Note: ‘c.o.e.’ abbreviates conditions of existence and ‘manif.’ manifestations
Contents
1 The starting point: dissociated outward bifurcation (1D1 and 6D1)
2 Capitalist production and its grounding by the capitalist state (Chapters 1 and 6)
3 Accumulation of capital and its furthering by the state (Chapters 2 and 7)
4 The finance of enterprises, the expenditure and finance of the state, and their effect on the macroeconomic validation of surplus-value and on the distribution of income and wealth (Chapters 3 and 8)
5 The concrete modes of manifestation of the enterprises’ market interaction (Chapters 4 and 9)
6 The concrete manifestations of the capitalist economy and state (Chapters 5 and 10)
7 The international mode of existence of the capitalist system (Chapter 11)
8 General conclusions (Chapter 11 in reference to Chapter 10)
Subject and general aim
This book is about ‘full-fledged’ capitalism, which emerges when not merely trade but also the production process is dominated by the monetary dimension and profit. The book’s aim is to systematically identify the interconnection of the relations, institutions and processes that are necessary for the continued reproduction of the capitalist system – that is, the capitalist economy together with the capitalist state. This results in a synthetic outline of the constellation and functioning of the capitalist system. In short, the aim is to comprehend the capitalist system. Conscious change within and beyond the capitalist system requires its comprehension – in this I am an ardent pupil of Marx. In line with the systematic-dialectical method adopted to achieve this systematic comprehension, the book is therefore restricted to a systematic synthetic exposition of the capitalist system. The exposition’s systematic entails the abstraction from contingencies.
Part One presents the ‘capitalist economy’, and Part Two the ‘capitalist state’. In Part Three, these are considered in international context. Each of the subsequent chapters of Part One has its sequel in each of the subsequent chapters of Part Two.
In this summary of the book I adopt its rigorous order of the exposition, which is the zigzag one, that is the chapter order of the expositional levels [1;6], [2;7] and so on (General Introduction C§4).
The use of some uncommon terms cannot always be evaded in this summary; for a brief explanation the reader might turn to the Glossary. Some footnotes in this summary are addressed to readers acquainted with Marx’s Capital and current marxian political economy. These footnotes are starred (*) and can be skipped by other readers.
1 The starting point: dissociated outward bifurcation (1D1 and 6D1)1
The starting point of the book is the ‘dissociated outward bifurcation’ (institutional separation) between households and privately owned enterprises. Enterprises claim the entitlement to property in the earth and other means of production. The capitalist state as extraordinary social institution grants these claims in the form of rights (1D1, 6D1, 6D2).2 The rest of the book sets out how this separation is bridged such that the capitalist system can be a potentially continuous (a ‘reproducing’) constellation. The main elements of this bridging are called the ‘conditions of existence’ or the ‘grounding moments’ of this separation.
2 Capitalist production and its grounding by the capitalist state (Chapters 1 and 6)3
The poles of the outward bifurcation are apparently bridged via trade relations. However, the inherently multifaceted dimensions of goods and capacities require commensuration in terms of a common denominator.4* The latter derives from the everyday market ‘trans-abstraction’ that ascribes to goods and capacities the super-sensuous dimension of ‘value’ as mediated by money – money, which itself has no inherent content or value. Entities are made commensurate in terms of this super-sensuous value dimension that we ‘know’ only through money as its quantifier, a quantifier whose physical form is insignificant. The market interaction thus constitutes goods and capacities as commodities, that is, as dual (or inwardly bifurcated) entities – duality along the multifaceted dimensions of usefulness on the one hand, and the mono-dimension of monetary-value on the other.5*
The monetary-value dimension and the commodification of goods and labour-capacity determine the market-interconnection of the poles, the enterprises being driven by monetary profit. The market-interconnection engenders the duality of things and capacities. (1D1–1D4.)
This mono-drive of monetary profit is concretely dominant for what is (not) produced and how it is (not) produced in enterprises. It affects what counts and what does not count. Astonishingly the super-sensuousness of the monetary-value of things and capacities affects their sensuous being, and coming into being. Further: sensuous physical-technical production becomes a mere instrument for valorisation – the production of monetary-value, or value-added. This characterises the general form of the capitalist production process (1D5, sub A).
However, this general form lacks a criterion for determining what instrumental guise – what physical commodity and what physical technique – is most efficacious for profit. This requires: first, a common measure for the amount of investments, which is ‘capital’; secondly, the grasping of time of investment as ‘production time’; and thirdly, a measure for the duration of capital investment in terms of a standard time, which is the calendar year.6* The profit – more precisely the surplus-value – gained during a year, over a year’s capital investment, that is, the ‘rate of integral profit’, delivers the criterion.7*
Given the enterprises’ profit drive, the production must encompass the equivalent of the value-added component of profit. Even if the general form of the capitalist production process is dominated by monetary-value and valorisation, it necessarily also remains a physical-technical process, hence it remains a dual process. Within this duality the main distinction between means of production and labour-capacity (L) is that the former are inherently static elements, whereas labour-capacity in operation, that is labour (L
Whereas capital constrains the possible production, the power of labour (
Labour being the creator of value-added, it is ‘compensated’ just by the wage, with the enterprise appropriating the surplus-value, that is, the difference between value-added and the wage. Surplus-value is generally the source of the growth of capital. Because labour is the unique source of valorisation and hence of surplus-value, labour essentially produces the equivalent of its own wage as well as that of the growth of capital. Hence labour essentially produces capital. (1D5.)
With labour’s production of surplus-value as appropriated by the enterprises, the enterprises’ driving force has been given content. It appears to resolve in a major degree the enterprises’ dissociated production and so the starting point’s dissociated outward bifurcation (so concludes Chapter 1).
However, enterprises can merely claim to be entitled to this appropriation of the surplus-value produced by labour. The state grants this claim in the form of a right to this appropriation. I called this ‘granted right’ together with the granted rights to private property in the earth and other means of production (section 1 above): the core ‘capitalist economic rights’ granted by the state. This is what constitutes the state as ‘capitalist state’ (6D2). For doing so the state must seek legitimation in the compliance of the vast majority of actors. The first, yet abstract-general, condition for this legitimation is that the state posits its (non-)action in terms of the (putative) general interest, and that it posits granted rights in the form of legal rights. The state so posits itself as an ‘impartial’ extraordinary institution above and outside the opposing particular economic interests. However, given that the state de facto grants the core capitalist economic claims in the form of rights, it constitutes vis-à-vis the capitalist economy a separation-in-unity within the capitalist system (6D3).
The concretisation of the seeking of this legitimation is the key continuous theme throughout the exposition of the capitalist state (Chapters 6–10). Analogously, the production and validation of surplus-value (integral profit) is the key continuous theme throughout the exposition of the capitalist economy (Chapters 1–5).
Throughout Part Two of the book, the main systematic clusters of the state’s legislation are named ‘frameworks’ of legislation and other regulation. In terms of conditions of the capitalist economic rights granted (6D2), the three ‘proximate’ frameworks of legislation are those of, now, legal capitalist economic allowance rights (6D4), of legal allowance rights to existence (6D5), and of public security as including the upholding of the law (6D6). (‘Proximate’ conditions are – at that and each further point of the exposition – the immediate and most general conditions for that which was posited before. ‘Allowance right’ refers to the duty of non-obstruction of a right. It does not impose the duty of providing the allowance right holders with the means to exist or with property in the earth and in other means of production, in which case there would be a ‘positive right’ – 6§17.)
3 Accumulation of capital and its furthering by the state (Chapters 2 and 7)
The rationale of the enterprises’ production for the sake of one-dimensional profit (1D5 above) is to acquire more of the same. This is reached by the investment of profit as accumulated capital (2D1). Within the limits of the intensity of labour and of technical change, there are three major conditions for the continued accumulation of capital.
The first condition: expanding labour-capacity. At each state of technology, the continuous accumulation of capital requires an expanding labour population such that the expanding production is fed. However, the quantitative labour population growth is beyond the control of enterprises. The same applies for its qualitative level: the scope of technical change is limited by the prevailing degree of formal education. At a given growth in labour population, the rate of accumulation of capital is ultimately determined by the rate of unemployment – thus, in face of wage pressures, the accumulation of capital requires unemployment.10 (2D2.)
Given the labour-capacity available, the management of the enterprise manages what I call the ‘enterprise–labour relation’. This is the employment relation at the point of production through which surplus-value is extracted from labour (cf. 1D5 above), as constrained by, first, the technique of production, second, the rate of unemployment, and third (in face of that rate), the management of the compliance of labour during production, as assisted by the managerial devise of a wages ladder that optimises this compliance. (2D3.)
The second condition: expansion of money. The accumulation of capital equally requires an accommodating expansion of money. This could be accomplished by an economy-immanent fragmented banking system, based on a separation-in-unity between enterprises and banks. Banks concretely create quantities of money, based on a reciprocal credit relation with their clients. Banks thus ‘pre-validate’ the future production of enterprises. (No state – or no state-instituted Central Bank – is required for this creation of credit money. This is what commercial banks do, and what they also predominantly do when there is a Central Bank). Nevertheless, the domain of operation of such banks tends to be limited. Limited also are the means, between these banks, for the enforcement of sound security and liability conventions. (2D4–2D5.)
The third condition: incorporation. Small enterprises can come and go as non-incorporated firms. However, the continuity of the accumulation of capital by medium and large-scale enterprises generally requires their incorporation. Incorporation is driven by perils around succession, by limitation and spread of risk and uncertainty, and by limits regarding the scale of production. The corporate form of the enterprise entails a layered form of its ownership. The shareholders are the owners of the enterprise’s equity, which is ‘passive capital’, and with it the owners of the enterprise. However, the enterprise as corporate body is the owner of the ‘active capital’, which is administered by the executive management of the corporation. (2D6.)
The last division of Chapter 2 posits the corporate enterprise in the perspective of the exposition’s starting point of privately owned enterprises (cf. 1D1 above). Along with the shareholder’s objective to limit and to spread its risk and uncertainty, we have a detached form of passive capital ownership. The ownership of a particular enterprise is not the capital owner’s object, but rather an instrument for its passive capital ownership in general. Although for an individual enterprise the ‘active capital’ (assets) and the ‘passive capital’ (liabilities) are inherently inseparable, the detached form of passive capital ownership makes the accumulation of passive capital into a separate motive, whence the accumulation of capital (2D1) now appears as a disunited twofold accumulation of capital. Nevertheless some enterprise must be the necessary instrument for the detached capital ownership. This way the concrete directly exploitative ‘enterprise–labour relation’ (2D3 above) is reflected in the actually abstract indirect exploitative relation between the passive capital owner and labour, that is, the actually abstract ‘capital–labour relation’. (2D7.)
The next paragraphs turn to the state’s furthering of the accumulation of capital (Chapter 7).
The state’s carrying out its ‘functions’ (Chapter 6) is predicated on its material existence. This requires taxation, whence it is, paradoxically, compelled to override property right in name of its definition of the (putative) general interest. Because the (potential) action radius of the state is determined by the tax base, it must seek to increase that base – so as to reach feasible tax rates – by furthering the conditions for the accumulation of capital and along with it the conditions for economic growth (7D1). The following three legislative and regulative frameworks are geared to this.
Monetary framework. Limiting banking to licensees, the major concern of this framework is to bind banks to sound security and liability rules (‘prudential regulation’), the ultimate penalty for deviation from those rules being the withdrawal of the licence. A second major concern is achieving ‘price stability’ (in fact ‘creeping inflation’). The state can try to influence the interest rate, but it has virtually no means to control the quantity of money and credit. It is the commercial banks that predominantly undertake the money creation, and hence accommodate the accumulation of capital and economic growth. This poses the main dilemma of the state’s monetary policy: tight prudential regulation affects the banks’ accommodation of economic growth. This is also the main dilemma regarding the phenomenon that became manifest in the early twenty-first century: monetary-system-shaking banks that are ‘too big to fail’ and moreover organisationally too complex to supervise micro-wise. (7D2.)
Labour-capacity framework. Enterprises cannot control the quantity and quality of the labour population (cf. 2D2). The state attempts to regulate the quantity through a minimum wages policy (one sufficient for population growth), through child benefits and through unemployment payments that tide over business cycle recessions. It regulates the quality mainly through public education. (7D3.)
Infrastructural framework. A third condition for the accumulation of capital that ‘the capitalist economy’ could secure only poorly relates to the infrastructure. (7D4.)
A final key framework is that of social security transfers (regarding mainly old age, health and incapacity). This is no direct condition for the accumulation of capital, but rather a condition for the legitimation of the state in the compliance of the vast majority of actors (cf. 6D3 above). Because the legitimation of the state is a sine qua non for the existence of the capitalist system, these transfers are an indirect condition for the accumulation of capital. (7D5.) (The easiest way to illustrate the systemic necessity of these transfers is to anticipate 8D5 where it is shown that without these transfers – in 2010 at least – on average 30% of the population of the 21 most advanced capitalist countries would live below the poverty line.)
Conflicts and conflict modification. This completes the exposition of the seven main legislative frameworks: those of legal economic rights (6D4), legal existence rights (6D5), public security (6D6), money and banking (7D2), labour-capacity (7D3), infrastructure (7D4), and social security (7D5). All these frameworks are necessary for the existence of the capitalist system, as well as conflicting.
A theme running throughout the exposition of the state that I have not emphasised so far is the state’s continuous effort to ‘purify’ its core administrative body from conflict. It does so by delegating conflicting regulation and supervision to ‘independent’ authorities including the Central Bank and a large variety of inspectorates and councils. These bodies like to be called ‘independent technocratic’. However, in the face of conflict resolution, it is foremost in the interest of the state to ‘advertise’ these bodies as being independent.
The settlement of major conflicts is further grounded in two major institutional ‘assigning separations’ (rather than ‘delegations’) within the state, between on the one hand the state’s core Administrative body, and on the other hand the bodies of a legitimising Judiciary and a legitimising Deliberative.
With the necessary arbitration and sanctioning of deviations from the law (cf. 6D3 and 6D6), the state gets involved with conflicting claims to right that erode both its reference to the general interest and its self-imposition as an extraordinary impartial institution. This is resolved by assigning the arbitration and sanctioning to a separated off judiciary, whence the state purifies itself from the conflicts concerned. (7D6.)
The Deliberative is the necessary political arena of conflict and so a mode for recurrent conflict settlement.11 Through this assigning separation, the core of the state is equally purified from conflict, so that it can execute the granting of the core economic entitlement claims in the form of law, and execute the frameworks of furthering the conditions for economic growth and so for the accumulation of capital. (7D7.)12
4 The finance of enterprises, the expenditure and finance of the state, and their effect on the macroeconomic validation of surplus-value and on the distribution of income and wealth (Chapters 3 and 8)
The first section of Chapter 3 guides the reader through this chapter, distinguishing between ‘active capital’ (enterprises’ assets) and ‘passive capital’ (the finance of the assets). Along with it surplus-value (the result of production) is qua distribution decomposed into ‘internal profit’ (the sum of dividends and retained profit) and ‘interest’ (as distributed to banks and other financiers). (3D1.)13|14*
A main requirement for the accumulation of capital and economic growth is that banks ‘pre-validate’ the future production of enterprises by their creation of credit money (cf. 2D4 above). Through it, banks are also inevitably and continuously the initial macroeconomic financiers of enterprises. The banks’ ‘pre-validating finance’ (PVF) of enterprises is not only unconditionally necessary to the capitalist system; it is also fundamentally different from any other type of finance. It is a pure ex-nihilo accounting money operation, which requires no saving – neither prior to the investment that it accommodates, nor after it. Generally, therefore, saving is not necessary to the capitalist system. In fact saving is a nuisance for enterprises because it hampers the redemption of their debt with banks. If there would be no saving, the banks’ PVF could simply be redeemed out of the proceeds from production. This would then be followed by a new sequence of PVF, production, validation of production and redemption of the PVF and so forth. (3D2.)15
In practice enterprises are confronted with ubiquitous savings, which hamper the PVF redemption. These savings may substitute ex post for the non-redeemed part of the PVF, whence there are, ex post, types of finance other than the banks’ PVF, such as shares and bonds. From a systematic point of view, all other types of finance derive from the bank-provided PVF. All these non-PVF types finance already accumulated capital, or ready investments on the basis of the PVF. Therefore, generally, saving does not precede investment; investment is not financed ‘out of’ saving. Macroeconomically, only the bank-provided PVF finances the accumulation of capital. (3D3.)
The previous results (3D2 and 3D3) apply to existing enterprises as well as to newly founded ones. Division 3D4 briefly sets out how the foundation of banks themselves also proceeds by a PVF, now to the founders of banks. This division thus provides the systematic (rather than historical) grounds for the starting point’s capital accumulated (cf. 1D1 above).16*
Whereas macroeconomic investment is independent of saving, the purchase of financial paper (often misleadingly called portfolio ‘investment’ rather than finance) is not independent of saving. Not only is there no macroeconomic ex ante equality of saving and investment, nor is there a macroeconomic ex post equality of saving and investment (the positing of such an equality in most of economics is a categorical mistake, confusing expenditure and saving). (3D5.)17
The sequential character of the interconnected processes of pre-validation, production, validation and distribution of output and surplus-value is essential to a capitalist economy. The degree of redemption of the pre-validating finance, as well as the validation of surplus-value (integral profit), is conditioned on the macroeconomic effective demand. In line with a Kalecki type of approach it is posited that – at the stage of exposition of Chapter 3 (abstracting from the state and international relations) – the macroeconomic validation of the surplus-value produced is determined by investment (positively), the consumption by capital owners (positively), and the saving by labour (negatively). (3D5.) Taking the state into account, the macroeconomic validation of the surplus-value produced is additionally determined by the total of the state expenditure (positively) and the saving out of the state’s wages and transfers (negatively). (8D3.) The distribution of surplus-value (to banks, capital owners and as retained profits) inevitably follows after the validation, whence there is no investment out of a pre-existing surplus-value. This is how the investment–saving dynamic is connected to the investment–surplus-value dynamic. (3D5.)
I now turn to state expenditure and its finance in more detail (Chapter 8).
Economically the state ‘produces’ the content of the economic rights framework and the frameworks furthering the accumulation of capital as presented in Chapters 6–7. For it, the state employs wage labour (i.e. civil servants) and purchases inputs from enterprises, but it tends to make no profits. Moreover, it distributes its produce for free as collective goods and services. Next to the state’s expenditure on its production, its expenditure includes transfers in the form of, mainly, social security and interest. (8D1.)
Taxation is a necessary, and main, form of finance of the state. Next to this finance, the state may contingently collect social security contributions, and it may contingently collect other receipts (mainly) from royalties, sale of state services, and dividends of state-owned enterprises. Finally, the state may contingently borrow to finance any budget deficit (or lend in case of a surplus). The state’s finance, in its particular forms, grounds the state’s expenditures and hence the moments prior to it. (8D2.)
As already indicated, all of the state’s expenditures – though apart from the savings out of the state’s wages and transfers – end up as expenditures with enterprises, and so also realise a major part of their surplus-value. Increases of state expenditure increase the production and validation of surplus-value – vice versa for expenditure decreases. (8D3.)
Part of this state-accommodated surplus-value is distributed to the state via taxation of surplus-value (or narrower, taxation of profit). Thus, for enterprises in macroeconomic perspective, the benefits from state expenditure are in part offset by these taxes. These taxes are the enterprises’ costs of the state’s granting and upholding of their legal core economic rights to property and to employ labour, as well as its accommodation of the accumulation of capital (that is, the costs of the seven legislative frameworks as presented in Chapters 6–7). Thus, these are the costs for the state’s accommodation of the enterprises’ employment (use) of labour in general – not merely those that stem from extra surplus-value along with extra state expenditure.
In principle all state expenditure might be financed by taxation of surplus-value. From the perspective of labour it is immaterial where the taxes on surplus-value are levied (either at the point where it is generated within enterprises, or at the point where it has been distributed to financiers). In practice the state acts such that enterprises and capital owners ‘share’ the taxation with taxation of the wages income of labour. (8D4.)
The final division of this chapter is an exposition of the particular forms of taxation in their effect on the distribution of the income and wealth of households. Households as such are, without further specification, not directly identified as workers’ or capital owners’ households, but rather as households that have some share in the income from wages or from surplus-value.
The main forms of taxation include taxes on profits, on property value and property income, on labour income, and on products. In principle the state might choose between these forms or combinations thereof. Some form of taxation being necessary, it is contingent which particular form or forms are actually applied, and to what extent. Taxation has inevitably non-neutral distributive effects on income and wealth. This applies for the particular form of taxation and also for the design of tax rates (regressive, flat, progressive). More specifically, a flat tax rate is not more neutral than a non-flat one. Any actual form and design of taxation is inevitably based on a normative stance. This has no effect on the fact that with a more skewed households distribution of income, more savings press down profits. Thus progressive taxes support enterprises: their rate of profit and so investment and employment. This puts on the state’s agenda the dilemma as to whether it is primarily concerned with the interests of enterprises or rather with the privileges of the high-income categories. The ideological supposition that investment would require saving is of key importance here. (8D5.)
This completes the exposition of the conditions of existence of the capitalist economy and state. From the point of view of the systematic-dialectical method adopted, it is only at this point – that is, when all earlier pre-positions have been grounded endogenously – that we can concretely reflect on the capitalist system in its entirety. In fact the last division (8D5) is literally on the edge of it. The next chapters are an exposition of the capitalist system’s concrete manifestations.
5 The concrete modes of manifestation of the enterprises’ market interaction (Chapters 4 and 9)
So far the exposition focused on the extraction of surplus-value from labour as grounded in the state-accommodated enterprise–labour relation and the derived capital–labour relations. Enterprises are first of all interconnected in their unity as entities that go for the same aim, that is, the production of surplus-value as measured by the rate of integral profit. The focus in Chapter 4 is on the manifestation of this unity of enterprises in their rivalry for more surplus-value (4D2–4D3), and next on the manifestation of this unity in tendencies sublating that rivalry through cartel formation, oligopolisation and monopolisation (4D4–4D5). Each of these modes of market interaction is predicated on particular – technical change related – stratified structures of production in particular sectors (4D1).
Regarding the competition apart from the sublating tendencies just mentioned, a distinction is made between ‘price competition’ (4D2) and ‘structural overcapacity competition’ (4D3). The combination of price competition and generalised fast technical change tends to engender generalised price deflation and stagnation. However, there are no economy-inherent forces to get out of such stagnation or to prevent generalised price deflation.
Chapter 9 presents the state’s concrete manifestation in its imposing a framework of constraints on the modes of market interaction of enterprises and banks.
The chapter’s first division sets out the state’s engagement in constraints of market interaction that is ‘conventionally’ regarded as ‘competition policy’ as encoded in competition law. This conventional competition policy is paradoxical. In its prohibition of free contracts of cartel formation and of a category of take-overs and mergers (cf. 4D4–4D5), the state teaches enterprises what ‘proper’ market interaction is. With the state’s imposition of its view on proper market interaction, the unity of the capitalist economy and state reaches its most concrete manifestation regarding the functioning of ordinary markets. Nevertheless this is so conflicting that the state sets out the framework in general terms, leaving its details and execution to ‘independent’ market authorities. (9D1.)
The chapter’s second division sets out two main effects of market interaction that, when left unconstrained, would generate vulnerabilities for the reproduction of the capitalist system. Firstly, so as to prevent a market constellation associated with generalised price deflation and the concomitant potential stagnation (cf. 4D2), the state ordains a monetary policy resulting in creeping inflation (which the state labels ‘price stability’). It tends to delegate its concretisation and execution to the ‘independent’ Central Bank.18
The second vulnerability regards ‘too big to fail banks’. The gradual movement to ‘too big to fail’ is an effect of market interaction that was only thrown into relief with the emergence of the 2008 financial crisis. The complex internal structure of big banks has evolved such that effective regulation and supervision is practically unachievable. Therefore the occurrence of ‘too big to fail banks’ can be countered only by putting a cap on the accumulation of capital such that entities become small enough to fail. However, this would be highly conflicting, as it would castigate the success in the accumulation of capital, which in fact clashes with the economic rights granted by the state. (9D2.)
6 The concrete manifestations of the capitalist economy and state (Chapters 5 and 10)
Chapters 5 and 10 present the most concrete manifestations of the capitalist system reached in this book.
Abstracting from the state, Chapter 5 presents the concrete manifestation of the capitalist economy in the macroeconomic cyclical movement of the accumulation of capital. The actual investment of enterprises is determined by their ‘internal profit’ and ‘rate of internal profit’, each of which accounts for the external finance of enterprises and its (de)leverage effect. (Internal profit = surplus-value minus interest distributed to financiers.) Investment being the main locomotive for the cyclical movement, the rate of internal profit as bounded by the rate of overcapacity are presented as the core macroeconomic determinants of investment decisions. These apply on the macroeconomic sequence of: (1) production predicated on bank finance; (2) validation of production by expenditure; (3) distribution of part of the validated surplus-value to external financiers; and (4) the resulting rate of internal profit, as determining (1) and so forth. (5D1.)19
Series of these sequences cyclically develop from phases of expansion into phases of crisis and contraction. In this cyclical movement, the capitalist systems’ immanent expansive forces generate over-accumulation of capital. In the crisis and recession this is violently cured by destruction of capital that prepares the conditions for a renewed expansion and again contraction. That is, inwardly bifurcated productive activity is cyclically destroyed. With it the applied natural resources are destroyed – those that are accounted for in the monetary-value dimension, as well as those that are not. Along with the destruction of productive activity and productive capacity, employment of labour is destroyed. The misery so gets concentrated with those that are expelled into unemployment. Predominantly these, and their children, are sacrificed for the bifurcated process of ‘creation and destruction’. Even if along this Sisyphean process the average real-income per head may increase, the heads are not equal and especially the unemployed are ‘hors catégorie’ in this respect.
Thus whereas labour is the prime mover of the production of value and capital (Chapter 1), capital itself is the prime mover of its cyclical course of accumulation and again the partial annihilation of this accumulation – labour is passively confronted with the ups and downs of employment and unemployment. (5D2.)20
Chapter 10 presents three key manifestations of the state, which together determine its reach.
The first manifestation applies on the cyclical movement of capital accumulation. Without affecting the cyclical movement itself, state expenditure mitigates the amplitude of ‘regular’ economic cycles – the degree of this automatic stabilising effect depends on the structural size of state expenditure in comparison with private expenditure. However, for the ‘irregular’ economic downturns triggered by financial crisis and bank failures, the mere state expenditure floor and ‘normal’ restructuring destruction of capital may not be sufficient for a recovery. Recovery then also requires a substantial discretionary state policy. (10D1.)
The second manifestation regards the character of the state’s regulation of the capitalist economy. The mere quantity of regulation-in-force increases over time, as driven by new, or re-perceived, social-economic problems. For one part these stem from legitimation problems. For another part these stem from changes in the economic structure and product and process innovations, including process fusions. These affect the ‘coverage’ and the ‘intensity’ of regulation, and so the density and quantity of regulation. The more convoluted the social-economic problems, the more complicated regulations tend to be. This results, together with the interweaving of regulations, in an increasing complexity of regulation. However, changes of regulation are prominently also determined by unintended loopholes in regulation, that is, gaps and ambiguities – as tested by way of profit-driven borderline (non-)compliance. The legislative and other regulative reparation of these loopholes by amendments of the regulation increases the complication of single regulations, and in connection with the interweaving of regulations, multiplies into further complexity of regulation. This results in inevitable continuous cycles of loopholes being sought, amendments being made, leading to further complication and complexity. In sum we have a (hardly counteracted) diachronic tendency to not only the quantity of regulation, but also its increasing complication and complexity. (10D2.)
The third manifestation regards the content of state expenditure. For many people the ‘hard core’ of the capitalist state – in brief the property and exploitation rights that it grants and the legislation about them – is not part of their conscious experience. The majority of employed actors primarily experience this ‘hard core’ indirectly via their everyday workplace, whence the state’s hard core operates as a ‘hidden hand’. For most people the state’s reach is rather manifested in the materialisation of its expenditure, especially in the supervision of the safety of production and products, in public education, in infrastructure, and in social security provisions.
Among the main expenditure categories of the state, those on social security transfers (SST) is the quantitatively dominant category and it tends to increase over time. SST is a main factor through which the state gains the vast-majority-legitimation that it requires. However, trends in the SST do not stand on itself. Widespread information (knowledge and its communication) about the distribution of income is a key catalyst for SST. This information correlates, on the one hand, with public education, and, on the other, with means of communication. These two again correlate with the development of the macroeconomic accumulation of capital. Thus the capital accumulation requirements of increasing public education and of the communication parts of infrastructure engender SST.
Whereas the thus catalysed increasing SST as a percentage of GDP is necessary for the vast-majority-legitimation of the state (this regards the large bottom part of the income distribution), the bearing of its burden (by the large upper part of the distribution) implies that the increases’ fading off is equally necessary for the state’s vast-majority-legitimation. (10D3.)
The final part of the chapter (10D4) reviews the four main vulnerabilities of the reach of the capitalist state and that are so potential impediments to the continued reproduction of the capitalist system. The first one is the inevitably increasing amount and complexity of regulation. Thus the so-called ‘free market economy’ will become unlimitedly further constrained by the capitalist state’s necessary steering. The second vulnerability regards the ‘too big to fail’ entities – especially banks. Possibly this vulnerability can be resolved by rounds of complex regulation, but for the time being this is insecure. The third vulnerability regards the deterioration of the environment. This is in fact the most momentous one. But perhaps a recuperation is possible by, again, rounds of complex regulation – rounds that will have to be far more stringent than the regulation in prospect (at the time of writing). The fourth vulnerability regards the required state expenditure on social security transfers. Whilst increasing transfers as a percentage of GDP is necessary for the vast-majority-legitimation of the state, the increases’ fading off is equally necessary for the state’s vast-majority-legitimation.
For the continued reproduction of the capitalist system the state inevitably has to deal with these vulnerabilities. The second and third vulnerabilities are ‘imaginably’ resolvable. However, for the first and last ones the capitalist system is moving to a constellation of, what I call, ‘necessities that are impossible’.
7 The international mode of existence of the capitalist system (Chapter 11)
The systematic exposition of Chapters 1–10 is about each single full-fledged capitalist nation (country). Part Three of the book (consisting of the single Chapter 11) makes explicit that these nations are different regarding: (1) their geographical location; (2) the historical point in time at which they became full-fledged capitalist – as conditioned by their state’s granting of capitalist ‘hard core’ rights as concretised in the hard core legislative frameworks (cf. Chapter 6); (3) the degree of intensity of their legislative ‘accumulation of capital frameworks’ (cf. Chapter 7);21 (4) the degree of intensity of their legislative ‘social security framework’ (cf. Chapter 7); (5) given the population of a country, the degree of the reached accumulation of capital – that degree being co-determined by the legislative ‘accumulation of capital frameworks’. This chapter makes further explicit that capitalist enterprises, for profit reasons, seek to expand across national borders.
The chapter sets out the capitalist system’s ‘international mode of existence’ merely insofar as it affects the earlier exposition of the conditions for the reproduction of the capitalist system (Parts and Two – sections 1–6 above). Abstracting from contingencies – as in the earlier exposition – this regards mainly ‘the tendency to the international migration of production’ (one form of the international movement of capital), and one aspect of ‘the tendency to international trade’. (11D1.)
In much of its impetus international trade is no fundamentally different from intra-national regional sector-wise specialisation of production. However, much of the international trade has uneven effects between nations.
International trade affects the degree of versatility of the national sector-structures of production. This implies that once a nation ‘freely’ decided to engage in international trade, voluntary (‘free’) trade turns into enforced trade, together with the concomitant terms of trade. Any intended re-increase of versatility, if possible at all, will take much time; and along with it the establishing of (selective) trade barriers will meet counter measures.
International trade has a positive effect on the world average surplus-value of enterprises because this trade presses down – directly or indirectly – the price of the real-wage bundle. However, the less versatile a nation’s production structure has grown, the more it is forced to import at whatever the world market price is. This means, or may mean, that the international trade effect on surplus-value is an internationally uneven one for national enterprises.
Finally, because of the concomitant transport, international trade reinforces environmental damages. Given the developed international sector-structures of production, this could be resolved only in a distant future (via rounds of ‘general non-trade agreements’). (11D2.)
The ‘international migration of production’ (IMP) is, next to the ‘international centralisation and concentration of capital’ (ICC), one of the two main forms of the ‘international movement of capital’. On a substantial world scale these are fairly recent phenomena. (Until about 1990 the international movement of capital, measured as ‘foreign direct investment’, stayed within bounds of 1% of world GDP.)
Whereas ICC greatly affects the degree of economic power as concentrated within single enterprises, the latter as a tendency force and its results is not specifically an international phenomenon affecting the reproduction of the capitalist system. This is different for the tendency to international migration of production (IMP).
The world’s nations can be categorised as ‘capitalistic mature’ and ‘capitalistic developing’ countries (briefly ‘mature’ and ‘developing’ countries).22 More specifically these can be pictured as a stratification of nations characterised by the following factors that are most relevant in terms of IMP: (1) average wages levels; (2) taxation of wages (tax receipts being dependent on the wage levels); (3) levels of the state ‘accumulation of capital frameworks’23 (the state’s means for it being tax-dependent); (4) the degree of legitimation of the state and hence of the capitalist system in face of the structure of market wages (cf. factor 1) as articulated with taxation-requiring social security transfers. The degree of widespread information within a country’s populace about the skewedness-structure of wages levels, and of incomes generally, is a catalyst for the required level of social security transfers (SST).24
The profit-driven IMP (movements along the stratification) is – given the required ‘hard core’ framework – primarily determined by the (potentially migrating) enterprises’ weighing up of factors (1) and (3): wage levels against ‘accumulation of capital frameworks’. Actual IMP pushes up the growth of factors (1) through (3) in the country of immigration, and down in the country of emigration. For each of these countries – on a larger scale country groups – the (1) through (3) effects are self-reinforcing. This way the tendency to IMP, regarding these factors, engenders a very gradual process of convergence between the ‘mature’ and ‘developing’ countries.
This gradual convergence also affects factor (4) above. For the IMP immigrant nations (especially the ‘developing’ countries) not only wages but also SST levels tend to be pushed up. This is so because the accumulation frameworks encompass the components of public education and of the communications part of infrastructure (especially ICT); these affect the degree of widespread information in general, and so also the SST-catalysing widespread information about the skewedness-structure of wages and other income levels. This implies that also a gradual convergence of international SST levels is on the (far) horizon. Coming from a relative low, each of the gradual increases in average wages and in SST will contribute to the vast-majority-legitimation in the ‘developing’ countries.
Qua tendency the legitimation effects are opposite for IMP emigrant nations (foremost the ‘mature’ countries). For these the wages convergence implies the dampening of their increase, and in the end perhaps even their decrease. This by itself affects their vast-majority-legitimation. Along with the downward pressure on wages and the concomitant taxation revenue, the finance of SST squeezes (affecting either the transfers to the broad bottom, or their burden for the broad top of the distribution of income) – see also 10D4, to which IMP adds a new dimension. This means that with further increasing IMP the vast-majority-legitimation in these countries tends to become increasingly under pressure. (11D4.)
8 General conclusions (Chapter 11 in reference to Chapter 10)
Chapter 10 (10D4) summed up the four main vulnerabilities of the reach of the capitalist state and hence of the reproduction of the capitalist system. The conclusions of Chapter 11 return to these in international context – given that the latter chapter merely focused on the capitalist system’s ‘international mode of existence’ insofar as it affects the earlier exposition.
(1) The inevitably increasing quantity and complexity of regulation. For many ‘developing’ countries this may not be acute as yet, but as for the ‘mature’ countries they will increasingly be confronted with it.
(2) The insecurities regarding the sufficient regulation of ‘too big to fail’ entities – especially banks. Here the same applies as under (1).
(3) The insecurities regarding environment restoration. The ‘mature’ countries have been the prime movers of the damage. The ‘developing’ countries can claim that the ‘mature’ ones have to take the lead in a major degree, the ‘developing’ countries themselves having other priorities. In any case, for the survival of the capitalist system (and humankind in general), a vast restructuring of at least the ‘mature’ economies is inevitable (68% of world GDP in 2015). Chapter 11 makes explicit that, in face of long-distance transport, international trade engenders the snare of decreasing versatile national sector-structures of production and hence of enforced international trade and enforced long-distance transport.
(4) The increase in the level of the social security transfers in percentage of GDP. It was concluded that whereas increasing social security transfers (SST) as a percentage of GDP is necessary for the vast-majority-legitimation of the state, the increases’ fading off is equally necessary for the state’s vast-majority-legitimation. The 11D3 outline of the ‘tendency to the international migration of production’ adds to this the tendential downward pressure on the ‘mature’ countries’ average wages, and conversely for the ‘developing’ countries. Given the world nations’ uneven GDP per capita levels, the tendency-convergences of average wages and of SST tend to be associated with a process of conversely uneven vast-majority-legitimation. This adds to the future system-reproductive vulnerability of the (yet) ‘mature’ countries. In the (very) long-run, however, these mirror the (yet) ‘developing’ ones: ‘De te fabula narratur’ (of you the tale is told).
The reader who turns to this summary before having read anything else of the book is informed that 1D1 (etc.) refers to Chapter 1, Division 1; 1§1 (etc.) refers to Chapter 1, section 1.
The first ground of the state being an extraordinary social institution is presented in 6D3.
The general summary of Chapter 1 below is not much different from the summary at the end of that chapter.
* In the current context the main capacity is labour-capacity (the capacity to labour). Here I revert to the term that Marx used until about 1865, instead of his later ‘labour-power’. One reason for adopting the term ‘labour-capacity’ is that, in my view, the term more appropriately covers the concept (i.e. of potential activity). Another reason is that I introduce later on the term ‘productive power of labour’ (a refinement of labour productivity), which I would not want to have confused with ‘labour-power’.
* When henceforth I use the terms ‘value’, ‘value-added’, ‘surplus-value’ and ‘profit’ tout court, these are without exception in the ‘monetary-value dimension’. (The concept and term of so-called ‘labour values’ form no part of my vocabulary. Incidentally it is worthwhile to remind the reader that Marx never used this term in Capital.)
* This part of the exposition in Chapter 1 (production time and duration of capital investment) incorporates in a condensed way the problematic of Marx’s Part Two of Capital II.
* Thus the rate of integral profit = (surplus-value)/(capital). I wished that I could have called this (less artificial) ‘the rate of surplus-value’. Novice readers would have understood this, but it would have been most confusing for marxian political economists.
Labour is not merely in capitalism but also transhistorically the sole determining factor of physical production as indicated in the previous paragraph. However, only when production is dissociated as in full-fledged capitalism is it also the creator of monetary-value-added.
* Readers acquainted with marxian political economy (MPE) will see how this diverges from standard MPE. Firstly, I introduce the rate of integral profit early on in the exposition – because it is the major general criterion for capitalist production. Secondly, I take distance from any (remnants of) a homogeneous labour value-productivity approach (whence I have L
Whereas Marx in his 1864/65 draft manuscript for Part Two of Capital III posits in effect sector-wise diverging rates of surplus-value (that is, after the transformation), I start with diverging rates – not as a matter of distribution, but as a matter of labour’s productive power. (On these and other differences, see the addenda 1§14-c and 1§15-a.)
Thus we have before us a mode of production that requires not only growth of labour-capacity, but so much growth that there is continuous unemployment.
‘Deliberative’ is a general notion. All of the current OECD-21 countries practice forms of parliamentary representative democracy – the character of the assignation differs. A common and equal suffrage (also called universal suffrage) for the election of parliaments was, on average for these countries, introduced in 1899 for men, and in 1929 also for women.
In general the exposition is not about desirability or undesirability, but rather about institutions and processes in their effect, which in these cases is the ‘shielding’ of the main body of the state.
See the summary in Figures 3.2a and 3.2b.
* From the perspective of marxian political economy, ‘rent’ seems to be missing here as a separate category (cf. Marx’s Capital III, Part Six). Appendix 3C sets out why and how any rent that enterprises pay is a share in their surplus-value (as is interest).
The exposition in 3D2 and in the following 3D3 is based on the Monetary Circuit theory. The exposition takes distance from the loanable funds view of banking. (See Addenda 3§2-e. and 3§6-a.)
* At the end of Capital, Volume I, Marx has a famous and interesting chapter on, what he calls, the initial accumulation of capital – describing the historical transition from feudalism to capitalism. That chapter has been interpreted as providing the grounding for his starting point in Capital. In my view, however, a systematic exposition should endeavour to provide its grounds systematically rather than historically (allotting the history to an addendum).
Thus I posit that macroeconomically we have generally I ≠ S. On this inequality I challenge a broader spectrum than merely the mainstream orthodoxy. The conventional I = S definition is ultimately based on the view that the investment equivalent of ex post retained profits is a saving rather than an expenditure! (3§9 and 3§-a.)
For systematic reasons this matter – and the following one – is briefly treated in its monetary policy aspect in 7D2, and more extensively in its aspect of ‘enterprises market interaction’ in 9D2.
Thus (and in reference to footnote 9) throughout Chapters 1–5 surplus-value is the abstract-general as well as the most concrete determinant of production (throughout in single monetary dimension). In other words, workers see all of the surplus-value that they produce being appropriated by ‘their’ enterprise and its financiers. This is economically relevant. Relatedly it is relevant (although the exposition does not emphasise this) for the capital–labour struggle at the point of production.
The second part of the Summary and Conclusions of Chapter 5 indicates in more detail how this chapter synthesises Chapters 1–4.
The ‘hard core’ frameworks are those of ‘granted legal capitalist economic rights’, ‘granted legal allowance rights to existence’, and ‘public security’ (Chapter 6). The ‘capital accumulation frameworks’ regard the ‘monetary’, ‘labour-capacity’ (including formal education) and ‘infrastructural’ frameworks (Chapter 7).
The main text adopts the World Bank classification into ‘high income’ countries (for ‘mature’) and ‘upper-middle income’, ‘lower-middle income’ and ‘low income’ counties (together ‘developing’).
See the first paragraph of the current section.
As indicated in section 6 in reference to 10D3.