The absence of an outside in the contemporary literature on empire causes a very peculiar problem.
Since one considers capital as a material dimension6 of contemporary empire, one must explain how capitalist processes are perpetuated period after period. After all, a system that relies on expectations of profit to induce private investment cannot be very stable.
There are two situations where the lack of inducement to invest may pose problems for capitalist accumulation, i) the Goodwin (1967) situation, and ii) the Luxemburg (1951) situation.
Regarding the Goodwin (1967) situation, private investments are cyclical. When expectations of future profits are bullish and inducement to invest is high and the economy is nearing full employment, the prospect of ‘being fired’ is no longer an effective disciplinary measure. Trade unions tend to become stronger and are able to negotiate increases in wages (Kalecki, 1943). An upward pressure on wage share implies a downward pressure on the profit share and thus, a decline
6 Though certainly not the ‘economic base’ as in the older kind of Marxian analysis, notably in Oscar Lange’s (1959) conceptualization of political economy.
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in the inducement to invest (Goodwin, 1967). Unless there is an ‘outside’ to the ‘empire of capital’
which can meet the increased demand for labor while checking the upward pressure on wage share, the inducement to invest declines and the capitalist system goes into the recessionary part of its cycle. The following sections of this chapter will illustrate how the presence of an abject ‘outside’
enables longer booms in the business cycle.
In case of the Luxemburg (1951) situation, the system of capitalist processes cannot reproduce itself if it does not grow. By the nature of the capitalist production process, a sum of money is put into circulation to purchase raw materials and labor power i.e. commitments of a certain number of hours of workers’ time. As workers labor, they create not only the value of their own labor power (which must compensate them and reproduce their families in their current state of existence, however poor) but also a ‘surplus value’ which when realized, accrues to capitalists as profit. Unless workers can be expected to produce realizable surplus value at every stage of production, they will not be hired and the means of production that they work with will not be purchased. The production process will screech to a halt. Therefore, one of the conditions for capitalism is the presence of increased expected demand for output at every stage in the production process. Since the shortfall is a shortage of expected rather than actual demand, this is not a case of underconsumption. There is no assumption of a “general glut”. Instead, it is a question of
expectations. If expected demand falls short, production will simply fail to take place. In this sense, the Luxemburg (1951) situation becomes akin to a Keynes (1936) situation. Moreover, there is no assumption that a “glut” of goods would have to be exported to abject zones in the periphery of empire. Since the issue is an issue of expected rather than actual demand, there is no need to assume that the abject ‘outside’ must serve as a receptacle for a glut of produced goods.
Suppose a sum of money “M” is used to purchase labor power and means of production “C” to be put into the production process “P”. The use of labor on the means of production creates a
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qualitatively different commodity “𝐶′” which is sold for a quantitatively different amount of money
“𝑀′”. Unless the average agent in the capitalist class position can expect to realize a larger amount of money “𝑀′” than was initially introduced into the production process i.e. “M”, the agent will in all likelihood refrain from investing “M”, and the concomitant labor power and means of
production will remain unemployed and unutilized. In other words, in order for the system of capitalist class processes to keep reproducing itself, we must get a system like this:
𝑃𝑒𝑟𝑖𝑜𝑑 1: 𝑀 − 𝐶 − 𝑃 − 𝐶′ − 𝑀′, 𝑀′ > 𝑀 𝑃𝑒𝑟𝑖𝑜𝑑 2: 𝑀′− 𝐶′ - P - C''- M" , 𝑀" > 𝑀′ …….
𝑃𝑒𝑟𝑖𝑜𝑑 𝑘: 𝑀𝑘−1− 𝐶𝑘−1− 𝑃 − 𝐶𝑘− 𝑀𝑘 , 𝑀𝑘> 𝑀𝑘−1
For the k conditions: 𝑀′ > 𝑀, , 𝑀" > 𝑀′……𝑀𝑘 > 𝑀𝑘−1 to hold, it must be possible to find an increased demand for the produced output of society period after period. There is no reason for such a possibility to hold. At any point k, investors may, one by one, feel bearish and stop
putting money into circulation. The moment investors start expecting an 𝑀𝑘 ≤ 𝑀𝑘−1, they will start refraining from restarting the next few rounds of accumulation of capital. Why can’t a capitalist system continue to perpetuate itself under an 𝑀 − 𝐶 − 𝑃 − 𝐶′− 𝑀′, 𝑀 − 𝐶 − 𝑃 − 𝐶′− 𝑀′….
system, where 𝑀′ − 𝑀 is not reinvested into the production process? This is because capitalist systems usually involve competition among capitalists, not only for larger and larger shares of the market but also for loans and financial investments, for capital equipment and land on rent, for access to technology etc. Consequently, capitalist systems unlike several other provisioning systems survive and thrive on growth alone.
Additionally, when considered in isolation, the capitalist system tends to a situation where a realization crisis may be expected. Let us consider a very rudimentary capitalist system in Figure 1.1 below. Here, we have a class of persons in capitalist class positions and a class of persons in the positions of workers. The two types of class positions are not necessarily disjoint sets. A person may
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belong to both sets. As a capitalist, she would put means of production into circulation and insist on the exploitation of labor to produce surplus value. Her investment would be conditional on the expectation that the produced output will be sold for money, and eventually, she would retrieve her investment (if not more) as profit. As a worker, she would contribute labor inputs into the
production process. Through the exploitation of labor, she would produce value over and above the labor hours required to purchase the necessaries of sustaining her own life (and that of her family)7. Eventually, she would receive a wage to compensate her for her labor input. This is not to say that all capitalists and workers break even. Some do not and fail to reproduce themselves but the class of capitalists as a whole, recovers profit equivalent to investment and the class of workers receives wage equivalent to the labor hours needed to reproduce the workers’ households in their current state of existence, however poor.
Figure 1.1 depicts a one-good, system dynamics model. The output is grain which is both, a means of production as well as a means of consumption.
Figure 1.1: System Dynamics of a One-Good Monetary, Production Capitalist System
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As a systems dynamics model, Figure 1.1 looks at stocks and flows. Since the grain that is produced here is a product of labor, we will consider ‘labor hours’ as the unit of analysis. One ‘hour of grain’
equals the quantity of grain that is produced by one hour of labor on average. One ‘hour of money’
implies the number of dollars (or any other currency unit) that can purchase one hour of labor power (producing one hour of grain). This usage of equivalency between labor time, money and output is not unusual for analysis at the level of aggregates. It is not only used in Ricardo and Marx but also in Luxemburg (1951), Keynes (1954, The General Theory of Employment, Interest and Money, Ch. 4), Sraffa (1960, Production of Commodities by Means of Commodities) and Foley (1982). The rationale is that all social output is produced by labor and therefore, as an aggregate, equivalent to the total labor power embodied. This approach avoids the transformation problem as it does not assume a proportionality between prices of goods and labor time embodied in them.
Instead the analysis is confined to aggregates where the total value of money equals the total labor power embodied.
Moreover, when we think of “one hour of grain” as the quantity of grain that can be
produced by one hour of labor on average, we also distinguish between labor power contracted and labor time embodied. The amount of grain that one hour of labor power can produce is not only a function of time spent but also of the intensity of labor. The latter may be ensured by a variety of disciplinary measures that agents in capitalist class positions may enforce on agents in the positions of workers. The intensity of labor may be reduced by the power of labor unions to enforce certain workers’ rights such as smoke breaks, bathroom breaks and so on. Of course this is not to say that workers instinctively shirk -however, with the need for capitalists to ensure control over the output as well as the production process, capitalists have tended to institute myriad institutions of discipline, stripping workers of their ability to exercise creativity and to enjoy the work process (Marghlin, 1974). Since we say “one hour of grain” rather than a physical quantity such as x “lbs of grain”, we
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do not make any assumptions about the institutions of coercion in the average workplace which determine the physical quantity of grain an hour of labor may produce.
The model in Figure 1.1 is a systems dynamics model. It spans over a period of time. I have considered a time period of 100 years. The model considers a stock of “LABOR”, “MONEY”,
“GRAIN”, and “UNEMPLOYED” (denoted in uppercase). UNEMPLOYED has an initial value of 15 hours which means that at year 0, 15 labor hours are available for employment. Unlike neoclassical models that assume full employment, I will begin with the economy in a state of unemployment. MONEY is a stock of claims on labor and product of labor i.e. grain for both, production and consumption. It is not a stock of commodities with exchange value. Instead, it signifies no more than claims on produced output. The initial value of MONEY is 0. At time 0, there are no claims on output -since there is, in fact, no output. The stock variable GRAIN is a stock of produced output. Its initial value is 0. LABOR depends on flows of “hiring” from the pool of UNEMPLOYED and is constantly depleted by flows of “firing”. The flow variables (denoted in lowercase) are “hiring”, “firing”, “investment”, “wage bill”, “purchases”, “capitalist consumption”
and “labor input”. They represent flows of labor time, grain and money from one stock to another.
The model in Figure 1.1 assumes a constant organic composition of capital equal to one. Every year, an “investment” of two hours of grain is made. The ratio of investment to the organic composition of capital equals “hiring”. In the notation used by Marx (1887), 𝑐
𝑞= 𝑐𝑐 𝑣
= 𝑣, where 𝑞 is the organic composition of capital, 𝑐 is the constant capital which we can think of as “investment” and 𝑣 is the value of living labor or “hiring”. With an “investment” of two hours of grain and an organic composition of capital of one, “hiring” equals two hours of labor. The units may appear confusing but since “two hours of grain” implies the quantity of grain produced by two hours of labor, we can safely deduce that with an organic composition of capital equal to one, two hours of grain will draw two hours of labor. The stock of LABOR now takes a value of 2 which is inputted into the process
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of grain production. “Labor input” equals “hiring”. In this model, the rate of exploitation is also constant and equal to one. Therefore, two hours of labor will produce a surplus of two hours of grain. Using the notation used by Marx in Capital Volume I (ibid),
𝑠 𝑣 = 1
𝑣 = 2 ℎ𝑜𝑢𝑟𝑠 𝑜𝑓 𝑙𝑎𝑏𝑜𝑟
𝑠 = 2 ℎ𝑜𝑢𝑟𝑠 𝑜𝑓 𝑙𝑎𝑏𝑜𝑟 = 2 ℎ𝑜𝑢𝑟𝑠 𝑜𝑓 𝑔𝑟𝑎𝑖𝑛
Grain is drained away from the stock of GRAIN through “purchases”. “Purchases” are affected by claims from workers and capitalists. Workers can purchase up to the equivalent of their labor input for which they are compensated, in this case two hours of grain every year. Capitalists will want to recover the grain invested into the production process so they will purchase the equivalent of their investment, in this case two hours of grain. However, they would also like to consume some grain.
In this model, capitalists consume fifty percent of the residual of MONEY and wage bill which is equivalent to profit. With “purchases” equal to investment + consumption by capitalists + labor input, the purchases flow into MONEY or the stock of claims on output. There is no question of the system running out of money to purchase grain as the stock of money is determined by the purchases of grain. MONEY is drained out as “wage bill” which is equal to the labor input or the value of living labor (by definition). In this system, profit is a residual of all MONEY net of the wage bill since all realized surplus in society is appropriated by the capitalists. Fifty percent of this residual is used for consumption which eventually results in a “purchase”. With profit as a residual of MONEY net of wage bill, it equals capitalist consumption + investment. Eventually, Kalecki’s (1938) result plays itself out, “When workers spend what they earn, capitalists earn what they spend”. It is to be noted that a constant state of unemployment is maintained in this model. When the ratio of LABOR/UNEMPLOYED rises over one, then “firing” equals the excess of LABOR over UNEMPLOYED, else “firing” =0.
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On comparing the stock variables, one obtains the following charts in Figure 1.2 and Figure 1.3.
Figure 1.2: GRAIN and MONEY in a one good model with capitalist consumption.
Figures 1.2 above shows us that since the purchases of grain are limited by claims of workers and capitalists, there is no demand for the surplus grain that is produced via the exploitation of labor.
This is not to say that there will be an unlimited growth of grain. In fact, in a system like this, the system will not progress beyond the first year as capitalists will realize that while surplus grain can be produced through the exploitation of labor, there is not enough demand to purchase the surplus produced. The constraint is one of demand. This is not to say that there are no supply constraints in capitalist development -only that this model aims to demonstrate a demand constraint. An
ameliorative role may be played by the state which can choose to purchase all surplus output.