Swans Commentary » swans.com January 11, 2010  



The Contradictions Of Capitalism


by Michael Doliner





(Swans - January 11, 2010)   Marxists often mention "the contradictions of capitalism," and anti-Marxists argue that capitalism has proved Marx's logic false. What are the contradictions of capitalism? Marx, following Hegel, thought that certain ideas became realities as history developed. It is the conflict of these new developments with what was already there that leads to the "contradictions" within history and economic systems.

Primitive man (and woman), Marx and almost all others who have thought about it believed, started by making things that he needed for himself. It wasn't until he could make more than he needed that the possibility or even the idea of exchange appeared. Exchange requires the presence of a surplus, and it was only when this surplus rose to a certain level that exchange as a regular activity, even as an idea of a regular activity, but certainly as a reality, could take place. Thus the concept and reality of regular exchange, a new phenomenon never before seen, came into existence historically. With exchange one could work just to exchange and not at all for oneself. The benefits of specialization eventually made it impossible to work just for oneself. But once exchange existed, it in turn brought something newer still into existence, a medium of exchange, money. How much wool is worth how much corn? How can we conveniently do complex transactions? For these and many other reasons certain commodities -- precious metals -- became mediums of exchange.

Exchange, especially accelerated by use of a medium of exchange, creates relationships between people, relationships of buyer to seller. By the end of the eighteenth century the old feudal relationships, based on vassalage and other traditional obligations, hindered these exchange relationships. The growing market economy within a feudal society inspired the bourgeois French Revolution, which exploded feudal relationships to clear the way for market forces. Again new realities clashed with the old.

When a commodity becomes a medium of exchange, its essential character alters. Marx and many others distinguished between "use value" and "exchange value." Something has a use value because people use it; it has an exchange value because you can get something else useful for it. Some things that we desperately need have no exchange value, for example air. In our imagined prehistory the reverse was never true. Everything with an exchange value had a use value. (Why would you trade for something that had no use?) But what is the use value of the medium of exchange, money? Clearly money's use value is its exchange value, uniquely among commodities. The use of precious metals as the medium of exchange partially obscured the situation because precious metals are both money and useful for making jewelry and other things. A lump of gold is two interconnected commodities -- one with an ordinary use value, and another whose use value is its exchange value -- both sharing, so to speak, the same substance. It was perhaps because precious metals had this other life that people trusted them as money, but we can see with today's ever more abstract forms of money that trust need not have that source, and money need have no other use value.

Money is pure exchange value, but just what is a dollar worth in, say, bread? Marx, and also classical economists such as Smith, Ricardo, and Proudhon, wrestled with the measure of exchange value. All struggled to find the connection between the two concepts of value. All of them, including Karl Marx and Adam Smith, concluded that exchange value depends upon labor time gone into production. This is in sharp contrast to modern "classical" economic thought. Virtually all non-Marxist economists would now say that the value of something depends upon supply and demand. How much do people want what is available? Food, a lot. Armani whatnots, perhaps less -- or more. Clever people guess what others will want and justifiably make a fortune. If you guess wrong, well then you deserve your miserable fate. It's a great big game and all are welcome to play. Human beings, the economists say, have always thought that the person who could most accurately predict the wayward desires of his fellows deserved the lion's share of everything. That is just the nature of things.

But the labor theory of exchange value has a lot of historical plausibility. In imagined prehistory, we assume people would not give, for something they could make in a short time, something else that took them much longer to produce. They exchanged one thing for another to save themselves the time and trouble of making it. Even as human life became more complicated, were someone charging much more than the total human effort required to produce, say, a car, others who had accumulated capital would form a corporation to compete and the competition would force down prices. All the costs of production, marketing, etc., are always just measurable in the ability to commandeer human labor. All the costs of production boil down to labor time. For everything -- acquiring of raw materials, development of skills, the organization of distribution networks, everything -- is but a matter of human effort, measured in time. If something is easy to acquire or make, it is not worth much.

Marx did have to modify his concept to account for time spent on useless enterprises or inefficiently on useful ones. His labor theory of value is really a "socially useful labor" theory of value, which he defined as the average time spent on making a fixed amount of linen (or any other useful commodity) within a given social organization. With "socially useful labor" Marx has a concept of value that can account for the variation in value due to fluctuations in supply and demand, but doesn't allow us to lose sight of labor as the essential source of value. Marx readily acknowledged that someone making linen, his favorite example, in a primitive way in an industrial economy would not get full value for the time he spent producing it. Nor would someone gain value for making ding-dongs no one wanted. For then the labor would no longer be socially useful. It is true that these so to speak ex post facto variations in social usefulness make "socially useful labor time" pretty much worthless if we would want to employ it to guess what to make, but the concept of "demand" has the same limitations. In fact, the concepts of "socially useful labor" and "supply and demand" are logically equivalent. Only the necessary human effort limits supply, and demand is just another word for social usefulness. Both concepts are equally able to explain the facts and equally useless in making any scientific guesses about what to produce. Marx's formula differs in reminding us that it is human labor at the bottom of supply and demand.

Marx differs from classical economists in insisting that all human labor is of equal value. Classical economists argue against "socially useful labor time" as the measure of exchange value because it requires us to value all labor as equal. Buried within Marx's measure is the Enlightenment "self-evident" truth that all men are created equal.

There was, however, an important fact which prevented Aristotle from seeing that, to attribute value to commodities, is merely a mode of expressing all labour as equal human labour, and consequently as labour of equal quality. Greek society was founded upon slavery, and had, therefore, for its natural basis, the inequality of men and of their labour powers. The secret of the expression of value, namely, that all kinds of labour are equal and equivalent...so far as they are human labour in general, cannot be deciphered until the notion of human equality has already acquired the fixity of a popular prejudice. (1)

The classical economists have a point: in terms of social usefulness all labor seems not to be equal. A surgeon's time is more valuable than a laborer's, and it is not sufficient to simply include all the time the surgeon spent training to account for it. If it were, then the problem would be solved by adding the surgeon's time in training to his labor time. But the surgeon has talents the laborer doesn't have. He's smart and can use his hands in a wonderful way. Not everyone can become a surgeon. His time is obviously worth more. Still, one might ask, do the surgeon's special talents justify his time being worth more? The answer seems obvious -- of course they do. But is anybody's time worth more than anybody else's? The surgeon has his special talents, we have assumed, through no special effort of his own. For if he could acquire them with a special effort so could anybody else. These talents are, so to speak, God given. If we believe in a benevolent God wouldn't we think that the surgeon was God's way to provide these services to all? So although they are the surgeon's talents, they don't belong to him. Then why should the surgeon profit by them? What makes us all equal are our human stories. If the Enlightenment ideas that the Declaration of Independence declares "self evident" are indeed so, then no one's time is worth more than anyone else's. Human equality means all lives are of equal value, and therefore so is everyone's time, for what is life but the total of one's time? Although we take for granted that the time of people of greater skill is worth more, the self-evident truths we declared as the reason for the American Revolution, and therefore the reason for our very existence, say no. Any true-blue American who believes in the American Revolution and the reasons given for it must be more a Marxist than say, any so-called conservative, even a principled one. Marxism, flowing directly from the Declaration of Independence, is as American as apple pie, unlike conservatism, which is clearly English, grounded in the ideas of Edmund Burke, who argued against the ideals of the Declaration.

Yes, an anti-Marxist might say, but reality is reality. People are willing to pay much more for the surgeon's services than for the laborer's. Obviously, "what someone is willing to pay" is the true measure of value. But, says the Marxist, why should what someone is willing to pay be a measure of anything? For clearly people can be hoodwinked. They often pay more than something is worth. Indeed, why couldn't whole societies be hoodwinked? How could a house, without additional improvements, increase 20% in value in just a few months as most Americans seemed to believe it could until 2007? For, the Marxist will repeat, if all people are created equal, then all labor time is of equal value.

The anti-Marxist might point out that to encourage people to acquire the surgeon's extremely difficult skills we must offer them great rewards. And he would be right, but these rewards need not be in the form of money. Men have fought for honor before. Isak Dinesen recounts in Daguerreotypes anecdotes of an era prior to this one, the era of prestige as opposed to the present one of comfort, where Spanish noblemen used to cherish the right to have a little mirror on one's horse's equipage. It is well known that Julius Caesar almost beggared himself in the pursuit of honor. National honors increase in value with increased love of country. Honors such as the Nobel Prize are a recognition by one's peers. The French nobility flocked to the court of Louis XIV at Versailles even though the move impoverished many of them and certainly cost all a great deal. It was obviously not a wise business move, but they had desires other than merely settling down into soft couches. Human beings are not essentially greedy but they do want to distinguish themselves in the manner open to them. The noblest will always want to work for something other than money, for to work for money is to be a slave. "The life of moneymaking is one undertaken under compulsion, and wealth evidently is not the good (the best life) we are seeking." (2)

Some people might further argue that the Declaration of Independence does not say that all lives are of equal value, but just that all people are equal under the law. But why should people be equal under the law if their lives are not of equal value? Should a brilliant surgeon be imprisoned or even executed for killing a feckless drunk if the two are not of equal value? If their lives are not of equal value there is no good reason for them to be treated as equal under the law. Certainly that they should be so treated is not a "self-evident truth."

To say that everyone's time is of equal value is obviously to make a claim about how things are that does not hold in the United States today. However, equal value of everybody's time is the inevitable conclusion if one takes the Declaration of Independence seriously. Since we do not do that, we must ask, "Just what is the United States, given that the Declaration of Independence, which justifies the American Revolution, is nothing but some idealistic sentiment that no real American would take seriously for a minute?" What then are "American values?" Does this mean that a state actually honoring the sentiments of the Declaration is impossible? Then, what was the American Revolution all about? I, for one, do not find any grounds for claiming that such a state is impossible, though I think it would be much harder today than in the late eighteenth century given the vile and desperate measures so many have taken to.

But this possibility is beside the point. What of the contradictions of capitalism? The contradictions of capitalism grow from two interrelated new phenomena. Money, that strange stuff that's not even stuff, gave birth to capitalism, for only where there is money can one even imagine an accumulation of capital. Of what else does it make sense to store up more than you can use? Only of money can it be said that there's never enough of it. Since we can exchange money for anything else, we need only have money to have everything. The idea of lending money to make money may not logically be included in the phenomenon of money itself, but once conceived it hits you like a lightning bolt. Anyone who grasps and successfully uses this idea will quickly amass a fortune and inspire others to imitate him. The growth of the power of finance in a capitalist economy is inevitable. Since nothing is as valuable as money, one would be loath to exchange it for anything else unless absolutely necessary. Money should be exchanged for nothing but more money. From a Marxist point of view such financial activity is theft, for one is acquiring value without working. From a capitalist point of view it is just smart business, and appears as an argument against socially useful labor as the measure of value. Financiers, classical economists would say, actually create value independent of labor time out of money itself. But lending money does not create value, for interest only allows the financial capitalist to share in the profits of the productive capitalist. Labor still must create this value.

Along with debt -- the use of money to make money -- and the evolution of debt into fiat currency, what might be called pure debt, the contradictions of capitalism grow from capitalism's need to expropriate more and more value from labor in a continuous expansion that eventually breaches the borders of the various nation-states, bringing these states into conflict. There are three important contradictions of capitalism. The first is the antagonism between the capitalist and the proletariat, for capitalism, in so far as all value is socially useful labor time, is systematic theft. The capitalist needs the proletariat, as it is their labor time he is expropriating, so he must continually expand the proletarian numbers. At the same time, because of capitalism's need for infinite growth of capital, this expropriation will become ever harsher. Thus capitalism creates this huge, ever-growing class that is fundamentally hostile to it. Secondly, capitalism creates business boom-bust cycles. Capitalism, as everybody agrees, unleashed tremendous productive forces, forces that are so productive that they are overproductive. Since capitalism sweeps all other classes into the proletariat, and then expropriates the proletariat, it inevitably produces more commodities than can be purchased. Unless new debt is issued, the economy crashes, further immiserating the proletariat and at the same time bringing the whole productive cycle to a stop, given that there's too much stuff already. Bust. And the boom-bust cycle is a misnomer, for nothing within capitalism can draw it out of the bust except the wholesale waste of war. Thirdly, nation-states grew as a bulwark against the corrosive Enlightenment idea of universal human equality, along with the French Revolution that was pulverizing the feudal setup in the name of that idea and bringing forth challenges to capitalism's inequalities. But expansive capitalism knows no borders. Globalism is its destiny. To expand beyond the borders of the nation-state the bourgeoisie had to employ the military force of the nation-state in its imperialist ventures. So as imperialism, the political form of capitalism, expanded, the nation-states inevitably came into conflict with each other. This third contradiction produced the Great War, the Second World War, and all the subsequent wars, for they are one and all imperialist wars. So capitalism is immensely destructive of itself as well as everything else.

We might add a fourth contradiction of capitalism that grows directly from the continual imperialist wars of the twentieth and twenty-first centuries. The imperialist wars, originally a fight for the resources of the Third World, including its easily exploitable labor, now has a different additional motive, the imperial exploitation of the population of the home country. People complain about the cost of, for example, the war in Afghanistan. What they fail to realize is that the cost is a motive for the war. Perhaps because people thought that World War II dragged the country out of the Depression, wars have served to transfer wealth from the population to the coffers of the military-industrial complex. This expropriation through taxes, that is, by force, is nothing less than an imperial expropriation of the home country. But this is not really a new phenomenon, just an expansion of an old one, the capitalist exploitation of the ever-expanding proletariat.

Capitalism's first two problems would vanish if it could create value from something other than socially useful labor time. If you can produce value without workers then capitalism need not engender this ever-growing hostile class. Nor is it clear that there ever needs to be overproduction if production involved no labor and therefore no materials. If you can make money without labor and without materials, perhaps capitalism can even do without imperialism.

To avoid these contradictions capitalism has indeed created a new source of value. Historically, surplus created exchange; exchange, money; money, capitalism; and capitalism banking -- a way of making money out of money. But financial capital does not really make money without labor, for it merely sucks up some of the productive capitalist's profits. However, there is a further Hegelian step in the dialectic: financial capitalism created debt and the ultimate form of debt, fiat currency. Gold can never be worth more than the labor necessary to dig up more of it, but paper money, and the even more rarefied forms of money, really has no use value, and obviously, no, or very little, labor goes into their production. Certainly a one dollar bill costs no more in labor to produce than a thousand dollar bill. Why is it worth so much less? Obviously, the value of paper money does not have its source in the labor needed to produce it. Where does this value come from? As we know, unlike with other commodities such as cars, paper money doesn't lose value when damaged or worn. An old dollar is worth as much as a new one. But if I made a perfect duplicate of a dollar bill it would not be a dollar bill, but a counterfeit. Labor alone, however skilled, cannot make a dollar bill. It is the origin of the dollar bill that gives it its value. The dollar is a dollar because the government issued it; that is, authorized it. The object, the dollar, is not valuable in itself, but simply as evidence that the government issued it. Fiat money is a commodity whose value is independent of the labor needed to produce it but dependent upon its source, that is, who authorized it.

But why do we give useful and valuable things for these worn out pieces of paper? The fiat dollar is really a note, a debt instrument. Normal notes are promises to repay with due dates, interest, regular payments, and penalties for default spelled out. A Federal Reserve Note is a promise with none of these. It is a promise that is never kept, and never need be, for it is not a promise of anything. It is the elixir of a promise, the scent of a promise, a promise so pure that it is a promise of nothing. If A promises something good to B, then B can get something good from C by instructing A to give the promised good thing to C. The note is passed from hand to hand. Everyone who accepts it accepts this promise of nothing (some unspecified good thing) as if it were valuable because it resembles a normal note. The Federal Reserve Note thus floats and remains valuable as long as it can float, for it floats only so long as people accept it like any other note, as a promise of the future payment of something containing labor value. In one sense it is like a God, powerful only so long as believed in, that is, to the extent that the government who made or authorized it remains trustworthy. If we look at the money in circulation it seems that for the most part people work for money and then spend it on something someone else worked to make. So labor is exchanged for labor. It is only the one who first floats the bill, the government, who gets something for nothing. When the promise to pay never has to be kept, the government has gotten something for nothing. For all intents and purposes this is a creation of value.

Fiat money is an authorized pseudo-debt instrument, but money is not the only authorized object. Authorization is used in many other ways to try to create value without labor. Brands, patents, copyrights, trademarks, and the like are, in effect, authorizations. If I have two pairs of sneakers, identical in every way except one of them has a label that says "Air Jordan," that pair will cost more. Where does this value come from? Clearly, from the label, but is this label a promise of something? Quality? Perhaps with the Air Jordans, but how about McDonalds? Are people paying for familiarity? Perhaps, perhaps not. They are paying for the label, a promise that a certain source authorized it, and in general nothing more in particular. Authorized objects include objects of art. Warhol's famous soup cans illustrated the principle perfectly. The soup cans were the most common of all objects, but once Warhol signed them, they became much more valuable. In this case Warhol promised nothing whatsoever other than that he had signed the soup can. His authorization was completely pure.

Authorization specifically excludes others from making or serving the same object. Labor cannot duplicate the object because the value of the object is contained in the source of the authorization. Authorized objects specifically exclude most of the population from being able to make them, because they are not authorized to do so. In Marxist terms we might say that these objects gain value because the socially useful labor time to produce them is infinite. On the other hand, those who are authorized to produce the object can often produce it with little or no labor.

So what is the source of the value of an authorized object such as a Warhol soup can? It is tempting to say that the authorization is a promise of something, but if so it is a promise so undefined that it would be pointless to try to determine it. No, the best we can do is to say that people want the authorization, in any form -- thing, designation, membership, or whatever. They want to own the authorization, the label. The authorization, to be valuable must come from an important person, the government, or a respected corporation. My authorization, for example, is worthless, unlike Michael Jordan's. But do people think the shoes are good shoes because Michael Jordan authorized them? It seems Michael Jordan comes out with a new model every year. Are the new ones better? Did he make a mistake about the earlier ones? Is Michael Jordan getting better and better at judging shoes every year? No one asks these questions because no one cares. Tiger Woods authorized a set of golf clubs for children. Are we to assume he would know just what a child would need? Tiger can't use these clubs. How does he know they are good? No one really cares.

Classical anti-Marxist economics says these authorized objects should be valuable because people want them. Supply and demand. To the Marxist the problem is more interesting. To want an authorized object means to want something that one couldn't make oneself, not because of one's lack of ability, but simply because one is not "him," "her," or "it" -- that special being who has the power to authorize. Those who want, that is create a demand for, authorized objects assert an essential difference between themselves and the authority. By paying (or even stealing), they assert their own inferiority. The existence of authorized objects challenges the Marxist to justify the "self evident truth" of the claim that all men are created equal in the face of those who choose to be inferior. If one chooses to be a slave and even pays to be a slave, isn't one a slave?

Just as Darwinian evolution can explain apparently purposive developments as the result of the survival of chance occurrences, so we can see the evolution of the authorized object into a device for creating value independent of labor not as some clever conspiracy of capitalists, but as a possibly accidental development that thrived in the Darwinian dog-eat-dog world of capitalism. That the creation of such value essentially challenges the truth that all men are created equal probably never entered anybody's head. Nevertheless, it does so. To want a pair of Air Jordan's is to assert ones own inferiority and, because one paid, also asserts that one's life consists of reaching up to try to touch these superior beings through obtaining the authorized object. There is no justification for saying this desire, this demand if you will, is any less "real" or "basic" than the need or desire for food. An anorexic model who would rather have a Louis Vuitton bag than a bite to eat is perfectly within her rights, even if it kills her. If all men and women are created equal then her opinion is as valid as that of Aristotle.

Is the Marxist in any position to say that authorized value is somehow false or lower than, say, the value of food? Not really. So it seems that authorized value can allay the contradictions of capitalism. We should note, before considering this question, that just as precious metals were two commodities, one having an ordinary use value and the other a use value in its exchange value, so an authorized object can also play a duel role. Air Jordans are shoes, but shoes with an additional authorized value that makes them more valuable than identical shoes without the label. Shoes are an ordinary commodity with a value in socially useful labor time. Air Jordans have, in addition, an authorized value buried within the same substance. For this reason it is difficult to easily separate authorized from labor-created value in any particular case. The authorized object usually has a labor-based value too.

Nevertheless, we can see what happens to the two kinds of value. It seems possible that authorized value might allay the contradictions of capitalism. Overproduction is capitalism's big problem. Since in the sale of the commodity the capitalist drains some of the value off in profit, those that labored to make the product can never purchase all of it. When, because of capitalism's expansion, external markets disappear, there is no place for this surplus product to go. Thus overproduction. However, authorized value requires no labor. Michael Jordan's nod produces wealth. Those who profit from authorized value can sop up the surplus "labor time" value, thus allowing the system to avoid overproduction.

But let us look at this a little more closely. Those who earn money through labor cannot purchase all the product of their labor because the capitalist has siphoned off some of their earnings in profits. The product costs more than those who made their living producing it got for their labor. All of their earnings will not buy all their labor produced value but will leave much of that value unpurchased. Those who earned money through authorization absorb the surplus, but whoever purchases the authorized product must do so with authorized income. Of course, poor people who work their fingers to the bone buy Air Jordans, but this means that the poor, taken as a whole, fall that much shorter of being able to purchase all of the labor valued product. Those with authorized income just have to take up that much more of the slack. On balance all the income of those who labor goes to labor-valued purchases. Those with authorized income must buy all of the authorized product plus some of the labor-valued product.

Further, since the capitalist siphons off profit from even the authorized product, the authorizers cannot purchase all of the authorized product. It too must be overproduced. From this we can draw an interesting conclusion. Although Marx's labor theory of value postulated the equality of all human labor, the contradictions of capitalism do not depend upon this equality. Even with enormous differences in how we value labor time the contradiction known as overproduction still shows up. Although Michael Jordan makes more money with a nod of the head that gives approval for a line of authorized shoes than some poor schnook makes in an entire lifetime of backbreaking toil in a coal mine, Michael Jordan can no more buy all the Air Jordans with his income from the deal than the schnook can buy all the coal he mined. Someone is going to take a cut from Michael Jordan, too.

Even authorized value is, in the end, labor time, providing only that we give up the idea that all people's labor is of equal value. Michael Jordan's nod, as tiny as it might be, is technically his labor going into the Air Jordans. Michael Jordan's nod may be worth more than the coal miner's life, but as long as profit is being made, neither Michael Jordan, with the take from his nod, nor the coal miner, with his pay for a lifetime of work, can purchase all of the product of his labor. The profit the capitalist derives from it prevents it. Overproduction is still built into the system.

The essential incompatibility of the nation-state system with capitalism produces the third contradiction. The nation-state system, to a large extent, grew up as a bulwark against the Enlightenment's claim of universal human equality, which seemed "self evident" to many in the period following the French and American Revolutions. The nation-state was supposed to be a home for a people with particular customs who lived in a particular place. It was the specialness of these people in this place that justified Burke's argument that "the rights of Englishmen" should trump the rights of men. The nation-state as a nation-state cannot justify imperialism, the rule over other people in other places. The nation-state is a new phenomenon that grew out of capitalism's incompatibility with the idea of universal human equality, but capitalism, with its unlimited expansion, had to breach the boundaries of the nation-state and in the process undermine its nature. Hence the contradiction.

The Great War seemed to everybody involved a horrible display of the contradictions of capitalism. The war was a war of imperial powers who found each other in the way of further expansion. In its wake revolutions broke out in Europe and one, the Russian Revolution, seemed a harbinger of things to come. Never before or since were people so aware of the antagonism between the classes. In the wake of each of the wars the winners tried to create supra-state institutions to end war; but these institutions, the League of Nations and the United Nations, were doomed to fail because capitalism needs imperialism and imperialism, which is the capitalist use of the nation-state to further its expansion, brings the nation-states into conflict.

The Great Depression only made class war seem that much more inevitable. The Great War followed by the Great Depression inspired a number of capitalist fixers such as John Maynard Keynes, who sought to mitigate the boom bust cycles through government intervention. That is, he wanted the government to borrow money to sop up the overproduction. Overproduction causes capitalist busts. Because the capitalist has expropriated much of the value of labor, there is not enough purchasing power to sop up all of the product. As we have seen, authorized value cannot allay overproduction. Although authorization (branding) makes it impossible to calculate value with socially useful labor, overproduction grows just as quickly if not more quickly in an economy filled with branded commodities. The value that capital expropriates always guarantees overproduction.

This leaves us with capitalism's last resource, debt. The only way to purchase today's product, branded or otherwise, is to pay for it with tomorrow's earnings; that is, debt. Debt offers a last resort to attempt to overcome overproduction. Debt in the form of fiat currency and all kinds of other debt instruments was used to buy today's product with tomorrow's labor. In Marx's day, paper money existed but it was nothing more than an ordinary note with a due date and a promise of payment, usually in gold. The concept of fiat currency, notes without due dates and no specification of just what valuable commodity will redeem them, is the final new phenomenon to emerge from the Hegelian dialectic.

Most debt comes with schedules of payment that limit its expansion. Only debt in its purist form, fiat currency, debt that does not have to be repaid, can hope to resolve the two contradictions whose source is overproduction. Modern governments can accrue debt endlessly through the printing of paper money. In this way they borrow from the future to sop up all the overproduction in the present. Since overproduction is continuous, this debt will continue to grow, but, since the future is endless, why can't we continue to borrow from it endlessly? By going into ever-deeper debt, the government and for that matter the population as a whole can absorb the overproduction by paying for it with the promise of future labor, that is, debt. The problem seems to be only a psychological one. When the debt gets too large people might begin to question whether or not the government can pay it. It's just those worry warts who ruin everything. The economy can continue to chug along just so long as we can learn not to worry and be happy. Denial is essential. For who in their right mind would question the reliability of the government itself? Debt incurred by less august bodies, individuals, and even banks usually carries a schedule of payments and a due date. The threat of missed payments and the subsequent loss of credit rating limit the size of these debts, but a fiat currency carries no payments and no due date. To be sure, the government does not issue Federal Reserve notes, that is, dollars. The Federal Reserve issues them and then exchanges them for US Treasury bills, simply another form of debt, a form that does indeed carry an interest rate and a due date. But this interest is paid in...Federal Reserve notes. So the government can pay it by borrowing ever more, ad infinitum. This little dance changes nothing.

Why can't the US government issue debt forever? The problem, of course, is inflation. The Federal Reserve note says on the face of it that it is legal tender for all debts. That is, the government can force you to accept it as money, but what they can't do is give it a value in goods with actual use values. Since the government must continue to issue ever more debt, the Federal Reserve note must continue to inflate. Since this means that currency saved depreciates, Federal Reserve notes must, inevitably, become undesirable as money. Only a fool would hold onto them.

Once capitalism became global there was no place for profit to come from except debt. The only way for it to continue was to borrow ever more from the future. But this activity is limited, if by nothing else, by inflation, which grinds the fiat currencies into dust. The use of branding, authorizing commodities that ordinary labor cannot reproduce, does obscure or even negate the labor theory of value, but it does not help capitalism to avoid its inherent contradictions. The problem is easily seen if, once again, we simplify it. If there is one source of commodities, and the cost of producing and marketing them is X, the capitalist will want to get X+Y for them. Where is the Y to come from if there is nothing outside capitalist production? Only from the future. As things stand now, each little capitalist hopes to get his Y out of the other guy's X or from the labor of his own children in the future.

The contradictions of capitalism, both those that result from overproduction and those that come from the nation-state system set up to counter the dangerous idea of universal human equality, are unavoidable. Though we can postpone the former by feeding on the future, this cannot go on forever, and seems to have come to an end now. This would only be untrue if the world were to swallow yet more debt. I suppose it's possible, but I think unlikely.

The clash of nations employed by capitalists in imperialist ventures since the 1880s is also intractable. Capitalism, with its embrace of dog-eat-dog morality, fosters the barbarism Marx saw in the revolution of 1848 in Paris, barbarism that has characterized all the wars large and small of the twentieth and twenty-first centuries. Today we can no longer doubt that all moral pretensions of bourgeois politicians are bogus. The imperative for expansion knows no restrictions. What is to come we can only imagine.

Branding and debt, especially the unredeemable debt created by fiat currency, served first to refute the equality of human labor and secondly to postpone the revolution that would be more aptly called Enlightenment than Communist. But Marx failed to see that the equality of all human labor also would not prevent the catastrophic contradictions. The contradictions of capitalism that grow from overproduction would equally be contradictions after the Enlightenment Revolution though that revolution would stop the barbaric wars. What Americans think of as communism -- government control of everything -- would not end the problems capital collection creates. They would develop just as quickly whether the government or a coterie of capitalists collected the profits. Any system based upon continuous growth of capital, regardless of who controls this pile, will inevitably suffer from the same problem -- overproduction. All such systems of continuous expansion will need to borrow from the future, just as capitalism does, to keep itself going. All capital collections, all savings, are borrowings from the future, though that is unnoticeable at first, because at first these borrowings need be from only a short time into the future. But if such collections increase, as they must in capitalism or in all envisioned systems of socialism, they can only do so by borrowing from further and further into the future, and this will destroy the medium of exchange itself. Bubbles develop in a capitalist economy not because Ben Bernanke or Alan Greenspan did something wrong, but because they must if the economy is to keep going. Debt is the source of capitalist and communist and any other "ist's" wealth. Any other continually expanding economy would suffer the same fate.

In The Eighteenth Brumaire of Louis Napoleon, Marx spells out why the Enlightenment Revolution, the revolution based upon universal human equality, cannot take its ideas from the past. That which Americans now brand communism is not the conclusion of such a revolution. Marx himself could not, even theoretically, know what this revolution would bring. There are no communist or, more exactly, Enlightenment revolutionary theorists. An Enlightenment Revolution would have to make itself up as it went. That revolution's ideas must come from the future. They must "constantly criticize themselves, constantly interrupt themselves in their own course, return to the apparently accomplished, in order to begin anew..." Today, with ever growing barbarism, the notion of universal human equality seems ever more implausible. It is hard to see how the savages who engage in human trafficking, the barbarous rulers of nation-states, and the poor wrecks slumped against the walls in every city could be integrated into a civilized humanist city. Nevertheless, the contradictions of capitalism, ever more obvious, make the continuation of what we have now impossible. And a Soviet-style communism would do no better.

Clearly, no viable economic system can depend upon the endless growth of capital, for this growth, once expansion into non-capitalist territory is no longer possible, can only come from the future as debt. Such a system will die in a burst bubble of inflation. From then on savings, that is the collection of capital by borrowing from the future, will be impossible, and humans will have to live on what they can make themselves. The only question is whether we can make a planned transition or are doomed to a blind crack-up.


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About the Author

Michael Doliner has taught at Valparaiso University and Ithaca College. He lives with his family in Ithaca, N.Y.   (back)


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1.  http://www.marxists.org/archive/marx/works/1867-c1/ch01.htm#137  (back)

2.  Aristotle, Ethics 1096a 5-7  (back)


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Swans -- ISSN: 1554-4915
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Published January 11, 2010