Why does capitalism need 3% growth?

[littlebabyjesus]

This is a vital point I think. Money as debt people have got the tail wagging the dog afaict.

I'm not so sure, I must say. I have not read Capital, but going by the responses on here from those that have, it appears that Marx does not allow for fractional reserve lending. He doesn't allow for the fact that money is created when you borrow – you are not taking someone else's capital for a bit, you are using newly created currency, which will be destroyed again when you repay it; it will all be destroyed except the interest, which the banker gets to keep, or add to the next loan you take from him...

I still don't think my point about borrowing to consume leading to inflation has been addressed. I can't help feeling that the Marxist way of viewing the creation of capital is outdated – it doesn't match up with modern debt-creation. Clearly, a disjunct between the money supply and value production will cause a collapse at some point, as we see happen. But there are other factors at play, factors that cause the circulation of money to fall badly out of synch with value production. Does Marx explain how this happens? Or do we need to look at the modern banking system afresh, seeing where Marx needs to be modified?

 

[Blagsta]

Marx talks about fictitious capital and the credit system in Vol 3 of Capital afaik.

 

[love detective]

Didn't really want to stretch this exchange out, but it's worth responding to

I'm not so sure, I must say. I have not read Capital, but going by the responses on here from those that have, it appears that Marx does not allow for fractional reserve lending. He doesn't allow for the fact that money is created when you borrow

First - I would always recommend reading something first before passing judgement on whether it covers a particular area or not.

Second - money isn't created as such when you borrow - loans & deposits are created, which in turn can circulate like money. These Loans & Deposits can not however be created out of thin air and require both central bank money and activity in the economy for this to happen. Banks and their activities are not necessarily the independent actor here - they are dependent upon central banks & economic activity/value production - they don't just decide to create debt/credit out of nothing, as and when they feel like it

Third - Fractional reserve lending is nothing more than existing money/expected future value circulating around the system as deposits & loans.Marx, quite correctly, devoted substantial amounts of time/writing in relation to circulation within the capitalist system - volume II is all about circulation with substantial sections looking at the circuit of money capital - and within volume II it very cleverly demonstrates how the foundational basis for the whole credit system emerges organically out of value traversing the capital circuit, the foundational section of volume I re commodities/money/exchange is rooted in it, and a substantial section of Volume III focuses on interest bearing capital and the credit/banking system.

While the form/appearance of certain things within the banking/credit system may appear different now to what they did in marx's time, the underlying essence of what is involved is no different

you are not taking someone else's capital for a bit, you are using newly created currency, which will be destroyed again when you repay it; it will all be destroyed except the interest, which the banker gets to keep, or add to the next loan you take from him…

As I said, you are not using newly created currency - you are taking part in the circulation of existing money/loans/deposits - you are correct however that it disappears when its repaid, but incorrect that the interest remains at the total level - the interest is just a movement of (existing) value from one person to another - while at the individual level one party pays the interest and another receives it - at the social level it is negated - it's not new value/money/interest created out of nothing, it's merely a redistribution of existing value from one party to another. This is a fundamental aspect of marx's analysis of the credit system and surplus value distribution - i.e. interest is merely one of the surface forms that surplus value takes (profit & rent being the other two) and interest bearing capital captures a share of surlpus value produced elsewhere (i.e in production, by industrial capital) in return for the role it plays in the circulation of capital

I still don't think my point about borrowing to consume leading to inflation has been addressed.

I've addressed it substantially over many posts to the best I can based on the information you have provided re the example economy (i.e. no growth) - if you don't agree with it you should point out specifically where and why that is the case so that can be discussed. The only thing that you have raised to date in relation to this I have shown not to hold true within the confines of the example layed down by your very self. Remember our discussion was based on the closed system of simple reproduction - anything that I've said in relation to that doesn't necessarily hold true when we go to the real world of expanded reproduction and the host of variables that need to be abstractly/articifically held constant to achieve simple reproduction are relaxed. So I'd caution on moving between the two worlds and applying what is relevant in one to the other without modification

I can't help feeling that the Marxist way of viewing the creation of capital is outdated

Your mixing up capital with lending/money/credit - the former is accumulated social labour the later is not necessarly that. But again shouldn't you actually read something before writing it off as outdated?

it doesn't match up with modern debt-creation.

How do you know when you haven't read it?

Clearly, a disjunct between the money supply and value production will cause a collapse at some point, as we see happen. But there are other factors at play, factors that cause the circulation of money to fall badly out of synch with value production.Does Marx explain how this happens?

I don't quite understand the question - money supply and value creation can become out of synch as discussed yes - but I don't understand when you then refer to other factors at play, but those other factors you refer to as causing this - so am not sure what your question is. As to marx's analysis of things like this, areas like ficticious capital are firmly in the realm of what we are talking about - and again if you'd actually read the thing you would be aware of this

Or do we need to look at the modern banking system afresh, seeing where Marx needs to be modified?

I'd suggest actually reading Capital in the first place, before getting ahead of yourself in terms of talking about refreshing/modifying it. As I pointed out above, while the form/surface like appearance of things may look quite different (not to mention the sheer quantative scale) the essence and qualatative substance of the credit system/banking (and all else in capitalism) is essentially the same - and as also pointed out above across the three volumes this essence/substance is explored at great depth and is the result of decades of dedicated analysis of the topic

Just to say though I wouldn't normally scream 'you should read marx' in a discussion, but as we've verged on to what and what is not covered by Capital - and the discussion is being had between someone who has read all three volumes (twice) along with countless secondary texts and someone who hasn't read it all - I hope this doesn't come across as too patronising. If you are genuinely interested in the answer then I'd urge you to take the time to actually first read the material you rather confidently feel needs refreshed/updated - it will save you a lot of time in the long run - and any actual updating that may be required would be far easier to be done from a starting point of a solid actual understanding (rather than potentially misinterpreted hearsay) of what has went before us

 

[deke t lefel]

Sorry if I'm being thick. There have been some good posts on this thread, and Falcon's is a very clear explanation.

But I still don't quite see how this whole thing could not operate simply with inflation, not growth.

Let us assume that we have a static system in which there is a fixed amount of energy, resources and work available, and everyone does the same thing the same way. So there is no growth in the real economy at all – every year, there is the same amount produced by the same number of people. This static system is mediated by money that is created through fractional reserve lending at interest.

As Falcon says, the interest due on loans necessitates the constant increase in the money supply through the creation of more and more debt. But does that not simply mean that there will be more and more money chasing after the same amount of goods, so prices will simply go up to compensate? Could that not be a stable system? It would mean that overall the real value of 'investments' would not go up, but it would also mean that there would still be an incentive to invest as the real value of uninvested money would go down over time.

maybe it's because money is classed as capital in its own right that puts the ism in capital


if money is created from interest on loans, then capital money can be created from within a closed system and that capital can then be added to GDP to give the illusion of growth without any change in production (i.e. interest and capital growth are the same thing)

within this closed system, inflation can occur if newly created capital money is put back into circulation in the form of debt and deflation can occur if money is hoarded

 

[love detective]

if money is created from interest on loans, then capital money can be created from within a closed system

the point is however, it has been shown in the example scenario that interest on loans wouldn't arise in the first place, as loans themselves wouldn't have to be created to fund the consumption of capitalists in the first place - as sufficient money is already in (such a closed) system to circulate everything that is produced/consumed. Therefore there is no need for loans in the first place, and even then if for some bizarre reason the capitalists within that system did lend/borrow it will cancel itself out at the total level anyway, both in regarsd to loans and also any interest theron - it's a zero sum thing

 

[Random]

Run! Save yourself!

 

[deke t lefel]

the point is however, it has been shown in the example scenario that interest on loans wouldn't arise in the first place, as loans themselves wouldn't have to be created to fund the consumption of capitalists in the first place - as sufficient money is already in (such a closed) system to circulate everything that is produced/consumed. Therefore there is no need for loans in the first place, and even then if for some bizarre reason the capitalists within that system did lend/borrow it will cancel itself out at the total level anyway, both in regarsd to loans and also any interest theron - it's a zero sum thing

the need for loans could arise if some acquire more money than others and that money is hoarded, then there may not be enough money in circulation to exchange everything that is produced

this would create a demand for loans and if interest is charged, money becomes a function of time (rather than simple exchange) and it is only a matter of time before money is borrowed against the future labour of the debtor........and it is no longer a zero sum situation because it is not bounded by time

 

[Backatcha Bandit]

money isn't created as such when you borrow - loans & deposits are created, which in turn can circulate like money. These Loans & Deposits can not however be created out of thin air and require ... central bank money

So where do you suppose the CB get it, if not out of 'thin air'?

..Fractional reserve lending is nothing more than existing money/expected future value circulating around the system as deposits & loans.

Fractional reserve lending is the amplifier of the 'original sin' perpetrated when the CB creates that 'existing money' (as interest bearing - yet unrepayable - debt).

..you are not using newly created currency - you are taking part in the circulation of existing money/loans/deposits

Again, from whence does that 'existing money' originate?

..that interest on loans wouldn't arise in the first place... - as sufficient money is already in (such a closed) system

..it's a zero sum thing

How did it get to be 'already in' the system?

if money is created from interest on loans

Debt is created from interest on loans. The 'money' to repay that interest bearing debt doesn't exist until it is created (read: 'printed' by the CB), creating more interest bearing debt, for which the 'money' to repay does not exist (until created by more... and so on).

LD, do you have an opinion of the criticisms of KMs' thinking I highlighted in this post regarding his failure to recognise the fundamental *metaphysical* difference between 'money' and that which it is commonly assumed to represent?

*Gets ready to throw away the key*

 

[Backatcha Bandit]

the need for loans could arise if some acquire more money than others and that money is hoarded, then there may not be enough money in circulation to exchange everything that is produced

this would create a demand for loans and if interest is charged, money becomes a function of time (rather than simple exchange) and it is only a matter of time before money is borrowed against the future labour of the debtor........and it is no longer a zero sum situation because it is not bounded by time

You'll love Gesell.

 

[Backatcha Bandit]

..it will all be destroyed except the interest, which the banker gets to keep, or add to the next loan you take from him...

Exactly.

.. I can't help feeling that the Marxist way of viewing the creation of capital is outdated

You're not alone, there... although I might go so far as to suggest 'fatally flawed from the outset'.

it doesn't match up with modern debt-creation. Clearly, a disjunct between the money supply and value production will cause a collapse at some point, as we see happen. But there are other factors at play, factors that cause the circulation of money to fall badly out of synch with value production. Does Marx explain how this happens? Or do we need to look at the modern banking system afresh, seeing where Marx needs to be modified?

Heh.

(click to enlarge)​

 

[gorski]

Gawd... Debt in relation to what? For crying out loud...

 

[love detective]

the need for loans could arise if some acquire more money than others and that money is hoarded, then there may not be enough money in circulation to exchange everything that is produced

this scenario has already been addressed in previous posts of mine, but i'll recap/expand:-

1. In our example we have two main capitalists Dept I and Dept II - as already outlined sufficient money would already be in the system to circulate all production within our closed/static/no growth system. Each capitalist would already have access to a money fund (that money being the realisation from previous years production not yet thrown into circulation for the current year, which once thrown into circulation for funding consumption (or anything else) would always return to them as the point of origin - or if it is indeed the initial year money from say primitive accumulation either directly owned or borrowed). Therefore why would a capitalist resort to borrowing more money to circulate the static production of the closed system when they already have access to money, both within the system as a whole and within their own reach, to circulate their commodity production? This has already been discussed in previous posts.

2. Even if, for some bizarre reason, they did borrow this would be negated by the fact that they would also have an equivalent amount of money sitting in a bank on deposit (i.e. Dept I would lend to/borrow from Dept II, and Dept II would borrow from/lend to Dept I) - so this would all negate itself (including the interest) and not result in any new money being 'created' - this was discussed as well in previous posts

3. Even if we assume the money that capitalist already had was hoarded outwith the banking sytem, under the duvet (although we're moving away from any kind of sensible discussion here as in our world of simple reproduction, a premise of the model is that the same production is achieved each year by the same number of people and that there is sufficient efficient demand within the system for capital to clear its products, so there would be no reason for hoarding money/not throwing it back into circulation to mediate circulation/exchange - hoarding in this scenario is the activity of a miser, not capitalists which we are dealing with here - as marx said a miser is a capitalist gone made, while the capitalist is a rational miser).

But even accepting that for some bizarre reason, in our world of capitalist simple reproduction, our capitalists are no longer functioning capitalists anymore but have went mad and are acting more like misers and hoards money under their duvet - I agree then at this stage additional money may be required to enter into the system. However this is only because there is no longer enough money left in the system to circulate the same amount of commodity production - so yes 'new' money may enter the system, but it doesn't create inflation or even increase the actual money supply, as it merely replaces the money that has since left the system (through hoarding) and no longer functions as money. Sure the hoarded money may re-enter the system at some point in the future, but remember it can't re-enter it to expand production/consume more than the economy previously consumed - as that is not permitted under the rules of our simple reproduction model. So to the extent that it did re-enter the system to circulate existing, static, production - it would merely render redundant an equivalent amount of money elsewhere in the system - as there's nothing for it to do - again similar to what's recently happened under QE. But anyway - this scenario where new money needs to come in because of hoarding outwith of the banking system is completely irrational - if you had £100 in your bank, and needed to spend £100 on means of consumption, would you seriously first withdraw the £100 from your bank, put it under the duvet, then go and try and borrow £100 to buy the stuff you needed - that's the scenario your putting forward here, you or I wouldn't do such a thing as individuals and it certainly wouldn't be done by capitalists. If instead the money wasn't hoarded physically outwith the banking system (duvet etc..) but within it, then it would still be within circulation (via the credit/banking system) so in this case there is still sufficient money left within the system

 

[Backatcha Bandit]

'Thinking inside the box'.

 

[love detective]

The 'box' itself is a given condition of the example scenario put forward by LBJ - i.e. a (hypothetical) simple reproduction/no growth system

To abstractly deduce how such a system would work the only approach that is possible is to think inside that box - to do otherwise would be to answer a different question to the one originally stated (i.e. for the premise of a simple reproduction/no growth economy to hold true numerous variables have to be artificially held constant, otherwise we no longer have a simple reproduction/no growth system - and therefore anything that is deduced, may be relevant in a different scenario, but is not relevant to the original question/hypothesis

Your inability to think inside the box in relation to this is the problem - not the other way around. That's why I've not bothered responding to your scatter gun approach to debate in relation to this - picking things up out of context and questioning them in the context of a scenario that's not being evaluated/dicussed - I'm not saying these things are not relevant, they're just nor relevant to the discussion being had

 

[Backatcha Bandit]

Thank you for responding, LD.

Seriously, I mean that. You have shown patience and maturity with a clear intent to elucidate, rather than humiliate - a rare quality in these boards, for which you have my utmost respect.

The 'box' itself is a given condition of the example scenario put forward by LBJ - i.e. a (hypothetical) simple reproduction/no growth system

A microcosm. A model. Agreed.

To abstractly deduce how such a system would work the only approach that is possible is to think inside that box -

Strongly disagree.

Your inability to think inside the box in relation to this is the problem - not the other way around.

It's not an inability to think inside the box, it's a refusal.

I know what's in the box (Marx describes this in excruciating detail), I know what it looks like from inside the box. I choose to step outside of the box to gain an alternative perspective on the box and it's workings.

From this perspective, I can see a hand placing the 'unit of exchange' into the box as we set up the experiment.

If this model of an 'economy' is going to yield anything of value to us, that is, something other than garbage, we need to account for that hand.

In the real world, the unit of exchange does not *magically* appear in the system, it is lent into existence (at interest) by the Central Bank (before being multiplied by fraction reserve banking, and on upwards into the derivative-o-sphere).

If the model fails to account for this, it's worthless, as it will always produce misleading results.

I'm not saying these things are not relevant, they're just nor relevant to the discussion being had

Again, I strongly disagree, for the reasons outlined above.

Even Butchers concedes:

No i don't like models abstracted from any historical reality or imposed on the future. I'm not a utopiast or a liar.

Which I have sympathy with to an extent, in that the model should reproduce the actual system it is designed to examine where possible.

I could never dismiss models per se, as they're fairly fundamental to taking a 'systems' approach (I'm a big Dana Meadows fan).

I'm merely demanding that the mechanism that falcon explained (to universal acclaim) in his post #78 be included in this model.

Yes, it is exogenous to the box. It is in reality. To pretend otherwise allows 'utopian myths' to arise surrounding the current economic system, when in fact the whole idea of 'interest' is logically absurd.

Apologies if my approach appears 'scatter-gun', I can appreciate why you might say that. I could be taken to be conflating a couple of separate issues with regard to 'interest on money created by a central bank' and 'interest in general', plus some other concerns I have with Marx. I'll try to stick to the former.

 

[deke t lefel]

in the abstract world of simple reproduction you talk off (and it can only really be an abstract one) - the same amount of value is reproduced & distributed each period (this value may represent a higher or lower amount of use-values but that's irrelevant here).

therefore the same amount/velocity of money is required to circulate that value/commodity production around the system - from initial money capital through productive capital through commodity capital and then back again to money

there's no reason for the money supply to increase when there is no need for it to increase (i.e. in a case of simple reproduction) - why do you assume that more money is borrowed to pay the interest - in the schema you describe (simple reproduction) the interest would be paid back out of value produced. This can be demonstrated using a fairly simplistic abstract model, and standard marxian categories/approaches

In a period, if say 500 units of value are invested in means of production and 400 in labour giving a total investment of 900 and the rate of exploitation of labour is 25%, giving 100 of surplus value - then the total value of commodity production in that period will be 1,000. In your static system you assume the same amount is produced each year, which in turn assumes everything that is produced is sold and therefore realises it's total value (otherwise it wouldn't be produced) - meaning capital in total realises 1,000 units of value through the sale of commodities produced. If we're assuming simple reproduction,which you are, then out of that 1,000 value realised, to be able to repeat the same thing in the next period, 500 will have to be reinvested in means of production to replace that used up in the last period, 400 will be spent on means of consumption (by the working class) to reproduce the labour used up, leaving the 100 profit which would be spent on consumption/luxury by capitalist class (which of course, like the means of production and means of consumption, would have been produced in the necessary proportions, to ensure their realisation, as part of the 1,000 value of commodities produced)

Assuming these same proportions each time, then 100 profit in total is made by the entire capitalist class each year. If part of the initial 900 invested is financed by debt, then the overall 100 made at the end will be distributed between industrial capital and interest bearing capital in a particular ratio (i.e. industrial capital initially 'earns' the 100 of surplus value, but pays, say, 10 of it to interest bearing capital to service its loan) - but regardless of what that ratio is - there is still 100 units of value in the system that capital in general has appropriated (albeit 90 is in the hands of industrial capital and 10 in the hands of interest bearing capital), and in turn must spend on consumption (and not throw back into the system seeking further accumulation - as that would involve growth/more production which is ruled out by your schema).

So 1,000 units of value produced each year, 1,000 units realised, and 1,000 units of value spent/invested, never any more, never any less. Whatever the level of debt involved in circulating this cycle doesn't require more money coming into the system to circulate it - it's already in the system and it just moves around between different types of capital - from industrial capital to interest bearing capital and back again - in the form of interest from industrial capital to interest-bearing capital and then back in the form of purchases of means of consumption/luxury items from interest bearing capital to industrial capital (i.e. the interest appropriated by interest bearing capital can't be thrown back into circulation through additional lending to try and capture a bigger share of surplus value produced, nor can the remaining surplus value retained by industrial capital be thrown back into circulation as investment to expand surplus value production as your schema of simple reproduction doesn't allow it - there's no where for it to go as expanded reproduction is ruled out through abstraction). So whether none of the 900 investment each year is funded by debt or all of it is, the end result is the same - 100 is appropriated by capital in total and is consumed away.

If for whatever reason the money supply was increased in the above system it would have nowhere to go, because it's restricted from doing anything by the terms of the schema you set down yourself, i.e. simple reproduction - 'same amount produced by the same number of people' - the only thing that could happen to it would be that it doesn't actually do anything and therefore has no impact on inflation (a bit like what happened under quantative easying, money was pumped into the system, but it didn't circulate as no one wanted to lend it and no one wanted (or weren't able) to borrow it - it's impact on inflation was nothing/minimal)

Anyway, the point above while relevant in the abstracted world of simple reproduction and for the purposes of making the point, is fairly irrelevant in the real world as simple reproduction doesn't and cannot exist on its own under capitalism (and i struggle to see how it could exist under any mode of production - far too many variables that would have to be ruthlessly controlled to achieve it). Technological progress, increased productivity and the resultant accumulation of capital and overproduction is inherent in the very concept of capital, it's rooted in the capital-labour relation.

Marx's schemas of reproduction at the end of Volume II of capital are fairly relevant to all this - in which he makes the following point about simple reproduction

Simple reproduction, reproduction on the same scale, appears as an abstraction, inasmuch as on the one hand the absence of all accumulation or reproduction on an extended scale is a strange assumption in capitalist conditions, and on the other hand conditions of production do not remain exactly the same in different years

the original example didn't consist of two capitalists in an exchange situation, it consisted of workers who were being exploited by a capitalist

this brings in capitalism's very own economic calculation problem - how does the capitalist calculate the amount of surplus value that can be extracted from the worker whilst ensuring the worker's continued survival as a productive worker?

if the worker needs 450 'units of value' to survive, where is the worker going to get the extra 50 units, other than borrowing it (at interest) from the capitalist's profit of 100?

 

[love detective]

BB - I'll respond to the pertinent part of your post after these ones

the original example didn't consist of two capitalists in an exchange situation, it consisted of workers who were being exploited by a capitalist

couple of points to this

1. the original example from LBJ made some assertions about the economy as a whole (i.e. inflation was possible in a no growth/simple reproduction model), so therefore any model of it needs to be done at the total level (i.e. all activity of all actors) not just that of an individual capitalist and its workers in isolation. if the focus is at the individual level then that leads to results that do not hold true at, and are not reflective of, the total social level (i.e. if i make a profit by ripping you off/selling goods above their value, then although i make an increased profit at the individual level, if everyone done this then everything would cancel out at the total level - this focus at the individual level and extrapolating the results to the total level is I believe called methodological individualism although marx would have called it by what it is, vulgar political economy)

2. Following on from 1 - to describe my example purely as 'two capitalists in exchange situation' is a poor description of it. My example described an abstracted economy of simple reproduction (as stated many times previously, something that is only possible in theory) where capitalist production was split into two main parts - production of the means of production and production of the means of consumption. each division had one capitalist as it's representative and also workers who worked for them and were exploited by them. In fitting with (1) above it covered all activities that would take place, i.e.

- production in Dept 1 of means of production as commodities
- production in Dept 2 of means of consumption as commodities
- exploitation of workers in both Dept's by capitalists (the 100 profit)
- an exchange of capital for labour in both Depts (wages)
- an exchange of money for means of consumption between workers of Dept 1 & 2 with capitalist in Dept 2
- an exchange of money for means of production between capitalist in Dept 2 with capitalist in Dept 1
- an exchange of money for means of consumption between capitalist in Dept 1 with capitalist in Dept 2

All these activities need to be considered when looking at the social reproduction under capitalist relations - and again I refer to Marx's studies of this at the end of Volume II of capital as a reasonable place to start for anyone who is interested in it. I may have abstracted from some of these to get to the crux of the question/issue - but they are all implicit in the model I described and all would be required for reproduction (at the same level as before) to take place in future periods

3. Finally, if you are happy that the points in 1 & 2 need to be considered to get an accurate representation as possible of the (hypothetical) economy of (simple) reproduction - then the only thing left to quibble about is that I used two capitalists (one for each main division of production) in my example and the original used 1. If only 1 was to be used, this would be fine if that capitalist actually controlled all production in society (i.e. production of means of production and production of means of consumption) - this would be fitting of the need to consider the whole/totality

If you accept my points 1 & 2 above, then the replacement of my original two capitalists with one in the model makes the case agasint LBJ's assertion even more easier to dismiss. If you recall the only way LBJ could attempt to show how inflation was possible in a no growth/simple reproduction model, was to assert that new money would be introduced to the economy as a result of a capitalist having to borrow money to fund their means of consumption (due to timing differences between their output being realised and their need to consume). I disagree with this assertion and have proved it to be incorrect on many levels in previous posts, but in our world of only 1 capitalist controlling all production then the issue of the capitalist having to purchase (with money) means of consumption drops out completely - and if the requirement to purchase drops out, the related assertion of having to borrow to fund this purchase goes with it. This is because the output of all production in our model belongs to that one capitalist - as soon as their commodities are in the finished form they don't need money to mediate their acquisition & consumption of the means of consumption as they already have it and own it - they simply just take their profit directly from stock and consume it (as remember the only thing they can do with profit in a no growth/simple reproduction economy is to consume it, not reinvest it). The remaining output that they have is then split between 500 going back to replace the means of production used up in the last year and 400 going to labour as means of consumption.

Will answer the remaining part of your question in a separate post next

 

[love detective]

this brings in capitalism's very own economic calculation problem - how does the capitalist calculate the amount of surplus value that can be extracted from the worker whilst ensuring the worker's continued survival as a productive worker?

well for a start the capitalist doesn't (and can't) calculate or decide the amount of surplus value that is extracted from labour

surplus value is the difference between two things:-

i) the total value produced by labour and

ii) the amount paid to labour so that they can reproduce themselves and continue working/being exploited

If we assume for the sake of presentation, and for the time being, that (i) the total value produced by labour is constant then the only way that surplus value can change is if the amount paid to labour changes

If the capitalist wants to continue as a capitalist they have to ensure the working class is reproduced at a level sufficient to continue working for the capitalist - that means having to pay labour what is considered to be the 'value of labour power' at that given time/period etc.. by getting this amount that means labour can reproduce themselves and future generations of labour so capitalism can happily continue. So capital is stuck having to pay whatever is required to ensure the reproduction of labour (they will obviously push to keep this to the minimum, and that is one area where class struggle plays itself out, but whatever that level is capital know it has to pay it if capital itself is to survive).

Now the 'value of labour power' is not determined primarily by an amount of money, but instead by a collection of use-values that labour needs to survive (food, shelter, education, health, leisure etc..). All these things are commodified under capitalism so the only way the worker can get them is to buy them. However as productivity in the production of things increase, the same bundle of commodities that labour needs to reproduce can be produced at a lower cost. So for example if new technology/machinery means that productivity in the areas of production which produces means of consumption doubles, this means the value of these items per unit halves. In this situation capital can pay half as much to labour as they previously did while still ensuring that labour receives the same bundle/amount of use-values which they need to reproduce. So therefore labour receives the same use values, but the amount capital has to pay labour to acquire them halves - this in turn increases the surplus value appropriated by the capitalist by the same amount. The same value is produced in value terms (but consists of more 'things' in use-value terms), but a lower amount can now be given to labour leaving an increased amount of surplus value to capital. This is the 'deep essence' of increased exploitation under capitalism and shows why the relentless drive to increase productivity exists. This is why capitalism is only possible once the forces of production allow productivity to develop beyond a certain point so that surplus value can be continually squeezed out of labour through driving down the 'value of labour power' through increased productivity. For example if productivity was at such a low level that labour needed 100% of what they produced just to survive then there is no room for capital to exist as surplus value doesn't exist.

Obviously there's lots of other variables that can move in this - i.e. through class struggle labour can demand a greater share of the gains of productivity, capital can try and pay less then the value of labour power etc.., total value produced can increase etc.. - but the above is the crux of it. For most of Capital marx in his analysis/presentations held constant the 'value of labour power' to show the impact of increased productivity on the capital-labour relation (and to show how exploitation can, an does, increase even though labour gets more use-values). This in my view was one of the weaknesses of marx's overall project as it automatically translated increased productivity into increased surplus value for capital. He obviously acknowledged this is not the case in the real world, and had intended to present the view without this artificially held constant in his intended book on wage-labour but this was never completed. A lot of people say this is a weakness/oversight of marx and leads to a view (within capital) of the working class as object not subject - but in reality it's more about the right things being analysed in the right place. Marx never intended Capital to be the totality of his project, and Capital itself is mainly from the point of view as capital as subject and labour as object, but this doesn't mean marx thought that was the case - the other view of labour as subject and capital as object was the intended topic of his book on wage-labour (a good book which explores this 'omission' is lebowitz's 'beyond capital - marx's political economy of the working class'

if the worker needs 450 'units of value' to survive, where is the worker going to get the extra 50 units, other than borrowing it (at interest) from the capitalist's profit of 100?

so in light of the above, in answer to your question if labour actually 'needs' 450 units to reproduce themselves at the level that is required for capital - then the extra 50 comes from the 100 of surplus value that previously went to capital (i.e. not as a loan, but as increased wages) - so we're left with the amount appropriated from labour (i.e. profit) now only being 50. Labour can then consume 50 more than previously and the consumption of capital drops by 50 as they can only consume their profit and their profit is reduced by this increase in the value of labour power

However the above happening in our model of simple reproduction would not occurr - as the intital conditions of that no growth economy by LBJ was that the 'same amount of stuff produced by the same people' which implies there are no productivity changes and that the 400 units that go to labour are enough to reproduce them at the same level to continue simple reproduction in future periods

 

[deke t lefel]

it doesn’t really matter whether it’s a thousand capitalists and a billion workers, it is more relevant to consider what is happening in a given period of time

if everything is in equilibrium, then yes, there may not be the need for loans under certain circumstances, however, if the capitalist system starts from an inherent imbalance caused by exploitation of the workers, then a slightly different and relevant model is that the workers do not have enough wages to sustain their energy levels for continued production and are further exploited by the necessity to continually take extra money in the form of loans from the capitalists to make up the difference

in this situation, production could remain constant with the workers continually moving into debt and the capitalists moving into credit, compounded by interest

why doesn’t this model fit into the original criteria of zero growth with fixed amounts of energy, resources and work (without increased efficiency)?

 

[littlebabyjesus]

That's a good point, deke. It isn't just the capitalist who's borrowing, and you're right, it is more realistic to have the workers borrowing to consume, as happens today with balls on.

 

[love detective]

even if we accept that - and labour borrows from capital - capital already has that money to lend (they would in fact have even more money if they were not paying labour at the value of labour power - i.e. the amount required to reproduce labour at the same level ) - so this still doesn't go towards proving that 'more money' is required in the system to circulate commodity production - the money already in the system (which had to exist to circulate commodity production in previous periods - it doesn't matter how it got there orginally for the purpose of this discussion as this is all about whetehr new money would be needed going ahead) is sufficient - interest paid from labour to capital is just a further appropriation of existing value from labour to capital - it nets out at the total level both in value terms and in money terms - no new value is created through interest/lending so no new money is required at the total level to mediate/circulate it

but you're incorrect that this situation would remain - ultimately increased interest costs digging into wages would reduce the ability of labour to consume (and reproduce), meaning capital would either have to cut production as they wouldn't be able to realise the surplus value in all commodity production (which is ruled out under the conditions of a system of simple reproduction where production is constant) - or pay labour at the value that is required to reproduce itself for capital

anyroads i think we've wasted enough time arguing about what might or might not happen under a system that will never exist under any mode of production, let alone capitalist production - will respond to a couple of BB's points above then i'm calling it a day on this one - we'll have to agree to disagree

 

[deke t lefel]

fair enough, although it would have been interesting if a Dept III was added - a department for the production of destruction

 

[love detective]

commonly known as the department for the irrational rationalisation of an irrational system - or crisis for short - or just capitalism

 

[mick2007]

test

 

[ItWillNeverWork]

I'd love to hear LD's promised response to BB's posts. I know this is an old thread but could I convince anyone to take it up again? It was an interesting read.

 

[camouflage]

I've often heard that capitalism requires at least 3% growth over time to prevent itself collapsing. Is this true? If so, why? Would it ever be possible to have zero growth capitalism?

Population growth, new ideas, surplus value etcetera...

 

[camouflage]

fair enough, although it would have been interesting if a Dept III was added - a department for the production of destruction

You mean like, the military?

Military production fills the deflationary gap ya know.

 

[ItWillNeverWork]

Population growth, new ideas, surplus value etcetera...

Are these not things that cause growth rather than require it? How are the first two solely restricted to capitalism? In regards to surplus value, why is this necessitated on an aggregate level? From what LD appears to be saying, the economy can theoretically survive in a steady state.

It seems to me that growth is a result of capitalism, rather than it being necessary for its survival (unless falcons analysis is correct and there are exogenous financial factors that create the need for growth)

 

[camouflage]

Are these not things that cause growth rather than require it? How are the first two solely restricted to capitalism? In regards to surplus value, why is this necessitated on an aggregate level? From what LD appears to be saying, the economy can theoretically survive in a steady state.

It seems to me that growth is a result of capitalism, rather than it being necessary for its survival (unless falcons analysis is correct and there are exogenous financial factors that create the need for growth)

Maybe capitalism does cause growth, I mean... look at Egypt over the past couple of centuaries.

 

[love detective]

I'd love to hear LD's promised response to BB's posts. I know this is an old thread but could I convince anyone to take it up again? It was an interesting read.

Apologies but not really the time to get into this again at the moment - I think it had pretty much reached an impasse anyway

One thing though when you said this above:-

From what LD appears to be saying, the economy can theoretically survive in a steady state

To clarify this my point was that if a whole load of variables are artifically held constant in an abstract model (which was the initial premise LBJ put forward when making his assertion about inflation) then simple reproduction is possible without inflation etc.., however in the real world where these variables can't be held constant the whole thing becomes fairly meaningless - I mentioned this on lots of occasions throughout the discussion, e.g. :-

Anyway, the point above while relevant in the abstracted world of simple reproduction and for the purposes of making the point, is fairly irrelevant in the real world as simple reproduction doesn't and cannot exist on its own under capitalism

in the abstract world of simple reproduction you talk off (and it can only really be an abstract one)

That's not to say that analysing the mechanics of what's required for simple reproduction is absolutely pointless - as a large element of expanded reproduction is just simple reproduction in conceptual terms, i.e. in order for production to expand in the next period it has at least to replace the means of production/labour etc.. used up in the previous period, then find an additional element for the expansion.

But simple reproduction needs to be looked at in conjunction with, and as part of, expanded reproduction, not in isolation as some kind of abstract world that could possible exist. In Marx's reproduction schema in Volume 2 of capital this was pretty much the approach he took, i.e. demonstrating that simple reproduction cannot exist in the real world of capitalistic social relations , but accepting that looking at the mechanics of it in this abstracted manner is helpful as a starting point for, and component part of, expanded reproduction. So it's useful in the sense that if you don't get the conceptual basics of simple reproduction you're unlikely to discover much about expanded reproduction, but on it's own it doesn't tell us anything about real world capitalism