Yves here. Ed Walker’s piece below makes a big argument in an impressively compact space. I wanted to add a couple of thoughts.
One reason capitalists wind up with profits that they do not adequately reinvest is that they set their return targets too high. This has been documented periodically. A recent example comes from Andrew Haldane of the Bank of England on short-termism and how it leads to underinvestment.
Second is that many projects are best undertaken by government, such as infrastructure that will serve as the foundation for growth, basic research, or other projects where the time frames are too long, the payoffs too ambiguous, or the resource mobilization too great to make sense for the private sector. In keeping with the Ed Walker’s use of writings from long ago to shed light on our supposedly modern problems, Michal Kalecki explained in Political Aspects of Full Employment why businessmen prefer to have lower employment and as a result, growth:
The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment.
When you have finished Walker’s fine piece, please go immediately and read Kalecki’s short, penetrating essay.
By Ed Walker, who wrote as masaccio at Firedoglake and now writes regularly at emptywheel. You can follow him at Twitter at @MasaccioFDL, and here’s his author page at Shadowproof.
For a long time, and particularly since WWII, societies around the world have managed substantial parts of their productive activity in non-capitalist zones. In the UK, for example, health care is provided by the National Health Service. It operates in a market society, but it is not part of the process of capital accumulation. The education system is an example in the US. We can think of these non-capitalist enclaves as a social commons. We all share in them, and we all have a stake in seeing to it that they operate at a high level.
With the turn towards neoliberalism in the past 35 years, the rich have tried to colonize these non-capitalist sectors. Currently UK capitalists and the Tories are intent on privatizing the NHS for their personal gain. They look at the way the US medical/drug system works for the benefit of the rich and they want that for themselves. In the US, we have already turned over big chunks of the prison system to these people, with predictable results. The big push in the US is the effort to take over the education system for personal profit. In a larger perspective, the capitalists and their economists tell us constantly that European welfare states are impossibly expensive and must be privatized. Why? Why is this such a big deal?
It might be easy to put this down to greed, or to the Great Man theory of economic progress, or creative destruction. But perhaps there is something in the nature of capitalism that can explain this better. Two books published in the wake of WWII examine a broad sweep of economic history to try to understand how that war happened. Karl Polanyi’s The Great Transformation sees the war as the end of the experiment with unrestrained free market capitalism, and offers the hope of a more socialist future. Hannah Arendt’s The Origins of Totalitarianism offers a dark view of human nature and of the capitalist system, and is much less hopeful.
It may seem odd to focus on 70 year old books to analyze our current system and the problems we face, but we have to remember how hard it is to understand one’s own time and make sense of it. One reason to read these books is the brilliance of the writers. The works are fascinating works of scholarship, heavily footnoted and discursive in focus, and covering a huge time frame. They seem so different from the books on economics and politics on the best-seller list, with the conspicuous exception of Capital in the Twenty-First Century which plumbs two hundred years of records.
It’s also important to note that neither of these authors had succumbed to what C. Wright Mills called the Capitalist Celebration, the capitulation of the US left to the spell of capitalism. We have to go back that far to find an actual left criticism of capitalism. Arendt has a strong Marxian flavor. Polanyi sees the value of the increase in productivity brought on by the industrial revolution, but believes strongly in the Enlightenment view that humans can control and direct society to prevent the damage that unrestrained capitalism can bring, damage he describes in detail. Far from celebrating capitalism, both Arendt and Polanyi argue that unrestrained capitalism and free market ideology were significant factors in the rise of fascism.
With that background, here’s a look at one aspect of the rise of unrestrained capitalism, Imperialism, largely drawn from Arendt.
The Industrial Revolution created massive wealth for a few, who for clarity I will refer to as the Capitalists, a group which includes some of the hereditary rich, the aristocrats, as well as wealthy merchants and newly rich manufacturers. The Capitalists quickly found themselves unable to create profitable investments for their capital in their home countries. Arendt calls this superfluous wealth. It had no purpose, no utility in the home country, and little prospect of producing gain for the holder. This led to a decade in Europe in which there was massive financial and real estate fraud in the business sector, and corruption at the nation-state, leading to depressions and massive unemployment. Many of the victims of these frauds were artisans, tradesmen and small merchants, who, Arendt says, believed that they had to invest their small savings in these ventures or risk falling into the out of the middle class.
Each round of new technology, each period of growth, was followed by a crisis, usually a financial collapse. Those crises led massive unemployment, the displacement of people from a role in the productive sector of their society. Arendt calls these superfluous people. They had as little utility to their society as the superfluous wealth. Similarly, Polanyi says that government and leading economic writers referred to two groups, the sick, the old and the weak who were the deserving poor, entitled to some assistance from the nation-state; and the able-bodied who could not find work, who were not deserving of assistance, and for whom hunger would serve as a lash to force them to work for any wage, or just for food and shelter..
Arendt says that some Capitalists sought opportunities in foreign lands, but they experienced losses in those investments, as the foreigners didn’t play by the rules of the Capitalists. Beginning in the 1870s, the Capitalists demanded that the nation-states protect their investments by force. They wanted profits without risks, and the nation-states did as they demanded. Arendt claims that this served the interests of the nation-state in that that it enabled the productive use of superfluous capital, and the employment of superfluous men as soldiers and sailors, and supervisors or workers in the new colonies, or in the transportation of imports and exports.
Arendt says that the driving force of capitalism, the demand for profits, means that capital can never stand still. It must always be in motion.
The decisive point about the depressions of [the 1860s and 70s], which initiated the era of imperialism, was that they forced the bourgeoisie to realize for the first time that the original sin of simple robbery, which centuries ago had made possible the “original accumulation of capital” (Marx) and had started all further accumulation, had eventually to be repeated lest the motor of accumulation suddenly die down. In the face of this danger, which threatened not only the bourgeoisie but the whole nation with a catastrophic breakdown in production, capitalist producers understood that the forms and laws of their production system “from the beginning had been calculated for the whole earth.” P. 148 fn omitted.
The first omitted footnote cites Rudolf Hilferding for the proposition that “… imperialism “suddenly uses again the methods of the original accumulation of capitalistic wealth””. Arendt is asking us to think about how wealth was originally accumulated.
Adam Smith tells a charming story about the accumulation of capital in Book 1 Chapter 6 of The Wealth of Nations. “In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land…” societies rewarded hard work and talent with extra stuff. Then we jump to “As soon as stock has accumulated in the hands of particular persons…”.
Smith doesn’t discuss the fact that during the interim period the rich and vicious seized personal property and land by force. He doesn’t mention the Enclosures, or any of the bloody history of accumulation of the initial stocks of wealth, either in the home countries or in other lands. For that history, take a look at Polanyi.
After this jump, we get Smith’s explanation that given the initial distribution of land and other assets, including cash, profits are the natural result of the work of the owners of those initial capital stocks, who organize production and are entitled to keep the profits as compensation for their skill and effort. Smith doesn’t discuss the use of force and violence against workers and peasants or the assistance of the nation-state with laws and militia and patents and corruption. Smith is the father of modern economists who ignore the role of force, violence, state power, fraud and corruption and substitute mythic cover stories about entrepreneurship and disruption.
It’s true that some capital accumulation takes place as Smith says, from frugality, skill, or luck. But it’s equally true that at the outset of the Industrial Revolution, most capital was held by nobles and aristocrats who took it by force, and the rest was owned by their bankers and a few merchants. It’s also true that much current capital accumulation takes place through monopoly, oligopoly, and fraud and corruption. Look no further than the Great Crash.
Back to the Imperial period. Arendt points to Rosa Luxemburg’s posthumous work, The Accumulation of Capital for its explanation of the roots of imperialism. Luxemburg was a Marxian intellectual and activist, who took part in the German communist uprising in the wake of WWI, and was murdered by the Weimar Freikorps.
Accumulation is impossible in an exclusively capitalist environment. Therefore, we find that capital has been driven since its very inception to expand into non-capitalist strata and nations, ruin artisans and peasantry, proletarianize the intermediate strata, the politics of colonialism, the politics of ‘opening-up’ and the export of capital. The development of capitalism has been possible only through constant expansion into new domains of production and new countries. But the global drive to expand leads to a collision between capital and pre-capitalist forms of society, resulting in violence, war, revolution: in brief, catastrophes from start to finish, the vital element of capitalism.
The first sentence of that quote relates to a problem uncovered by Mars, who wrote about the primitive accumulation of capital through force and violence, but was not able to account for capital accumulation in the capitalist system as he understood it. Of course, Luxemburg was a Marxist, so it’s easy to dismiss both the problem and her insight. It seems to me, though, that we can see it standing alone as an observation of the actual behavior of capitalists and the results of their armed expansion into other countries, in the unrestrained use of their money, assets and power.
Luxemburg says that capitalism only works if it has non-capitalist areas, or non-capitalist parts of its home society to colonize. These might be lands and resources in India, or South America, or the Belgian Congo, as they were in the Imperialist period, the period she was thinking about. Or they might be the National Health Service in England, or the education system or the medical system, or the prison system or any other government service in the US. Or it might be the people of Bangladesh who can be colonized to make cheap tee-shirts for greater profits to manufacturers.
1. The imperative of capital to stay in motion is a force that underlies the expansionary motives of every capitalist. There’s a logic to capitalism. We won’t uncover that logic with the economic theories that teach that capitalism is natural and just.
2. The problem for decades has been superfluous capital, not a shortage of capital.
3. The problem with capitalism is that it creates superfluous people, people estranged from the productive life of their society. These people are fertile ground for authoritarian extremism.