[S5.5 E06] Where Does Profit Come From?

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Professor Harvey takes us back to the very origins of Marx’s Capital by asking the questions, where does profit come from and what are the consequences of profit making? Harvey discusses how the debates between Ricardo and Malthus informed Marx’s answers to those questions. He then turns to Rosa Luxemburg’s insights into the role of imperialism’s predations on non-capitalist societies to expand accumulation. Finally, he brings the argument up to date by discussing the role of the credit system. As the internal capacity for consumerism and the imperialist capacity for consumerism become exhausted, the burden lies upon an expansion of the credit system to realize the value of ever-growing consumerism. Increasing financialization since the 1980s has created a different kind of logic to the dynamics of capital in which more and more of the onus is placed upon the growth of the credit system to keep the accumulation of capital expanding, which exposes the capitalist system to financial crises.

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#profit #imperialism #finance

Welcome to the Anti-Capitalist Chronicles, which is a production of politics in motion. Now today I want to take us back to the very origins of a lot of the argument about capital by asking the question, where does prophet come from and what are the consequences of profit making? What we really have to look at here, however, is a recognition that profit means there is more at the end of the day than there was at the beginning of the day. That therefore we're not going to be looking at a cyclical process in which labor power is put to work to produce a commodity, which is then taken to market and sold for money, which then comes back into the system to expand. It's not simply the circle that we are looking at. We're looking at a spiral that is, we are going to be looking at a process which is in constant expansion, and we'd have therefore to ask the question, where does the expansion come from and how is the expansion constructed?

Marx's answers that question in a very simple way. He says, at certain point, well, when the capitalist goes upon the market and buys commodities to make a new commodity, which is going to be then sold at a profit, when the capitalist does that, they have to find on the market a commodity which has the capacity to create more value than it itself has. And this commodity is of course labor power. You paid labor power, the value of labor power, which is the value of the commodities needed to reproduce the laborer at a given standard of living. But you then put the laborer to work and they, after a bit, have covered their own costs of reproduction, and you then can produce even more so that, let's suppose that the capitalist has reproduced the cost of labor production in six hours, and if the work works for 10 hours, then there's four hours of surplus, and that is the origin of the prophet.

So you in a sense got four hours of free labor, which the laborer gives, and that then is found of or profit making. This is a very simple argument and it's a very convincing argument because it says that the origin of profit lies in the exploitation of living labor in production. And that is a very simple finding and one which carries us a long way into the answer of where does profit come from? But there's another step in the argument, and that step in the argument is to say, well, when the capitalist takes the commodity to market to sell, there must be an increase in the market capacity. That is the market has to have grown as well as the production grown. So if you increase production, you have to increase consumption. So then that makes the question of, well, where does the excess consumption capacity come from?

Now on this point, Marx doesn't bother to actually provide a very distinctive answer. He just assumes that there is always a market, and he does this explicitly in capital volume one, he kind of says, I assume all commodities exchange at their value, which means that the market is assured. But before Marx, there was a sort of little discussion went on between the political economists at the time around this question. Ricardo argued that there was always a market and therefore there was nothing to be bothered about. On the other hand, there was this economist Malus who Marx did not like and who most Marxists don't like, but Malthus did an analysis in his political economy, and he raised the following question. He said, well, if there is to be a market, then we have to specify where the market comes from. And he said, obviously, the market cannot be the laborer because the laborer is always going to be paid less than the product that they send to market.

So the laborer is not going to have sufficient consumption capacity to provide the market for the expansion. The capitalist can't do it either because the capitalist is required to reinvest a lot of the money so that neither the laborer nor the capitalist can have a, neither the laborer nor the capitalist is going to have sufficient consumption power to actually pay for the extra consumption, which is required in order to complete the value of the commodity on the market. So what that then needs mouth us to do is to say, so the only way in which I can square this whole thing so that the cyclical nature of capital circulation can become a spiral. The only way I can square it is to create a class of people whose identity is fixed around consumption. In other words, we need to imagine that there are consuming classes around.

Now who are the consuming classes? Well, you have the monarchy, you have the state officials, you have the lords, you have the priests, you have the lawyers, all of those kinds of things. So there's a bunch of people who do not produce any value, but who consume value. And so Malus said, the conspicuous consumption of that segment of the population is a very important condition for the reproduction of capital because that's the only way in which the extra amount which is required to cover the profit can be found in society. Now, this is very strange because on the one hand am Malthus is arguing that the poor people are poor because they reproduce too much, they have too many children, and they create overpopulation. And so the surplus of labor is there and therefore the surplus of labor is such that we end up with a mass poverty.

So Malthus conveniently constructed a society in which the poor people were destined always to remain poor, while the rich people were actually required to consume up to the hilt. And as much as they could conspicuously, as lin would later on talk about the consumption habits of the leisure class. So what Malthus justified was hyper consumption on the part of the consuming classes, and that is the only way in which capital could keep on expanding. It would have to expand production and it would have to expand consumption. And the expansion of consumption had to be independent of what is going on in terms of the actual nature of production. So this was Malthus's solution. Now, Marx obviously really didn't like that solution, and so when he talks about the way in which Malus does this, he kind of mocks it and says, no, that's not it. But on the other hand, Marx doesn't actually set up and answer that question of where does the extra consumption come from, which is going to actually make the profit realizable in the market and allow the spiral form of accumulation to proceed. So Marx doesn't take that up, and he assumed that there was not a problem at various points. However, he sometimes does come back to the idea that there may be consumption classes around who play a very vital role. Now,

This of course argument of Malthus was very much opposed by Ricardo because Ricardo really couldn't stand what he called the parasitic upper classes who didn't make anything and who simply consumed things. And in fact, they were a drag on society. So Ricardo was trying to get rid of those upper classes who were super consuming, and Malthus was saying, well, if you got rid of them, there would be a terrible situation in which there would not be enough demand in the market, and they would get a crisis of capital. So you have two of the great figures of classical political economy on our opposite side around this question is, where does the market expansion come from? Ricardo saying, you don't need that. It's just always taken care of, and Marx's following Ricardo, but Malthus is saying, if you don't have this, there's going to be a crisis and it's going to be a crisis of under consumption or overproduction, however you want to call it.

And Ricardo started to refer to Malthus and rather charitably as having this general glut theory that there was a constant tendency towards overproduction or under consumption, and that was going to be the give rise to crises. And Ricardo said, that's all nonsense. And so the Ricardian economics was to say that that would not and could not possibly occur, Malus concern that the crisis was bound to occur if you actually restricted what was happening in terms of the consuming classes. So that was the situation, and it remained the situation through right through much of the 19th century. But then later on there came the writings of Marxist, Rosa Luxembourg, and Rosa Luxembourg wrote a wonderful book called The Accumulation of Capital, in which this whole question of where does the expansion come from at the moment of consumption, she was perfectly happy with the argument about production.

Where does the expanding consumption come from? And she sort of looked at all things and followed malice and said, well, it can't come from the workers. It can't come from the capitalists. After a while, there won't be sufficient extra consumer power amongst the consuming classes to go on forever. That after all of the gold and the silver has been melted down, if you want to do that and so on, the consuming classes will not really have the capacity to perform the task that malice suggested. So Rosa Luxembourg looked at it in lots and lots of ways and came to very simple conclusion. And the very simple conclusion was that it came from outside. It came from trading between capitalist social formation and non-capitalist social formations. And she was particularly interested in the China trade. And that in a sense, her answer was that some kind of imperialist solution to this problem would be that you would sell your commodities not to the consuming classes, but to non-capitalist classes and non-capitalist social formations like China in the 19th century, and the Chinese would pay for it with silver or something of that kind.

So she set up this whole idea that the answer as to where the extra demand is going to come from came from international trade and from imperialist structures of international trade. And this explains something which is I think just a historical marker that in the early 19th century, Britain traded with India, which of course is a very large market, but the trade with India was organized through a monopoly trading organization called the East India Company. And the East India company controlled all of the trade, which meant that the cotton manufacturers didn't have a market in India because they'd had to go through the East India company. But the East India company was abolished. I've forgotten exactly when, 18 30, 18 40, something like that. And when that happened, that meant that the India market was opened up so that the Manchester industrialists could sell their cotton cloth to the Indian market.

So that was, and then further on, of course, China is opened up by sort of violent opening, and the China trade became important, and the China trade was then part of the answer to this question of where does the surplus consumption come from? But then the question was how do the Indians and the Chinese pay for it? And the answer was, well, the Chinese had a lot of silver and they could pay for it with the silver, but in order to get the silver, you had to come up with a trade with China. And actually what happened was the Indians were actually encouraged to grow opium and to sell opium to China to get the silver so that the silver would come from China and go to India and then go from India to London. So that was the way in which this question was resolved in the middle of the 19th century.

But Rosa Luxembourg at the end of the day said, yeah, but what happens when, say China capitalist? What happens when China silver is exhausted or something of this kind? So that imperialism was a short term answer to the question of where it came from. And at certain point, if the Malthusian answer, which was that the capacity of the consumer classes was exhausted internally, and then externally, the capacity to do the trade in such a way as to satisfy the expansion of consumption, that also would be exhausted. But that would then lead to the end of capitalism. So her argument was that capitalism will end when imperialism ceases, which was a convenient argument in many ways because imperialism was going gungho when she was writing. And of course, imperialist practices continued right to the present day. So the imperialist answer is still possible, but the imperialist answer is becomes a little bit limited.

I mean, China has now gone capitalist. India is increasingly going capitalist. So what we find is that the capitalist demand for the new market is no longer the same size as it was in Marx's day. It's now a humongous demand which needs to be taken care of. And the big question is how is it going to be taken care of given unless you run into crises? And in the 1930s, there was a crisis that was generally described as a crisis of under consumption that the consumer power was not sufficient enough to absorb the surpluses. So that the 1930s led to a very, very different way of assessing this problem of where does the extra and excess demand come from? And here we have of I think, an extremely, very, extremely interesting answer. And the answer is, oh, yeah, well, if I as a producer go into the market, but I haven't got enough money to buy the commodities I need to take into production, then what do I do?

Well, I borrow money. I borrow money to get those commodities which I need, and I put them into production, and I then take them to market. And what happens if I get to market and nobody has enough money to buy the commodities? Well, maybe I can lend them some money or they can borrow money to actually deal with this. So in a sense, what then happens when all the other possibilities are exhausted, you're left with the one big possibility, which is you do it on credit, you do it on the never, never, and the credit system then becomes important. And as Marx points out, credit is in effect a demand upon future labor. So in a sense, it's the demand for future labor, which is going to be actually realizing the value of past labor. So actually the whole dynamic of a capitalist economic system is dependent then upon credit creation.

Now, if you start to look and what has happened historically, you would find that those other two possibilities, the internal capacity for consumerism, the imperialist capacity for consumerism, if those two things are still really very possible, then the need of the credit system is very low. But if the system is expanding very rapidly and very fast, and now has huge increase in demand to engage in mass consumption to parallel mass production, when that happens, almost certainly you're going to increasingly rely upon credit. And if you look at the data, you'll find that there's been huge increase in credit creation and credit use since about 1980. And one of the thesis I'd like to suggest is to say, well, the internal demand was exhausted or was very static and stationary. The imperialist demand, which is there was still expanding, but not at the same rate as it had been in the 19th century.

And when we get to the 19, the late 1960s, 1970s, the amount you need in terms of say imperialist trade, the amount you need there is now getting so large and the capacity to furnish it is now getting much less. And around 1980, of course, China starts to become a big producer and raises the question again of who's going to find the consumption pattern which is going to satisfy for the Chinese development of capitalism and other parts of the world start to become very capitally organized. And so the big question was, therefore after 1980, you start to rely increasingly upon the credit system. And Marx has some very interesting kind of comments about this fragmentary comments. He never had a complete analysis of it, but one of the things he pointed out was there comes a point when the accumulation of debts actually begins to appear as if it is the accumulation of capital. So after 1980, increasingly the world has to rely upon an expansion of the credit system to accommodate the answer to the question of where is the extra demand coming from? Now, of course, there are still residual elements of historical accumulation of wealth that

Could be monetized and turned into some sort of help to consumerism. For instance, it would be possible to melt down a lot of the silver and gold plate in the Catholic church, something of that kind. And I have seen some points where priests have done this sort of thing in order to have enough money to live on. So there are these residual pools of demand of this kind, which can be called upon, but they're very relatively small compared to the requirements. And the same can be said of the imperialist. It's not as if imperialism has disappeared. In fact, there's a good deal of draining of wealth from one part of the world into the other. But now you have a situation where China was once a kind of a victim of this kind of process of imperialist extraction. China is now a great producer, and that then poses the problem of how China is going to find enough demand upon the market for its own increasing output.

So we are now in a situation where increasingly the burden lies upon an expansion of the credit system in order to realize the value of the expanding consumerism, which is required to keep the accumulation of capital going. So that then explains why it is that Marx will talk about the accumulation of wealth appearing as an accumulation of debts and how it is that the financial system has leaped ahead in terms of the logic of the system. Now, this is just one of those points where many people, of course, will remark upon the increase of financialization after 1980 or so, but I want to argue that there has been increasing financialization after 1980 or so, and that has created a different kind of logic to the dynamics of capital in which more and more burden is placed upon the credit system and the expansion of the credit system in order to keep profit making viable.

And so the whole existence of capital, which in the past depended upon these old other sources by which the expansion of consumerism could be funded, they're now effectively exhausted and we're exclusively reliant upon the expansion of the credit system. And there's no of course accident that most of the crises, which we've been having over the last 20 or 30 years are increasingly financial crises, crises of the credit system in which keeping the credit system in balance with the capacity to finance the consumerism becomes one of the crucial features where the central banks have to therefore play a very crucial role in the monitoring and the development of credit finance. So what I'm trying to say here is that an answer to the simple question of where does profit come from and how is the expansion of profit funded? A simple answer to that question directs us to an understanding of our current dilemma, which is how on earth can this credit system keep on growing and growing and growing?

And here, of course, there is one advantage, and that is there is no inherent limit to the creation of debt. You can in fact create trillions and trillions and trillions and trillions of dollars of credit if you want. What that would mean and how it's relates to actual production practices is another question. But what we're into right now is a dynamic which is ineffable, and it's a dynamic which there's no way we can escape from the requirement that we expand the credit system at infinitum in order to keep the system which runs on the basis of profit seeking as the basic economic model in which economic life is going to be determined.