Wednesday, May 18, 2011

Economic Liberals Admit it: Capitalists Own Us

"Don't tax the rich, as they create jobs," so the mantra goes. However, this line of thinking betrays the underlying structure of production: namely, that the capitalist class has executive control over the means of production - control which is a concern of public policy, as Cato and the Heritage Foundation admit by requesting policy that regards its standing. Despite that fact, policy proposals argue for diminished public input. Indeed, history shows us that such control has always underlined this graft:1,2,3,4

  • Today, the Capitalist creates jobs by allowing the working class to use the means of production and sell their labor to him.
  • Before that, the Lord created jobs by allowing the working class to use the means of production and give part of their labor to him.
  • Before that, the Slaver created jobs by having the working class use the means of production and he (and it was always a man - patriarchy and all that) provided basic subsistence to them.

It has always been the narrow control over the means of production that allowed the interests of a group of oligarchs to consistently stand as a barrier to the production process. Interestingly, when these power structures shifted, it was always by diminishing the returns that older systems could replicate. The oft-revered Mises agrees: it is by diminishing the surplus value on capital investment that the same is disincentivized.2 Is calling for safer structures for capitalism simply another incarnation of the tactical perpetuation of power? And does this activity fit the theoretical model of consumer-driven capitalism?

A Consumer-Driven Economy?
"It is inherent in the nature of the capitalistic economy that, in the final analysis, the employment of the factors of production is aimed only toward serving the wishes of consumers."2
Truly a common argument. It does beg the question, however: aren't consumer confidence and demand just as important to job creation? After all, it is this that investors rely on for the sale of commodities.

On the topic of the business cycle, he argues that the introduction of money expands value where it is first introduced. Expansion of consumer value, therefore, should have the effect of incentivizing production through an expansion of demand. Even if there is a piecemeal reduction of value on the other end, it is too late: the expanded value offered by demand, coupled with expanded pricing first seen on commodities, has made investment more lucrative by expanded rates of valorization, which should - if we are being consistent - lead to more investment. But he seems to see it differently:
"Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement."2
"[Circulation Credit] increases the amount of money substitutes, of things which are taken and spent by the public in the same way in which they deal with money proper. It increases the buying power of the debtors. The debtors enter the market of factors of production with an additional demand, which would not have existed except for the creation of such banknotes and deposits. This additional demand brings about a general tendency toward a rise in commodity prices and wage rates."2
So expansion of the relative tax rate (and the interest rate) is dangerous to investment because it lowers the relative surplus value that capital circulation induces. And yet, the converse is not taken into account - even though he is fully aware of the fact that money has a higher value where it is first introduced. In reality, the disparity in value is the rule, not the exception, in capitalist markets.

Two kinds of surplus value

Mises attacks the inconsistent character of credit-money and its inflationary effects. He laments the inflated value of money in the hands of those with first dibs, and the deflated value of those last to receive it. But there is no less an inflationary tendency in a "pure, free market": his zero-sum logic of the winner-loser relationship in money expansion applies to the mining of gold, as he attests himself. In fact, the entire capitalist system is based on the same kind of structure of expanded then retracted value.6

Capitalist surplus value follows this tendency: money is subsumed into commodities, whose consumption provides a greater monetary value in return (Money-Commodity-Money, or M-C-M).7 If this does not occur, investment is either in error or disincentivized; in either case, no firm will last long following a contrary model. In the process of production, a worker provides labor for a given rate which must be lower to the capitalist than the rate on the other hand, the salable rate of the product minus constant capital costs (machinery, materials).

While Mises would argue that the input of accounting accounts for the value change in capitalism (or the distribution, which "creates wealth"), he seems to offer no consideration of the value - in time-difference, policy regulation or accounting elasticity - that expansion of the monetary base might imply.5 Like minded professionals at Cato and Heritage Foundation share this inconsistency. But the similarities in the two models, the interest & capitalist cycles, is far more significant, especially in terms of the lopsided character of the value relationship.

In both cases, the value of the same commodity exists on two different hands: on one hand, where its value is expanded, and the other hand, where its value is lower. Both of them rely on a bottleneck model of value exchange: a relatively scarce resource or medium of exchange puts the controllers of the bottleneck in a position of heightened demand for their synchronous activity with the mode of production. Mises disparagingly refers to the socialist model of capitalist leverage over the means of production as a model of disproportionate power, but conveniently overlooks the point that the banks and governments responsible for the expansion of credit are in precisely the same kind of position of power, and only extract surplus value through that position of power.2

This is Why We Can't Have Nice Things

If we are to believe the capitalists, it is consumer demand that controls production, and yet expanded demand will not create more investments (even though consumers would control more value with expanded consumer credit). Further, that we should rebuke those who suggest higher taxes on capital, since it disincentivizes production. If we were to believe in the supremacy of investment over production, why not the supremacy of demand over investment? After all, Mises includes the structure and presumably quantity of capital as a part of the production process beholden to consumer interests and cites "every penny" as a vote in the market.2

Perhaps every vote, every penny in the market, is not a vote at all except as a fraction of the available subject of the voting regime. Perhaps they are hardly votes at all. In either case, the fact returns consistently to the same: that the real bulk of power is held by those with control over the bottlenecks in the process, be they the creditors or the capitalists in general.

It's not the the lack of rational economic doctrine in politics that causes politicians to act counter to the stated goals of their constituent-economic policies. It is the interests of the wealthy that are consistently reflected in the policy of government. The simple reason for this is the collusion and investment that economic interests make in politics:
"The real market for political parties is defined by major investors, who generally have good and clear reasons for investing to control the state. ... Blocs of major investors define the core of political parties and are responsible for most of the signals the party sends to the electorate."8

Dispossess the Rich to Create jobs

Consistently, the model of rational economic activity as reported by the Cato-Heritage-Austrian ideologues reflects the interests of the ruling class. Wherever the wealthy may lose value, measures are taken to hedge the risk - or otherwise position the elite to ultimately prosper from unfolding events. The underlying theories are expanded upon just enough to be internally consistent, but ultimately incompatible with one another. While some kinds of value-manipulation are harshly criticized, the same done by private capitalists is touted as a virtue of "accounting," while the very confidence that markets provide for the accounting of credit-based banking systems is generally ignored.

The creation of jobs relies on the expansion of consumer demand, the appropriation of capital and the application of labor to meet these demands, including the expansion and innovation of capital. If consumption on one hand, labor on the other, and sound accounting in the middle are indeed the valuable structures in production - why not more closely link them together? Why maintain a class of middlemen, representing a narrow subset of interests withholding capital until it can be used profitably for them? Indeed, a narrow ownership or control over even aspects of the means of production tend to lead to exploitation.9

The working class as consumers and as workers have every interest to manage the means of production themselves. There is no reason not to think that democratizing and popularizing the control over these processes would lead to expanded representation of human interests in economic production and distribution, of both capital and consumer goods.

1Edwards, Chris, Cato Institute: Taxes and Small Business Job Creation. Washington, DC. 2010
2Ludwig Von Mises: Mises On the Manipulation of Money & Credit. p. 182-4, 188-9, 193, 203-4, 223
3Heritage Foundation: The Obama Tax Hikes: Killing Job Creation. 2010.
4Gattuso, James, Heritage Foundation: Regulatory Impediments to Job Creation. Washington, DC. 2011.
5Ludwig Von Mises: Human Action.
6North, Gary: Mises on Money. 2002.
7Marx, Karl: Capital Volume 1. London, WI. 1990. Translation by Ben Fowkes Pp. 261-2 (alternate)
8Ferguson, Thomas: Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems. Chicago 1993. Pp. 22-8 (preview)
9Smith, Yves: Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism. New York, NY. 2010. Pp.130-1


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