The Restructuring of Global Capital and the Recomposition of Class Terrain
Preface to the 1999 Edition
The following text was written more than 18 years ago, and has circulated in manuscript form, in English and in French, since then. I am planning a complete rewrite and update, and in the meantime, I am posting it on the web to solicit comments which might help me in doing so. While much has happened since 1981, the current manuscript strikes me as 80% up to date. One polemical edge of the text, the critique of the "monopoly capital" school and of the shop-floor militants influenced by it, will mainly evoke a smile today. Even in 1981, it had a vaguely "owl of Minerva" quality, dissecting a corpse that was quickly turning cold. Its immediate context was the coming to power of Reagan and Thatcher in 1979-1980, and one major objective was to write the obituary for the "left wing of devalorization", Keynesian welfare-statism on a world scale, as well as what might be called the "far left of devalorization", the 1960's and 1970's currents which persisted in setting themselves up as the left (but mainly loyal) opposition to the official left, its political parties and trade unions. With Clinton, Blair, Jospin, Schroeder and D'Alema all in power to further the agenda established by Reagan and Thatcher, the post-1981 evolution of the "left wing of devalorization" (with assists from Mitterand, Gonzalez, and Papandreou) is one "prediction" of the text which was right on the mark.
The core of the "economic" analysis of the text, the global circulation of ficticious capital and its ravaging effects on the real world, has today reached proportions which, in 1981, even I would probably considered impossible. At the same time, it is no longer possible to characterize the present as a "period of ebb of working-class struggles" in quite the same way today. While many of the more visible struggles since 1981 (PATCO, Greyhound, Phelps-Dodge, P-9, Jay, Maine, Caterpillar, Decatur, Yale and the Detroit newspaper strike) ended in major defeats for workers, something in the climate has changed. The massive popular support for the UPS strike in August 1997 (whatever the ultimate, and meager results of the strike itself) over the issue of part-timers showed a shift in the wind. At the same time, no working-class current has effectively combatted downsizing, outsourcing, or plant closings, not to mention developed a strategy that goes beyond the workplace to a struggle for political power. That project is the larger "work in progress" to which this text attempts to contribute.
One clear error of the 1981 prognosis was a serious overestimation (on several occasions) of the development potentials of Mexico and Brazil, but this error with respect to Latin America is more than compensated by an underestimation of the development of Asian capitalism over 35 years, up to the 1997-98 crisis, whatever may happen hereafter.
(Note: The following text was written in French, for publication abroad, in the spring of 1981. Its purpose was to show how the international working class, trapped throughout the advanced capitalist world in Social Democratic/Keynesian (and ultimately Malthusian) conceptions of "progressive" politics, would have to reorganize itself and its strategy to confront the new era of international conservative hegemony marked by the 1979 election of Thatcher in Britain and the 1980 election of Ronald Reagan in the U.S. In preparation for that hegemony, which has not yet run its course, the international capitalist class had totally changed the rules and had shown the old crackpot realism of the "pragmatic" left for the useless ad hoc collection of homilies it had always been. It has only been possible today, in 1987, to prepare an English translation of the text. One dated aspect of the paper was the attempt to explain widespread working-class support for Reagan (probably 50% of trade union members--which obviously represents less and less of the total wage-labor force--in 1980, and still over 40% in 1984). In 1980 in particular, I argue, the working class was responding to the right's call for a reconstruction of U.S. industry; today, by and large, workers have seen the real content of that program in the ongoing devastation of the old industrial zones and not the reconstruction that made such a program sound initially appealing. But the larger framework of the text, and above all its insistence that an international program for world economic reconstruction under working-class auspices is the only possible program for the workers' movement today, seems to me to retain all its timeliness. For that reason all statements in the present tense and comments on the current situation, while being immediate references to 1981, have been left unchanged in the English translation for the sake of consistency.)
(Note 2002: The interested reader may wish to consult the Aufheben critique of this text, and my reply,
which both zero in on some fundamental issues argued here. Further, the reply to Aufheben was edited into an article "Production or Reproduction? Against a Reductionist Reading of Capital in the Left Milieu, and Elsewhere", that stands on its own, without reference to the polemic with Aufheben. All these texts are available on the Break Their Haughty Power web site (http: home.earthlink.net/~lrgoldner).
Preface
We are living, in the United States, in contrast to the 1968-1973 period, in an ebb phase of working-class struggles. In the milieu of the left wing of devalorization, the Malthusian left and far left, there is talk of a general move "to the right" in the U.S. Workers by the millions did in fact vote for Ronald Reagan in the 1980 elections. We cannot but agree, moreover, that this left and extreme left (1-All footnotes at the end of chapters) are passing through a period of crisis and decline. And we do not wish to deny an important element of chauvinism and racism in the support which the American "New Right" has found in the white working class. But we cannot, in good conscience, regret the fact that the working class, in its receptiveness to the productivism of the right, has indeed turned its back on the Malthusian left. This left, section of an international left which, throughout the 1890-1973 period, "misunderstood" the nature of the transformations of capitalism then underway (2), which often supported them, which spread a completely false view of the international conjuncture with the Hobson-Lenin theory of imperialism, is today reaping the harvest of its Malthusianism. Today, as the factories close in Detroit, Manchester, Alsace and Bochum, we would like to see the Leninist left come and explain to the "labor aristocracy" how it "benefits" from imperialism; we would like to see it call for "nationalization under workers' control" of decrepit 70-year old factories.
In a word: any movement which henceforth wishes to be revolutionary is compelled to talk about production and social reproduction in a way that has never been done, with a few exceptions, since the time of Marx.
Our perspectives may appear "abstract" to many people. They will appear less abstract today than they did in 1973, when they were just as relevant. Everyone knows the "pragmatic" militant, as we knew such people in 1973, who will respond with a contemptuous smile: "All this is just a bunch of theory. What interests me are practical things I can talk about to the people in my factory."
But, today, many of the factories are closed, and many of the people from this militant's shop floor are on the streets, often giving a sympathetic hearing to the productivist right, the protectionist trade union bureaucracy, or the "worker management" theorists of the left wing of devalorization. Our practical militant has absolutely nothing to say in reply, when he is not supporting one of the reactionary currents.
Today, one can only be practical by posing contemporary problems where they have, in fact, always been located: not in the "factory", the material condensation of the capitalist juridical entity par excellence the enterprise, but at the level of the total worker (Gesamtarbeiter) and his alienated phantom, the total capital. Any other way of posing questions can only lead to the practice of what we have called the "left wing of devalorization".
We are quite in agreement that we are living through a period of ebb. But we cannot share the pessimism of the Social Democrats, Stalinists, Maoists and Trotskyists, who each in their own way are the heirs of the Social Democratic logic of the Second, Third and Fourth Internationals. We think, on the contrary, that the closing of the period 1890-1973, the period in which the left wing of devalorization was able to carve out a place for itself in the international labor movement, opens up possibilities for a renaissance of Marxism in a way that has not been possible since 1890.
It will be quickly clear that this work is intended to be polemical. It is useless, in 1981, to begin an analysis of the American working class by casual reference to some commonly assumed framework of contemporary "Marxism". There is no contemporary Marxism: there are attempts, and this is one, to take up Marx's problematic and to bring it to bear on the last decades of the 20th century. It is too often forgotten that Capital was an unfinished book, and that in particular the chapter of Vol. II dealing with the total capital, which is at the center of our perspective, remained very embryonic (3). The key concepts of the following analysis: valorization and devalorization, the total capital, expanded social reproduction, the credit system and its role in the reproduction of the total capital, and relative surplus value, are foreign to the virtual totality of "Marxists" today. Just as rare are attempts to relate the dynamic of class struggle to the capitalist conjuncture, even in a single country, to say nothing of the whole world. For fifteen years, "radicals" among the revisionist historians in the U.S. have been writing the history "from below" of the working class, particularly for the period from 1840 to 1945, producing one picturesque monograph after another. Irish hod-carriers in Troy, N.Y., in 1880; Jewish trade unionists in the New York City textile industry in 1902; "workers' control" at this or that cigar factory in Chicago in 1890. And the international labor market? And the world conjuncture? And the transition from the extensive to the intensive phase of capital accumulation? And the role of the "left" in this process? Silence. New Deal and formation of the CIO as a part of the organization of devalorization? To the extent that such questions are even posed, they are met with bafflement and consternation.
It is because of this situation that we are obliged to offer the reader a theoretical presentation of the key concepts without which the following analysis will be incomprehensible. The theoretical presentation will be followed by an analysis of the world conjuncture for the 1890-1973 period and thereafter. The "radical historians", as theoreticians of contemporary rank-and-file militancy, will criticize us for seeing history "from above"(4). We cannot but agree. Against picturesque history from below, how can we not prefer a thousands times over the view "from above" of the class-for-itself? In the analysis of the class struggle and in the analysis of the movement of capital, this viewpoint is always right against the thousand appearances of the class-in-itself isolated in a particular factory. And we cannot adequately present the class-for-itself without understanding its alienated expression, the total capital.
Protagonists of a Ricardian conception of value (who would deny that they are Ricardians) will undoubtedly criticize our detailed discussion of credit, financial markets, international loans, the state debt, their inter-relatedness and their evolution, as monetarist". In so doing, they will only show that the Marxist problematic of expanded reproduction and its relation to the valorization of the total capital is a foreign to them as it is to the theoreticians of the "monopoly capital" school, who quite simply deny the functioning of the law of value in modern capitalism. In fact, one cannot understand valorization without understanding the transformation of the credit system since 1890-1914. And this transformation, far from having its origins in circulation, is nothing but the expression of the preponderance of relative surplus value in modern accumulation.
Footnotes to Preface
1-In keeping with the French text and French usage, we will use the word "left" to generally refer to the mainstream official left of advanced capitalist countries, i.e. the Social Democratic, Communist, or Labour Parties. The term "extreme left", often "far left" in English, refers primarily to groups, mainly Trotskyists and Maoists, who see in the official left degenerated, reformist but reformable "working-class political parties", and hence constitute a kind of loyal opposition to the official left. We use the term "ultra left" on occasion to designate those currents, originating in breakways from classical Trotskyism, in Italian Bordigism or German council communism, who see the official parties of the mainstream left as the left wing of capitalism..
2-It had, as we shall see, good reasons for "misunderstanding" the period.
3-Engels, who edited the manuscripts of Vols. II and III, says in his preface to Vol. II: "But Part III, dealing with the reproduction and circulation of the total social capital, seemed to him very much in need of revision; for Manuscript II had first treated reproduction without taking into consideration money circulation, which is instrumental in affecting it..." (Capital, Vol. II, p. 4, our emphasis)
4-In all fairness, it must be said that this grassroots approach, generally known under the code name "new social history", constituted in part a healthy response to the earlier excessive emphasis, in writings on working-class history, with organizations, ideologies and leaders. Nevertheless, in "bending the stick too far", and rejecting any focus on organizations, ideologies and leaders as "epiphenomenal", the new social history has effectively depoliticized labor history, and has become a reductionism in its own right.
Introduction
The Republican administration which took power in the U.S in January 1981 believed that the major economic problems confronting it were inflation, excessive taxation, too much state intervention and very low rates of capital formation. Its real problem, however, was that, on a global level, the existing forces of production are in revolt against the dominant social relations of production.
The fundamental contradiction of capitalism is that it develops the productive forces to a point where the means of production, as materialized past labor, and living labor power, or wage labor, can no longer be maintained within the framework of value relations. The mediation of the activities of individual producers and units of production through the exchange of equivalents becomes impossible.
The fundamental components of expanded social reproduction present themselves, under capitalism, as components of value. They represent expenditures of labor power whose value is determined by the socially necessary time of their reproduction. These components, a constant capital C or the material means of production, variable capital V or living labor, and surplus value S are the determinants of the ratio S/C+V, a rate of profit which establishes the perameters for the reproduction of society as a whole. The component S, once the consumption of the capitalist class has been deducted, is the surplus-value which is available for division into the capitalist forms of profit, interest and ground rent.
The fundamental contradiction of capitalism, as it is expressed in capitalist practice, is the development of the productive forces to the point where any technological innovation intended to increase the rate of surplus value and thus the rate of profit of an individual capital creates more capitalist titles to the total surplus value than it adds to the total surplus value available to become profit, interest and ground rent.
The entire economic perspective of the Reagan administration has been to ensure that existing capitalist titles, as profit, interest and ground rent, to all existing surplus value are maintained, even if, as is in fact the case, the pursuit of this maintenance results in retrogression in the material process of social reproduction. It is in this way that the dominant relations of production become an absolute brake on the forces of production.
The problem of the Reagan administration is not new. Throughout the twentieth century, capitalism has had to face "what in any earlier epoch would have appeared as an absurdity", crises stemming from the fact that there is "too much civilization, too much industry, too much commerce". What is new in the current situation is that all the "solutions" to this problem, and particularly the solutions developed in the last generalized crisis of 1929-1933 and its aftermath, have exhausted themselves. As in the long crisis of 1929-1945, as in the earlier version of the same crisis of 1907-1920, a mass of productive forces must be destroyed so that existing capitalist titles to profit, interest and ground rent can be brought back into equilibrium with the current rate of surplus value.
Capitalist crisis has not always required destruction on such a scale. In the nineteenth century, in the "classical" capitalism analyzed by Marx, the tendential law by which the total capitalist titles to profit, interest and ground rent periodically exceed the perameters established by the ratio S/C+V was expressed in deflationary crises. During these crises, a mass of these titles--fictions relative to the current costs of reproducing the total social capital--were destroyed or devalued. The value components of the ratio S/C+V, as capitalist titles to profit, interest and ground rent, as the total wage bill and the capitalist pricing of fixed assets, were brought back into equilibrium by a liquidation of stocks, a phase of large-scale unemployment, and a mass of bankruptcies of the non-competitive firms. Once of the ratio S/C+V was recomposed at levels permitting an adequate rate of profit for individual capitals, the overall accumulation process resumed.
Throughout the period 1815-1914, capitalism greatly expanded social reproduction without having recourse to the physical destruction of productive forces which has characterized the twentieth century.
What changed?
In the 1890-1914 period, capitalism on a world scale ran up for the first time against its general historical barrier. The value components S, C and V, for the zones of the capitalist world of that time, could not be recomposed at adequate rates of profit by a simple deflation. Labor power and technology were too productive to be contained within the existing social relations at any level whatsoever.
The problem can be reformulated by saying that V, as a value (1) component of the total social product, can no longer increase in a way compatible with the expanded reproduction of society as a whole.
What ended in 1890-1914 was the phase of world accumulation founded on a preponderance of absolute surplus value, obtained by an extension of the working day, and by a primitive accumulation achieved through the transformation of a mass of petty producers (peasants, artisans) into capitalist wage-labor. This phase of accumulation founded on absolute surplus value, or that of the formal domination of labor by capital,(2) was superceded, through the long crisis of 1914-1945, by a new phase of accumulation centered on relative surplus value, and further primitive accumulation of non-capitalist populations. This phase of the accumulation of relative surplus value, or the real domination of labor by capital, aims at reducing labor to its properly capitalistform of abstract labor (cf. "Results of the Immediate Production Process", the so-called "unpublished" sixth chapter of Vol. I ofCapital, first translated into English as an appendix to the 1973 Penguin translation). This was the dominant mode of accumulation of the 1945-1973 period.
What distinguishes the phase of the real domination of capital (wrongly characterized as "monopoly capital" by the non-Marxian current of "radical economists") from the earlier phase, is that the total V, as a component of the ratio S/C+V is not enlarged, but recomposed (by the destruction or the stagnation of labor power, by a cheapening of the production of the material content of working-class consumption, by primitive accumulation intended--as in the 19th century--to reduce the global wage, and finally by the reduction of the cost of labor below reproductive levels, which has been the case for the United States since roughly 1965.
The phase of real domination therefore expresses, in a concrete historical fashion we will attempt to analyze in detail, the fundamental contradiction of capitalism, and it expresses this on a global scale: the productive forces have reached a level where any technological innovation produces more (fictive) capitalist titles to the total surplus value than it adds to that surplus value. The capital relationship can no longer maintain itself; it must therefore destroy an important portion of labor power, or labor power must destroy it.
Footnotes to Introduction
1-We wish to point out that we are talking about value in the terms of the 1890-1914 period and not the material content of the working-class wage bill, which can be increased by producing consumer goods more cheaply.
2-We translate Marx's term "Subsumption" throughout the text as "domination", e.g. formal, real domination. We do so because subsumption" also often used in English, strikes us as a somewhat clumsy word. We wish to point out, however, our reluctance to spread confusion with Frankfurt School or Weberian notions of domination, which come from the German word "Herrschaft", and which refer to a notion of force which seems to us external to Marx's theory of value.
Chapter I: Precis of the Marxist Analysis of the Capitalist Mode of Production
Before getting into an in-depth analysis of the class struggle in the U.S., we feel it indispensable to review, however briefly, the key concepts of the Marxian analysis which, in our opinion, have been relegated to oblivion by the left wing of devalorization, and that since the Social Democratic era 1890-1914. These completely inter-related concepts are: valorization, value, the total social capital, productive and unproductive labor, the total worker and the total wage bill, primitive accumulation, and devalorization. These concepts are generally ignored, or falsified, or even denounced by the partisans of the "monopoly capital" theory and of the Hobson-Lenin theory of imperialism. Taken as a whole, they lead to a radically different analysis of modern capitalism, and especially of its post-1945 development.
a. The Transition from Vols. 1 and 2 to Vol. 3 of Capital: The "Problem" of the Total Social Capital and of Expanded Reproduction
The four volumes of Capital (we refer here to the conventionally titled Vols. 1-3 and to Theories of Surplus Value, which constitutes Vol. 4) are not easy reading, especially for a reader uninitiated in the arc of German philosophy from Kant and Hegel onward, of Feuerbach's materialist critique of Hegel, and finally of Marx's critique of Feuerbach. It is moreover essential to bring to a reading of Capital a grasp of the 1844 Manuscripts and other writings of the 1843-1845 period which culminate in the "Theses on Feuerbach". Finally, it is in the Grundrisse(1857) that Marx makes explicit the relationship between his critique of political economy (and not the impoverished "Marxist economics" of his acolytes) and his later development.
We wish to particularly emphasize, for the purposes of our discussion, the distinction between the abstract model of capital in Vols. I and II and the "in-and-for-itself" capital of Vol. III. Specifically, the discussion of Vols. I and II, as Marx states repeatedly, presupposes: 1) that there are no non-capitalist classes, i.e. that there are only capitalists and wage laborers; 2) that there is only capitalism, i.e. no mode of production external to the capitalist mode, 3) that there is simple reproduction, i.e. that productivity of labor is constant, and 4) there is no credit system. The theoretical discussion in Vols. I and II is a discussion of capital from the vantage point of a single capitalist enterprise. Put in another way, the whole discussion of Vols. I and II abstracts from the key concepts we will elaborate: expanded social reproduction, and thus the problem of the total capital and its mediation by the credit system. As with productive and unproductive labor, the entire discussion presupposes simple reproduction and the (individual) capital-in-itself. The whole discussion of value in Vols. I and II is therefore "Ricardian" and not fully Marxist. What is effectively Marxist is the problematic of expanded reproduction, the reproduction of the total capital and the completion of its circuit (Kreislauf) through the banking system as discussed in the fragments that make up Vol. III. Only a concept of value located in this dynamic is fully Marxist.
The whole difference between classical political economy, and particularly Ricardo's, and the critique of this political economy by Marx lies in the grasp of value as a relationship, as value-valorizing-itself (sich-selbst verwertender Wert) through expanded reproduction and not, as in Ricardo, a "condensation of the necessary time of production". The fundamental problem of the capitalist mode of production, against all "Marxist" affirmations of the Ricardians and workerists, is not in production, the sphere that Marx rightly calls the "sphere of immediate production" (cf. the 6th "unpublished" chapter cited above) but in the reproduction of the total capital. Vol. III of Capital is a negation, in the "Hegelian" sense, of Vols. I and II; it is there that Marx "discovers", in an immanent fashion, through "value as a condensation of the necessary time of production", the reproduction of human creative powers. Ricardo's value is in a strict sense an inversion of Marx's value.
It is in this way that Marx, as he puts it in the preface to Vol. I, "coquets" with the language of Hegel.
b. Valorization
Capitalism is above all, according to Marx, a process of the self-expansion of value, a valorization process. Capital, at bottom, is value valorizing itself, sich-selbst-verwertender Wert. What does this mean? It means that capital is a social relationship of production, the capital relation (Kapitalverhaeltnis) which is, moreover, a relationship that relates itself to itself, a self-reflexiverelationship. This is another way of saying that capital, as a social relationship, is the inverted(verkehrte) form of the total worker, labor power as a whole, in the historical phase where relations between individuals and units of production must be mediated by value, determined by the socially necessary labor time of reproduction.
Valorization is also, as we shall see momentarily, inseparably valorization of money-capital, the Money-Commodity-Money Prime (M-C-M') movement of both individual capitals and of the total capital. The fact that the M-C-M movement of the second section of Vol. 1 of Capital reappears at the beginning of Part IV of Vol. III treating merchant's capital as the M-C-M' "general form of the capitalist movement" (Vol. III, p. 391.) (all citations from Capital are from the English version of International Publishers, New York, 1967) will surprise no one who sees Capital for the phenomenology it is. The movement M-C-M elaborated first at the extreme surface of exposition, even before value is introduced, reappears later in the heart of the exposition of the capitalist crisis: the incapacity of the movement M-C-M' of the self-valorization of the total capital to complete its circuit through the totality of commodities. The global crisis of capitalism is already present, in a lower and external form, in the "cell" of the capitalist mode of production, the simplest and apparently most self-evident commodity exchange. But commodity exchange and its medium, money, far antedate value historically, which only exists once labor power has become a commodity. We will see momentarily how capitalist crisis can be explained because labor power is a commodity.
The individual producers in the capitalist mode of production who seek to exercise their human powers cannot do so abstractly, in isolation; the individual can do this only by mediating such powers through the relations of exchange in which they help to valorize (i.e. expand by contact with living labor in the M-C-M' movement) an individual capital. (The human powers of this individual are thus only "mediately" social, and thus there is the possibility of crisis. This is the case because in production dominated by the exigencies of the valorization of the total capital in the M-C-M' movement, the exercise of one's human powers is subordinated to their inversion, the apparently autonomous self-movement of value. Whether or not these powers can be socially realized is a subordinate question and their actual utilization is always a contingent one. Communism, on the contrary, inverts the inversion; insofar as the self-movement of value, valorization, is only the alienated form of the collective self-development of human powers, communism is the expansion of human powers as a means and as a goal, a "production for production's sake" of creativity. The destruction of value is thus the reappropriation of the totality of human creative powers by the individual; this is the moment in which individual powers become immediatelysocial.)
Let us look a bit more closely at this relationship between valorization and the inversion of human creative powers. The total worker (Gesamtarbeiter) confronts the capitalized productive forces, which result from the dead labor of the past and which have autonomize themselves from their creators. The atomized individual worker is pursuing the expansion of his or her human powers, and their reproduction; the individual capital, in buying these powers, is pursuing the expansion of value, its valorization. The collective worker and the total capital thus arrive anarchically and blindly at two results which are simultaneous but fundamentally antagonistic to one another: social reproduction, on one hand, and value-valorizing-itself on the other. What is being reproduced visibly, empirically, is a sum of commodities and, except in periods of crisis, "society" as a whole (there is in fact no real society except in communism); what is being reproduced really and essentially is the capital-relationship and its inseparable expression, the process of the self-expansion of value, valorization.
To put the matter a little differently, the ratio S/C+V, considered from the viewpoint of expanded social reproduction, is a relationship of labor power to itself, a relationship between the production and consumption of the collective worker. But because, under capitalism, this relationship exists only through the capital-relation, that is in its inverted form, this self-reflexive relationship appears as value-relating-itself-to-itself, or valorization. When expanded social reproduction and valorization, its inversion, occur harmoniously, capitalism expands the productive forces, although it always arrives at this result blindly, anarchically. But when social reproduction reaches a certain stage, the productive forces can no longer expand through the capital-relation, and the exigencies of expanded reproduction and those of valorization become antagonistic to one another. The productive forces revolt against the dominant social relationships. At that moment, the productive forces, which is to say the productive force par excellence the collective worker, must destroythe capital relationship in order to expand as labor power relating itself to itself, or else the productive forces must be destroyed to allow valorization to resume.
What is inverted when the reproduction of labor power, the ratio S/C+V understood as use value, presents itself as a process of valorization? What is inverted are human creative powers in their totality. But as we indicated above, these creative powers, in the capitalist mode of production, only exist mediately, through the capital relationship and value relations. If a capital cannot valorize itself in buying them, they are not socially recognized. Capital, the apparently autonomous and self-reflexive relationship, is the inverted face of the social and the human. It is, in short, the totality of human creative powers, having autonomized themselves over and against labor power--their true source--which seem to move by themselves. In this inversion, as Marx says, "commodities (i.e. individual capitals) seem to buy people" seem to buy people".
At this point in the discussion, we consider it essential to remind the reader that the rate of social reproduction or or the expanded reproduction of labor power and its inverted form, valorization, are in reality inseparable in social practice. There is not social reproduction on one hand and valorization on the other; social reproduction mediated by the capital relationship always exists in a specifically capitalist form, and certainly cannot be reduced to a sum of "use values" in means of production and means of consumption. It is impossible to merely remove the value-form from concrete material objects. What is reproduced in the capitalist mode of production, above and beyond all particular commodities, is the capital relationship itself. But social reproduction, as subordinated to the valorization process, is always also, in a contingent way, the reproduction, inverted in the capital relationship, of human creative powers. And when Marx, in Vol. II of Theories of Surplus Value, expresses himself in favor of "production for production's sake", against any possible productivist interpretation, he is referring to production for production's sake of human creative powers, of which the material means of consumption and production are only the external expression, their indispensible material basis. Capital is labor power in contradiction with itself. The proletariat, which is the commodity form of labor power, which is the "underside" of the capital relationship, dissolves itself as proletariat by destroying valorization, the alienated expansion of its own powers.
Is all the proceeding nothing but a Hegelian pirouette? Philistines and workerists will undoubtedly think it is. We think otherwise. Without understanding capital in this way, one understands nothing of the Marxian (as opposed to Ricardian) concept of value, and one thus understands nothing of the distinction between productive and unproductive labor, the problem of expanded reproduction, and their relationship to the total capital.
c. Value
A value for Marx is something that contributes to the process of valorization. We have already said that value is a relationship, an inverted relationship of labor power to itself. Thus something has value which contributes directly or indirectly to the expansion of labor power; something does not have value when it is a deduction from that expansion.
To put it in another way: value, as a relationship, is not, contrary to the opinion of the Ricardians who call themselves "Marxists", a thing, and is not a "condensation of socially necessary labor time of production" located in this or that commodity. As a relationship that relates itself to itself, as a process of valorization, value as a whole, and specifically for individual commodities, is determined quantitatively by the ncessary time of its reproduction at the level of the productive forces as a whole, and qualitatively by its contribution to the expanded reproduction of society.
But, the Ricardian "Marxists" will reply, doesn't Marx say time and again that value is determined by a socially necessary labor time of production? Indeed he does, throughhout Vols. I and II of Capital, where he reminds the reader repeatedly that the discussion presupposes, artificially, simplereproduction, and a constant productivity of labor. Marx is undertaking here the immanent critique of Ricardo (2), taking at face value the concepts of the theorist of capital-in-itself, the individual capital and the individual commodity. By emphasizing throughout Vols. I and II that he is assuming simple reproduction, Marx is in effect describing an ideal capitalist society which has never existed and never could exist. This discussion is nonetheless necessary to make the reader understand what capital is relative to what it is not. Capital is in effect condemned to exist only negatively, because it is the inversion of something else: labor power. Its vocation, as Rosa Luxemburg says, is universal, and its limit is its inability to be universal.
The entire discussion of value in Vols. I and II, like the discussion of productive and unproductive labor in Theories of Surplus Value, is situated at the level of capital-in-itself, and thus abstracts from the reality of capital-in-and-for-itself, which is to say capital in the problematic of expanded reproduction, or more precisely capital in its historical reality. (For elaborations of the difference between the viewpoint of Vols. I and II on one hand and Vol. III on the other, cf. Vol. II, pp. 97, 394, 421, as well as the first paragraph of the First Part of Vol. III.)
d. The Total Capital
One immediately sees the distinction between Marxist and Ricardian value when one considers the total capital. The total capital, which has no practical existence in real capitalism, is the "abstract" level at which the different components of the total social product are brought into equilibrium, and where the profit of individual capitals is brought into equilibrium with the total surplus value. It is at this level that appearances, the thousands of individual capitals which "present themselves as a vast accumulation of commodities" (Vol. 1, Ch. 1) are brought into relationship with the valorization process and the material reproduction of society as a whole; where one discovers, concretely, that the totality is not a sum, or more precisely, where on discovers that the surplus value which valorizes itself is different from a sum of the profits of the individual enterprises of superficial appearance. Marx says it quite clearly:
"So long as we looked upon the production of the value of the product individually, the bodily form of the commodities produced was wholly immaterial for the analysis, whether it was machines, for instance corn, or looking glasses... What we dealt with was the immediate process of production itself, which presents itself at every point as the process of some individual capital...This merely formal manner of presentation is no longer adequate in the study of the total social capital and of the value of its products... Simple reproduction, reproduction on the same scale, appears as an abstraction, inasmuch as on the one hand the absence of all accumulation or reproduction is a strange assumption in capitalist conditions... (Capital, Vol. II, pp. 394-395; our emphasis)
The total capital presents itself, at first approach, as the different manifestations of the components of total surplus value in its capitalist form: profit, interest, ground rent, in addition to variable capital/total social wage and constant capital/capitalization of fixed capital. We might represent it schematically as follows:
Let us bracket, for a moment, the existence of non-capitalist populations which can become part of V, as unpaid labor, thereby reducing the total wage through primitive accumulation; we will similarly bracket unreplaced natural resources which can play the same role in constant capital. We are keeping to Marx's method in abstracting from the credit system which, as he shows in Parts IV and V of Vol. III, can create fictive values having no counterpart in the total surplus value. Let us pause for a moment at the problem as Marx poses it at the end of Vol. II, in order to emphasize that what can appear as a profit at the level of the individual capital is not necessarily a profit at the level of the total capital. The only profits which are profits at the level of the total capital are those corresponding to components of surplus value which, in its material contribution, its specific form which had no importance at the level of capital-for-itself, re-enters the production process by expanding social reproduction.
It is therefore at the level of the total capital that the material basis of social reproduction is brought into equilibrium with valorization. This is another way of saying that value, for Marx, in contrast to Ricardo, is a relationship that relates itself to itself, a capitalist inversion of social reproduction.
e. Productive and Unproductive Labor
It is in light of the preceding discussion that we can now situate the distinction between productive and unproductive labor. Productive labor for Marx is labor whose result augments the valorization process, value valorizing itself, which can, as we have seen, only mean at the level of the total capital. Productive labor is all labor producing surplus value which in its specific material form re-enters the process of social reproduction and expands it, by increasing its "productivity". At the level of the capital-in-itself/individual capital (the vantage points of Vols. I and II) the prostitute working in a brothel, the teacher in a private school, are productive workers. But at the level of the total capital, the situation is different, and it is there that the specific material form of individual labor, and its ability to contribute to the material reproduction of society, is decisive.
Thus the sociological discussion attempting to determine, at the level of the individual worker, who is productive and who is unproductive, is purely academic. The steelworker making steel for private cars is productive; the same steelworker, making steel for tanks, is unproductive. It is pointless, in such a case, to attempt to settle the question at the local point of production. The distinction between productive and unproductive labor, as between "profits" as a sum and profits having a counter-part in the total surplus value, can be made only at the level of the totality.
(Many self-styled Marxists today casually assume, for example, that the production of armaments is productive labor because it produces a profit for an individual capitalist. They further deride as a "moral" consideration any statement to the contrary. They merely demonstrate that they have not understood the difference between the vantage point of Vols I and II- the individual enterprise- and that of Vol. III, the total capital. Consider the production of jet transport planes. Such a jet, sold to a capitalist electronics firm, flies components from Silicon Valley to Taiwan for assembly; then flies them to Spain for sale inside the Common Market. The plane, sold from capitalist A to capitalist B, continues to function as capital, as value valorizing itself. The sameplane, sold to the Saudi government for troop transport, absolutely ceases to be capital, i.e. engendering of further value. For the purposes of the capitalist valorization process M-C-M', it has been sterilized. It becomes an expenditure of capitalist consumption, deducted from the total surplus value available to the capitalist class for new investment. If the Saudi government paid $1,000,000 for the plane, the $1,000,000 indeed becomes revenue for the firm producing it, contributes to the profits of the firm, and continues to circulate in the M-C-M' process, demanding further metamorphoses from money to commodity form and back again. But that profit- in contrast to the case of the sale of the same plane to an electronics firm-continues to circulate with no material equivalent in the total surplus value actually suited to become new means of production. It has become ficticious relative to the total material product of global capitalist society.)
f. The Total Worker, the Total Wage Bill, Primitive Accumulation
The total worker is determined at the same level as the total capitalist. The total wage paid is by no means limited to the sum of wages paid by individual capitalists. It also includes the social costs of reproducing labor power: education, public transit, health, social insurance and leisure. Everything that reproduces the total worker at historically determined levels must be considered part of the total wage bill.
But, once again, one must never forget that the cost of reproducing labor power, seen from the viewpoint of the total capital, is not made up exclusively of the already capitalist work force. For capital, any labor power enlisted from the non-capitalist social strata of capitalism itself (peasants, artisans) or from other modes of production, constitutes unpaid labor. Thus throughout the 19th century, capitalism was the beneficiary of a permanent primitive accumulation of the agrarian and artisanal populations of Europe and of the U.S. This process has hardly ended today. It continued after 1945 with the rural exodus to the industrial centers of the European Common Market after 1958, with the Hispanic immigration and internal migration of blacks from the American South, and in the new industrial countries of the Third World since the 1960s. Less visible is unpaid labor inside the capital relation itself, that is a non-reproductive wage paid to the actually capitalist work force. This latter is not only the key to fascism, but also to a more subtle concept characterizing many of the solutions of capitalism in crisis, a fair number of which are advocated by the "left": devalorization. (cf. below, section n.)
g. Valorization and Money Capital
Everything we have said up to this point about valorization, value, the total capital, productive and unproductive labor and the total worker have been presented in terms of values and prices. But we have said nothing whatever about the credit system, the central bank, the state, or the state debt. In short, we have said nothing whatever about money. But, as we shall see, money precedes capital conceptually and historically in Marx's exposition, and it is the conquest of spheres of production by commodity relations, expressed in money, which constitutes the origin of capitalism.
Valorization (Verwertung, which until recently has been poorly rendered into English as "realization", with all the under-consumptionist implications of that word) is inseparably the expansion of money capital M-C-M' and the expansion of value. Money capitals are thrown into the production process to be valorized (expanded) by living labor, to "vampirize" it, so to speak. Individual money capitals must periodically valorize themselves by converting themselves into commodities in the general M-C-M' movement, or they cease to be capital. (This, moreover, is why Marx says that finance capital, where the movement seems to consist merely of A-A', best expresses the mystification of capital; in this case, money seems to engender more money without even passing through production.) This amounts to saying that the expansion of value and the expansion of money capital M-C-M' are one single process which, while theoretically separable (or, more precisely, separable for purposes of exposition) are historically inseparable, in any past, present or future capitalism.
Why is this so important? In the last instance, for the same reasons for which we have insisted on the movement of negation of Vols. I and II by the end of Vol. II and all of Vol. III of Capital. We are saying, and will continue to say throughout, that capital is a self-movement of value, a valorization process. And we are saying at the same time that valorization does not exist without money, and therefore without a credit system, a central bank and a state. There is no valorization without the M-C-M' movement of money capitals. Marx obviously had to develop everything in terms of values before talking about credit and all that flows from it, as well as in the case of the state, in order to show that these were nothing but mere appearance once they were dissociated from value. But he shows just as clearly that capitalism without these institutions has never existed--that, indeed, they preceded the hegemony of capital and were necessary to bring it about--and never will exist.
We asserted above that the fundamental contradiction of capitalism is that it drives the productive forces to a point where value relations, the exchange of equivalents between capital and living labor, explode. And we said just as clearly that the fundamental contradiction of capitalism is that it arrives at a point where any increase in relative surplus value through technical innovation creates more titles to wealth than it adds to surplus-value. These two formulations express one and the same fundamental contradiction, one at the level of abstraction of Vols. I and II and the Grundrisse, the other in the real capitalism of Vol. III.
We are lingering over this point for the following reasons. The whole Marxist theoretical discussion since the 1960s which has radically questioned elements of official "Marxist" ideology, rejecting the Hobson-Lenin theory of imperialism and the theory of "monopoly capitalism" of Lenin, Bukharin, Baran, Sweezy, Bettleheim, Amin, Immanuel, etc. as not merely "erroneous" but fundamentally non-Marxist has focused above all on the question of value. The proof offered by the protagonists of "monopoly capitalism" that the prices of this or that sector could not be brought into relationship with a socially necessary labor time" (generally considered in a Ricardian sense foreign to Marx's work; cf. for example the book of Ernest Mandel The Formation of the Economic Thought of Karl Marx) has nothing to do with the concepts we have elaborated. No one disputes the fact that there are monopolies. But the idea that the reproduction of the total capital, understood globally, occurs through "superprofits" having nothing to do with the socially necessary labor time of reproducing the total product is an absurdity offering no explanation of the objective determination of these "superprofits" except force. The latter explanation is perfectly suited to the actual populism represented by the "monopoly capital" school, (cf. Engels, Anti-Duehring) but it represents a rejection en bloc of Marx's approach. (We will later see whythe official left has discredited, by calomny or silence, the problematic of the total capital/expanded reproduction/credit system.)
Thus it was indispensable to ressurect the fundamental categories and the problematic of Vol. III against those who quite simply rejected value, as well as against those who, like Mandel, understood value strictly in a Ricardian framework and in the perspective of the simple reproduction of Vols. I and II. It was necessary to do battle with both the monopoly capital school as well as those who attempted to restore Ricardian, as a opposed to Marxist, value, a theory of value lacking both valorization (value-valorizing-itself) and its underside", the expanded reproduction of labor power.
On the other hand, the very rich discussion among the ultra-left currents in France in the 1968-1973 period, in the critique of Leninism and all its ideological consequences (which in the last instance is just another side of the same problematic) also resurrected value in order to insist, rightly, that communism was neither "nationalized property" nor "workers' control of production", but the positive supercession of commodity production and all its categories: value, wage labor, capital, the proletariat as a social relationship, all grasped as a integral whole. But this discussion, for all its richness (we are thinking of the texts of Invariance in the 1968-1972 period, of Mouvement Communiste, Negation, the International Communist Current in the same period) gradually dissipated itself in long dissertations on Value and the Self-Dissolution of the Proletariat without, except in a few cases, approaching the the problematic of the the total capital/expanded reproduction/creditare posing it. The French discussion, in other words, rarely got around to talking about the concrete mediations of valorization in the current period. (1) Thus the French ultra-left was in important ways as little aware of the specific aspect of the post-1973 crisis as the official left and the gauchistes, and thus after often brilliantly denouncing the stupidities of the former, was swept away in the same moment.
We thus repeat that the two formulations we articulated of the fundamental contradiction of capitalism, the development of the productive forces to the point where value relations explode, and the inability to introduce technical innovation without creating more ficticious titles to the total surplus value than new surplus value itself, are two levels, one more abstract than the other, of one single problematic, the latter being the concrete way that capital becomes a brake on the productive forces. It is in this framework that we wish to situate the credit system, the central bank, the state and the system of international loans in the discussion of the actual capitalist system of the 20th century, and particularly after 1945.
h. The Credit System and the Rate of Profit
We can see the significance of this confusion of theoretical levels in the discussion of the rate of profit. For "orthodox Marxism", the rate of profit falls historically because the organic composition of capital, the ratio between dead labor/constant capital C and living labor/variable capital V, (the latter alone capable of producing surplus value) increases. Less and less living labor is necessary to set more and more dead labor in motion. (This is the preparation for the moment at which society can dissolve value, the exchange of equivalents between capital/dead labor and living labor, as a relationship. The socially necessary time of reproduction becomes small relative to disposable time, which capitalism, moreover, is incapable of realizing socially. The socially necessary labor time of reproduction can no longer serve as an objective criterion and as a mediation among producers and units of production. At this point capital becomes obsolete.
Taken by itself, this is fine. The problem arises in showing its manifestation of the real development of capitalism. From the entire preceding discussion, it should be clear that this formulation of a tendencial fall in the rate of profit is, once again, one refering to a "pure" capitalism having no credit system, central bank, expanded reproduction, unproductive labor, non-capitalist social strata and external sources of non-capitalist labor, with value and price in equilibrium, and so forth. (Cf. Capital Vol. II, p. 421, where Marx discusses the ways in which merchant's capital and non-capitalist classes obscure the relations between the two actually capitalist classes.)
We mention this to distinguish ourselves from the empiricists and Ricardians who think that a tendencial fall in the rate of profit can be discerned by a mere addition of all capitalist enterprises, taken as an average. Our whole discussion of the total capital, in particular, as a totality qualitatively distinct from a mere addition of individual capitals, was intended to unmask the empiricist illusion of looking, firm by firm, arms production side by side with steel production, banks and insurance companies with means of transportation, for a year-to-year tendencial fall in the rate of profit. It may be true that sophisticated accounting systems, like the one proposed by Peters in his book ROI (Return on Investment) can actually show a constant fall in the rate of profit over the 1945-1973 period and thereafter. But this is not the problem. Marxists are not alone in asserting the existence of a falling rate of profit. The historical limit of capitalism as a mode of production IS NOT IN PRODUCTION.
What interests Marxists is not the tendencial fall in the rate of profit taken by itself; it is its real expression, capital's inability to complete its M-C-M' valorization circuit (Kreislauf), in specific historical conjunctures,at the same time that it expands the reproduction of society. It is this impossibility which explains periodic crises, as well as the specific form of devalorization in the current crisis. In 1929 as in 1973, "profits" had never been as high, empirically. The problem was that these "profits" contained, and still contain today, an essential fictitiouselement, which have no counterpart in a sum of surplus value produced locally by a specific capitalist nor in the total surplus value. For American firms in particular, the empirical total profit has nothing to do with a specific sum of surplus value produced under their auspices. The problem, at one level, is precisely that the titles to wealth represented as profits, interest and ground rent the total surplus value; the essential problem for Marxism is to explain how, without recourse to monetarism, this is possible.
The circulation of ficticious values and their integration into the movement of the valorization of the total capital M-C-M' is made possible by the credit system and the central bank. But what distinguishes a Marxist analysis of ficticious values from all monetarism is the assertion that these values originate in production, and that they represent, initially, a segment of constant capital devalued by technological progress.
The fall in the rate of profit in the decennial crises of the 19th century (1808, 1817, 1837, 1846-47, 1857, 1866, 1873, etc.) became empiricallymanifest with the outbreak of the crisis, during which the great mass of fictitious values were destroyed. But during the cycle, until the peak of the boom, these ficticious values were constantly multiplying. Any analysis of the "falling rate of profit" which abstracts from this circulation of ficticious values, from their regulation by the central bank, from capitalism's interaction with non-capitalist social strata and societies, from the system of international loans through which this interaction occurs, from unproductive labor as a deduction from total profit, is bound to be wrong-headed. Periodic deflationary crises had no other goal but the destruction of ficticious values which had no real counterpart in total surplus value.
Capitalism, empirically, is not merely an interaction between constant capital C and living labor V: it is a "vast accumulation of commodities" of individual enterprises which are subordinated to the valorization movement of the total capital. It is the impossibility of continuing this M-C-M' valorization process, as an expansion of money capital, which expresses the fall in the rate of profit as a recomposition of the S/C+V ratio, bringing prices and values back into equilibrium at the level of the total capital. We are speaking, once again, of the two levels of abstraction of one single process.
In the world of pure capitalism described in Vols. I and II, there is no capitalist crisis because there is no expanded reproduction, and thus no growth of the productive forces. There can be no shift in the organic composition of capital without expanded reproduction. The possibility of crisis begins with such reproduction and the problematic of the total capital. Let us therefore investigate what expanded reproduction looks like in the world of Vols. I and II, still lacking a credit system, a central bank, non-capitalist social strata and societies, and unproductive workers. What would happen?
Each technical innovation aimed at increasing the relative surplus value for a particular capital, resulting in expanded reproduction, would necessarily devalue a segment of constant capital, thereby rendering it ficticious in the current terms of costs of reproduction.
Assume a branch of industry consisting of ten competing firms which begin a production cycle on an equal footing. The capitalist of one of these enterprises, in the first year of the cycle, employs a new technology which reduce his costs of production by 15%. Immediately, he has devalued the constant capital of his entire sector by 15% in current reproductive terms. Whatever the historical value (original cost) of the constant capital of the nine other enterprises, whatever the rate of amortization, its reproductive value has been reduced. Either these nine competitors must make the same innovation, or they can continue to produce with an obsolescent capital while accepting this diminution of its value, attempting to balance it with absolute surplus value from overtime or speedup or by using the devalued capital beyond its amortization period, without any new investment. However these competing firms react, the accounting of their constant capital henceforth contains a ficticious element: a capitalist representation, expressed in terms of price, which no longer has any counterpart in terms of value, which is to say in costs of reproduction.
But the individual capitalist knows nothing of constant capital: he knows the capitalization of a rate of profit which he expects from his capital. It is this capitalization, and the value in market prices which he attributes to his devalued fixed capital, which represents a ficticious value. Because the innovation has reduced the production costs of the sector, the nine outmoded capitals will receive a rate of profit lower than the average, which will not support their capitalization at the anticipated levels. (footnote) This is devalorization at work in daily capitalist practice. The "value" of this or that piece of fixed capital in this or that enterprise is not determined on a daily basis by the "socially necessary labor time" of its reproduction; its value, for the capitalist, is determined by a capitalization of an available rate of profit. Thus, to take an extreme case, the fixed capital of an firm like Penn Central in the U.S. "worth" such and such a sum until the day of the company's bankrupcty and collapse. The same is true, generally, for fixed capital as a whole on the eve of a de valorization/deflation.
Let us move a bit closer to real capitalist practice, still without banks, but with expanded reproduction. In a fifth year of the production cycle, we can imagine a generalization, through all constant capital, of this ficticious element by a general reduction of costs of reproduction through technological innovation. The ficticious segment "f" of historic book values might be 25%, assuming an annual reduction of necessary time of reproduction, in current terms, of 15% and an amortization of 10% per year. The capitalized values of the individual enterprises would still reflect an average rate of profit, and would contain, taken together, the 25% of historical values having no counterpart, in current costs of reproduction, in the constant capital as a whole. (In a pure capitalism of Vols. I and II an enlightened accounting system could avoid this problem of ficticious values by amortizing each capital every year in terms of its real cost of reproduction. Because there would be no banks, there would be no ficticious capital. In such a capitalist society, and only there, a tendencial fall in the rate of profit, year in, year out, would become visible. This completely abstract formulation allows us, nevertheless, to see why, precisely because the pure capitalism of Vols. I and II does not and will never exist, the generalization of the rate of profit passes inevitably through the anarchy of capitalizations, the circulation of the ficticious values they engender, the credit system, the central bank and general crises. Capitalist crises are a form of post festumsocial "planning" which flow directly from the anarchic--that is to say heteronomic--organization of social production.)
Turning again to the problematic of our imaginary capitalism from Vols. I and II in the fifth year of the production cycle, with capitalizations of fixed capital exceding by 25% the reproductive value of the constant capital, there would also be a real decline in wages because variable capital reflects more immediately the general reduction in costs of social reproduction. But the essential problem is this: to obtain the rate of profit anticipated from the capitalizations, to protect their capitals against a devalorization, the total price of the total product must necessarily contain the fictive element of the constant capital, a price determined by historical value in excess of current value. The result would be a "crisis of underconsumption" in which the capitalist class would be incapable of buying all the new means of production it has produced. The result would thus be, for the M-C-M' movement to be able to complete itself through the mass of commodities, a general deflation of prices to eliminate the ficiticious element of 25% in the constant capital.
Are we indulging in what Marx called "vulgar economics"? Are we saying that the profits of the capitals overvalued by 25% comes from the sale of commodities "above their value"? Absolutely not. We affirm, on the contrary, against the empiricism of everyday appearances--that "vast accumulation of commodities"--that the "profit" of enterprise, calculated with regard to the capitalization of a constant capital with a ficticious element of 25%, IS NOT A PROFIT at the level of the total capital and has no counterpart in surplus value. The total price of the total product, just before deflation, has a considerable ficticious increment which must be circulated in the movement of valorization M-C-M'. It is precisely because the total capital is unable to complete its circuit (Kreislauf), and is incapable of circulating its ficticious increment through the mass of commodities, that devalorization and deflation must ensue.
It is this mechanism of the circulation of a fictitious value originating in the devalorization of capitals by technological innovation and an increase in the productivity of labor which explains--in part--why the fundamental tendency of capitalism is deflationary, tending to constantly reduce the costs of production in current terms, whereas at the peak of a boom, there is always an inflation of total prices. (The circulation of fictitious capital is only one reason for this, but it is far from being the only one.) And we have not yet even arrived at the credit system, which makes possible an expansion of ficticious values well beyond those originating in production. (On the creation of a "ficticious demand", cf. Capital, Vol. III, p. 304). What does this underconsumptionist fairy tale tell us? On one hand, it shows us, with the addition of expanded reproduction prior to the inclusion of the credit system, an important difference between Vols. I-II and Vol. III of Capital. It explains the co-existence of deflation and inflation in the course of a capitalist cycle. It shows us, finally, what capitalism is not, by abstractly isolating its essential dynamic, enabling us to understand what it is when we plunge into the world of appearances of Vol. III.
If capitalism consisted of the reality described in Vols. I and II, if there were only capitalist classes--bourgeoisie and proletariat--and no credit system, the underconsumptionists would be right and the historical limit of capitalism would be the inability of society to buy its own product.
But there are non-capitalist social strata and (ever-diminishing) regions, and there is a credit system. The periodic capitalist crisis, as well as the terminal crisis, is neither under-consumption, nor over-production, but the periodic incompatibility of the M-C-M' valorization process and the reproduction of the total capital with the process of the expanded material reproduction of society. This crisis erupts on a global scale when the productive forces have reached a level where any technical innovation renders ficticious, and therefore transforms into ficticious claims on the total surplus value, more constant capital than it adds in new surplus value. We have already shown schematically in a pure capitalism of Vols. I and II the mechanism of this process; it remains to show how it is mediated in a real capitalism, that of Vol. III.
In England, in the 19th century, in the capitalist crises analyzed by Marx, the most direct transmission belt between the sphere of production and the credit system was the discounting of bills of exchange by the banking system, regulated by the Bank of England. Starting from this mass of paper which initially represented real economic transactions (Vol. III, p. 481), the expansion of total credit created, in the course of the cycle, a ficticious increment far in excess of that created in the sphere of production itself. For the international transactions where gold constituted the "real reserve", the situation was the same, aside from details arising from the specific international role of the Bank of England. And Marx leaves no room for doubt that in the course of the cycle, this ficticious element grows relentlessly, all out of proportion to the expansion of surplus value (Cf. Capital, Vol. III, pp. 304, 441, 467, 471, 478) and that this circulation creates a ficticious demand which has an impact on prices and on profits (on the distortion of profits by the circulation of ficticious capital, cf. Vol. III, pp. 483-484).
Thus the capitalization of individual fixed capitals in relation to an anticipated rate of profit becomes, through the mechanism of discounting bills of exchange and the autonomous creation of credit from this "real basis" a generalization of this ficticious element through the entire system. Because a "ficticious demand is created" (Vol. III, p. 304) the total price is henceforth greater than total value, until the next deflation. Marx insists on the equilbrium of values and prices in Vols. I and II precisely in order to show how expanded reproduction, by increasing productivity and devaluing a constant capital represented by increasingly ficticious capitalizations, produces a gap between value and price in the course of the cycle. Total price = total value in the simple reproduction of Vols. I and II, and at the beginning and end of the cycle, when the crisis has destroyed the ficticious values. But at the peak of the boom, it is clear that credit becomes a transmission belt allowing total price to exceed, temporarily, total value.
i. Equilibration of the Rate of Profit and the Central Bank
The central bank is the privileged link in the reproduction of the total capital. Marx saw this clearly (Capital, Vol. III, pp. 466-468) but the incomplete character of Vol. III, and the subsequent evolution of the credit system in the phase of the real domination of capital, where the fictitious element of the total capital reaches a level unknown in the phase of formal domination, make necessary a more explicit formulation.
The role of the central bank is the general regulation of credit. It is the central bank which manages the circuit of the total capital (not, of course, as such, but as an approximation) and which circulates fictitious capital. This role is, moreover, obscured in the first phase of a classic cycle after the elimination of ficticious values by a deflationary crisis: it is only when the rate of profit available for ficticious investments reaches or surpasses the level of profit available in production that this regulation begins to play a role; in the ("Keynesian") phase of real domination, where ficticious capital is apermanent presence, this role is more or less constant. (One might therefore say that Keynes was the architect of the adequate form of this regulation.) It is in the financial markets that the "real" basis of credit expansion (bills of exchange, gold) lose all relationship with the rate of surplus value capable of guaranteeing their valorization. Particularly in the phase of real domination, the role of the central bank is to prevent the devalorization of this mass of titles to surplus value. It was Schacht, in practice, and Keynes, in both theory and practice, who were the first to elaborate this regulation of valorization/devalorization for the phase of real domination (2).
We already saw how, beginning from the pure model of Vols. I and II, one can derive the simultaneously deflationary and inflationary tendencies of the capitalist cycle taken as a whole. By adding, after the fashion of Vol. III, the credit system, we saw how real practice puts ficticious values into general circulation. The fictitious value which circulates is a capitalization of the fixed capital devalorized by technological innovation. Through the financial markets which expand credit beyond any relationship to actually available surplus value, this ficticious element increases in the course of the cycle. The inflation of prices brought about by the ficticious demand thus created works in counterpoint to the more fundamental deflationary tendency of the productivity gained in the production of commodities. It is for this reason that devalorization is deflationary in essence but inflationary, temporarily, in appearance. From the moment when the rate of profit for ficticious investment (speculation, real estate, etc.) passes the rate of profit directly available in production, until the moment when deflation converges with the devalorization which was the fundamental tendency at work, it is the task of the central bank, through the regulation of the general rate of interest, to preserve ficticious values. To the extent that the system succeeds in increasing available surplus value to rates sufficient to sustain the values in circulation, a devalorization through inflation is prevented. The phase of real domination, in particular,(as we shall see momentarily in the discussion of devalorization) is based on forms which realize the devalorization of labor power in order to prevent the devalorizatrion of capitals by transfers of all kinds from V to S.
It is in this general movement of the autonomization of the sphere of circulation where the M-C-M movement of simple commodity exchange shows itself to be the "cell" of a general M-C-M' movement at the global level. The antagonism between exchange value and use value is present everywhere; the interruption of the M-C-M' process of valorization creates a situation where a mass of commodities/use values find themselves standing over and against money, and no longer as two components of one single harmonious expansion. It is in this way that simple exchange reveals itself as the cell of a mode of production in which valorization and social reproduction are, in the last instance, antagonistic. It is a liquidity crisis, a crisis of the non-convertibility of a mass of commodities into money through normal exchange mechanisms, which haunts the mass of capitalized titles to the total surplus value.
This liquidity crisis expresses perfectly the double movement of inflation and deflation we described in the sphere of production. When profit, interest and ground rent begin to dangerously exceed the sum of surplus value available for division into its capitalist forms, the central bank is obliged to brake the creation of credit to ensure that valorization continues. The interest rate of the central bank thus becomes the transmission belt for the general rate of profit for all circulating capitalizations. But credit restraint endangers the weakest capitals, requiring in the last instance a liquidation of inventory at any price in order not to interrumpt the chain of payments in the credit pyramid. On a global scale, the further operation of valorization requires the conversion of a mass of commodities into money at the very moment that there is a general scarcity of money. A general liquidation of inventory threatens to bring down the entire mass of ficticious capitalist titles in a general deflation. If this deflation occurs, the rate of profit and the rate of surplus value are brought back into equilibrium, and production can once again offer a sufficient rate of profit to attract the investment which, at the peak of inflation, was more and more attracted by speculative investment.
(This is the "stop-go" trap in general debt management dealt with by monetarists and Keynesians.
The American economy since 1969 offers a prime example of this process in its totality. The Nixon government which took power in January 1969 was compelled to opt immediately for a sharp tightening of credit to confront a rate of inflation considered high for the period (4% in 1968). This harsh monetary policy brought on a falloff in production, a 6% rate of unemployment, and a generalized lack of credit for companies unable, (in contrast to the "Fortune 500") to have recourse to the Euro-dollar market in London. (This policy was nonetheless unsuccessful in bringing down the rate of inflation.) In May-June 1970, American capitalism passed through a liquidity squeeze which brought about the collapse of the Penn Central railroad, which was unable to market $200 million worth of its bonds. A panic liquidation of many other ficiticious titles threatened the financial markets, calling into question the capacity of many other firms to sell their paper. The stock market had already fallen, between January and June 1969, from 1,050 to 635. It was at this moment that the Federal Reserve Bank, the U.S. central bank, had to intervene, making special credits available to any important company threatened with bankruptcy. The dangers of the situation are apparent from the fact that the liquidity of American firms had undergone an almost uninterrupted deterioration since the end of World War II, with external corporate indebtedness increasing from 20% of paid-in capital in 1945 to 80% in 1969-1970. Having succeeded in calming the financial markets, the government shifted to an expansionary policy by reopening the credit windows. (We cannot understand the totality of this process until we have analyzed the system of international loans.) The result was the "superboom" of 1972-1973 during which the deterioration of corporate liquidity through a wave of lending now rose to extremely dangerous levels. The exigencies of circulating the ficticious titles which already dominated the actions of the Fed in 1969-1970, and the credit expansion of 1971-1972 to keep them afloat, ended up unleashing an inflation rate of 7-8% and a rush into "hard" commodities such as agricultural products and gold. It is in this way that the actions of the central bank express the contradictions of valorization: when there is a scarcity of credit to rein in the creation of ficticious values, a need arises to convert real commodities into money to continue the chain of payments and thus the valorization process, and thus a danger of inventory liquidation. When the liberalization of credit succeeds in preventing a liquidity crisis and a deflation, the expansion of ficticious demand which it brings about creates an inverse movement to commodities, and particularly to the money-commodity, gold. Thus the U.S. underwent periods of credit restriction in 1969-1970, 1974 and 1978-1980, accompanied each time by a rush into gold at the moment when high interest rates brought about a fall in production and a destruction, through bankruptcy, of some ficticious values.)
j. The System of International Loans
The whole discussion up to this point now permits us to extend the analysis of ficticious values, which we followed from their origin in the circulation of devalued fixed capital, through the credit system, to the functioning of the central bank, in order to finally arrive at the level where, in practice, they have been situated since the beginning of capitalism: in the system of international loans.
It is this system which extends the reproduction of the total capital to the entire world. It is through international loans that the M-C-M' valorization process can be supported by unpaid values taken from non-capitalist sectors. Here, once again, we see the difference between a Ricardian and a Marxist view of value.
The Ricardian, as we saw, ignores the problematic of the reproduction of the total capital. The model of Ricardian exchange abstracts from the existence of credit, seeing all exchange as an exchange of values (determined by the necessary labor time of production) as if payment were always immediate and as if money were nothing but a means of payment. But the Marxist problematic of the reproduction of the total capital sees in money, and exchange, the cell of a valorization of money-capital through the movement M-C-M'. And insofar as the reproduction of the total capital, and the role of the credit system and the central bank in this process passes necessarily, given the heteronomy and therefore anarchy of the system, through a creation of ficticious values exceeding total surplus value, the problem is not located in an isolated act of exchange, C-M and M-C, but at the level of the valorization of the total capital and the general M-C-M' movement through the totality of commodities. We can easily see how everything can pass through the exchange of values, at the same time that there is a transfer of unpaid wealth to the country having the higher productivity of labor.
Let us take the example of a Third World country which produces copper. (Let us further assume that we are at the initial phase of the cycle, where the increased demand at the peak of the boom does not complicate the situation by adding the problem of ground rent accruing to the most productive mines.) The country in question wants to industrialize by paying for industrial equipment with copper exports. The price of copper is determined on the world market by the socially necessary labor time required to produce it, globally. If, in the U.S., a ton of copper represents 100 hours of work, and in Zambia it represents 1000 hours, and if these determinations reflect the general level of labor productivy in the two countries, the values exchanged in the form of commodities between the U.S. and Zambia, in strict accordance with the laws of exchange, will constitute for the U.S. the importation of a considerable segment of unpaid labor, i.e the 900 hours of the Zambian workers which fall beneath the global rate of labor productivity. To the extent that the Zambian workers are in all likelihood former petty producers recently recruited to wage labor, this is just one more reason to see concealed in this exchange of equivalents (at the global level) a primitive accumulation, in the same way that the sale of industrial products to peasant sectors in 19th century England constituted a primitive accumulation through exchange. On all sides, there is an exchange of equivalents, but the time of reproduction of the non-capitalist, or formally capitalist society is much greater, and its labor power does not reproduce itself. The infusion of this unpaid labor through international trade has always been an important prop for the circulation of ficticious values (and not merely between the "First" and "Third" worlds; indeed, this "looting" occurs more between advanced capitalist countries than it does between countries as different as the U.S. and Zambia)
Let us now move from the level of individual exchanges to the level of the total capital, because the exchanges of commodities between developed and underdeveloped sectors are necessarily filtered through credit. A developing country, having a rate of productivity much lower than that of industrialized countries, borrows money for infrastructure. These loans are not made in Mexican pesos, Brazilian cruzeiros or Indian rupees: they are made in dollars, pounds sterling, yen, marks, francs. The importation of infrastructural equipment leads to a large deficit in the balance of payments. It is covered by further borrowing. The earlier loans are paid off not, of course, in the money of the borrowing country, but of the lending country. Thus the developing country is obliged to earn, with rates of labor productivity quite below the international average, dollars or pounds to service its debt. The problems of keeping its currency in equilibrium with international exchange rates forces the country to make periodic painful devaluations, which again reduce its income from sales abroad. Let us disregard momentarily the often significant charges for transportation and insurance, all paid, quite naturally, in foreign currencies. By limiting ourselves strictly to exchanges of value determined by the level of international productivity, and by adding the non-convertibility of weak currencies engendered by deficits, we can see how a primitive accumulation takes place through the purest exchange of commodities whose prices are determined by necessary labor time. In short, money is not, as Ricardians think, a passive means of payment; because of the international circulation of ficticious values, money is an active factor in the distortion of exchange relations. We are confronted once again with the difference between a pure capitalism as described in Vols. I and II, without credit and without non-capitalist classes, and real capitalism. (We will see this process even more clearly in analyzing the infamous "dollar overhang" of dollars held abroad currently exceeding (1981) the sum of $1,000,000,000,000.) (This sum is probably closer to $4 trillion in 1999-LG) In sum, it is impossible to analyze international trade as so many "dry" exchanges immediately paid for in exchanges of equivalents; because it is completely tied up with the system of international loans, this commerce invariably constitutes both a circulation of ficticious values on one hand and an export of unpaid labor on the other.
The system of international loans, in the imperialist form developed between 1870 and 1914, is a form of circulation for ficticious values and their valorization through commodities containing an element of unpaid labor. (We are setting aside, for the moment, the further problem of exchanges in a system where gold has been demonetized, as between England and its colonies in 1890-1914, or between the U.S. and the world after 1944.)
k. World Money and the Clearing House Function of the Principal International Financial Market
"It is only in the world market that money functions fully as the commodity whose natural form is simultaneously the immediate and social form of realization of human labor in abstracto. Its mode of existence becomes adequate to its concept." (Capital, Vol. I, Ch. 3, Section c)
Since capitalism in the strict sense of the word has existed, and more specifically since 1815 and the end of mercantilism, gold, in which money becomes immediately adequate to its concept, has always played a central role in its functioning. Gold is nothing other than the materialization of the concept of money-commodity, the commodity whose value is the standard for all the others. But, as Marx emphasizes, gold attains its full functions only as world money. What does this mean?
It means that gold is the money-commodity which represents the capitalized surplus value that circulates globally.
But, as with the system of international loans, there are not merely "dry" exchanges settled immediately: there is money, and there is credit: a sum of ficticious values exceeding the value of the total product and the total surplus value.
The clearing house function of the main international financial market is once again the circulation of the ficticious segment of the total capital which has no equivalent in the gold exchanged internationally to settle deficits.
In practice, capitalism has never done without an international financial market playing this clearing house function for international exchange. This function is not different in principle from the commercial fairs of 16th century Europe, where, after all transactions had been made, there was a settling of accounts and those with net positive balances were paid off in gold by those with negative accounts in gold. But, in practice, because we are in a Marxist and not in a Ricardian world, international accounts are settled immediately neither in gold nor money, but in credit. Without this role of credit, it would be impossible to explain the situation described by Marx in Vol. III (p. 491) where, on the eve of a crisis, all countries "have an unfavorable balance of payments", which express "an overproduction promoted by credit and the general inflation of prices which accompanies it" (p. 492).
We are dealing once again with the valorization of the total capital, and with the circulation of ficticious values through the system of international loans. In the course of the cycle, the creation of ficticious values through the mechanisms we have discussed engenders an autonomization of the sphere of circulation with respect to the totality of commodities, as well as with respect to the concept-commodity, money. The rush into gold on the eve of collapse is explained by the reimposition of a real exchange of real commodities and the exigency of transforming all ficticious forms into commodities, and above all into the "form of immediate and social realization of human labor in abstracto". However the capitalist class happens to view the problem at any particular historical juncture, commodity production is always regulated, sooner or later, by the "discipline of gold", which is nothing other than the discipline of value.
The substitution of credit for the immediate settlement of accounts takes place through the reserve currency, which is the currency of the principal international financial market. Between 1815 and 1914, this reserve currency was primarily the British pound; after the transition crisis from the formal to the real domination of capital, it was the American dollar.
Although, in the 1890-1914 period, the capitalist world recognized a gold standard (which in reality operated only between the major capitalist powers) the settlement of international accounts was conducted, especially between England and its colonies and the semi-independent countries of Latin America, through the maintenance of sterling balances, pounds held in the central banks of the countries having a favorable balance of payments with England. Because the sterling balances represented a sale of real commodities to England, these were in effect loans to England from the latter's surplus trading partners. Moreover, as we will see in the following section, these sterling balances were often recycled to the London financial market through the purchase of the paper of the British Treasury, and in other forms. Through this system, the surplus countries financed England's quasi-permanent balance-of-payments deficits. For the world outside the inner circle of capitalist powers which settled their deficits among themselves in gold, the "gold standard" was in reality a gold-exchange standard. (For a theoretical elaboration and defense of this system, cf. J.M. Keynes, Problems of the Indian Currency, 1909.)
It is this gold-exchange standard system which was generalized to the world by the U.S. and the Bretton Woods system of fixed rates established under U.S. auspices in 1944.
It is easy to see how the clearing house function of the principal international financial market, and its ability to circulate a segment of the total capital not immediately convertible into real commodities or into gold, make this market and the system of which it is the center the privileged locus of the reproduction of the total capital. Thus, as Marx says, the "phenomenon that crises do not come to the surface, do not break out, in the retail business first, which deals with direct consumption, but in the spheres of wholesale trade, and of banking, which places the money-capital of society at the disposal of the former" (Capital, Vol. III, p. 304).
l. The State Debt
Beginning with a pure model of capitalism from Vols. I and II, we have moved up through the levels of fictions, to arrive finally at the last fiction, the one that guarantees all the others: the state debt. The state debt is "purely fictitious" (Capital, Vol. III, p. 465). It is here that capital reveals itself as a social and as a political relationship. There is no capitalism without credit, no credit without a central bank, no central bank with a state and a state debt. The state debt is the totem of the entire system.
We can better understand the key position of this indebtedness by seeing it first historically. The whole complex of relations we have analyzed, the credit system, the system of international loans, gold as world money, the central bank and the state debt all precede the existence of capitalism as such. All the primitive accumulation carried out by mercantilism between 1450 and 1750-1815 had as its indispensible basis the elaboration of these institutions in an international system of usury, with generally exhorbitant rates of interest. Capitalism as such existed from the moment when the rate of profit available to merchantus capital was subordinatedto the general rate of profit imposed by value relations in the sphere of production. It is only from the moment when commodity exchange has definitively conquered production that the M-C-M' movement of merchant's capital becomes a valorization process, and therefore capitalism.
In the era of mercantilism, particularly between 1550 and 1750, primitive accumulation and the imposition of commodity relations was carried out through the state, and in particular through taxation. The power to tax guarantees the indebtedness of the state, and it is the revenue from these taxes which is "capitalized" in the sale of the paper instruments of the state (although state bonds, as a pure fiction, are not capital). It is this power which underwrites Treasury bills and paper money, which are merely forms of the state debt.
Throughout the 19th century, in the phase of primitive accumulation and the preponderance of absolute surplus value, thus of the formal domination of capital over labor, the role of the state was above all the creation of the conditions for accumulation. Its presence in the economy as such, its production and its consumption, rarely exceeded 3-5% of the total social product. It was above all in the development of general infrastructure and the acquisition of land that the state served as an "executive committee" for the capitalist class as a whole. Even in the regulation of financial markets, the role of the state became apparent only in periods of crisis through the intervention of the central bank, and this above all in England and in France. One need only recall that as late as 1873, Bagehot felt compelled to remind his readers, in Lombard Street, that the Bank of England was the lender of last resort in financial crises, and this in the most developed financial market in the world. In the United States, it took the whole period from 1836, and the dissolution of the Second Bank of the United States, to 1913 to provide the financial markets with a central bank. In the interim, the Treasury Department intervened periodically in crises, but those of 1893 and 1907 showed the extreme fragility of this state of affairs. The German central bank, the Reichsbank, was founded in 1870, along with the Reich itself.
Thus the uncompleted character of Capital, and the unsystematic presentation of the role of the credit system and the central bank in the reproduction of the total capital do not merely reflect the fact that Marx did not finish the book; they also reflect the fact that these relations had barely been established in their matureform during Marx's lifetime. But this did not prevent him from discussing, at the end of Vol. II and in the middle sections of Vol. III, all these phenomena, as they existed in the 1850-1867 period which was his principal "laboratory".
In the phase of formal domination, there was not yet a direct and systematic link between the state debt and the circulation of ficticious values by financial markets, and that because ficticious values circulated only episodically before being destroyed again in a deflationary crisis. It is important to remember that even England lacked an integrated national financial market prior to 1838, whereafter the manipulation of the discount rate of the Bank of England was capable of regulating, to some extent, the credit markets of the country as a whole. (This role of the London discount rate imposed itself internationally in roughly 1890.) When the state, in the phase of formal domination, was seriously indebted, such as after a war (England in 1815, the U.S. after 1865) it was generally through a direct inflation of the currency that that debt was liquidated. The state printed money to reimburse creditors, thereby taxing all society through the ensuing inflation.
In sum, with certain important exceptions, the circulation of money in the phase of formal domination was regulated rather strictly by the mass of commodities and by the universal commodity, gold.
Things proceed quite differently in the phase of real domination. It is not, however, the liquidation of the state debt by a periodic inflation, in contrast to the permanent debt management of the Keynesian state, which constitutes the fundamental difference. The Keynesian state also liquidates part of its debt through money inflation. The key difference is that the state debt, and the ficticious titles representing that debt, are now the basis of the reserve of the entire banking system, and it is through the daily regulation of these reserves that the central bank intervenes in "private" financial markets. Simultaneously, the state has gone from being a consumer of 3-5% to 40-50% of the total social product in the advanced capitalist countries. It is the circulation of the ficticious financial instruments of the state through the capital markets, inseparably linked to the state debt, which is the lynchpin, today, of the circulation of the ficticious increment of the total capital.
In the 19th century, the private financial markets circulated the total capital and the ficticious increment of the latter. In the phase of real domination, elaborated over the 1890-1945 period and definitively in place in 1945, the circulation of ficticious debt instruments underwritten by the state, in the circuit between financial markets, the central bank and the treasury, is regulated daily. Because the creation of Treasury bills and other ficticious state instruments are covered only partially by the state's revenues through taxation, the deficit, which becomes the permanent indebtedness of the state, becomes the fiction which underwrites the daily functioning of financial markets. The guarantee of this fiction is ultimately the power of the state to tax; without this power, the state debt instruments would have no more value than the bonds issued by Penn Central in 1970.
It is, however, not the state which "commands" the economy. The state is only the ultimate fiction which underlies the "inverted world where Mr. Capital and Madame Real Estate dance their macabre dance" (Capital, Vol. III, p. 830). The capitalist state in the guarantor of this inversion of alienated human powers, but it only passively follows the apparent self-movement of value. This state was created during the 1933-1945 period to preside over a permanent devalorization. It exists because the mass of devalorized and thus ficticious capital must be regulated on a permanent basis.
The ficticious increment of fixed capital created by devalorization is ultimately circulated internationally through the world money markets, and underwritten by the state and its debt. The growth in the indebtedness of the capitalist state since 1933-1945, in its Schachtian and later Keynesian form, is the direct expression of the ficticiousness of a growing portion of the total fixed capital. We will see momentarily, in the discussion of relative and absolute surplus value, how this transformation of the capitalist state is the necessary expression of a global change in the components of the total surplus value toward a preponderance of relative surplus value.
An important anticipation of this relationship between the international financial markets/central bank/state debt/devalorized fixed capital was elaborated in England in the 1890-1914 period. England was, however, incapable of extending this relationship to the world as a whole. The real productive basis of English capitalism was already becoming obsolescent relative to Germany and the United States by 1900. But the long crisis of 1914-1945 was necessary to finally build an international system capable of regulating the total capital in the phase of accumulation based on relative surplus value.
England, as we saw, had already discovered the gold-exchange standard in daily practice in its relations with its colonies (in particular India) and with the semi-colonial countries of Latin America, where English investment financed primitive accumulation and infrastructure development, as in Argentina or Mexico. The countries in permanent surplus with England, as we saw, received in exchange primarily sterling balances, which they had to recycle into the London capital markets, often buying British Treasury paper. It was in this way that England, in a restricted sphere, developed in the 1890-1914 period an approximation, for the sterling zone, of the system that the U.S. made global in 1944. England succeeded in financing its economic activity with its own balance of payments deficits.
For the sterling zone, the circulation of ficticious values, originating initially in the devalorized fixed capital of English capitalism, increased by further ficticious titles created in the financial markets, and exported through the system of international loans, was underwritten by this recycling of English deficits to the London financial markets and by the purchase of English Treasury bills by England's creditors.
We will see the concrete history of this transformation in a subsequent chapter. But let us summarize, briefly, its importance for an understanding of devalorization. The suspension of the gold standard, in every country, at the outbreak of World War I was the opening of the crisis which would see the transfer of capitalist hegemony from England to the U.S. The attempts to restore the gold standard from 1925 to 1931 did not survive the crisis of 1929 and its aftermath. In 1930-1931, the gold held by the Bank of England was only a fraction of the sterling balances held by foreigners. (The same situation was re-created with the U.S. and dollars held by foreigners in 1968-1971.) As the deficits in the English balance of payments continued to accumulate, more and more foreign central banks demanded repayment for their sterling reserves in gold, and the Bank of England was obliged, in October 1931, to suspend the gold standard once and for all.
One can see the whole difference between the phase of formal domination, which went into its final throes in 1929-1933, and the phase of real domination, in the respective sequels to these suspensions of convertibility. In the first case, suspension was immediately followed by the great deflationary crisis which was resolved only, ultimately, through World War II. In the second case, there occured an expansion of this ficticious circulation through an increase in the indebtedness of the American state, and the world has effectively been on a "dollar standard" since 1973. (We hardly mean to thereby imply that the crisis is henceforth resolved.) In the difference between these two developments lies all the distance between the forms of devalorizatrion in the respective phases of the preponderance of absolute and relative surplus value.
m. Absolute and Relative Surplus Value
Everything we have said about the credit system, the central bank, the system of international loans, the state debt and their role in the circulation of the ficticious increment of the total capital, which we traced from its origin in devalorized fixed capital, would have no specificity without an analysis of the transition, on a global scale, from an accumulation founded on a preponderance of absolute surplus value to one founded on a preponderance of relative surplus value. The Schachto-Keynesian state which imposed itself in 1933-1945, and all the transformations of the relationship between credit, the central bank and state debt which accompanied it, would be nothing but "institutional" transformations if we could not identify their foundation in a new phase of accumulation, a fundamental change in the components of surplus value.
The driving force of capitalist accumulation in the 1815-1914 period was absolute surplus value, obtained by the greatetst possible extension of the working day beyond the necessary time for the reproduction of the work force. It was the phase of extensive accumulation, of the formal domination of capital over labor, in which labor power recruited from various groups of petty producers becomes wage labor but in which the type of labor performed has not yet attained its specifically capitalist form. In many cases, we are talking about forms of labor which retain their pre-capitalist material form while being transformed into wage-labor.
In this phase, the total social wage of the total worker was constantly under pressure from direct primitive accumulation of a work force torn from non-capitalist sectors. (This primitive accumulation expresses the same process, in the relations between capitalist classes and the petty producers of a society dominated by commodity relations, which we discussed in the relations between countries on a global scale. In both cases there is a transfer of unpaid labor at the expense of the petty producers. In the 19th century, the mechanism of indebtedness of petty producers for the purchase of means of production (equipment, etc.) and the new mass-produced consumer goods was the "transmission belt" through which this primitive accumulation was carried out. In the 19th century, as today with the immigrant workers in northern Europe, legal and illegal immigration to the U.S., or Indian and Korean workers employed in Saudi Arabia, primitive accumulation was a major means of reducing the total social wage.) This work force subjected to primitive accumulation does not fully reproduce itself, as the conditions in England described by Engels clearly show. It was in roughly 1850 that the English working class started to undergo general, steady improvements in its overall conditions. This is explained by the completion of primitive accumulation in England, on one hand, and by the increase in the material content of wages through increased productivity in world agriculture.
For the capitalist world as a whole, the phase of accumulation centered on absolute surplus value is the transformation of a mass of peasant and artisanal labor into capitalist wage labor. In 1900-1914, for the region then dominated by commodity relations, the percentage of the classical working-class population reached its historical peak, as in Germany where it was 50% of the active population.
Relative surplus value, or the increase of the rate of surplus value by an intensification of the production process, becomes a general tendancy in the 1890-1945 period, but it becomes hegemonic only in 1945-1973. In contrast to accumulation founded on absolute surplus value, it is no longer a question of separating a non-capitalist stratum of petty producers from its means of production and working it to the physical limit, well beyond the time required for its reproduction; in the new phase of accumulation, this work force is recomposed through its reduction to a purely capitalist form of labor, or abstract and interchangeable labor. This is the real domination of capital over labor. This transformation is carried out in various ways, but above all through technological innovation reducing the total wage bill (rationalization) and the segmentation of tasks (Taylorism, mass assembly). At the same time, and through the same changes in the production process, increased productivity reduced the value of the total wage by increasing its material content. It becomes possible to produce mass consumer durables for the working class. The automobile, in its production and in its consumption, is the commodity par excellence of the phase of real domination. But the essential is the recomposition, and not the increase, of the total social wage.
At the global level, the phase of accumulation founded on relative surplus value shows very clear contrasts with the earlier phase founded on absolute surplus value. The necessity of recomposing the productive working class instead of expanding it, as occured in 1815-1914, expresses the fact that capital had become a brake on the development of the productive forces on a global scale. But this is only visible from the vantage point of the entire previous discussion. The reader will recall that, for our purposes, only those commodities have value which return materially to the process of social reproduction by expanding it in conjunction with the valorization process (value-valorizing-itself). The whole expansion of the volume of production from 1914 to the present changes nothing as such; quite the contrary. From the viewpoint of the total worker, what has happened? The expansion of the capitalist zone from 1914 to the present has integrated the great mass of humanity into commodity relations (whereas in 1914, the majority was only formally involved in these relations). But the increment represented by the industrial working class in this population has diminished considerably. On one hand, in the so-called OECD countries, there has been a proliferation of unproductive labor with the expansion of the tertiary sector, which constitutes 30-50% of the active population in this zone. On the other hand, in the great majority of Third World countries, petty production has generally been destroyed, but without the transformation of peasants into workers which characterizes the phase of absolute surplus value. In the 19th century, capitalism, on a world scale, transformed a mass of peasants into industrial workers; in the 20th century, it has transformed, for the "advanced" zones, productive into unproductive labor; in the "backward" zones, it has transformed peasant populations into an urban and suburban Lumpenproletariat (as in the "lost cities" of millions of inhabitants surrounding Mexico City, and other urban agglomerations in Latin America, Africa and Asia.) There are important exceptions to this tendancy, which in no way call into question our overall analysis, in the newly-industrialized countries of the Third World, to which we shall return.
This accumulation, at two poles, of a work force which cannot realize itself in production expresses perfectly the coexistence, in the 20th century, of technical innovation and the obsolescence of value as a relationship capable of developing the productive forces. There is a tendency to forget that the most important "productive force" is the working class itself, the only social class that creates value. The fact that productivity can continue to grow at the same time that labor power is increasingly excluded from the sphere of production expresses nothing other than the fact that capital can no longer realize socially the free time gained by increased productivity. (3) Value relations, to maintain themselves, must be recomposed on the basis of a declining portion of the total capitalist population.This tendency for the productive working class to decline globally as a percentage of the capitalist active population since 1945, once the conditions for a phase of accumulation founded on relative surplus value had been made in the transition crisis of 1914-1945, expresses the fact that value is no longer compatible with the expanded social reproduction of labor power, and that the socially necessary labor time for the material reproduction of society has declined relative to surplus labor time sufficiently that value relations can no longer mediate the reproduction of the species. On the contrary, to maintain itself, value must condemn a large percentage of the species to stagnation in non-productive spheres and in unemployment, and periodically destroy labor power physically (1914-1918, 1939-1945, the virtually ceaseless "local wars" since 1945).
Note on the Transformation of the Capitalist State for the Accumulation of Relative Surplus Value, 1914-1945
Before elaborating, at last, the key concept of the entire ensuing discussion of the American working class, devalorization, we are compelled to make a detour to establish systematic relations between the phase of accumulation founded on relative surplus value and the transformations of the capitalist state between 1914 and 1945, and particularly in the 1933-1945 period. We are concerned above all with a new organization of devalorization.
We have seen the general relations between the pure capitalism of Vols. I and II, the shift to expanded reproduction, the reproduction of the total capital, and credit. We have seen how, beginning from technological progress spawned by competition, a segment of devalorized fixed capital is transfered to the sphere of circulation by the mechanisms of capitalization and the credit system. We have seen how the credit system, the central bank, the system of international loans and the state debt accomplish, generally, this circulation of ficticious capital. We have argued that capitalist crisis is a momentary incompatibility of valorization with expanded reproduction, up to the moment of the destruction of the pyramid of ficticious values created in the course of the cycle by deflation, thereby permitting a new expansion of production at a rate of profit acceptable to the capitalist class. We have seen how the passage, on a world scale, from accumulation founded on absolute surplus value to accumulated founded on relative surplus value expressed the fact that capitalism, as a mode of production, had reached its general limit, and that all further reproduction of labor power would have to proceed by its recomposition and not its expansion. We now must show how and why the Keynesian transformation of the capitalist state between 1933 and 1945 was the necessary expression of the transition between formal domination/absolute surplus value and real domination/relative surplus value.
The Schachto-Keynesian state of 1933-1945, and the mature Keynesian state after 1945, appeared at the moment when the organic composition of capital, on a world scale, was sufficiently high that all technological innovations intended to produce relative surplus value tended to devalorize--to render ficticious--more fixed capital than the surplus value it produced for transformation into profit, interest and ground rent.
This state is the organization of a permanent devalorization of labor power to prevent the devalorization of capital. It is the systematic organization of the M-C-M' valorization process when the latter has become antagonistic to the expanded reproduction of the species.
We have seen that many elements of this state, and its institutional expressions in the sphere of circulation, were already in place in 1890-1914. The relationship financial market/central bank/gold exchange-standard/permanent recycling of balance-of-payments deficits was already there, in the hegemony of English capitalism. But the genius of the Schachto-Keynesian transformation of the capitalist state between 1933 and 1945 was to link these institutions to the accumulation of relative surplus value on a world scale. This, in a nutshell, is the whole secret of the 1945-1973 boom.
We will see later how, historically, this transformation was carried out. But let us briefly touch on some of its most important characteristics. Between 1890 and 1914, large-scale industrial production in Germany and the United States reached a level where it could no longer be contained in the world system then dominated by England. The customs barriers of the nation state, national financial markets, the large colonial zones and their restrictions on foreign economic penetration, and the system of sterling balances were so many barriers to further accumulation. The result was the First World War, which did not resolve the problem. It did, however, weaken all the rivals of American capitalism. The problematic of relative surplus value was particularly acute in the short reconstruction period after the stabilization of Europe, from 1924 to 1929. Large-scale American and German industry continued to expand, but with one fundamental difference from the prewar period: technological innovation in both countries was aimed above all at rationalization, the displacing of living labor, and the reduction of the total wage bill. Thus Germany, between 1924 and 1928, surpassed the production volume of 1913 without reabsorbing the work force, which experienced unemployment rates of 8-10% even in the boom years, levels unknown in comparable phases of expansion in the prewar period. The same phenomenon occured in the U.S. The system of international loans organized for reparations and reconstruction (above all the Dawes and Young Plans) created a triangle in which massive American loans to Germany were recycled to France and Germany for reparations payments, and then from the latter countries to the U.S. to pay off the inter-Allied debts of $12 billion for material aid during the war. This triangle dissolved with the collapse of the New York stock exchange and financial markets in October 1929, and over the subsequent 1929-1938 period, each capitalist power fell back on its own resources. The productive forces came up against relationships and international structures which could not contain them. The situation required another war, the integral absorption of the European sphere by the U.S., the dismantling of the colonial empires and the unification of international financial markets under the tutelage of a power more capable than England of regulating them. The situation required, in short, the Second World War, the Anglo-American financial agreement of 1946, the Bretton Woods system, the Marshall Plan, the decolonization of 1945-1962, the International Monetary Fund and the World Bank. But we do not wish to overly anticipate the historical analysis that follows. We only wish to emphasize that the integral dismantling of the 1914 organization of the capitalist world and its supercession by the conditions of 1945 were necessary to free the productive forces that had been developed, particularly in Germany and the U.S., but this time for the recomposition of the total worker. The integral financial system of Bretton Woods, as we shall see later, was the system adequate to the containment of this recomposition. Through the phases of the postwar boom 1945-1958, 1958-1969 and with the industrialization of certain Third World countries after 1965, this system succeeded in circulating the ficticious values of an increasingly obsolete American fixed capital. It is only through these mechanisms that one can understand the coexistence of important technical innovation and the exclusion, on a world scale, of an increasing section of the capitalist population from the sphere of production.
n. Devalorization
1) Devalorization in the phase of formal domination: Deflation
Before 1945 and the internationalization of the total capital, that is prior to the systematic circulation of ficticious values on a world scale through the Bretton Woods system, devalorization generally took place through a straightforward deflation of prices. To the extent that the ficticious element which circulated in the total capital, itself the product, initially, of a devalorized fixed capital, could no longer complete the circuit of the valorization process through the mass of commodities, the deflationary crisis erupted, the ficticious element was destroyed, and the capitalist representations of the total product were recomposed so that total price was brought back into adequate relationship with total value, and production resumed at an acceptable rate of profit.
2) Devalorization in the Phase of Real Domination: Non-Reproduction Affirmed as Emancipation
Devalorization in the phase of the real domination of capital, on the other hand, while having exactly the same purpose of recomposing the total capital, takes place differently. In all the advanced capitalist countries, the linkup between the state debt with the circulation of ficticious values which we have analyzed at length makes possible the generalization of devalorization through the whole economy through inflation. Keynes had already recognized that the working class would more easily accept an erosion of its purchasing power through inflation than through a straighforward wage cut. Inflation is thus one way of redistributing components of the total social product among different classes. To the extent that this process devalorizes an important segment of fixed capital at the same time as the total wage bill (to say nothing of liquidating the savings of intermediary classes) this only shows that for the capitalist class as a whole, the maintenance of the circuit of the total capital and thus of the valorization process is more important than anything else. In the German inflation of 1923, what happened? Heavy industry was able to liquidate its external indebtedness at with ridiculously low sums. The organized working class was generally able to obtain wage increases that were large enough to keep up with inflation, while accepting a certain decline in its living standard. But the middle classes, the holders of state bonds issued during World War I, were ruined. The financial system could be reorganized under the auspices of Schacht, president of the Reichsbank, but as of 1924 the domestic indebtedness of the German economy had been liquidated. This shows that it is ultimately the value proportions, as current costs of reproduction, of S, C and V which are of importance to the capitalist class, as to the working class. The recomposition of these increments in money terms is secondary, provided that this recomposition makes possible a new expansion of production once the ficticious values are eliminated. It is the re-establishment of the conditions of accumulation, and thus of valorization, which are above all important to capital.
But the recomposition of value through inflation hardly exhausts the mechanisms of devalorization in the phase of real domination, particularly in its "leftist" forms initially developed, in the 1890-1914 period, by German Social Democracy, elaborated in more mature form by the ex-anarcho-syndicalists of Italian fascism, by Nazism, by the Socialist-Communist Popular Fronts of the 1930s, and globally established by the United States in 1945.
What is left-wing devalorization? The answer is simple, although its forms are diffuse: it consists in presenting the non-reproduction of labor power as emancipation. It is, inseparably, the glorification of this non-reproduction.
In the phase of the formal domination of capital, devalorization was as straightforward as the deflationary crisis: it was the expulsion en masse of labor power from the sphere of production in order to recompose the total social product, in which a reduction of the total wage bill was an indispensable element.
In the phase of real domination, devalorization has been transformed. In the same way that recomposition consists in reducing labor to its specifically capitalist form of abstract labor, real domination constitutes, in both the sphere of production and the sphere of consumption the materialization of the capital relationship. It is no longer merely a question of excluding labor until the next expansion, even though this exclusion, on the global level, is also important. Even more important than this exclusion is the recomposition of labor as a material community. (4) The crisis of 1929-1945 was the era of the glorification of labor and the working class by fascism and by Stalinism, by way of the various Popular Fronts. Fascism, Stalinism and the Popular Front/New Deal, in their respective sectors, were three aspects of a ge