WeeklyWorker

21.01.2016
London Olympics: celebrating the glories of social democracy and productive capital

Making inroads into power of capital

We should support all measures facilitating an accumulation of productive capital, thereby placing workers in the most favourable position, argues Arthur Bough

In two articles last year, Mike Macnair examined the question of the conditions under which socialists might support the taking of governmental office, within a framework where severe constraints are placed upon the kinds of government policy that can be pursued.1

Mike set out his analysis of modern capitalism, as one where money capital is dominant. In a global economy, he contended, this money capital moves immediately from one economy to another. So the strategy of Syriza could not work. It raises questions over whether a similar strategy could work for a Corbyn Labour government.

Mike’s argument, that modern capitalism is dominated by money capital, is counter to Marx’s conclusions. Merchant and money capital existed in previous modes of production, but, wherever they existed, they resulted in the destruction of the existing modes of production and conversion of the producers into slaves. The dominance of these forms of capital, Marx concludes, is inimical to industrial capital.

When industrial capital arises, the nature of merchant capital and money capital is transformed. Industrial capital is now the means of producing surplus value, and the determination of the average rate of profit. That average rate of profit determines the rate of profit obtained by merchant capital, and ultimately determines the rate of interest obtained by money-lending capital. Commodity capital and money capital are forms taken during the circulation phase of industrial capital, and the fact that these forms become solidified as independent capitals - as merchant capital and money capital - does not change the fact that they remain subordinate to productive capital as the source of the surplus value, whose realisation they merely effect.

Mike wrongly describes the process of the formal and real subordination of labour. The formal subordination of labour arises, because independent producers cannot continue production on their own account. This condition exists as much in relation to the ‘putting-out system’ as it does to the factory system. The difference the factory system effected was that these individual handicraft workers were brought together under one roof. As handicraft workers they were still technically able to undertake that same production independently, provided they could obtain the means of production to do so.

What brings about the real subordination of labour is the transformation of the worker - first from being a skilled handicraft worker, to being a detail worker, as the division of labour expands, and finally to being simple factory labour, which can only ever be employed in a factory, and can only, therefore, be employed by those that own factories. The subordination of merchant capital and money capital arises on a similar basis.

Previously, merchant capital formed a large proportion of the total capital. But, in absolute terms, it remained small, because little production was actually exchanged. Under industrial capitalism, the economy expands massively and merchant capital expands along with it, as a growing proportion of that production is exchanged. But, as a proportion of the total capital, the merchant capital actually shrinks. The same is true in that respect with money-dealing capital. It is the average rate of profit determined by productive capital which regulates that.

The same is true with interest-bearing capital, which stands outside the circuit of capital. Previously, borrowing was a last resort. Direct producers had little reason to borrow, unless they ran up debts resulting from a need to pay taxes and so on, or due to natural disasters. Borrowing and lending was a relatively peripheral activity. Consequently, where money was loaned, high rates of interest were charged.

Industrial capitalism creates the basis for interest-bearing capital on the kind of scale it exists today. Money capital can only be loaned on that scale, at interest, to industrial capital. Mike’s assessment that modern capitalism is dominated by this money capital is wrong. At times, and in certain countries or regions, one fraction of capital rather than another may enjoy more or less power, just as, at times, the demand for labour-power may push wages higher, and put workers in a stronger position, vis-à-vis capital. But ultimately these other forms of capital are subordinated to productive capital, as is labour.

Mike mistakes the circuit of newly invested money capital for the circuit of capital itself. He states that the circuit of capital is M - C - C’ - M’. But, for Marx,

... it is the form of capital that is newly invested, either as capital recently accumulated in the form of money, or as some old capital which is entirely transformed into money for the purpose of transfer from one branch of industry to another.2

It is not the circuit of industrial capital. In Theories of surplus value, Marx notes that the physiocrats were more advanced than Adam Smith in recognising that social reproduction begins not as a clean slate, at the start of each period, but with the material production of the previous period. In their case, the circuit begins with the previous year’s harvest, which provides the constant capital, in the form of the seeds, livestock and so on, to be consumed in this year’s production, and the variable capital, in the form of the food and other means of subsistence, to be paid to workers as wages, and consumed as part of this year’s production process.

Productive capital

Marx assumes that each firm intends to continue in business, and not to simply transform all of its capital into the money form, and that each existing firm starts the year with a stock of fixed capital in the shape of buildings, machines, etc: a stock of materials waiting to be processed, and some that are already in the production process, as work in progress, all of which constitute circulating constant capital; and with a workforce already in the process of transforming those materials. It starts the year with a physical quantity of productive capital.

The purpose of the productive capital is to produce a larger mass of productive capital - or, at the very least, in the case of simple reproduction, to physically reproduce that productive capital:

The circuit of productive capital has the general formula P ... C’-M’-C ... P. It signifies the periodical renewal of the functioning of productive capital, hence its reproduction, or its process of production as a process of reproduction aiming at the self-expansion of value; not only production, but a periodical reproduction of surplus value; the function of industrial capital in its productive form, and this function performed not once, but periodically repeated, so that the renewal is determined by the starting point.3

Productive capital and merchant capital can only continue to act as capital if they are continually reproduced in this form. As Marx says later in Capital volume 3, M or M’ can never represent a termination point for capital, other than for interest-bearing capital, because it must continually be reproduced in kind. The physical use-values that comprise the constant and variable capital must be continually replaced:

In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness.4

And:

In the reproduction process of capital, the money-form is but transient - a mere point of transit.5

The term M only refers to the money equivalent of the current value of the capital, which must be reproduced. M is only money as unit of account, required to make rational calculations. The historic cost of consumed cotton, used to produce yarn, may have been £10, but that is irrelevant to its current value, transferred to the yarn, as well as to the portion of the yarn required to reproduce the cotton. Marx separates out the portion of the commodity capital, C’, into C and c. C is the physical portion of the commodity capital required to physically reproduce the commodities consumed in its production, whilst c is the portion of the commodity capital in excess of that. It is represented as its money equivalent by M and m.

If £10 was the historic price of 100 kilos of cotton, that is irrelevant, because the circuit here is based on the actual value of the commodities that take part in the production and subsequent circulation process, P £10 (£5 constant capital, £5 variable capital) … C’ (£15) - M’ (£15). M (£10) - C (£10) … P (£10). If the output consisted of 90 kilos of yarn, then it would break down into 60 kilos (C), required to reproduce the cotton and labour-power consumed in its production, and 30 kilos (c) which constitutes a surplus product. The money equivalent of these is £10 M plus £5 m.

The importance of this can be seen when considering m, the money equivalent of the surplus value. Originally, £10 bought 100 kilos of cotton, £5 bought 50 kilos of cotton, but it now buys 100 kilos. The rate of profit, the ratio of the surplus to the actual capital value required for its production, has risen, and is why Marx calculates the rate of profit on the current reproduction cost of the capital.

Even for the interest-bearing capital, whose circuit appears as simply M - M’, this is an illusion. It only appropriates this interest, because a social surplus is created, out of which it appropriates a portion. No sooner has M returned to the money-lending capitalist, than they must lend it out once more. It is only when it is being loaned out that it acts as capital at all. If the money-lending capitalist keeps the money in their safe, it represents not capital, but merely a store of value, merely money in a barren state.

This puts the money capital in its rightful, subordinate role. Money capital increases in mass only as a consequence of the actual increase in mass of the surplus value, which is a function of the increase in the mass of productive capital, and the mass of labour-power employed. This increase in money capital is only a reflection of the fact that there is an increased requirement for money to mediate exchanges, and to act as a store of value - for example, as a money hoard for the realised value of the wear and tear of fixed capital, and that portion of surplus value, which productive or merchant capitals cannot immediately accumulate.

Individual capitalist firms can conduct the commercial relations between each other on the basis of commercial credit, and the use of bills of exchange, rather than money. Money is only required as a means of payment to cover the balance of these various transactions. In a highly banked economy even that becomes redundant. Payments are effected by electronic transfers from one bank account to another. Money is reduced increasingly to being only a unit of account, and store of value. The Greek economy relied a lot on actual money transactions, which made it susceptible to a cessation of the supply of currency. Had it been an entirely banked economy, the question of the European Central Bank cutting off the supply of currency would have been irrelevant. All internal transactions could have been effected by electronic transfers, which require no currency whatsoever.

A large part of the capital requirement for any capitalist enterprise comes from its own generation of surplus value, rather than the need for money capital to be provided from external sources. If we take productive capital as a whole, this is even more the case, as the money capital borrowed by one firm is provided by the surplus money capital of some other firm.

Mike has fallen into the trap set by the bourgeois apologists of money capital, that additional money capital is injected into the system by a class of money capitalists, who provide this money from their own savings, rather than that those money capitalists only have their revenues, because they obtain interest on the money capital they lend, and that interest is only payable because productive capital generates surplus value. The existence of money capital is no more attributable to the existence of money-lending capitalists than the existence of land is attributable to the existence of landlords.

Marx sets out the objective basis of these different revenues. Economically, all that the lenders of money capital are entitled to receive is the average rate of interest. None of these lenders are the legal owners of the productive capital, any more than a bank is the legal owner of a house, upon which it provides a mortgage. The lenders only have legal title to the money loaned, and only on the conditions stipulated in the loan agreement.

In a joint stock company, the capital is owned by the firm itself, as a legal entity. It is collectively owned by“the associated producers”, as Marx describes it. That is, the firm’s professional managers, and its workers. It is not owned by the shareholders, who merely lend money to the firm, in return for the right to the average rate of interest in the form of dividends. That was set out in English law: “A company is an entity distinct alike from its shareholders and its directors”.6

Yet, shareholders do exercise such control over property they do not own, and do so because of current corporate governance laws, which allow them to appropriate the right to appoint boards of directors above the actual “functioning capitalists”, the day-to-day professional managers.This reflects a contradiction of material interests between “profit of enterprise” and “interest”, between industrial capital and interest-bearing capital: “On the other hand, profit of enterprise is not related as an opposite to wage-labour, but only to interest”7.

The functioning capitalist is the personification of industrial capital, which predominantly takes the form of socialised capital, whereas boards of directors are the personification of interest-bearing capital. In Germany, this is reflected in its co-determination laws, which limit the shareholders to electing half of the members of supervisory boards of companies. At a time when industrial capital was more obviously dominant, and social democracy, therefore, was able to represent its interests more forcefully, those same principles were promoted on a wider basis.

The Bullock Report, commissioned by the Wilson government in 1975, went further than the German system. Its terms of reference stated:

Accepting the need for a radical extension of industrial democracy in the control of companies by means of representation on boards of directors, and accepting the essential role of trade union organisations in this process to consider how such an extension can best be achieved ...8

It proposed that all companies employing more than 2,000 people ballot their employees to decide whether they wanted to have representation on the board, and only trade union members would be allowed to nominate, be nominated and vote for those representatives. There would be an equal number of trade union and shareholder directors, with the chair appointed by the government. Its motivation was the European Economic Community’s Draft Fifth Company Law Directive, which sought to harmonise the measures of workers’ democracy across the EU.

Social democracy

Underlying Mike’s argument is the concept of social democracy as a variant of socialism, or at least a movement that seeks to ameliorate or enhance the position of workers. He presents it as hostile to an undifferentiated capital, and vice versa. He sets up an argument as to why this social democracy cannot deliver socialism, faced with the opposition of this undifferentiated capital.

Social democracy is not a variant of socialism: its purpose is not to bring about an amelioration of the workers’ condition, or to further the workers’ position within society, other than to the extent that this flows naturally from the needs of productive capital itself:

And so the bourgeoisie and its economists maintain that the interest of the capitalist and of the labourer is the same. And, in fact, so they are! The worker perishes if capital does not keep him busy. Capital perishes if it does not exploit labour-power, which, in order to exploit, it must buy. The more quickly the capital destined for production - the productive capital - increases, the more prosperous industry is, the more the bourgeoisie enriches itself, the better business gets, so many more workers does the capitalist need, so much the dearer does the worker sell himself. The fastest possible growth of productive capital is, therefore, the indispensable condition for a tolerable life to the labourer.9

Social democracy is the agent of productive capital, whose basic drive is to promote the accumulation of large-scale productive capital, and only thereby to bring about the improvement in the workers’ condition.

Marx’s pamphlet Wage-labour and capital was written in 1847, when the vast majority of capital was in the hands of a monopoly of private capital. The rise of socialised capital, in the shape of the joint stock companies, only began to occur in the late 1860s, following the passing of the Limited Liabilities Act in 1855. When Marx talks about the dichotomy of interests between wage-labour and capital, it must be remembered that, after this point, the rise in the power of capital, as against labour, is a rise in the power of this socialised capital, as against labour. It is reflected in his statement in Capital volume 3, in reference to the purest form of socialised capital, the worker-owned cooperative:

The cooperative factories of the labourers themselves represent within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actual organisation all the shortcomings of the prevailing system. But the antithesis between capital and labour is overcome within them, if at first only by way of making the associated labourers into their own capitalist: ie by enabling them to use the means of production for the employment of their own labour. They show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage.10

Economically this situation applies to the socialised capital of the joint stock company, whose capital is the property of “the associated producers” too:

The capitalist stock companies, as much as the cooperative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.11

Social democracy is an ideology representing the interests of large-scale productive capital against the interests of those fractions of capital that stand in opposition to it. It is the representative of productive capital, at a particular stage of its historical development: ie, when it has grown into the stage of socialised capital, and broken the fetters imposed upon it by the monopoly of private capital. Its personification is the “functioning capitalist”, the professional manager, and bureaucrat, which is why social democracy itself is most readily identifiable with such social layers and world outlook.

Social democracy exists not as part of “the left”, other than in the context that the interests of the working class also lie in the accumulation of this large-scale productive capital and in its transformation into socialised capital, and in the defeat of all those previous forms of property, such as privately owned capital and landed property, upon which conservatism rests. The implication of Mike’s argument - that social democracy must fail, because its goal is the furtherance of the interests of the working class against the interests of capital - is then wrong, because the real interests of social democracy are the furtherance of socialised capital, of the large-scale joint stock company, cooperative and state capital, and, as Marx sets out, objectively it is in that direction that capital develops, against the obstacles put in its path by conservative forces, which represent those older forms of property.

This is the problem with the analysis that the Weekly Worker presented in relation to Greece, and the imposition of austerity in general, which was to see austerity as a policy designed to meet the needs of this undifferentiated capital, whereas it is merely a policy designed to meet the needs of interest-bearing capital, and those other reactionary forms of capital associated with it.

This dichotomous model sets up the anti-austerity measures advocated by Syriza, Podemos, and other social democrats as being equally anti-capitalist, whereas such anti-austerity measures - for example, as implemented in the US, and advocated by it - are entirely in the interests of large-scale productive capital, and only contrary to the interests of those forms of property that leech off it, and whose fictitious wealth, in the shape of various forms of debt instrument, are written down or cancelled by it.

These conservative forces are significant, but it is important to understand what the contending social forces are. From the perspective of the dominant form of capital - socialised productive capital - and the state, whose role is to protect it, the objection to the left social democrats in the Wilson/Callaghan Labour governments of the 1970s was not the proposals for an extension of social democracy into the workplace, which is quite compatible with that socialised capital, and exists in a variety of forms across many of these large firms; not the proposals for greater regulation, via the National Enterprise Board, or the introduction of planning agreements - all of which acted as means both to provide the kind of stable, regulated conditions for capital accumulation that such businesses require, and which had been introduced already, on a wide scale, not just in Germany - but in the shape of the Milk Marketing Board in Britain, the Common Agricultural Policy in the EEC, and so on. The objection to it was that it was not social democratic enough! All of these policies, summed up in the Alternative Economic Strategy, were nullified by the narrow nationalistic, and hence conservative, framework within which they were constrained, and which was symbolised by the opposition to the Common Market itself.

It is an indictment of social democrats that they have been unable to latch on to those general historical forces, moving in the direction of socialism. That can be explained in terms of the continued role of nationalist ideas within the workers’ movement, and a failure to deal with the continued ingrained political power of the conservative representatives of those old forms of property. I agree, therefore, with the points Mike makes in those respects. A fundamental task of social democracy should be to deal with those vestiges of political power retained by conservative forces.

Favourable measures

So how do we go about overcoming the power of capital? It comes down to what programme we should propose, here and now, and what policies we should give critical support to when advanced by social democrats. It is clear that I start from different premises to those of Mike. As I write this, I have just been watching a fund manager on Bloomberg talking about the possibility of a “Merkel plan”, as something similar to the Marshall Plan. That even the money-lending capitalists and their representatives are considering the need for such measures is an illustration of the idea that anti-austerity measures are not just in the interests of productive capital, but in the longer-term interests of money-lending capital also.

Resolving the current financial crisis in Europe, within the bounds of capitalism requires such a programme of fiscal expansion, and a massive writing off of debt. It is quite rational within capitalist terms, given current low levels of interest rates and inflation, to use money printing to finance such fiscal expansion, and thereby to promote an accumulation of real wealth at the expense of the fictitious wealth that has been built up over the last 30 years, and which hangs over economies in the form of huge levels of debt.

Marxists do not propose such solutions, which by their nature are solutions within the confines of capitalism, any more than Marx advocated free trade rather than protectionism, as such a solution. Our goal is not to help capitalism resolve its problems, but to replace capitalism, and thereby remove the basis of those problems. But, if social democracy proposes such solutions, then it is sectarian purity for Marxists to oppose them, on the basis that they are only reformist, bourgeois solutions. On that basis, we would refuse to support strikes, because they are also only reformist, bourgeois solutions, designed merely to ameliorate the workers’ condition, whilst remaining within the constraints of capitalism. Marx argued for free trade because it created better conditions for a transition to socialism.

For the reasons Marx sets out in Wage-labour and capital, we should support all those measures which facilitate an accumulation of productive capital, and thereby place the workers in the most favourable position. That is also in relation to the accumulation of all those productive forces which the workers will require for the more rapid construction of socialism. By the same token, we should oppose all those conservative measures which drive in the opposite direction.

Socialists should make clear the limited, social democratic nature of such solutions, but Mike is wrong to believe that such solutions are not possible, being against the interests of capital. There are other policies that social democrats can pursue, which socialists should support, that are also achievable within the confines of capitalism. Pursuance of those policies, however, requires a rejection of the statist conceptions of socialism, which the left has operated under for more than a century and which underlie Mike’s own definitions of ‘left’ and ‘right’.

We should support those policies, which strengthen the economic and social position of workers. Mike quotes an article by Trotsky. He was writing about the Cardenas government, in Mexico, which, having nationalised the oil companies, sought the support of the Mexican workers against the pressure it faced from British imperialism. It offered workers’ control in those nationalised industries, as a means of securing that support. Trotsky points out that, under capitalism, other than in a situation of dual power, there can never be any real workers’ control of capitalist property. However, he asked, if a capitalist government offers such workers’ control, what should be our response to it? His answer is that, whilst continuing to explain the limited nature of such solutions, there is no reason to oppose them:

... such a negative policy from the revolutionary wing would not be understood by the masses and would strengthen the opportunist positions. For Marxists it is not a question of building socialism with the hands of the bourgeoisie, but of utilizing the situations that present themselves within state capitalism and advancing the revolutionary movement of the workers.12

Participation of workers in the management of socialised capital, whether of state-owned capital, joint stock capital or cooperatives, is clearly not impossible, or alien to the interests of productive capital. On the contrary, it is probably beneficial for that capital, by incorporating the workers, and utilising their knowledge, in just the same way that social democracy incorporates the working class by the extension of the franchise. Whilst such measures are limited, compared to the goals and ambitions of socialists, there is no reason why socialists would oppose them. On the contrary, to the extent workers gain knowledge of capitalist management from such participation, they further strengthen their position to act, independently, and to utilise that knowledge for themselves.

Socialists explain to workers the limited nature of such policies and, in the process, that also involves explaining why it is only by direct ownership and control of the means of production, via worker-owned cooperatives, that real control can be exercised. Socialists should not generally call for nationalisation, but would not oppose such action by a social democratic government, and would certainly oppose measures to return such industries to private ownership. But socialists should have opposed the inclusion of, for example, the worker-owned and controlled mines, alongside the capitalist mines, in the nationalisation programme of Attlee, after World War II.

If we take the example of the Militant control of Liverpool city council in the 1980s, socialists should have advocated that workers, organised within their own communities, be encouraged and assisted, by Labour Party members to create housing cooperatives, which could have taken over the council’s housing stock, and run it democratically. With the housing stock in the ownership and control of the workers themselves, the potential for future conservative governments to effect massive transfers of wealth by selling houses is reduced, because they would have to be openly stealing the houses from their immediate owners.

Cooperative ownership and control of housing leads on to the logical development of other forms of workers’ direct democracy within those communities, which then deals with other issues of community management and control. It creates the potential for other worker-owned and -controlled property related to it: for example, the creation of cooperative construction and maintenance enterprises, to provide for the related maintenance and development needs.

These forms of direct workers’ democracy also naturally flow into other organisational forms. In affluent neighbourhoods, it has become commonplace for the residents to employ their own security services. By the same token, it should become commonplace for workers’ communities to organise their own security and policing. Organising coordination of such bodies develops organically towards the creation of workers’ defence squads, and further to the creation of a workers’ militia.

In fact, as Engels argued, compulsory universal military conscription is the necessary and logical adjunct to universal suffrage, so that those who have voted can ensure that what they have voted to implement can be enforced, arms in hand.

All of these kinds of measures, contrary to the kind of statist approach that much of the labour movement has pursued for the last century, requires the permanent and active mobilisation of the working class in ever larger numbers, and on the basis of its own self-activity and self-government.

The full version of this article can be read at: http://boffyblog.blogspot.co.uk/2016/01/overcoming-power-of-capital-part-1-of-8.html.

Notes

1. ‘Overcoming the power of capital’ Weekly Worker November 5 2015; ‘Masses and government’, November 12 2015.

2. www.marxists.org/archive/marx/works/1885-c2/ch01.htm.

3. www.marxists.org/archive/marx/works/1885-c2/ch02.htm.

4. www.marxists.org/archive/marx/works/1894-c3/ch49.htm.

5. www.marxists.org/archive/marx/works/1894-c3/ch24.htm.

6. Shaw and Sons (Salford) Ltd v Shaw (1935) 2 KB 113 by Greer LJ.

7. www.marxists.org/archive/marx/works/1894-c3/ch23.htm.

8. www.educationengland.org.uk/documents/bullock/bullock1975.html.

9. www.marxists.org/archive/marx/works/1847/wage-labour/ch06.htm.

10. www.marxists.org/archive/marx/works/1894-c3/ch27.htm.

11. Ibid.

12. www.marxists.org/archive/trotsky/1938/xx/mexico03.htm.