A return to industrial capital? Laura Knight’s ‘Ruby Loftus screwing a breech ring’ (1943)

Two strategic illusions

Money can function fully only if it is world money, writes Mike Macnair

On January 21 this paper published Arthur Bough’s ‘Making inroads into power of capital’, which was a critique of my two-part series, ‘Overcoming the power of capital’ (November 15 2015) and ‘Masses and government’ (November 12 2015). Comrade Bough’s article is an abbreviated version of his critique, which appeared as an eight-part (16,000-word) series, ‘Overcoming the power of capital’ on his blog (January 17-25 2016).1 My response is, therefore, to comrade Bough’s full version.

At the most basic level, comrade Bough accuses me of buying into the pro-capitalist economists’ ideology of surplus value. The accusation is false. In fact, the boot is on the other foot: comrade Bough buys into the pro-capitalist jurists’ (and‘new institutional’ economists’) ideologies of formal legal property rights, and the idea that the capitalist state ‘defends property rights’ generally, without considering what operativerules and practices lie behind these formal legal property rights.

He promotes two strategic illusions. The first is that the working class can strategically ally with industrial corporate management (which he claims, falsely, is represented by social democracy) against financial capital, to defend immediate common interests. This is a variant on the traditional people’s front line of the British road to socialism, with the Labour Party cast as representative of a section of capital - an equivalent of what ‘official communists’ have traditionally called the ‘democratic’ or ‘national’ bourgeoisie.

The second illusion is about the road to socialism: that the working class can build massive worker-managed cooperatives, which can foreshadow socialism, without at the same time building an anti-constitutional workers’ party working to discredit the media, judiciary, corrupt MPs, and so on.

In reality, without such a party to make them into part of a ‘state within a state’ movement, cooperatives would be ‘regulated’ into compulsory managerialisation2; if successful, they would be entrapped (as the Cooperative Bank was) into bailing out failing firms, themselves bankrupted and turned into a mere ‘cooperative brand’ owned by capitalist financiers; and/or would be simply expropriated by the state (as comrade Bough has himself pointed out happened to pre-1945 cooperative and trade union hospitals, cooperative coalmines, etc).

Lying behind these strategic illusions is a peculiar Bough version of some of the common ideas of the (larger) part of the far left, which in the 1950s-70s constructed explanations of the characteristics of the capitalist economy, and politics, in that period. These escaped from the ‘coming crash’ theories shared both by the 1930s Comintern authors, Trotsky and his co-thinkers, and by ‘orthodox’ Trotskyists like the Gerry Healy groups.3

But they did so at the expense of two problems. The first was failingto explain the characteristics of the earlier period, 1900-50. (The Alliance for Workers’ Liberty’s Martin Thomas, for example, has argued that Lenin’s account of imperialism was true for its own period, but that capitalism had moved after 1945 into a new period: the move into a ‘new period’ is a pure Ptolemaic-astronomy epicycle to ‘save the phenomena’.) The second, related, problem was transforming peculiarities of the cold war into permanentfeatures of capitalism (or of ‘late capitalism’, as in Ernest Mandel’s 1975 book). The result is that, since the late 1970s, such theories have proved to have decreasing predictive value; and the same is true of comrade Bough’s version.


In spite of its length, comrade Bough’s critique does not respond at all to the larger part of my arguments in the original articles (and in previous articles on the same issue). If comrade Bough’s a priori arguments for his point of view are correct, my empirical evidence to the contrary would be irrelevant and it would not be necessary for comrade Bough to answer it. It is, however, necessary to note this point before engaging with comrade Bough’s substantive points.

I will attempt to lay out the shape of comrade Bough’s argument before responding to the principal points; in passing, while doing so, I will respond to some minor mistakes in his critique.

Comrade Bough begins with objections to my use of the formula M - C - Cʹ - Mʹ. The form of the objection is that I should have written M - C ... P ... Cʹ - Mʹ. This is trivial. In any case it fails to recognise that what I actually wrote was “M (money) - C (commodities) - Cʹ (worked-up commodity product) - Mʹ (increased money)”, a formulation which explicitly refers to the stage of production.

Comrade Bough has a more substantial point behind this, however, which is that this formula should in the light of the discussions in Capital volume 2 rather be written ‘P ... Cʹ - Mʹ, M - C ... P’, and that when this is done the result “puts the money-capital in its rightful, subordinate role”.

This starting point then yields a move to Marx’s discussions of merchant and money capitals in Capital volume 3, and in the same volume of fictitious capital, of the emergence of joint-stock companies and of the separation of the employed managers from the rentier shareholders. Comrade Bough follows Marx’s discussions in identifying the joint-stock company with a deformed-form transition to socialised production - and in seeing the wages of managerial supervision as tending to fall, producing a common interest of industrial managers with the workers.

A fundamental role in this analysis is played by comrade Bough’s acceptance of the black-letter legal dogma of the separate personality of the company, for which he oddly relies on Greer LJ’s dictum in Shaw & Sons (Salford) Ltd v Shaw (1935) rather than any of the more fundamental cases on the issue (Salomon v Salomon & Co (1896) andso on). None of the various books and articles, leftwing or academic, on the historical development of the corporate form, or the neoclassical economic analysis of this form (notably ‘nexus of contracts’ theory) or even the actual legal textbook literature, is discussed or critiqued. On the basis of this analysis, comrade Bough argues that “what we currently have is the coercive subordination of the owners of socialised capital, in the shape of joint-stock companies, by non-owners: ie. shareholders”.

Linked to this, but a good deal later, he rejects my use of the quotation attributed to Andrew Mellon, that “in a depression assets return to their rightful owners”(meaning the creditors). Rather, in comrade Bough’s view the tag merely misdescribes devalorisation of capital. Since I used the quotation attributed to Mellon simply as a nice illustration of a view more widespread among a section of capitalists and one which in my opinion has some explanatory power, given the corrupt character of the judicial system, this is a secondary point. But it illustrates the fact that here, too, comrade Bough refuses to look behind the superficial attribution of ‘ownership’ in the most elementary, ‘Nutshell’-type law textbooks.

Moving on from here, comrade Bough argues that I am wrong to suggest that the “formal subsumption of labour to capital” (meaning a mechanism or mechanisms analogous to the old ‘putting out’ production, where numerous small domestic producers are controlled by a merchant monopolist) continues to operate today. His reasons are obscure, but appear to be, in substance, first, that it is only the large scale of industrial production that enables the present similarly large scale of financial operations and, second, that the present high levels of asset values are merely inflationary, therefore amounting to an actual devaluation of the asset-holders holdings relative to real values. It seems to me that neither point is at all relevant.

He now shifts into the argument that the measures of welfarism, etc are in the objective interests of productive capital and especially of ‘socialised capital’ (corporations). He accuses me, when I remark that “even badly-off Brits are a lot better off than (for example) Somalis”, of giving “the impression that British workers’ living standards are somehow achieved at the expense of Somalis”. He says this shows “an only grudging acceptance of the idea that capitalism actually does produce real improvements of workers’ living standards”: ie, that I buy Lassalle’s ‘iron law of wages’.

This is, bluntly, nonsense. Suppose for the sake of argument that there was no such thing as value transfers from (some) countries lower in the global hierarchy to (some) countries higher, and that it was true that high British living standards were merely a product of increased productivity (as we will see below, given the very large British deficit in ‘visible’ trade, that view is more than slightly implausible). Even on this assumption, it would still be true that workers in Britain could quite properly look outside their own country and say, ‘Hey, it’s better to have capitalism than whatever it is they have in Somalia’ (or in the old USSR); hence, we should put up with the social subordination that capitalism entails. That hypothetical was the whole of the argument I made which comrade Bough criticises as Lassallean, and so on. It will be necessary to return to the issue of the world economy, but not in this framework.

Once the argument for social democratic measures as being in the objective interests of capital has been (sort of) made, we come to the critical question of the explanation of post-1945 politics and economy. Comrade Bough argues that the period saw measures which were merely in the interests of industrial capital - they only aided the working class in the sense that strengthening industrial capital, by tightening the labour market, also strengthens the working class. The resistance of the Tories, and their ability to move politics in their direction since 1948, which I see in terms of a ‘ratchet to the right’, he identifies as opposition from “backward-looking sections of capital, from the small private productive and merchant capitalists, and from the private money-lending capitalists ...”

Comrade Bough therefore rejects my argument that the state is subordinated to capital through subordination to money capital on purely dogmatic grounds: “For Marx, the determinant is property. As he sets out early in Capital volume 1, people are no more than the personification of economic relations and forms of property”.

He thus sees only a partial reversal of the dominance of industrial capital after the 1970s. He attributes the increased role of financial capital in this period to the move into the down phase of the long ‘Kondratiev cycle’ in the economy. In his view the bailout of the banks and reaching for Keynesian fiscal tools in 2008 represented the true interests of industrial capital, while the shift (back) to austerity (aka ‘structural adjustment’ or ‘structural reform’4, etc) showed that “conservative governments once more began to tend to the interests of those reactionary sections of capital on which they rest”.

He insists, in other words, that the dynamic to dominance of industrial capital and hence of its (alleged) ideological representative, social democracy, must still be at work, in spite of all appearances to the contrary. There is an odd sense in which comrade Bough’s arguments here might be seen as a symmetrical inversion of the Healyites’ arguments in the 1950s-70s against the ‘impressionism’ of those who asserted that a crash was not just around the corner.

The concluding part of his critique attempts to ‘cash’ the preceding argument in policy prescriptions. The first point is that Marxists should not ‘oppose’ the implementation of social democratic policies. I put quote-marks round ‘oppose’, because comrade Bough gives the word a slightly unusual meaning: he actually means we should not criticise the realism of proposals to implement social democratic policies through taking government office under present conditions. The positive policy he puts forward is to support the implementation of such policies, including through large-scale money-printing, as strengthening the general position of the working class in alliance with industrial capital, while proposing as a more positive Marxist alternative the replacement of forms of state provision of welfare, housing, policing and so on, by large-scale cooperatives.

In spite of his previous - correct - observation that the 1945 Labour government expropriated existing workers’ cooperatives and mutuals as part of their ‘reforms’, he argues that it would be politically harder for the capitalists to steal cooperative-held assets than it has been for them to steal public, charitable and local government assets in the last 50 years.

Since, as I said before, comrade Bough makes no serious attempt to answer the empirical elements of my argument, this response is mainly to the theoretical arguments. Further, I will not go through the process of responding in detail to each of comrade Bough’s quotations from Marx, and so on, since this would be tedious for the reader and not particularly illuminating.

There are, I think, three major substantive issues. The first is the relation of money and production. The second is the meaning of legal ownership and corporate personality in relation to concepts of the mode of production. The third is comrade Bough’s misleading use of the truth that, while the cold war order has gone away, the statisation of capitalism has not.

For reasons of time and space I will write only on the first issue in this article. A second article will address the other two issues and return briefly to comrade Bough’s positive policy prescriptions.

Production and money

The substantive case in support of comrade Bough’s view is quite simple. In order for there to be money profits, interest and rent, there must also be two phenomena. The first is the production of a material surplus of use-values (usable goods and some sorts of services). The second is the existence of social relations by which this material surplus is extracted from the direct producers. In this sense, money profits, interest and rent are necessarily subordinate to the continuation of productive capitalism - which means, primarily, though not exclusively, the industrial-scale production of use-values (including services, such as hospitals).

If there was no material surplus of use-values, the possession of large quantities of a money commodity or of forms of credit money would be quite pointless: there would be nothing you could buy with it. It is for this reason that merely printing more money, without generating equivalent increased productive output, merely produces inflation. The fact that the present high level of capital asset valuations are merely inflationary, as comrade Bough notes, is a case in point.

The same would be true for slightly less direct reasons if the mechanisms for the extraction of the surplus product from the direct producers failed. If the exploitation mechanism is merely weakened because the organised working class becomes too powerful on wages and conditions issues, capitalists may engage in large-scale layoffs and production cutbacks as a form of ‘go-slow’ or ‘investment strike’ to force concessions from trade unions and government, while simultaneously raising prices; this is an element of what was going on in the ‘stagflation’ of the mid-1970s in the UK and USA.

Alternatively, imagine the exploitation mechanism was wholly eliminated, but without the creation of coordination mechanisms alternative to money (‘planning’). Now there would be a surplus material product, but one retained in the hands of the direct producers in the form of - for example - stocks of unsold motorcycles held by a motorcycle-producing cooperative because the item is a luxury product and there are insufficient middle class buyers,5 or of unsold grain held by small farmers who, having been ‘freed’ from the obligation to turn over part of their product as rent, interest or tax, found they had no buyers - because, if there is no unpaid transfer of surplus product from the primary agricultural producers, everyone else will starve.

At this point we see why the fact that money profits, rent and interest are dependent on the production of a material surplus does not imply the dominance of productive capital over money capital, but only determination in the last resort by production. In capitalism, it is not merely the case that joint stock companies are ‘socialised’ production; all market-dependent production is ‘socialised’ production - the product of what Marx called the ‘collective labourer’. Although this production is not consciously coordinated within the individual firm or by the state, it is (roughly) coordinated through money transactions, creating the superficial appearance which supports the economists’ ideologies of the ‘hidden hand’, ‘Say’s law’ and ‘dynamic stochastic general equilibrium’. Access to money, and money returns on money investment, decide which productive activities will be carried on and which will cease.

Printing money?

Comrade Bough’s answer to this point, so far as he offers one at all, has three elements. The first is that, since the material surplus is generated by industrial productive firms, these firms could cut out the banker and merchant middlemen by themselves printing money, by issuing their own private ‘commercial paper’ - bills of exchange, promissory notes, and so on.

This was, in fact, common practice in 18th and 19th century capitalism before the rise of the limited-liability joint-stock banks after the1878 crash of the City of Glasgow Bank. It would be a mistake, however (and was a mistake in Marx’s 1864-65 draft, which Engels edited as Capital volume 3), to imagine that industrial firms’ self-issue of commercial paper was actually independent of the financial operations of the City of London. The ability to use non-bank-issued commercial paper as a means of payment was dependent on the existence of financial markets discounting this commercial paper (selling it to third parties), chiefly in London - and all, in fact, dependent on the discounting operations of the Bank of England (as became apparent at every crisis from 1763 on).

Once the large-scale corporate banks had developed, and reached the point at which de facto state bailouts existed, the ability to use non-bank-backed commercial paper to fund industrial operations largely evaporated. Though they are (as they have always been) willing to give credit to large firms, vendors from this point wanted, and still want, bank-backed commercial paper as means of payment. It should perhaps be added that the Truck Acts 1831-1940, obliging employers in general to pay wages in cash (or, more recently, by bank transfer), add to the requirement on industrial operations to have bank credit facilities.

Secondly, comrade Bough argues that industrial investment comes mainly from retained profits, rather than money borrowed from banks or raised on stock markets. This is certainly to a considerable extent true,6 but does not actually resolve the issue, for the reason given above: day-to-day industrial operations require financial credit facilities. Further, the retained profits have to be by some means saved up to finance any large new investment - and the means of doing so is to bank them or invest them in one or another form of financial securities. Otherwise, the firm would have to hoard cash on its own premises, incidentally withdrawing it from circulation.

Thirdly, comrade Bough argues that the state in a strong capitalist country could get away with printing money on a large scale:

As much currency as you like, in the form of notes and coins, or as much money-capital as you like, in the form of loans advanced, could be thrown at Greece, and indeed has been, but will not solve the problem of inadequate capital. By contrast, a country with adequate capital can always obtain the currency it requires, by printing it, or by use of credit, electronic transfers and so on, and can obtain the money-capital it requires by simply metamorphosing commodity-capital into money-capital, or using its existing capital as collateral.7


The error is twofold. The first is the implicit assumption that physical assets amount to capital, in the absence of their circulation through the money-form (whether M - C ... P ... Cʹ - Mʹ or P ... Cʹ - Mʹ, M - C ... P). In reality - for example - the former site of a factory which has ceased production may be worth extraordinarily little.8 The value is in capital as an active process.

The second, and more fundamental, error is that comrade Bough has not attempted to answer the point I have made repeatedly - that the material division of labour is international, with the result that money, to function as money in the full sense, has to be capable of functioning as world money. In this I am merely following Marx.9

This point has equally important implications beyond the issue of printing money. The UK has a large deficit in ‘visible trade’, and has had for years.10 This deficit remains relatively unproblematic for the capitalist UK, because of the overseas income arising from financial and related legal services.11 This financial income enables the UK to import 40% of total food consumed.12 The implication is that even if on a world scale finance must be in the long term subordinate to industry, an individual country may be a niche ‘financial services producer’: the ‘offshore’ islands, but also including this offshore island.

The UK can indeed get away with printing money, and has done - as long as it does so as part of a policy designed to protect the dominance of the UK economy by financial services and the international role of London in skimming a share of surplus value from material production mostly carried on elsewhere. It is this activity which makes the UK credit-worthy from the point of view of international money-users and hence sterling is a (relatively) ‘hard’ currency in spite of ‘quantitative easing’.

To print money in the service of a national policy of export-led reindustrialisation (to pay for all the food imports ...) and full employment would be a very different matter. Leave aside for the moment the political choices which have always been and remain part of the decision-making processes of financial markets.13 To go for industrial production at the ‘high end’ British industry would enter into direct competition with Germany and Japan, already solidly ensconced in the markets for capital goods, and which out-competed most of British engineering 50-plus years ago; at the ‘low end’ it would enter into direct competition with China and other ‘emerging economies’, still characterised by massively lower wages than the UK. It would thus not be a credit-worthy investment project.

Reproduction schemas

It is for related reasons that comrade Bough’s reliance on Marx’s reproduction schemas from Capital volume 2 to deduce the necessary dominance of industry is unsound. These reproduction schemas apply14 to a closed capitalist economy, thus to the world economy as a whole.

The converse of this point is that the reproduction schemas in fact set out to specify one of the causes of recurring crises in capitalism: that is, that the flexibility given by the credit system allows productive activities to become, in the boom period, systematically out of alignment with the needs of material reproduction. In the crisis and following depression of a ‘normal cycle’, there is a forcible realignment, and in this way, in the business cycle, the form, ‘P ... Cʹ - Mʹ, M - C ... P’, as expressed in the reproduction schemas, does indeed determine M - C ... P ... Cʹ - Mʹ in the long term, not the immediate term.

If the nation-state intervenes to prevent the losses falling on savers - that is, to prevent the necessary bankruptcies - this necessarily exports the deviations from reproduction needs, which are (among other causes) pushing towards a crash. In doing so, it will in turn destabilise the political regimes of the countries onto which the losses are exported. The result, to the extent that it is not a rise of radical socialism, will be a rise of radical nationalism and a long-term tendency towards war.

The losses in the end must fall on the owners of capital; if they are not made to fall on the owners of capital by a wave of bankruptcies and debt ‘haircuts’, they will be displaced geographically and temporally, to return in a few decades as bombs falling on buildings and infrastructure and massive state defaults, of the sort which occurred after 1918 and 1945. The underlying determinant role of productive industry is then displayed in the world by the victory of the state that has the greater productive capacity on its own territory, yielding a greater military productive capacity. As long as matters are not carried to this point, however, financial dominance can continue. Thus the UK experienced a much less severe 1930s depression than the US, precisely because, in spite of the US’s greater material productive capacity, London remained globally financially dominant.

Just as the UK, as it entered into relative competitive decline in the industrial field in the later 19th century, displayed increased dominance of financial operations and financial capital, so the US, as it in turn entered into relative competitive decline in the industrial field in the late 1960s, has shifted to financialisation - a shift which was facilitated through London’s Eurodollar market and London’s network of offshore jurisdictions. Production remains in the last analysis determinant over finance - but that is not the same as its being immediately or politically dominant.

In short: once we recognise the constraints of the global division of labour, and the need for money to be world money in order to function fully as such, the idea that what is involved in the persistence of financialisation is merely the resistance of reactionary sections of capital to the needs of industrial capital, expressed in an ideological form, falls to the ground. It is indeed possible to have a new 1950s-60s. But the price of doing so is the overthrow of the global military power of the USA, analogous to the 1914-45 processes of the overthrow of the global power of the UK - and, going along with it, the loss of London’s global financial role.



1 . http://boffyblog.blogspot.co.uk/2016/01/overcoming-power-of-capital-part-1-of-8.html has links forward.

2  . The current legislation is the Cooperative and Community Benefit Societies Act 2014, replacing various acts going back to the later 19th century.

3 . On the ‘official communist’ analyses, see RB Day The ‘crisis’ and the ‘crash’ London 1981. Trotsky’s The death agony of capitalism and the tasks of the Fourth International (1938) is available at www.marxists.org/archive/trotsky/1938/tp/index.htm - see especially ‘The objective prerequisites for a socialist revolution’. On Healy, R Alexander International Trotskyism 1929-1985 Durham NC 1991, pp467-68, has a convenient discussion of the origins of Healy’s ‘catastrophism’; B Pitt The rise and fall of Gerry Healy (www.whatnextjournal.org.uk/Pages/Healy/Contents.html) has more on the subsequent history.

4 . Compare, for example, ‘What structural reform is and why it is important’ The Economist December 9 2014.

5  . The Meriden Motorcycle Cooperative was in fact bankrupted in 1983 (along with a lot of other British industrial operations) by Thatcher’s high pound sterling, making Triumph motorcycles uncompetitively expensive: https://en.wikipedia.org/wiki/Triumph_Engineering.

6 . ‘To a considerable extent’ - consider, for instance, the arguments as to whether firms should retain profits for investment discussed: eg, in AP Dickerson et al, ‘Internal vs external financing of acquisitions’ Oxford Bulletin of Economics and Statistics Vol 62 (2000), pp417-31; limits discussed in S Bond and C Meghir, ‘Financial constraints and company investment’ Fiscal Studies Vol 15, No2 (1994), pp1-18; and the 2015 HM Revenue and Customs Research Report study of unlisted companies: G Keilloh, K Chhatralia and C Johnson Profit distribution and investment patterns of unlisted companies (I use these ‘orthodox’ economic products merely because they discuss some empirical data on the issue).

7 . http://boffyblog.blogspot.co.uk/2016/01/overcoming-power-of-capital-part-6-of-8.html.

8 . Compare various discussions by David Harvey; in agriculture, see, for example, K Verdery The vanishing hectare Cornell UP 2003.

9  . References in R Vasudevan, ‘From the gold standard to the floating dollar standard: an appraisal in the light of Marx’s theory of money’ Vol 41 (2009) Review of Radical Political Economics pp473-91.

10 . Compare, for example, ‘UK trade deficit prompts alarm as exports fall’ The Guardian January 8 2016 (merely a recent piece).

11 . Eg, L Yueh, ‘Making the invisibles in the economy visible’, BBC News June 16 2015: www.bbc.co.uk/news/business-33146186.

12 . www.foodsecurity.ac.uk/issue/uk.html.

13 . ‘Have always’: see BG Carruthers City of capital Princeton NJ 1996. ‘Still are’: for instance, ‘Markets soar and close on a high after Conservative election victory’ Daily Mail May 9 2015; ‘Pound falls after Iain Duncan Smith quits and sparks rumours of Tory civil war’ City AMMarch 21 2016.

14 . To the extent that they apply at all, as opposed to being an elaborate form of the counter-factual.