per worker of living labour because the capitalist now needs to employ fewer workers to be able to exchange their dead labour for their living labour. This would certainly create excess living labour, and therefore unemployment – except that the capitalist can deploy the excess dead labour derived from the higher productivity of workers to employ more workers from the reserve army of the unemployed or else from new supplies of living labour from other countries and their populations.

This entire process is called “relative exploitation” or “relative surplus value”, whereas where capitalists are not forced by workers to increase productivity through innovation, the only way for them to accumulate more profits or surplus value is simply to employ more workers with the existing means of production or to force existing workers to work longer hours. This is called “absolute exploitation” or “absolute surplus value extraction”. There obviously comes a time when the entire present and potential (reserve army plus new populations) army of workers is nearly exhausted and the capitalists cannot find new outlets for profitable investment of their excess capital. It is at this stage that the overall rate of profit of capital begins to decline, interest rates begin to sink and approach “the zero bound” and unemployment begins to rise without any improvement in the living conditions of the employed labour force.

At this stage, capitalists have two choices: one is to accept that a large part of their accumulated capital or “assets” is worthless because it is incapable of producing being profitably invested – this is called a deflation. The other “solution” is to keep employing workers by means of collective capitalist creation of fiat money, that is to say, by means of the extension of credit through the artificial printing of money that essentially involves, depending on “the transmission mechanism” of money creation, either the transfer of social resources to workers, or else the inflation of the “assets” or excess capital that capitalists already own – which implies the growing income and property inequality of a capitalist society between the owners of “assets” and the working population and the reserve army of unemployed.

Essentially, what is happening right now is that “the collective capitalist” – the capitalist State – through its financial (Treasury) and monetary (central-bank) authorities is extending monetary claims (fiscal and monetary debt through the issuance of bonds and the purchase of securities) to capitalists and thereby (a) is exchanging the private debt of capitalists for government debt, with the consequence (b) that the volume of debt is both being “nationalized” and is expanding exponentially to avoid what would otherwise be a catastrophic collapse in the value of existing “assets” or surplus accumulated capital – with the unimaginably catastrophic consequences that this collapse in the financial credit pyramid that this obviously implies!

Now you can draw your own conclusions as to the colossal stupidity of a Paul Krugman (not to mention – do we have to? – those idiotic “modern monetary theorists” – theorists! Was there ever a bigger misnomer?). According to our dear Paul – who knows a thing or two about “the Economic”, but understands little or nothing about “the Political” – what is happening now is that “investors are quite willing to lend to governments at zero interest rates so that it does not matter how much fiat money the government prints in the shape of treasury bonds”! But that is simply false as false can be! In reality – in the Political – governments are buying bonds through their central banks! In other words, were it not for central banks creating excess money claims on existing resources through the purchase of government debt, the entire fake money pyramid of debt would come crashing down with a kinetic energy equivalent to that of a thermonuclear war and sufficient to obliterate life on earth! ...You don’t believe me? You believe Paul? Very well, then. Go and buy some Tesla and Amazon shares! He laughs well who laughs last…

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