Letter: Debt slaves or wage slaves? (2012)

Letter to the Editors from the October 2012 issue of the Socialist Standard

Debt slaves or wage slaves?

David Graeber replies to our review of his book on Debt in August’s issue

Dear editors:

You may be surprised to know I have read Capital, and am familiar with the concept of primitive/original accumulation. I might suggest it is the reviewer, rather, who might wish to expand his reading list, since he is evidently unfamiliar with that strain of the Marxian tradition that has most informed my analysis of such matters: the “autonomist” or “post-workerist” strain that runs through Tronti to Cleaver to the Midnight Notes collective, Federici, Caffentzis, and de Angelis (a very different one from the more familiar Negri strain). In that tradition, “primitive accumulation”  is not treated as a one-time thing that somehow teleologically prepared the way for capitalism, but rather as part of an ongoing process of the enclosure of different sorts of commons (and the creation of various forms of capitalist commons, like, currently, the US military) that has marked capitalism’s history from beginning to – hopefully its rapidly approaching – end. I actually cite my sources here in a footnote the reviewer seems to have missed. In fact he doesn’t seem to notice that my entire analysis of post-war economic cycles is based in this tradition.

What I was mainly trying to address in the section on capitalism is a question that to my knowledge no Marxist analysis has really been able to resolve: why, if capitalism is a system based on factories and free wage labor, did most of the financial institutions that we associate with it – stocks, bonds, futures trading, semi-private central banking systems, and so on – actually arise in the 17th century, long before either factories or (any significant amount of) free wage labor made an appearance. The whole idea of “merchant capitalism” which is supposed to characterize the period from roughly 1500 to 1750 (or even 1800 in most of Europe) has always been a puzzle. If capitalism is a system based on wage labor, then it wasn’t capitalism at all. But if so most bourgeois revolutions happened before capitalism had even appeared! If merchant capitalism is capitalism, then capitalism does not have to be based on wage labor, and certainly not free wage labor, at all. Claiming that merchant capitalism was capitalism because European elites were somehow trying to create a system that didn’t exist and there is no evidence they were even capable of imagining, seems absurd. The obvious answer is that capitalism is not in fact necessarily based on free wage labor contracts. Marx was, as I note in the book, effectively saying “well, let’s take a best case scenario, and imagine workers are in no sense constrained; I can show the system would still lead to impoverishment and self-destruction.” He wasn’t saying that the assumptions of the political economists were empirically true. He was just allowing them for the sake of argument. As I note many seem to have forgotten the “as if” quality of his analysis.

I find it genuinely odd that I get so many reviews that accuse me of ignorance of even the basic ABCs of Marxism, while at the same time, systematically ignore everything I actually say about Marx! Granted, the book is meant for a wide audience, and therefore avoids scholarly debates of all sorts, Marxist or otherwise. But it’s all there in the footnotes. And I do talk about Marx in the text.

As for the reviewer’s final claims that we are primarily wage slaves not debt peons: how does he know this? Because the secret to our 21st century situation lies in the correct interpretation of 19th century texts? That’s silly. Systems change. I mean, it might be true, but it’s a matter to be empirically established. A far larger percentage of Wall Street’s profits is now derived from the financial sector than from industry or commerce – that is, from the exploitation of wage laborers. Where does that profit really come from? It would be very interesting to know what percent of the average (say) American’s income is now directly expropriated by the FIRE [Finance, Insurance, Real Estate] sector, compared to what might be said to be extracted indirectly, through the wage. But the research simply hasn’t been done. Nor will it be if we can’t open up our minds a little and treat Marx’s legacy as a living tradition. It’s possible that the system is already starting to turn into something else. Or maybe it isn’t. Let’s figure it out rather than just shouting doctrine at one another.

 

Reply:

1. As capitalism continues, money-commodity relations are certainly spreading into yet further fields of human activity. However, whether this can be usefully seen as a continuation of the primitive accumulation of capital is another matter. Marx introduced the concept of original (generally translated as “primitive”) accumulation to answer the question of how and from where was the capital to launch the industrial revolution accumulated. Once started, as it had been by the end of the 18th century, capital accumulation became self-generating, out of the surplus value extracted from wage workers. This said, although capitalism in the form of the world market dominates the whole world, the capital/wage-labour relationship is by no means universal. It is still spreading (being spread by the state) in such places as China and India as peasants are driven off the land and obliged to work for wages in factories. So, in this respect, one of the features of Marx’s primitive accumulation is still continuing.

2. We can’t see how anyone can deny that central to Marx’s analysis of capitalism (“the capitalist mode of production”) is the capital/wage-labour relationship, whether or not they agree with this. But this is not the only feature of capitalism; it is also a market economy where goods are produced to be sold. In fact, capitalism can be defined as a system where all the elements of production, including in particular the human ability to work (labour power), are bought and sold, which only becomes general once the direct producers have been separated from the means of production, whether land or machines. This didn’t come about suddenly in one go; it developed over time. Historically, the world market – as an inter-national market – first came into being in the 16th century and then market relations spread internally within countries producing for it as there were put change the more they got involved in it. Those in control of political power in these countries faced a choice: either to try to resist the changes or to encourage them. The “European elites” were divided over the issue. Those in favour of change wanted to remove all the barriers to property ownership and production for the market inherited from feudalism. They were, or represented, the up-and-coming bourgeoisie. In the end, they got their way, especially after they won control of political power in the English Revolution in the 17th century and the American and French Revolutions in the 18th century. Whether or not they envisaged a system of production based on wage-labour eventually emerging, they were consciously aiming at the spread of market relations and of the concept of the individual free to enter into market relations with other individuals. See, for instance, C. P. Macpherson’s The Theory of Possessive Individualism, Karl Polyani’s The Great Transformation and John Gray’s more recent False Dawn. Adam Smith, the father of “Political Economy”, writing in 1776, held a labour theory of value and already recognised landless and machine-less wage workers as one of the three economic classes, alongside landowners and profit-seeking tenant farmers, involved in the market economy which it advocated should be extended.

3. Are we still “wage slaves” or are we becoming “debt peons”? This is the basic disagreement between David Graeber and us. A “debt peon” would be somebody forced to work to repay a debt, normally to their employer or landlord. This has existed historically under non-industrial conditions and still survives in some parts of the world though declining. Modern advocates of this view see people in the industrialised and urbanised parts of the world as being essentially in the same situation as they have to work to repay loans with interest to the banks who have lent them money. In other words, that they are being exploited by the banks and bankers. Is this an accurate, empirical analysis? We don’t think so.

For a start, even if you are in debt (and not everybody is, by any means) you are still obliged unless you are a rich investor (which most people aren’t) to work for a living by selling your ability to work for a wage or salary. This is still the basic situation for most people, including those in debt. The disposable income of those in debt may be reduced by having to repay a bank debt with interest, but the main source of that income is still wages.

David Graeber says that “a far larger percentage of Wall Street’s profits is now derived from the financial sector than from industry or commerce” and asks “where does that profit really come from?” Good question. It won’t be from the interest paid by workers on money they have borrowed. Some firms in the FIRE sector will be making a profit out of this, but most of the profits of this sector will have come from elsewhere. Since profits are a claim on wealth, and since wealth can only be produced by humans applying their physical and mental energies to materials that originally came from nature, this source can only be the labour of those working in the productive sector of the economy. In other words, out of the surplus value produced by wage-labour. (In fact even the interest paid by workers out of their wages will come out of their share of newly-produced wealth). So, the extraction of surplus value from productive wage-labour is still the basis of capitalism and the ultimate source of all profits. – Editors.

Material World: Has capitalism become financialised? (2025)

The Material World column from the May 2025 issue of the Socialist Standard

The financial crisis of 2007-2008 triggered by the large-scale collapse of mortgage-backed securities in the United States was an important catalyst in promoting the view that capitalism has become ‘financialised’. Financial speculation has come to be seen not only as something increasingly autonomous with respect to the real economy (based on the production of commodities), but also as increasingly dominant in determining what happens in the latter.

The crisis was looked upon as being essentially a product of the short-sighted and irresponsible shenanigans of the financial community, aided by the New Financial Architecture (NFA) instituted in previous years and the radical financial deregulation this all entailed. In short, it was said to be the outcome of a steadily intensifying process of ‘financialisation’.

Fictitious capital

Financial speculation grew out of the traditional credit system centred on banking and became more prominent with the rise of the joint stock company. Financial securities initially took the form of stocks and bonds but in the last few decades have proliferated into a bewildering array of financial products. They are all examples of what Marx called ‘fictitious capital’, a future income stream converted into a notional lump sum. A share certificate, for instance, exists largely as a paper claim on future profits to be paid out in the form of dividends.

There is a difference between fictitious capital and an interest-bearing loan provided by a bank to an industrial capitalist to purchase means of production. In the latter case this money capital is incorporated or utilised within the process of the expanded reproduction of capital. The bank takes a cut in the form of interest payments from the increased value – or surplus value – generated at the point of production.

This is not the case with fictitious capital for the simple reason that this does not actually function as capital. That indeed is the reason why it is called fictitious capital. It is not implicated in the expanded reproduction of capital.

Because the stock market comprises a separate market for the circulation of fictitious capital this encourages the illusion that such capital is somehow independent of the real economy – or even that it constitutes ‘real capital besides the capital or claim to which they may give title’ (Marx, Capital, Vol. 3, ch.29. Penguin translation). Obviously, if fictitious capital was qualitatively identical to real capital and able to interact with the latter on equal terms, so to speak, it would then be able to generate real wealth – real profits – all by itself and would cease to be dependent on the real economy for any income it lays claim to.

But, of course, this cannot be the case for the reason so succinctly spelt out by Marx, namely that a capital cannot exist twice ‘once as the capital value of titles of ownership, the shares, and then again as the capital actually invested or to be invested in the enterprises in question’. The problem is that this is precisely what much recent commentary on the subject of crises would seem to imply.

If these ‘financialisation theorists’ are correct in what they say then this would suggest, as Stavros Mavroudeas has pointed out, that ‘financial profits are not a subdivision of surplus-value’ (and) ‘the theory of surplus-value is, at least, marginalised’ (and that) ‘consequently, profitability (…) loses its centrality and interest is autonomised from it’ (quoted in tinyurl.com/2rafv87w ).

Needless to say, if true this would have certain practical implications.

Are we debt peons?

It would seem to suggest, for instance, that more importance ought to be attached to the problem of so-called ‘secondary exploitation’ rather than the primary exploitation that occurs in the workplace (and manifests itself in the production of surplus value). In other words, according to this way of thinking, workers are to be looked upon more as debt peons than wage slaves and, consequently, more attention should be paid to measures such as keeping interest rates down, rent controls, improved trading standards and so on as a way of alleviating their situation.

It is quite true that many workers do indeed qualify as ‘debt peons’, burdened with a variety of debts such as student loans, personal loans, and mortgages. However, their status as debt peons is essentially a derivative one stemming from the economic precariousness they experience as wage workers. It is because of this that they fall into debt. They don’t become wage slaves in order to pay off their debts as debt peons. If anything, it is often the other way round.

In any event, the basic premise of the financialisation theorists is questionable. The illusion that financial gains can somehow become autonomous with respect to the real economy can only be sustained if you focus on the micro-level – the individual investor of fictitious capital.

If an investor sold their shares on the stock market then, of course, they might very well realise a capital gain and be able to purchase tangible goods – real wealth – with the money they received. Their fictitious capital would not have been implicated in the production of real wealth and yet would have resulted in an augmentation of the investor’s own real wealth.

However, if every other shareholder followed suit and simultaneously sought to dispose of their shares as well then the price of these shares would plummet to zero thereby demonstrating their essentially fictitious character. Of course, this hypothetical scenario is inherently absurd – after all, to sell your shares you need someone to buy them – but it does bring out the point that fictitious capital is not about value creation at all. It’s at least partly about speculation and this was spectacularly demonstrated in the case of the 2007-8 financial crisis when the fictitious value of certain financial securities simply evaporated.

Robin Cox

Cooking the Books: Another reformist dreamer (2024)

The Cooking the Books column from the December 2024 issue of the Socialist Standard

In a speech last year, Rachel Reeves name-checked Mariana Mazzucato who, she said, had long argued that ‘the state’s role is not simply to correct the failures and redress the negative externalities of free markets… Success has always rested upon a partnership between the market and the state’ (tinyurl.com/3m78s2mx).

Although Mazzucato is seen as a radical thinker she has nothing against capitalism as such. Nothing against the private ownership of productive resources. Nothing against production for sale on a market with a view to profit. What she is against is the present ‘dysfunctional form of capitalism’ characterised by ‘the excessive financialization of companies and remorseless pursuit of shareholder value’. As she quotes on her website she is on ‘a mission to save capitalism from itself’. She wants to ‘change’ capitalism, as she put it in her 2020 book Mission Economy: A Moonshot Guide to Changing Capitalism, by ‘restructuring business so that private profits are reinvested back into the economy rather than being used for short-term financialized purposes’. In other words, she is a theorist of reformism. Hence her attraction for the Labour Party. Even under Corbyn, John McDonnell went around echoing her call for an ‘entrepreneurial state’.

Mazzucato’s reform to capitalism is for the state to play a pro-active role in the economy by setting an aim to be achieved — a social or economic problem to be solved — and then mobilising the help of private capitalist corporations to achieve it by ‘shaping’ markets for them. Hence the title of her book which argues that the US government’s 1962 mission to get a man on the Moon within ten years is the example to follow.

There are indeed occasions when capitalism’s spontaneous aim of profit maximisation is set aside. When a country is at war, the ‘mission’ becomes to win ‘whatever it costs’ and the state mobilises resources to achieve this. It is instructive that the only successful example of her ‘change’ to capitalism that she can bring forward had a military dimension. The United States government did not want to get a man on the Moon for scientific reasons but to gain superiority over Russia in rocketry.

Mazzucato herself notes this and asks why a state could not similarly mobilise resources to achieve some peaceful aim such as solving the housing problem or creating a good health and care service. The same question was put by reformists to those who in the 1950s and 60s argued that capitalism had been saved from supposed collapse by providing markets through becoming a ‘permanent arms economy’. Why, the reformists asked, couldn’t capitalism become a ‘permanent welfare state economy’; why couldn’t the state provide extra markets by spending instead on social reforms?

The permanent arms economy theorists struggled to find a coherent answer. In the end, life itself settled the matter — excessive spending on arms turned out to undermine a capitalist state’s international competitiveness by increasing the tax burden on its capitalist enterprises and diverting profits that might otherwise have been invested in cost-cutting innovations. Which explained why in the 1960s Germany and Japan, which weren’t allowed to spend so much on arms, did better on world markets. Excessive arms spending wasn’t saving capitalism but was a burden on the states that practised this. The answer to the reformists was that excessive spending on the welfare state and other social reforms was not practicable because it, too, would be a burden on any capitalist state that tried, undermining its competitiveness.

The same applies to Mazzucato’s reformist project. If, outside of war, the state were to set a purpose for the capitalist economy other than profit maximisation and taxed capitalist corporations to pay for it, this would inhibit, not encourage, growth. In seeking to maximise profits capitalism is not being dysfunctional. It is being itself and can’t be changed to function in any other way.

‘Multipolar’ . . . but purely capitalist (2024)

From the March 2024 issue of the Socialist Standard

‘We’re the United States of America, for god’s sake! The most powerful nation in the world, not in the world, but in the history of the world’. This was Joe Biden’s response in October to the question of whether the US could aid Ukraine and Israel at the same time. If George Bush Sr. or Bill Clinton had boasted similarly when they occupied the White House, many Americans might have nodded in agreement, but it rings hollow or even comical today. Signs that the ‘indispensable nation’ is in decline – militarily, economically, politically, and ideologically – can be seen everywhere.

The decline of US global power raises the hope among many that a new ‘multipolar world’ is emerging that would be more stable and just. The hope is understandable. No one likes a bully, and no country has acted more like one over the past 30 years than the United States of America (for god’s sake). Now that the US government is fighting Russia to the last Ukrainian and supplying Israel with the weapons to massacre civilians in Gaza, it seems clear to many that the world is a dangerous place when one nation wields too much power.

But even if the US is pushed off centre stage, or graciously decides to allow other actors to play a part, the working-class audience would still be watching the same old tragicomedy – a tale about unending conflict arising from unbounded greed – because multipolarity is premised on capitalism and its competitive logic.

History shows that countries united one day to oppose a hegemon, can be at each other’s throats soon after the bully has been cowed. After all, as William Morris pointed out, capitalism is a social system ‘based on a state of perpetual war’ – whether it be the struggle between classes, the competition between capitalists, or the conflicts between nations.

No friendships, just interests

In talking about a ‘multipolar world’ the adjective ‘new’ is often attached, but there is nothing new about multipolarity. It has been the norm throughout the history of capitalism. After World War II, when it seemed that the world was neatly divided between two great blocs, that ‘bipolar world’ saw conflicts within each camp, whether tensions between the Soviet Union and Yugoslavia, China, and other ‘Communist’ states, or trade disputes between the United States and its allies. Behind the ideological smokescreen of ‘communism’ or ‘democracy’, each nation-state pursued the interests of its ruling class.

Even during the supposed ‘unipolar moment’ that followed the collapse of the Soviet Union, the United States was hardly able to impose its will everywhere (although it tried its hardest).US military power proved incapable of eliminating resistance in Iraq or Afghanistan, and the economic sanctions the US imposed around the world often did more to isolate itself than the targeted country. Much to its consternation, the US saw ‘unfriendly governments’ pop up here and there, including some that had the chutzpah to do so in ‘America’s backyard’ in Central and South America.

The more aggressively the US has wielded its economic and military power, the more it has created enemies and exposed the reality of ‘multipolarity’. However, even though the ‘project for a new American century’ only lasted about as long as Hitler’s ‘thousand-year Reich’ before the wheels started to come off, its neocon architects continue to act as if the whole world envies and fears the United States and is willing to follow its ‘rules-based order’ (Rule 1: Do as we say, not as we do.)

Much of the hope placed in ‘multipolarity’ could be described as a natural and healthy reaction against the aggressive and unpredictable foreign policy of the United States. Other nations cannot help but appear responsible and trustworthy in contrast. It would be naïve, however, to imagine that relations between nation-states can be founded on lasting trust. Nevertheless, cheerleaders for multipolarity do just that in assuming that the BRICs nations are bound by common values or that the ‘friendship without limits’ between China and Russia can be taken at face value.

Here again it helps to look at history, which provides many examples of alliances that were formed from the existence of common enemies or mutually beneficial economic interests, and then dissolved when conditions changed. A case in point was the falling out between the US and USSR after the defeat of Germany. Since no one denies that US foreign policy has pushed China and Russia closer together, it is not unlikely that the two could reconsider their relationship if the US retreats from Europe and East Asia.

The point here is not to predict that China and Russia will fall out of love, but to emphasise that each nation pursues its ‘own interests,’ which means defending the core interests of the capital class. There is no place for lasting friendship among states in this capitalist world.

Under a multipolar world nation-states will continue to pursue their interests and seek alliances with other states accordingly. The motto for the nation-state will remain (to paraphrase Lord Palmerston): ‘No eternal allies, no perpetual enemies: only the duty to follow our own (capitalist) interests.’

The Chinese model?

Another hope placed in multipolarity is that it might be a shift away from ‘neoliberalism’. This is the view that China, Russia, and other BRICs nations have economies centred on the production of material goods for the benefit of its citizens, while the ‘collective West’ has a financialised economy designed to benefit a tiny parasitic elite.

In a 2022 article titled ‘Finance Capitalism Versus Industrial Capitalism’, the influential economist Michael Hudson (a self-described ‘Marxist’), argues that the current rivalry between the United States and China comes down to a ‘clash of economic systems’, with ‘finance capitalism’ on one side and ‘industrial capitalism’ on the other. What is ‘at stake’ in this ‘new Cold War’ is ‘whether the state will support financialization benefiting the rentier class or build up the industrial economy and overall prosperity’.

Hudson describes ‘socialism’ as the ‘natural evolution of industrial capitalism’, attributing this view to Marx. Somewhere in Vol. 1 of Capital (Hudson doesn’t say where), Marx argued that ‘as industrial capitalism evolved toward more enlightened management, and indeed toward socialism, it would replace predatory usurious finance, cutting away the economically and socially unnecessary rentier income, land rent, and financial interest and related fees for unproductive credit’. Apparently, the United States was also on this evolutionary path to socialism until its system of industrial capitalism was undermined by the forces of ‘finance capitalism’ or ‘pro-rentier fascism’.

In Hudson’s interpretation, Marx explained that industrial capitalism makes its profits ‘by investing in means of production to employ wage labor to produce goods and services to sell at a markup over what labor was paid’. This view of profit as an arbitrary ‘markup’ typifies the way Hudson presents capitalism (or ‘industrial capitalism’) as an efficient means of producing material goods, rather than a system founded on the exploitation of labor. The culprit for Hudson is not the pursuit of profit but ‘finance capitalism’, which ‘has eroded [the] core circulation between labor and industrial capitalism’ in which ‘capitalist employers pay wages to their workers and invest profits not paid to employees into factories and equipment’.

A lot more could be said about Hudson’s understanding of terms like ‘capitalism’ and ‘socialism’, not to mention his freewheeling interpretation of Marx, but the important point is that his view that China and other BRICs nations are following a more progressive or socialistic economic model is shared by many others.

In reality, China looks a lot more like the capitalist past than a socialist future. Its manufacturing-based, export-driven economy is modelled in many ways on Japanese capitalism. Japan had the sort of ‘industrial capitalism’ that would earn high marks from Michael Hudson. Indeed, many observers at the time claimed that Japan had pioneered a superior model of capitalism. But in the 1990s, much as the United States had done a decade earlier, Japan offshored much of its industry and carved up its welfare state, in a bid to restore profitability.

Hudson seems confident that the Chinese system will not fall into the sorts of problems that have ensnared the US and Japan. He writes that ‘socialist China’ has been able to ‘keep down the cost of living and business’ by ‘keeping money and credit creation public instead of privatizing it’ and has ‘been able to avoid a debt crisis by forgiving debts instead of closing down indebted enterprises deemed to be in the public interest’.

So what would Hudson have to say about the recent forced liquidation of the property developer Evergrande? The collapse leaves the company’s creditors owed around $300 billion, not to mention the millions of Chinese homeowners who sank their life savings in properties now worth a fraction of their former value. The situation looks a lot like the ‘debt leveraging’ in the US that Hudson bemoans, which ‘makes investors, speculators, and their bankers wealthy but raises the cost of housing (and commercial property) for new buyers, who are obliged to take on more debt in order to obtain secure housing’.

These recent developments suggest that either ‘finance capitalism’ has already taken root in China, or that the clear distinction Hudson and others draw between that model and ‘industrial capitalism’ is nonsense.

The champions of multipolarity and the BRICs, like Hudson, would have us pin our hopes on capitalism gradually ‘evolving’ into socialism. This might seem plausible to the many who mistake ‘socialism’ for state capitalism, but the real solution lies elsewhere. Instead of the competitive, multipolar world of production to generate profit, we desperately need to move toward a cooperative, borderless world of production to meet human needs.

MS

Material World: Shareholder capitalism (2024)

The Material World column from the January 2024 issue of the Socialist Standard

In the last few decades the growth of institutional investors, in particular, in the guise of various kinds of funds – such as mutual funds, pension funds and, more recently, hedge funds – has been a powerful force in shaping the development of financialisation. Their large size has afforded them the leverage to impose a particular kind of financial logic on corporations with the focus very much on maximising ‘shareholder value’.

The CEOs – Chief Executive Officers – of big corporations have emerged as key agents in this trend, their commitment to the interests of shareholders having been firmly cemented and assured by means of such devices as stock options. This has had the effect of more closely aligning the interests of CEOs with those shareholders and is reflected in the astronomical rise in payouts to the former, an increasing proportion of which is, in effect, unearned income. Thus, whereas in the 1960s, America’s CEOs took home roughly 20 times what the average shop-floor worker made, today the figure is about 400 times or more.

Under increasing pressure to prioritise short-term results, managers are more inclined to make decisions that promote increased share value, such as mergers, acquisitions, and stock buybacks, rather than investment in physical production. Compliance is enforced by the threat of shareholders revolts, takeover bids by rivals or leveraged buy-outs by equity funds. The figures speak for themselves; more in the way of shareholder payouts means fewer funds available for investment, relatively speaking. According to Sam Pizzigati:

‘Between 1947 and 1999, non-financial U.S. companies shelled out an average 19.6 percent of their operating cashflow to shareholders, notes economist Andrew Smithers. The second half of that half-century saw stock options become an ever more dominant source of corporate CEO compensation. The 21st-century result? Between 2000 and 2017, the Smithers research finds, the average corporate cashflow to shareholders more than doubled to 40.7 percent’ (Sam Pizzigati, Aug 10, 2023 ‘Have Our Corporate Chieftains Become Expendable?’, Counterpunch).

Investment in physical production often involves certain immediate cost outlays and delayed benefits. That might require the board of directors to approve a request from the executive team to suspend dividend payouts (to the chagrin of shareholders) for the time being in order to finance this investment. Their reluctance to do this is a function of the shrinking time horizons (‘short-termism’) that businesses are subject to in an increasingly competitive world. All this has been aided and abetted by computerisation and the use of algorithms that have greatly speeded up decision making and made it imperative to adopt decisions that benefit a business in the short term with little thought of the long-term consequences.

Investing in the ‘real economy’ has the risk that in building up productive capacity one might exceed what the market is capable of absorbing – not least when your rivals might be wanting to expand output as well. Thus, it may sometimes be more prudent to simply buy up existing production capacity via mergers or acquisitions than increase that capacity yourself.

It is developments such as these that call into question the traditional image of the modern corporation as classically set out in Adolph Berle and Gardiner Means´s 1932 book, The Modern Corporation and Private Property. This seminal work helped to fix the image of the modern corporation in popular consciousness as an entity in which ownership is dispersed among numerous (and relatively inactive or powerless) and often small investors (thanks to the institutionalisation of laws such as those pertaining to limited liability that supposedly encouraged wider investment among the population by mitigating potential losses) with corporate control being decisively wielded in the hands of non-owning managerial elites.

Recent developments closely aligning the interests of CEOs with those of shareholders via the use of stock options and profit-based performance bonuses – major components in the compensation packages of modern-day corporate CEOs – have put the matter beyond doubt. Moreover, some of these compensation packages are on a scale that would certainly place their recipients in the ranks of the capital-owning class, even if only the lower rungs of that class, taking into account that a sizeable and growing chunk of that income is unquestionably ‘unearned’.

CEOs may ‘work’ but the mere fact that one works does not, of course, make one working class – any more than the possession of small amounts of capital makes one a capitalist. There is a certain point at which a change in quantity (in this instance, with respect to how much capital one possesses) translates into a change in quality or kind (from worker to capitalist).

In other words, and contrary to what the managerialist paradigm asserts, what we are seeing here is a convergence, not a divergence, of ownership and control. The top echelons of corporate management are, in effect, being steadily absorbed into the capitalist class. Alternatively, you could also see this as a case of members of that class taking on a more (pro)active managerial role in their companies for various reasons.

An extreme example of this would be someone like Elon Musk who, as well as having a personal fortune of $190 billion to his name, is said to have enjoyed a ‘compensation package’ involving performance-based stock options from the electric vehicle manufacturer Tesla, (of which Musk is the CEO), exceeding US$10bn in 2021. Clearly, this individual has no need to work whatsoever given the size of his personal fortune. It’s just that he chooses to do so for reasons we can only speculate on but are not, in themselves, important.

In short, then, capitalism has morphed from something like the kind of managerial capitalism that commentators like Berle and Means had in mind back in the early 20th century to today’s full-on ‘shareholder capitalism’.

Robin Cox

Tobin tax – what a joke (2001)

From the December 2001 issue of the Socialist Standard

The call for a Tobin tax – a tax on financial transactions – is not “anti-capitalist”, as some in the “anti-globalisation movement” seem to think

It is all very well being against something but if this is to be anything more than permanently protesting against some never-ending problem you’ve got to be for something too. Most of those who organise the “anti-capitalist” and “anti-globalisation” protest demonstrations don’t seem to have thought it through this far, and those that have show themselves not to be against capitalism. What they are against is what some of them call “neo-liberalism” – by which they mean the return of laissez-faire economic policies. What they are for is to go back to a more regulated capitalism. They merely want states to intervene to try to control capitalism, to make it more human, to suppress what they see as its worst excesses.

A case in point is the French-based organisation, with branches in many other countries, ATTAC whose vice-president is Susan George, author of such readable and informative books as How The Other Half Dies and A Fate Worse Than Debt. Their hobby horse is a call for the so-called “Tobin Tax”, as is reflected in their full name: “Association for a Tax on financial Transactions and for Aid to Citizens”.

James Tobin was (actually, he’s still alive) an American Keynesian economist who, after the 1944 Bretton Woods agreement on exchange rates collapsed in 1971 when America floated the dollar, proposed a tax on currency transactions as a way of reducing speculation. Here’s how he has recently described his proposal:

“This tax aimed to limit exchange rate fluctuations. The idea is simple: on each operation a minimum levy is made equivalent to, say, 0.5 percent of the transaction. Enough to put off speculators. For many investors place their money for very short periods in currencies. If this money is suddenly withdrawn from the market, countries have to raise their interest rates considerably so that their currencies remain attractive. But high interest rates are often catastrophic for the internal economy, as the crises which hit Mexico, South East Asia and Russia in the 1990s show. The Tobin tax would give back some margin for manoeuvre to the central banks of small countries to fight against the tyranny of financial markets” (interview with Der Spiegel, reproduced in Le Monde, 11 September 2001).

Tobin got the idea from Keynes who had suggested a national tax on internal financial speculation as one of his reforms to get out of the Great Depression of the 1930s. The idea was to encourage money-capital to be invested productively instead of being used for unproductive speculation. Tobin was given a Nobel Prize for Economics in 1981 (not that this is worth much in academic terms; it’s little more than a monetary prize), but no government took up his proposal. In fact, for it to work, all governments would have to take it up. That was why he suggested it should be paid to the World Bank or the IMF.

The Bretton Woods agreement had laid down fixed rates of exchange between currencies, in particular with the dollar which in turn was tied to a fixed amount of gold ($35 an ounce). Devaluations and revaluations were allowed; in fact that is what a “devaluation” was: a formal downward change in a currency’s fixed rate of exchange with other currencies. This system collapsed at the beginning of the 1970s when the Nixon administration announced that the US was no longer prepared to exchange gold at $35 an ounce. So began the present period of floating exchange rates.

Today, the rate of exchange of a state’s currency is determined by market forces: the demand for it in relation to the desire to sell it, which in turn depends essentially on a state’s balance of trade. The more it exports the higher will be the demand from foreigners to buy it (to pay for the exports) while the higher its imports the more will be the supply for sale as importers sell it for foreign currencies (to pay for the imports). This is not to say that states don’t try to maintain a more or less stable rate of exchange. They do, but their only weapons now are short-term interest rates or getting their central bank (and/or some other central bank or banks) to buy and sell their own currency. But these are not always that effective as was demonstrated by Britain’s ignominious exit from the European Exchange Rate Mechanism in 1992 under pressure from speculators led by George Soros.

The collapse of Bretton Woods coincided with the last years of the long post-war boom, and was in fact a sign that it was coming to an end. When the boom did end, or rather, fizzled out corporations found themselves with large “cash mountains” made up of money they would normally have re-invested but which they didn’t because it was no longer profitable to do so. This money thus became available for currency and other forms of financial speculation.

Essentially, speculation is the use of money-capital, not to invest in the production of new wealth and new surplus value, but unproductively to try and swindle other capitalists’ out of their past profits. It’s a zero-sum game in which the total amount of profits remains the same but merely gets redistributed differently amongst capitalists depending on their speculative skills.

The statistics show that most international monetary transactions are now of this nature. Production of course continues and has even been increasing slowly if in fits and starts, so some international transactions are linked to productive activity – transfer of capital to be invested in productive activity in some other country, payments for exports or imports, etc. But these are only a fraction of the total, estimated at less than 10 percent.

Just like Keynes in the 1930s on a national scale, some members of ATTAC today look at this internationally and conclude naively that, if somehow you could discourage speculation, the money tied up in it would then be reinvested in production instead, so reducing unemployment. But this is to get things the wrong way round; there is so much money available for speculation because there are not enough profitable investment outlets. Even if speculation was made less profitable by, for instance, the imposition of a Tobin Tax this would not increase productive investment. To do that you would have to increase the rate of profit or expand markets, but that’s not something that can be done by any tax.

The horse wouldn’t drink

What would happen would be the same as happened in Japan over interest rates. The government there thought that what has been discouraging investment was not low profit prospects but too high interest rates. So they reduced short-term interest rates to zero – but nothing happened. They learned the hard way that you can take a horse to water but you can’t make it drink. Japanese capitalists hadn’t been not investing because of high interest rates but because of low profit prospects. Similarly, capitalists have been speculating rather than investing productively, not because the gains to be had from speculation are too high but because the gains to be had from productive investment are too low.

Actually, ATTAC are not agreed on why they want to impose an international tax on currency transactions. Some want to do this to encourage productive investment and so employment (on the mistaken arguments above). Others want to use the revenue to help the so-called Third World; which, of course, assumes that speculation should continue as the cow to be milked for this purpose. Susan George has explained the arguments here:

“One of the aspects of this tax is to slow down speculation, i.e. making money with money without passing via an exchange of commodities. It could build up a mass of money to help essentially the citizens of the South since it is there that the needs are. At the moment, there is a debate within ATTAC about whether we want a high tax to stop speculation or, on the contrary, a less high one to restrain speculation while building up this financial aid to the citizen. Personally, I prefer the second option” (Le Soir, 24 September).

It is for this reason that you find different rates being mentioned in ATTAC literature from 0.01 percent to 0.1 percent to the 0.5 percent that Tobin himself suggested (but he wanted to stop speculation and was not particularly concerned how the money raised was used).

George’s preference for a low rate, to raise money to spend in the Third World, is in accordance with ATTAC’s main declared aim, but it involves calling people on to the streets not to denounce capitalist exploitation, but to demand a minimal tax on the financial transactions in which capitalists try to swindle each other out of the proceeds of their past exploitation of the working class. It really is one of the most pathetic reform proposals for which people have ever been called upon to demonstrate for. Of course, people are right to protest against the deal capitalism is meting out to the poor in the capitalistically-underdeveloped parts of the world, but the Tobin tax is not going to help them in the least, even if the political will and technical means to implement it could be found.

Tobin was – and still is – an unrepentant Keynesian. Despite the fact that the main result of implementing Keynesian policies was a 30-40 year period of permanent inflation, Susan George and ATTAC are essentially “global Keynesians”, people who want to apply on a global scale Keynes’s ideas on how to make capitalism work better. George in fact has openly called for the adoption of Keynesian policies. As she put it in the Le Soir interview we have already quoted:

“Our leaders must be more serious and move towards Keynesian solutions, as was the case after the Second World War. We need a Marshall Plan for the environment, for reducing inequalities in the world and particularly in the South”.

And

“We don’t expect le grand soir [a derogatory French term meaning “the Revolution”], but a more democratic type of economy. The market will have its place, but not all the place”.

What ATTAC, and their equivalents in this country, the campaigning non-governmental organisations (NGOs) such as Oxfam, the World Development Movement, Christian Aid, etc (not that some of them are all that “non-governmental”, given the grants they get from the state), want is to retain the world market economy but to try to control it for the benefit of humanity, to humanise it. Their hearts may be in the right place but this is to display an incredible lack of vision as well as an appalling ignorance of the way capitalism works, and has to work.

Capitalism operates according to the rules of “no profit, no production” and “can’t pay, can’t have” and, as the world market system, is what is responsible for the desperate plight of most of the world’s population. Before anything lasting and constructive can be done about this, capitalism has to go. The productive resources of the Earth have to become the common heritage of all humanity, so that production can be directed to meeting people’s needs – all people’s needs – instead of to making profits.

Adam Buick

The rise of fictitious capital (2023)

From the October 2023 issue of the Socialist Standard 

By ‘real capital’ Marx meant money capital invested in physical means of production and the workforce itself with a view to producing commodities to be sold on a market in the expectation of realising a profit – or financial return – from selling them. However, what has become increasingly salient in recent decades is another form of capital that Marx dubbed ‘fictitious capital’.

Fictitious capital does not involve the transformation of money into commodities. It is not about investing in means of production to produce commodities for sale on a market. In this respect it is distinguishable from interest-bearing capital in the form of bank loans to businesses that produce commodities. The latter do not constitute fictitious capital as such.

Bank loans become fictitious capital when they are used for some other purpose than financing the production of commodities. For instance, you might borrow money from a bank to purchase a new car or, indeed, pay off another debt. The bank advances the loan on the understanding that it will be repaid, plus interest, over a certain period; it expects to make a ‘financial return’ no less that a factory producing widgets expects to make a financial return. Marx represented this formulaically as M-M’ where M represents the sum loaned out – the principal – and M’ represents the principal returned to the lender plus interest paid by the borrower out of her wages or savings.

In this scenario no new or additional value has been created – unlike in the case of the M-C-M’ circuit where C is capital invested in physical means of production. There has simply been a net transfer of money from the borrower to the lender. The lender has gained money at the expense of the borrower. While, for Marx, the M-C-M’ circuit quintessentially defines the capitalist mode of production, it is the M-M’ circuit, which starts and finishes with money, that most directly, or overtly, expresses what motivates capitalist production – namely, to make money. In this instance:

‘The production process appears simply as an unavoidable middle term, a necessary evil for the purpose of money-making. This explains why all nations characterised by the capitalist mode of production are periodically seized by fits of giddiness in which they try to accomplish the money making without the mediation of the production process’ (Capital, Vol. 2, Ch.1).

The desire to make money by bypassing the production process, as it were, has become increasing apparent with the growing ‘financialisation’ of the economy. What financialisation does is to drive investors to seek out and promote every conceivable kind of revenue flow – from student debt to mortgage repayments and much more besides – that can be turned into financial assets and bundled up in ways that make then appear more reliable and attractive as a source of future income.

Fictitious capital can be characterised as an outgrowth of the credit system. Traditional bank capital did indeed aid industrial production through the provision of credit to industrial enterprises as Marx noted, even if the banks themselves took a cut from the resulting increase in industrial output. With fictitious capital there is a difference. The tendency is to make money, not out of increased physical output but out of money itself in the form of various revenue streams. The financial instruments available to do this are diverse and evolving and include not just collateralised debt obligations or loans but also bonds, equity stocks and various kinds of derivatives.

If one were to identify a convenient starting point when financialisation began to seriously take off as an economic trend this would probably be the collapse of the Bretton Woods monetary system in the 1970s that had formally linked international currencies to the US dollar (itself convertible into gold up until 1971 when President Nixon abruptly abandoned convertibility). The new system of floating exchange rates paved the way to a sharp rise in currency speculation. In money value terms, the ratio of foreign exchange transactions to the global trade in commodities was 2:1 in 1973. By 2004 it had soared to 90:1 and has since grown even more, making the speculative trading of currencies the world´s biggest market (Firat Demir, ‘The Rise of Rentier Capitalism and the Financialization of Real Sectors in Developing Countries’, Review of Radical Political Economy, September 2007).

Subsequently, financialisation was boosted further by the Big Bang reforms of the late 1980s that deregulated financial markets and made London the leading financial centre in the world. In the wake of these reforms came various technological innovations which have also contributed to the astonishing growth in financial capital. The introduction of computers has given rise to the phenomenon of high frequency trading (HFT) employing digital algorithms to buy and sell financial assets by predicting short-term price movements in shares and identifying potentially lucrative arbitrage opportunities.

Since then, financialisation has, as it were, spilled over and penetrated even what is loosely called the ‘real economy’. Everyone is seemingly getting in on the act — from large retail establishments to manufacturing giants. Financial speculation and the provision of in-house credit are just more arrows to put in their quiver, so to speak — an additional means of making more money in an increasingly competitive world. That has made for a huge expansion in the role that financial intermediaries play within the economy and a notable diversification of the kinds of financial instruments at their disposal. Indeed, this has advanced to such an extent that, according to Ravi Bhandari, there is ‘no longer a purely financial sector (banks, insurance companies, etc.) on the one hand, and a ‘productive’ sector on the other’ (tinyurl.com/3d254kmy).

The stock market has been dubbed a market par excellence for fictitious capital, representing the capitalisation of property rights (as opposed to the capitalisation of production itself in the case of real capital) and, as such, constitutes a market for the circulation of these property rights. These rights, suggested Marx, represent ‘accumulated claims, legal titles, to future production’ and any income resulting from that production:

‘Gains and loss through fluctuations in the price of these titles of ownership… become, by their very nature, more and more a matter of gamble, which appears to take the place of labour as the original method of acquiring capital wealth’ (Capital, Vol.3, Ch.30).

A corporation might well raise funds for investment (real capital) by issuing shares on the stock exchange. By purchasing a share, one then has a claim on the future earnings of this corporation. However, this share does not function as real capital. As Marx explained, the money advanced by investors for the purpose of being used as real capital does not exist twice, ‘once as the capital-value of titles of ownership (stocks) on the one hand and on the other hand as the actual capital invested, or to be invested, in those enterprises’. Real capital ‘exists only in the latter form’ and a share represents merely a ‘title of ownership to a corresponding portion of the surplus-value to be realised by it’ (Capital, Vol 3, Ch 29).

The shareholders will hope that, in addition to receiving dividends, the value of their shares will appreciate over time, enabling them to realise a capital gain if and when the shares are sold on the stock market (in the case of a ‘public’ company). The rise or fall in the value of this fictitious asset — the shareholder certificate — representing the capitalisation of anticipated income streams can sometimes bear little apparent relation to current movements in the real economy. The secondary market in the buying and selling of these financial assets is essentially driven by market expectations of future profitability, and this can have a speculative element.

That helps to explain the rather puzzling coincidence of a buoyant stock market with share prices sometimes reaching record highs alongside a real economy that shows every sign of being in the doldrums. A different kind of logic applies in each case. ‘Autonomisation’ is the buzzword to describe the tendency for fictitious capital to strive to transcend or unshackle itself from real capital in the business of money making.

Though ultimately fictitious capital cannot sever itself from developments impacting on real capital, there does, at times, appear to be a certain disconnection between them. Speculative activity that grew out of the very system of credit that financed industrial development can, at times, become frenzied and take the form of speculative bubbles – from the Dutch tulipmania bubble (1634-38) through to the internet-based Dot-Com bubble of the late 1990s, and many more besides. Inevitably these burst at some point when, as Marx noted, the magic of compound interest breaks down as, indeed, it eventually must.

In the meanwhile, as far as these paper claims to future income that constitute fictitious capital are concerned:

‘To the extent that the depreciation or increase in value of this paper is independent of the movement of value of the actual capital that it represents, the wealth of the nation is just as great before as after its depreciation or increase in value’ (Capital, Vol. 3, Ch. 29).

The belief that wealth can be created merely by making money from money is akin to the medieval belief in alchemy – that you can transform base metals into gold.

It is the investment of this ‘real capital’ that generates the surplus value the system fundamentally depends on. This presupposes the employment of wage labour to create the surplus value out of which such capital originates in the first place.

Fictitious capital, on the other hand, does not and cannot create surplus value at all but at best merely redistributes it amongst fractions of the capitalist class.

Robin Cox

Industry and the Banks: Wicked Bankers and Kind Captains of Industry. (1929)

From the November 1929 issue of the Socialist Standard

Owing to high interest rates in New York and Berlin, and the consequent transfers of balances from London to those centres, the Bank-rate on September 26th, was increased from 5½ per cent. to 6½ per cent. At once the Press and the platform became a fierce battle-ground between those who charged the wicked bankers with “throttling industry,” and the apologists who explained that this process, although painful, was in the best interests of the patient. The Times assured its readers on September 14th, when a rise was already being proposed, that failure to take this step would result in an increase in the cost of living. Lord Melchett (formerly Sir Alfred Mond) wrote in the Sunday Express on September 29th, under the title “Unemployed—by Order of the Bank,” pointing out that if the Times policy were carried out, industrial activity would be slowed down and unemployment would grow. What Lord Melchett said he wanted was that—

“some of the hundreds of thousands of workers to-day walking the streets, idle, searching for employment, should be placed into productive industry, to increase the national wealth.“

Mr. Philip Gee, speaking for the coal-owners, said (Daily News, 27th September) :—

“This rise is very unfortunate, coming at the present time, when many collieries are faced with the necessity of borrowing money for development, rationalisation, and mechanisation, and when many collieries already have large overdrafts at the bank. It will restrict development.“

Seventeen manufacturers’ associations and sixty individual company directors combined to send a memorandum to the Government demanding a fundamental change in financial policy “if Great Britain is to retain her industrial importance” (Daily Express, October 8th). They protested that an increase of 1 per cent. in the rate of interest meant an additional burden of £25 million. Among the signatories were the Master Cotton Spinners’ Associations, the British Wool Federation, and the National Union of Manufacturers.

Mr. E. G. Pretyman, President of the Land Union, added the protests of the farmers and landowners. He told the Daily Herald (October 8th) that “nearly all farmers and most landowners had bank overdrafts, and the usurious interest of 7½ per cent. had to be paid now on these overdrafts.”

Added to the clamour were the voices of the trade union officials, the Daily Herald, and the Independent Labour Party, all demanding prompt and drastic action against the villains of this piece—the financiers.

On the trade union side the oratorical laurels belong to Mr. Ben Tillett. He told an audience of trade unionists at Bristol on September 29th that “our financiers and usurers had contrived to put millions of the world’s population under their heel.” . . . “Our National Debt was an octopus, bleeding white the British nation.” …“The banks were squeezing the life-blood out of British industry.” (See Daily Herald, September 30th.)

According to the Manchester Guardian’s report of the same speech, Mr. Tillett denounced these wicked men as “dragons of usury” exhibiting the “sardonic malignity of the sordid dogs in the mangers of British commerce, banking and usury.”

A week later he became really angry. Then he said (Times, 4th October) :—-

“If Mr. Montagu Norman were tried by Court-Martial he would be shot for raising the bank rate to 6½%. He should thank God that we were more merciful. He (Mr. Tillett) would let him off with a caution—and sack him.“

Mr. James Maxton, M.P. and Chairman of the I.L.P., also had something to contribute to the discussion. He recalled

“the period of the war when banks and financiers had manipulated credit and gold to enrich themselves, heedless of the consequences to the workers.“ (Daily Herald, September 30.)

In face of this show of heat it is not surprising that many workers who know little of the ways of the banks should have concluded that here was a matter of very great concern to them. Let us then consider the whole question, and start at the beginning by asking ourselves what are the banks and what is industry.

The banks are companies, owned by their shareholders, which receive the money of people who have a surplus, pay them interest on it, and lend it out to industrial and commercial concerns which are willing to pay a higher rate of interest for the use of the money than the banks pay to the depositors. Industry, the mines, the railways, the cotton factories, etc., also consists of companies owned by private individuals or bodies of shareholders. In both cases the shareholders put their money into these concerns with a view to making a profit. The bank depositors, whose money is lent out by the banks, are in effect investing it in industry in a roundabout way. The chief difference is that the person who deposits money in a bank can, at any time or at short notice, resume possession of the amount which he originally deposited, whereas the shareholders in a company may possibly find it difficult to sell his shares at a given moment except at some loss. On the other hand, the latter stands the chance of selling his shares at a profit and of re­ceiving a much larger return than the banks find it necessary to pay their depositors. In brief, some investors desire a rela­tively higher degree of security and want to have their money easily accessible and therefore allow all or part of it to remain in the possession of a bank.

What it is important to notice is that the people who own and control industry and the people who own the money which the banks lend to the controllers of industry are similar in the important respect that they are in the main propertied people, members of the capitalist class, able, because of their ownership, to live without working. On the other hand, the people who do the work of industry and of the banks, from the coal miner and the bank clerk to the mine manager and bank manager, are in the great majority of cases members of the working class. They do not own sufficient property to be able to live without working and must therefore sell their power to labour to the property owners or their agents. The amount they get as wages or salary is roughly speaking the amount which is sufficient to keep them alive and efficient and to enable them to bring up their families. What that amount is will vary, of course, from place to place and from one occupation to another, and will necessarily change according as prices rise or fall. It also involves a number of other factors. It is, however, prevented from rising much above the actual cost of living by the constant pressure of the unemployed who are able and willing to take the place of the employed man.

Having purchased the mental and physical powers of the workers for a day, a week, or a month, the employers then set them to work producing articles for sale. In general the value of the articles, after making all necessary deductions for cost of materials, wear and tear of machinery and other incidental expenses, is far above the amount paid in wages and salaries. It is out of that difference, that surplus, that the whole capitalist class derives its income.

It is customary, in this country at least, for the capitalist who invests his money in a factory or a mine or other business to have to rent the land from a landlord. It is also usual for him to depend to some extent on loans from a bank or loans from other investors who are prepared to lend in the form of debentures at a fixed rate of interest. The industrial capitalist is compelled, therefore, to hand over some share of the surplus to other capitalists who have invested in land or who lend money direct or through a bank. Naturally these three types of capitalist are continually trying to increase their respective shares at the expense of the others. If rents go up, one or both of the other two parties has to suffer. If interest rates go up the industrial capi­talist or the landlord has to foot the bill.

The most obvious way in which these groups try to gain an advantage is by controlling or influencing the Government. The political party in power looks after the interests of its friends. The group whose friends are not in power just as naturally tries to force the ruling faction to make concessions, the final deciding factor being the possibility of gaining the support of the electorate. It would, of course, be fatal for the capitalists in an industry to ask the electors to support the introduction of a protective tariff, or a reduction of a tax on the article in which they were interested, and to put forward their real reason, i.e., that they were merely trying to get larger profits. What they do is to try to persuade the voters that these measures are desirable “for the good of the country,” or that they will “make work for the unemployed” or will “encourage trade.” Any excuse serves so long as a sufficient number of voters can be induced to believe it. As a matter of course other sections of the capitalist class will resist these demands because they know that if any section gets an advantage one or other of the various sections of the capitalist class will have to pay for it, directly or indirectly, through increased taxation or through higher prices leading to higher wages, or in some other way. This is the great game of politics as played by the capitalist parties.

An excellent illustration was seen in the Derating Act passed by the last Government. Lord Melchett stated at the 1929 annual meeting of the Imperial Chemical Industries Ltd. that the company gained £200,000 a year relief from rates through that piece of legislation passed by the political friends of a group of industrial capitalists. (See report in The Times, 19th April, 1929.) Mr. Lloyd George, it may be remarked, estimated the figure at no less than £600,000, but Lord Melchett denied its accuracy.

For a like reason we have the industrialist capitalists demanding that the present Government take steps to compel the money-lending capitalists (the banks and their depositors) to lower the rate of interest. And it explains why industrialist capitalists like Lord Melchett’s fellow director, Mr. Szarvasy, and Sir J. P. Benn, the evangelist of “individualism,” are in favour of the nationalisation of the coal royalties, and the nationalisation of land respectively. (See Manchester Guardian, 18th September, 1928, and Times, 24th July, 1925.) In each case we see the industrial capitalist seeking to use political power for the purpose of helping himself at the expense of the capitalist who has put his money into coal-bearing or agricultural or building land.

In the present controversy the issues are just as plain. Imperial Chemical Industries Ltd. and other branches of industry are busy introducing new and expensive plant and machinery in order to meet intensifying competition from their foreign rivals. This process is a long one (Lord Melchett at the meeting referred to above stated that in some branches of his concerns it will take two years), and while it goes on high rates of interest have to be paid on very large sums of money borrowed from the banks or raised in the form of debentures. That is what all the fuss is about. As Sir E. W. Fetter, of Fetters Ltd., explained in a letter to The Times (9th October), these in­creased charges “cannot be passed on to the customer” (foreign competition will prevent that) and “must be paid out of the manufacturer’s profits.”

That is why Lord Melchett is so solicitous about the troubles of the unemployed; and why the Times is so deeply concerned lest your cost of living be raised. Lord Melchett is trying to get working class voters to back him up in a policy which will help him against the money-lending capitalists ; and the Times, no more disinterested than he, tries to secure, by its reference to the cost of living, your support for a policy which is in the interests of the bankers, and against that of the industrial capitalists.

The whole question is one of the conflicting interests of sections of the capitalist class. It does not affect the workers’ interests. They are robbed by the whole capitalist class, and the way in which the capitalists divide the spoils between themselves makes no difference whatever to the workers. When Lord Melchett talks about his desire to see the unemployed placed in productive industry “to increase the national wealth,” and when Mr. Tillett laments that the bankers are upsetting “even the wonderful miracle of the mechanisation of industry (Manchester Guardian, September 30th), they are both misrepresenting the real line of industrial development. Lord Melchett and his associates are concerned primarily not with making work or with increasing the national wealth, but with securing the maximum profit. Lord Melchett is a keen supporter of what is called rationalisation, and he has himself defined it, not as a policy of increasing production, but as

“the adjustment of production to consumption in any commodity. Basically it is simply the rational control of industry to ensure that, as far as possible, you do not produce more than your market can absorb.“ (Daily Telegraph, Jan. 14th, 1929.)

Mr. Tillett’s “miracle of the mechanisation of industry” is the process which every worker knows and fears, the creation of more unemployment through the introduction of labour-saving machinery. Lord Melchett needs loans because his concerns are carrying out a costly reorganisation scheme to secure greater productivity per head of his workers; not more production, but cheaper production.

There is another factor which complicates this question of industry and the banks, but again a factor which does not concern the workers. The banks, being called upon to lend larger and larger sums of money to industrial and commercial concerns, are able more and more to insist that they or their nominees shall be given some share in the control of the borrowing companies. This they do partly to influence policy in order to safeguard their interests as lenders and to secure a greater share in the earnings of the company, and partly to use the connection as a means of securing new banking business at the expense of competing banks. But it is plain enough that this change in control, while naturally resented by the industrial capitalists, does not lead to any change in the position of the workers either for better or for worse. It will also be noticed that this struggle has no direct connection with the question of a high or low bank rate.

As against the policy of Mr. Tillett and Mr. Maxton and their respective parties which leads the workers to throw themselves into the fray on the side of the industrial capitalists, the Socialist Party points out that the whole question is of no concern except to the capitalists themselves. The Labour Research Department (Monthly Circular, July) estimates the 1928 profit of Lord Melchett’s “Imperial Chemical Industries Ltd.” as equal to £113 per head of the workers employed. But what does it matter to us whether that profit, totalling £6 million, goes wholly to the shareholders, or partly to the bank depositors? What does it matter to the workers whether their lives are controlled by Lord Melchett, “captain of industry,” or some new master, a “king of finance”?

When Mr. Maxton singles out the bankers as having enriched themselves during the war “heedless of the consequences to the workers” he forgets the cotton mill owners, the shipping owners, the coal-owners, the iron and steel interests, and all the other commercial and industrial capitalists who were striving with greater or less success to do the same. That is the object of all capitalists both during war and peace.

And who should know this better than Mr. Tillett? In 1929 he wants to shoot Mr. Montague Norman—banker. Many years ago he earned great hatred and great popularity by calling upon God to strike dead Lord Devonport, starver of dockers. Yet Lord Devonport was no banker, but head of a great trading firm.

Edgar Hardcastle

The Prawn Cocktail Party (1998)

Book Review from the July 1998 issue of the Socialist Standard

Prawn Cocktail Party by Robin Ramsay. Vision. £9.99

The Prawn Cocktail Party is of course the Labour Party which when in opposition under John Smith and then Tony Blair organised a series of lunches and receptions in order to convince business and the City that they had nothing to fear from a Labour government. According to Ramsay, the City welcomed this as they had already begun to write off, for the time being at least, the Tory Party as a reliable instrument of their political will because of the large inward-looking Eurosceptic element within it.

Ramsay starts from the premise that “there are essentially two economies in the UK. One is the domestic, manufacturing economy and its allied services; the other consists of the City of London, its support services in the ring of shires round the capital, and some multinationals with bases and plant in the UK. Traditionally, he says (and he writes as a Labour Party member), Labour has defended manufacturing industry while the Tories have represented the City. But now:

“British politics has been stood on its head. The Conservative Party, traditionally the party of financial and overseas interests, has been replaced in that role by Labour. Instructed by its new friends in the City, Labour has become the party of financial, pre-Keynesian orthodoxy. Gordon Brown looks determined to re-enact the role of Philip Snowden in 1931—the perfect Labour Party front man for the interests of the overseas lobby”.

This explains, says Ramsay, why one of the first acts of the Labour government last year was to give the Bank of England the freedom to fix interest rates and why Gordon Brown and other Labour ministers defend the policy of allowing the pound to rise in value even though this harms exporting industries. Instead of defending the interest of manufacturing industry as it used to, Labour is now promoting the interests of the City.

To Ramsay the City is the villain of the piece. Certainly they are villainous enough, but he exaggerates when he describes a policy of high interest rates as a “racket” and a “fraud” on the grounds that banks make more profits when interest rates are high than when they are low. If, like Ramsay, you think that banks have the power to create credit out of nothing this would be true. In fact, however, banks are financial intermediaries which make their profits from lending money out at a higher rate than they pay those they borrow it from. This means that what is important for their profits is not the absolute level of interest rates but the difference between the rate charged to borrowers and the rate paid to lenders; if interest rates are high banks don’t necessarily make bigger profits since they have to pay higher rates to their depositors—in fact high bank profits are not at all incompatible with low interest rates.

So there is no basis for Ramsay’s supposition that the banks are somehow worse than manufacturing businesses and that we should therefore support the latter against the former. Since both derive their profits from the surplus value produced by the workers and since it is the capitalist system as a whole that is the cause of our problems, why should we support the manufacturing capitalists against the financial capitalists?

Adam Buick

An unrepentant banker (2011)

From the February 2011 issue of the Socialist Standard 

Bankers’ bonuses: who’s to blame for the greed?

Bob Diamond, Barclays bank’s chief executive, and one of Europe’s highest-paid bosses, last month faced a grilling from the Treasury Select Committee, a cross-party body appointed by the House of Commons. Those expecting a replay of previous confrontations between MPs and bankers – in February 2009, for example, when the bankers said they were ‘profoundly sorry’ for their role in the financial crisis – were to be disappointed.

Diamond was unrepentant. In answer to questions from MPs, he said it was about time that unfair public criticism ‘moved on’ so bankers could stop apologising and get back to business as usual. MPs wanted to know if Diamond was going to show ‘restraint’ on bonuses this year (no), refuse his own bonus (probably not), act more responsibly and increase lending to business (impossible to do both), accept personal liability for the failing of institutions (no) and if he was ‘grateful’ to ‘the taxpayer’, ie, the state, for bailing out the financial system and keeping him and his whole industry in business (grudgingly, and after much evasion, yes. In other words, reading between the lines, no). 

Diamond’s performance added fuel to the fire of the ongoing bankers’ bonus controversy. Ministers in the present government, while campaigning for power, said they were determined to do something about the arrogance and excessive wealth of the bankers. And to be fair, they are doing something. In fact, as Will Hutton puts it in The Observer (16 January), compared with Gordon Brown and Alistair Darling, business secretary Vince Cable and chancellor George Osborne are ‘fire-breathing radicals’, clamping down on tax avoidance, taxing bank profits, setting targets for bank lending, regulating hedge funds and contemplating more banking reform and regulation. But so far, they are being relatively timid about bankers’ bonuses. Why? Now that they have taken power, they, in common with all governments, accept the reality of capital accumulation and their role in it. And that means not doing anything that will frighten the financiers too much.

Capitalists united – and divided

That remains true even in the face of an increasingly numerous opposition. After all, as Hutton says, the issue of bankers’ bonuses is uniting everyone in outrage – ‘from captains of industry bewildered how top bankers can earn so much more than they do to the newly unemployed who wonder what they have done to deserve poverty and hardship while the moneymen pocket millions’. That the state bailouts have poured into the pockets of private individuals, and the poorest and most vulnerable will be left to pay the price in terms of job losses, benefit cuts, and reduced levels of social services and so on, we have already stated (see Socialist Standard, passim). But how come we are also seeing criticism from captains of industry and government ministers and the business press and so on? Not so long ago, bankers could rely on them being ‘intensely relaxed’ about such matters. Why now so increasingly angry and vocal?

Partly it is a fear of social unrest and breakdown. It also reflects divisions within the capitalist class. As a class, the capitalists are united by the need to promote the conditions necessary for investment and business activity. For that, they need, for example, a supply of compliant and affordable labour, a state willing and able to provide socially necessary infrastructure, a financial system to facilitate the processes of capital accumulation, a vibrant consumer market, and so on. On issues such as these, capitalists stand united. But the capitalist also finds himself in competition with his comrades. Capitalists have differing needs and interests depending on exactly how they get their hands on the spoils of exploitation – whether as landlord, financier, industrialist, retailer or state official, for example. In the usual course of things, this is just the stuff of competition, of ‘business as usual’, the undertow of everyday life. But when crisis hits, everything breaks to the surface. As Marx puts it (in Capital, Volume 3, Chapter 15):

  ‘So long as things go well, competition effects an operating fraternity of the capitalist class […] so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it is no longer a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, ie, to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist’s interests and those of the capitalist class as a whole, then comes to the surface…’

Who wins out in this struggle is not simply a reflection of factional power, as the Marxist academic David Harvey points out (The Limits To Capital, Chapter 7). The existence of surplus value (profit) in money form is ‘the most adequate form of capital’, which means that ‘the moneyed interest enriches itself at the cost of the industrial interest in the course of [a] crisis’ (Marx). This, then, helps us understand the row about bankers’ bonuses. It’s a row about which class, or which fraction of a class, is going to be landed with the costs of the crisis. We see, therefore, that Marxian theory is not esoteric mumbo-jumbo or outdated rubbish, as often claimed, but a powerful explanation for what is actually going on in the real world. If you understand Marxian theory, bankers’ multi-billion-pound bonuses and the row surrounding them no longer look so much like an insane aberration, but a logical consequence of social and economic structure. Bankers are enriching themselves at the expense of industry and workers? Well, OK, that’s what we would expect to happen…

What is to be done?

The question is what is to be done about it. As Harvey says, however the class struggle eventually plays out, however the losses of the crisis are finally distributed between factions of the capitalist class, and between the working and capitalist classes, and whatever the power struggle that ensues, the necessary result will be the destruction of value (closure of workplaces, the laying off of workers, destruction of surpluses, defaulting on debt, cutting of state services, and so on) so that a new round of capitalist accumulation can begin. This is totally irrational and insane from the point of view of human needs, but inevitable and logical from the point of view of capital accumulation.

The film-maker Charles Ferguson, whose investigative documentary Inside Job exposes the delusions and deeds of the bankers during the course of the crisis, says that, ‘Those responsible [for the crisis] blame the system. Or they blame the bubble caused by irresponsible borrowers.  Some of them blame low interest rates. In a grim way, it’s actually amusing to watch them blame anyone except themselves’ (Evening Standard, 17 January). The film-maker’s contempt for those who line their pockets and profit from social disaster is justified. But actually, in a sense, it’s the bankers who have got it right. It is the system that is to blame. And we should indeed ‘move on’ – from blaming capitalists who are as much at the mercy of the system as the rest of us, to an understanding of the world we live in and how it works. Politically, that means moving from a demand for ‘regime change’ to one for ‘system change’.

Stuart Watkins