Behind the Veil of the So-Called Financial Crisis: The growing domination of finance over productive capital
In Part 1 of his essay, Kurz explained why money and labor, although merely two poles of the same movement of capital, appear to have no necessary relation to one another. Along with this, Kurz explains, how interest yielding money capital, finance, appears to be the “true form” of capital despite actually being no more than the result of the surplus value created by industrial capital. Finance capital begins to imagine itself independent of productively employed capital, and capable of self-expansion independent of the latter — it emerges as an industry side by side with the production of shoes, houses, automobiles, etc.
This superficial appearance is as far as most commonly referenced analysis of the present crisis gets. Ask the typical CNBC talking head what happened in 2008 and you are likely to receive some variant of an explanation that takes the so-called “money economy” centered on Wall Street as something distinct and separate from the so-called “real economy” centered on Main Street. In fact, reality has becomes so incredibly distorted, that Wall Street now imagines itself to be the vital heart of the entire mode of production, pumping the life-giving credit throughout the world market that has now become critical for the functioning of real productive capital.
For instance, in 2008 we were told by Washington that the arteries of the credit system emanating from Wall Street were somehow “frozen” or “clogged” and that it was necessary to stuff still more worthless ex nihilo currency, created at a computer terminal, into these conduits in an effort to unclog them. This, we were told, was required, because the credit system, headquartered on Wall Street, was the heart of the “real” economy located on Main Street.
No one within the Marxist academy seemed to notice how bizarre this explanation was. Some idiot Marxist scholars, like Dumenil and Levy, immediately rushed to print with an extensive “explanation” of the financial crisis, as well as an exhaustive list of measures necessary to “restore the situation”, i.e., the golden age of the fascist state. Even among those Marxist scribblers, like Andrew Kliman, who rejected this argument, there was no attempt to explain how it was possible that Wall Street, which produced nothing and only oversaw the movement of fictional claims to future profits on actual production, could now be referred to as the heart of the global economy. No one even thought it necessary to explain how and when this shift in the center of gravity of the mode of production of a nation that was the single unchallenged global industrial superpower in 1945 took place, nor what this shift implied for the mode of production itself.
In Part 2 of his essay, Kurz showed how over the course of its development, as capitalism gains control over the production within an economy, productive capital (capital that is capable of producing the surplus value that eventually becomes both industrial profit and interest payments) actually becomes increasingly dependent on financial capital made available to it by the banking sector to the extent that financial capital actually comes to dominate over productive capital.
According to Kurz, the growing dependence of productive capital on interest yielding capital is driven by the increasing sophistication of the production process and, above all, by the fact that the amount of capital required to employ a given number of workers in producing commodities is constantly rising as productive capital is concentrated in fewer hands and the scale of each capital’s activity increases. Says Kurz,
The gradual extension of commercial rationality over all of production—its rationalization and the consequent secular increase of capital’s density (that is, always higher start-up costs for the competitive production of commodities)—apart from the concomitant extension of anonymous stock capital, demands always-greater masses of credit money in order to keep capitalist production going.
Over the course of the 20th Century, Kurz argues, capitals gradually shed the patriarchal forms of privately held and self-financed firms, as the modern corporation, employing money capital made available by the banking system, emerged as the typical form. Kurz argues this development was not just a superficial change in the way capitalism worked, nor was it merely of sociological significance — productive capital itself was becoming increasingly separated from value producing labor. It was not just a question of who controlled the purse strings of industry and who had a claim to the future profits created by industrial capitals; just as important for our comprehension of what was taking place within the mode of production, with the application of science and automation an always increasing quantity of capital was necessary to set in motion an always diminishing number of workers.
This separation of the credit system can be described as a growing structural disproportionality between scientifically developed fixed capital and the mass of labor which could still be profitably employed; the enormous scale of the augmentation of capital concentration … requires an increasingly greater use of monetary capital, which can, however, mobilize a diminishing mass of labor per unit of capital.
This growing disproportion between the money needs of productive capital and the quantity of labor power it productively employed meant productive capital, on the one hand, required increasing infusions of credit money to finance its operations, and, on the other hand, had to promise an ever increasing share of its future profits in return for loans from finance capital. The consequences of this arrangement will be clear once it is realized that productive capital was essentially promising an increasing share of its future profits to the bankers of finance capital — profits that did not as yet exist, and a promise to share in a growing mass of surplus value that would eventually prove impossible to realize. The fact that productive capital was made increasingly dependent on financial capital in this way both made visible the increasingly fragile character of the mode of production and the absolute material limit for capitalism itself.
Once in place, says Kurz,
This mechanism only functions as long as the mode of production continues to expand (as was the case until the last third of the 20th century) and only to the extent that the fictitiously anticipated mass of future value is effectively realized, at least on a scale sufficient to pay the interest on their loans.
But there was still another commonly overlooked result of this increasing reliance of productive capital on ever larger masses of finance capital. As the scale of production increased, the demand for loaned money capital increased along with it; and this demand led to rising interest rates, not only during times when money was scarce, or at the top of long expansions, but secularly and structurally. This tendency toward a secular rise in interest rates, says Kurz, disrupted production, and had to be offset by fascist state monetary policy, which, by flooding the money markets with manufactured liquidity, actually doubled down on the growing disproportion between money and the productively employed capital by introducing ever increasing quantities of worthless ex nihilo currency into circulation. The constant injection of worthless currency into circulation to combat rising interest rates, as Kurz explains later in the essay, was made possible by the collapse of the gold standard, which removed the last vestiges of an objective material expression of the relation between the expenditure of labor and the production of value and surplus value. Kurz states:
The structural limit of the accumulation process as a whole was breached, but must sooner or later be manifested again on the plane of money capital, hindering real production because of the rising price (and, ultimately, the crisis) of money. At the same time, capitals involved in the real production of commodities suffer enormously from the fluctuations of the money markets; thanks to the growing social importance of interest-yielding capital, the conditions improve for speculative movements that exceed all historical precedent. In a word: due to its internal growth, industrial capitalism becomes increasingly more irresponsible according to its own criteria.
In the next part of this series, we will see how Kurz thinks capital resolved the need for continuous expansion of the mode of production, necessitated by the growing domination of financial capital over productive capital, through the uninterrupted growth of the so-called services sector, and the massive post-World War II explosion of unproductive labor.