“The
Politics of Money Towards Sustainability and Economic Democracy”
By
Frances Hutchinson, Mary Mellor and Wendy Olsen, Pluto Press, London and
Sterling, Virginia, 2002.
Reviewed
by
William Krehm
“The importance of the enclosure of land as private property is that many of the resources communities held would have been in the form of common land. Common resources are those which have no deeds of ownership but are regularly used for farming or harnessing subsistence. Under these conditions most people would have gathered, hunted, gardened and herded, growing and preparing their own food. The emergence of capitalist market society together with industrial patterns of resource use including agricultural production has broken down the direct relationship between people and the source of their subsistence for at least two-third of the world’s population. Self-provisioning has been replaced by waged labour contractually engaged ‘through a network of society-embracing markets.’ It was this compulsion into waged labour, ironically described as ‘free,’ which Marx argued made capitalism a unique form of exploitation.
According to John Locke (1632-1704), although God gave the land to be held in common, it was the duty of individuals to improve [it] with their own labour. Where the land is made more valuable and profitable, common possession must give way to private property. According to this theory, land has value in itself. Hence when an individual encloses waste or common land, and labours to improve it, they add to, rather than take away from communal welfare.
The Escalation of Unsustainable Practices
“Such improvements enabled the individual household or firm to produce commodities for sale for money in distant markets. In the process it created the illusion that unsustainable practices could be escalated indefinitely.
“The process of absorbing the commons into the market system continues apace today. Forest people in particular are struggling for the retention of the commons of tropical rain forests from Sarawak to the Amazon. Across the globe indigenous peoples are launching anti-globalization campaigns.
“Equally, the state can guarantee the rights of the international, global capitalist elite class to plunder the social and ecological commons, placing the short-term profit of powerful individuals and corporations before the common good. In the eyes of many people organizations like the World Bank, IMF and WTO are just that, agents of property regimes that seek to transfer all resources into capitalist corporate regimes.
“Capitalism is the enclosure not only of land but also of tools and knowledge for the purpose of private financial gain. As Veblen has argued, all invention is based on the common cultural inheritance built up over countless generations. Although the fencing of land is commonly portrayed as a means of introducing more ‘efficient’ farming methods, it entailed far more than mere fencing. Loss of subsistence access through enclosure, exclusion or patenting leads to a loss of social inheritance and knowledge.
“Intellectual property has now become an important aspect of world trade. The patenting of seed in particular is causing a loss of species as well as denying poorer people access to their traditional plants. Often this is because the seed has been hybridized and patented. What this might mean in the longer run is that hardy species developed over millennia to resist salination, drought or low temperatures, or forage animals that can live in difficult terrain, will be lost forever.”
“To live people must do paid work or find a source of money income. The entire edifice of economic theorizing has been built upon the false premise that things exchange for things and not for money. That was why Marx was so outraged at the argument put forward by Jean Baptiste Say that in every sale there is a purchase, and in every purchase a sale, exactly as in barter. Marx is quite clear that money, not commodities, is the focus of the market economy.
“Only if money is eliminated is it possible to regard ‘capital’ as the commodities or ‘things’ comprising a necessary element in the productive process: hence the common misapprehension that ownership of the physical rather than the financial means of production is the key issue in the control and production of wealth. It is also possible to be drawn into the debate on booms, slumps, inflation, stagflation, unemployment and the general tendency for a falling rate of profit without challenging the conceptualization of a formal economy which is assumed to be providing for universal welfare through the production of things. According to Freeman and his colleagues the study of economics which ignores the central role of money in the economy has also invaded Marxist economics. Economics must be situated in real time and the real world.”
That is far truer than Alan Freeman seems to realize. Not only have money prices and money profits replaced the prime role of commodities in the economy, but the rate of growth of the profit already obtained by public corporations in a single year, is by grace of an alleged knowledge extrapolated into the remote future and then discounted for present value and incorporated into present price. The knowledge of such items is supposed available from equilibrium points located with “derivatives.” The result: market prices of successfully promoted stocks strive towards the exponential curve which is the mathematics of the atom bomb.
Man shapes his theories under the influence of his technology. Marx’s view of the society’s future, was obviously inspired by the railway-building age in which it was conceived: its course was plotted via foreseeable stations to the socialist terminal. This is what Veblen identified as Marx’s “teleological” aspect (Hutchinson et al., p.106). With our contemporary economists, the major influence is the split atom. It is the model not only for the stock market but for the entire economy.1
Veblen laid a finger on the vulnerable “romantic” side of Marxism (“a sequence of theory”). “Capitalism relies on two basic mechanisms of cultural conditioning. First, the conditioning of ‘chronic dissatisfaction’ associated with emulative consumption (consumerism) – the ‘spiritual’ poverty of labouring for a money wage, going into debt to acquire and consume more objects offering the illusion of leisure and status. He enriched the language and sociology with the term ‘conspicuous consumption’ that increasingly drives our world. Second, patriotism and military discipline to maintain its aggressive imperialist expansion.”
This might well have been written not in 1899, but the day before yesterday.
“Veblen provides a neat example of the ‘double-think’ of neo-classical economics when the factors of production are described in purely material terms. [He cites] John Bates Clark, an early American marginalist, dismissing the notion of capital as financial (money) value. In his view, it would be more accurate to regard capital as ‘a fund of productive goods.’ However, Veblen refers to Clark’s own contradictory example of the transfer of capital from a whaling ship to a cotton mill. Plainly, ‘capital goods are not purchase and sale.’ Finance capital intervenese to change the nature of exchange’ (Hutchinson, p. 113). Capitalism upsets all concepts of ‘natural’ returns to the factors of production.”
Veblen emphasized the rigidities into which the concept of “class” led Marxists. “The complexities of class within capitalized money/market systems has been somewhat obscured by Marxist thinking that narrows the emphasis to capital-labour relations. This not only ignores the problems of unpaid work but cannot make connection with the position of debt-based, small-scale property ownership such as the peasant landholder. Veblen questioned Marx’s prediction that agribusiness would absorb the small proprietor, converting them to landless labour. As early as 1906 Veblen suggested that socialists and small peasant farmers should have common cause in resisting finance capitalism. However, Veblen was a voice in the wilderness. Henceforth, the small farmer, classed as ‘bourgeois’ by ‘socialists’ sought to oppose the hated financial capitalism by adopting an ideology on the far right.”
More recently, under the impact of other cultures, this has begun changing with leftist politicians lending a sympathetic ear to land claims of indigenous peoples. In India Marxists are recognizing the links between the rural bourgeoisie with urban industrialists, that is influenced by the caste system. The authors of the book under review bring to centre-stage the exploitation that occurs within families where the women’s unpaid labour is not recognized. “Social class is now just part of the set of resource factors and interrelated subjectivities such as gender and ethnicity that go into shaping social relations.”
Obviously, the Social Credit people, no less than other reformers, will have to invest further effort in grasping how society is to move to the solution of the seemingly impossible problems that beset the world today. In an earlier issue of ER (May 2004) we paid tribute to an earlier volume co-authored by Ms. Hutchinson in disclosing to us what had previously eluded us – what Douglas was saying with his A and B theorem. It was not capital budgeting, for capital budgeting which recognized the capital investment in equipment, buildings and much else that would come back to the producer only over a long period. During that time capital debt would have to be financed. That was the entry through which exploitative financial capital took over. It had therefore to be bridged with a social dividend that could be justified by the heritage of all in previous generations who contributed in various ways to make possible the institutions, science, technology and social cohesion that made production possible in our day – slaves, martyrs, inventors, civic leaders, jurists. That social dividend would help make it possible to carry on production without being at the mercy of finance capital. Producers’ banks would make its contribution to this end. That, however, does not mean that in addition to Douglas’s A and B accountancy, we have no need of standard accrual accountancy (i.e., capital budgeting) that would keep us informed of when the total investment is to return and with what profits.
These two distinct gauges of the efficiency of a firm – or the economy as a whole – correspond to twin complementary concepts. One is liquidity that the Douglas A & B theorem addresses; and solvency which has to do with the existence of enough assets, liquid or otherwise, to cover the institution’s debt.
One of the goals of the A & B Theorem is to avoid the need for external financing of the productive process. To close this monetary gap while production is being completed and the income from the sale has come in, Douglas depended upon the Social Dividend. This would help the producers organize their own financing.
Rethinking the “Inflation” Concept
There is another important detail that our Social Credit friends should look into. In recent election campaigns on all continents we have witnessed a fixation on balancing the national budget. That of course, conflicts with what we learned in the 1930s at a shattering cost. But so long as our central banks insist on identifying any rise of price indexes with inflation, we risk repeating that experience. Since World War II, the market economy has become a pluralistic one, in which more and more human and physical infrastructures are needed to serve ever more complicated technologies and intense urbanization. And these only the state can provide. The resulting taxation, however, inevitably becomes a deepening layer of price. Thirty-five years ago I identified this as “the social lien.” This must be distinguished from inflation that properly refers to price rise resulting from an excess of demand over supply. Economic Historians (notably the late Ferdinand Braudel) have grasped the point. Economists have remained blind to it. Recognizing it would undermine the vested interests served by the self-balancing market construct, that dispatches all social and environmental concerns as “externalities.” Economic policy has become increasingly identified with balancing the national budget that is increasingly in deficit because of governments’ insistence on treating public investment as current spending.
Unless serious accountancy is introduced into our price theory, there will be no possibility of bringing in anything resembling the “social dividend.”
1. The exponential function will repay a little attention. It is constructed to the specification that the rate of growth equals the value already attained by the function itself. That implies, of course, that the same is the case with the higher derivatives to infinity.
The formula is: 1 + x
+ x2/2 xn1
+ x3/3 x 2 x 1
...
Differentiating the function for the rate of growth: 1 being a constant doesn’t grow and hence becomes zero and x grows as the variable itself becomes 1 to replace the vanished first term on the left. The denominator of the next term is chosen so that its first derivative becomes x to replace the previous second term, and so on to infinity. Being an infinite series it doesn’t matter that the first term disappears and the expression shifts to the right. There are an infinite number of terms available on the right to absorb the losses on the left. As they occur you pass on to the next higher derivative. In graph form this is a curve that starts almost horizontal but in no time at all stands vertical.