Neil Davidson argues that it’s not money that got us into this mess – it was the myths we bought with it
Capitalism is a system of competitive accumulation based on wage labour. The transition to a monetary economy was not sufficient for its emergence, but it was necessary. Money became the general or universal equivalent, the special commodity which acted simultaneously as a measure of value, a medium of circulation and a means of payment. Yet, in the beginning, the bourgeoisie had an ambiguous attitude to money. It was necessary to enable accumulation to take place (which meant preventing any more than was absolutely necessary being diverted to labour); but as the Bible taught, the love of money was a sin, and virtue might be indicated by a conscious refusal to make possession of money an object of vulgar display.
But as capitalism ceased to be a revolutionary force, as the austere regimes required for primitive accumulation and primary industrialisation passed into history along with the cultural repression they engendered, money came into its own. This was reflected in bourgeois theory, as well as the personal behaviour of individual members of the bourgeoisie. At the end of the 18th century, Scottish political economy saw value as being produced by the labour of workers; by the end of the 19th century, Austrian neoclassical economics saw value as being determined by the expenditure of the consumer: however much you were prepared to pay for a commodity was the measure of its value, as it remains to this day. The decline in bourgeois thought marked by shift from the rigorous objectivity of the labour theory of value to the vapid subjectivity of the theory of marginal utility was also indicative of a wider retreat from reality. Marx, who preserved and extended everything which was scientific in the work of the Scots, identified three types of capital: productive, commodity and money. When a bank lends money-capital to a productive capitalist for investment it is returned with interest – ‘money breeding money’, as he put it. But money-capital disguises the reality of capitalist relations of production by appearing to grow, as it were, magically, when in fact the interest is part of the surplus value extracted from the workers employed by the productive capitalist. Where the disguise is mistaken for reality the results have been disastrous; but there is another aspect of money which has also been problematic for capitalism and consequently for us. As Marx discovered during the 1850s, and Keynes rediscovered during the 1930s, capitalists do not spend all their money either on immediate consumption or on investment in production, they also save or hoard it: they exercise ‘liquidity preference’, in Keynes’ jargon. A combination of these two aspects of money, the illusion of self-generating growth and the actuality of deferred spending and investment, lie behind the current crisis.
…asking people in a situation of already dire poverty to do with less for the sake of the planet or in pursuit of some higher, non-materialist morality is simply insulting.
From the 1970s onwards, profit rates failed to consistently reach what capitalists considered acceptable levels. The result was a fall in the proportion of surplus value being invested in production and a rise in the proportion being saved, to the point where the latter was greater than the former. Not for the first time in the history of the capitalist system (1870s, 1920s), the need to find profitable uses for surplus capital, where productive investment was insufficiently attractive, tended to draw industrial capitalists towards financial speculation. The Great Depression of the 1930s showed productive capital that accumulation could no longer depend on a largely unregulated system; financial capital came to no such conclusion. The point at which productive capital reverted to the views of financial capital in the 1970s signalled the opening of the neoliberal era, but this did not mean that the former had become subordinated to the latter, rather that their interests had converged. In April 2009, for example, the German luxury car manufacturer Porsche announced that it had made pre-tax profits of 7.3 billion Euros in the six months to 31 January at a time of collapsing car sales, an outcome due almost entirely to a windfall from share options which the company held in Volkswagen.
The new focus on finance had wider implications than the shifting focus of investment, which tend to be compressed into the term ‘financialisation’, which means more than the growth of the financial economy in relation to the productive economy. Above all it means an attempt by capital to transform every human transaction into an exchange of commodities, one of which is money. But among all the complexities of arbitrage, derivatives, hedge funds and the rest, there are two essential points about financialisation which need to be understood. One is that, financial speculation can increase the profits of some individual capitalists at the expense of others, but cannot create new value for the system as a whole. The other is that, in so far as profits were raised, one aspect of financialisation became more important than any other: the massive increase in consumer debt. Credit became crucially important in preventing the return to crisis after the post-1982 recovery had exhausted itself. The East Asian crisis of 1997 and the dotcom collapse of 2000/1 signalled an unprecedented expansion of credit. Why? Neoliberalism was based on a threefold strategy of allowing unemployment, disciplining labour and relocating production. These could never have been permanently effective in cowing resistance, but their effect was prolonged by the very nature of the neoliberal boom. Growth in the heartlands of the system was based on investment in services rather than manufacturing or other productive sectors of the economy; consequently, new jobs tended to be characterised by more insecure employment or underemployment, in occupations at the bottom of the pay scales: workers in personal service occupations, for example, earned on average £14,146 for the 2002/03 tax year. This suppression of real wage levels among the working class therefore encouraged – indeed, one might say, necessitated – a massive expansion in borrowing. At the same time debt also provided an alternative to struggle, in conditions where that was difficult or impossible.
Between 2000 and 2004 household debt in the USA increased by 39 per cent, but real disposable income did not, with workers relying on $675 billion of new borrowing rather than on salaries and wages, which only increased by $530 billion, to finance an overall $1.3 trillion increase in spending. The British figures are similar. While New Labour has been in office in the UK, total debt held by individuals rose from £570.0 billion to £1,511.7 billion, an increase of 165.2 per cent. During the same period the ratio of personal debt to disposable income rose from 101.6 per cent to 173.1 per cent – an increase of 71.5 per cent which exceeds even the increase of 49.8 per cent registered during the preceding period of Conservative government. But whether or not the expansion of credit constitutes a problem for capitalism depends on the relationship between it and expansion of the value in production, which ultimately forms the basis of working-class incomes. When the supply of new credit and the production of new value are roughly aligned, growth of the former need not be a concern; but when, as between 2000 and 2005, the rise of after-tax income was slightly greater than a third of the rise in house prices, the disparity proved unsustainable.
Neoliberalism may not have resolved the problems of the rate of profit, but it provided one major service to the capitalist class and the bourgeoisie more generally: the neoliberal programme benefited individual members of the capitalist class by increasing their personal wealth, at the expense of the living standards of the poor and the working class. In 1965, during the last full decade of the post-war boom, the ratio of Chief Executive Officer income to that of an average worker in the US was 35:1; by 1980, the opening of the first full decade of the neoliberal era, it had risen to 80:1 and by 2005 to 450:1. To express the gap in another way; between 1968 and 2005 the salary of the highest paid CEO in the USA went from 127 average workers and 239 minimum waged workers to 7,443 average workers and 23,282 minimum waged workers. In Britain, even after ten years of Thatcherism, the average CEO of one of the FTSE top one hundred companies in 1988 earned ‘only’ 17 times the wage of an average worker; by 2008 it had risen to 75.5 times. Like the neoclassical economics of the Gilded Age before it, neoliberalism is an ideology. Both represented, not disinterested theory, but the articulation of particular class interests. Neoclassicism represented mainly the interests of a rentier subset of the bourgeoisie described by radicals and Marxists before the First World War as being characterised by extreme individualism and focussed on the means of consumption rather than the means of production. Neoliberalism in some respects reflects the way in which these attitudes have been generalised across the bourgeoisie as a whole. It is unsurprising, therefore, that no significant section of the international ruling class has abandoned its belief in the fundamentals of neoliberal capitalism: they have too much to lose. But neoliberalism is also an ideology in a second sense; not only one which presents the perspective of a particular class as universal, but also one which seeks to explain or justify the discrepancy between theory and reality, between the promise of improved standards of living for all and the delivery of inequalities in which benefits are reserved for the rulers of society.
What should the attitude of the left be to the current dominance of money-capital? Two attitudes seem to be not simply useless, but actively harmful. The first would be to identify the activities of financial capital as the source of exploitation and oppression, rather than the system itself. Past experience suggests that, whether the opposition is supposedly between patriotic and cosmopolitan capital, competitive and monopoly capital, or – as in the current case – financial and industrial capital, the tendency is first to align, then to submerge the interests of labour beneath those of one (‘progressive’) section of the warring brotherhood. But however much they may fight among themselves, all sections of the capitalist class have benefited from the restraints which neoliberalism has imposed upon labour. And the ‘manufacturing and exporting’ wing of capital continues to do so, for one response to the crisis in Britain has certainly been cooperation between trade unions – or rather their bureaucracies – and employers; but this has been entirely to the advantage of the latter, involving workers accepting pay freezes, pay cuts, as in Honda, or in the most extreme case, periods of working for nothing, as in British Airways. The second would be to issue moralising homilies to working class people condemning them for acting as ‘consumers’ and unnecessarily adding to their possessions. The implication is that, although the irresponsibility of politicians and bankers may primarily be to blame for the current crisis, some of the responsibility must also lie with the individuals who took on the debt. In so far as better-off workers have spent borrowed money on commodities which are above the minimum needed to reproduce their labour, it is a response to their increased alienation under neoliberalism. But if the argument here is correct, the main reason for increased debt has been the need to maintain personal or familial income levels. There is a long and unedifying history of socialists, intoxicated on their own misunderstanding of Lenin and Gramsci, denouncing the workers for their ‘economism’. Seeing the way working-class people in the US have had their anger diverted into opposing abortion, or defending gun-ownership, one can only hope that they discover their vulgar material interests sooner rather than later. More generally though, asking people in a situation of already dire poverty to do with less for the sake of the planet or in pursuit of some higher, non-materialist morality is simply insulting. Worse, it echoes ruling class calls for sacrifice, such as the assertion that ‘we are all in this together’ uttered more than once by the millionaire George Osborne at the recent Conservative Party Annual Conference.
In fact, the attitude of the left should have two aspects, which at first sight may appear paradoxical. On the one hand, support every struggle to increase wages for workers and transfer payments for those people not in work. Of course trade unions must fight in defence of services and for political aims; but organisations which are unable to defend their members’ standard of living are unlikely to be able to fight successfully on any other front. On the other hand, we must oppose the commodification and marketisation of social life which makes access to money so necessary in the first place: free access to services provided from general taxation should be our demand over everything, from the NHS to libraries to public transport. The defence of Royal Mail combines both objectives: protecting the living standards of postal workers and preserving the post as a service rather than a business. The abolition of money will have to wait until we abolish the system that requires it; but we only have to imagine the response of the political class to these modest proposals to understand that reformist demands can have a radical charge, if people are prepared to fight for them.