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<HTML>
<HEAD>

<TITLE>C.2 Where do profits come from?</TITLE>
</HEAD>
<BODY>
<p>

<h1>C.2 Where do profits come from?</h1>
<p>
As mentioned in the <a href="secC1.html">last section</a>, profits are the driving force of capitalism. 
If a profit cannot be made, a good is not produced, regardless of how many 
people "subjectively value" it. But where do profits come from? 
<p>
In order to make more money, money must be transformed into capital, 
i.e., workplaces, machinery and other "capital goods." By itself, however,
capital (like money) produces nothing. Capital only becomes productive
in the labour process when workers use capital (<i>"Neither property nor 
capital produces anything when not fertilised by labour"</i> - Bakunin). Under 
capitalism, workers not only create sufficient value (i.e. produced 
commodities) to maintain existing capital and their own existence, 
they also produce a surplus. This surplus expresses itself as a surplus 
of goods, i.e. an excess of commodities compared to the number a workers'
wages could buy back.  Thus Proudhon: 
<p><blockquote>
<i>"The working man cannot. . . repurchase that which he has produced for his
master. It is thus with all trades whatsoever. . . since, producing for a
master who in one form or another makes a profit, they are obliged to pay
more for their own labour than they get for it."</i> [<b>What is Property</b>, 
p. 189]
</blockquote><p>
In other words, the price of all produced goods is greater than the money 
value represented by the workers' wages (plus raw materials and overheads 
such as wear and tear on machinery) when those goods were produced. The 
labour contained in these "surplus-products" is the source of profit, which 
has to be realised on the market. (In practice, of course, the value 
represented by these surplus-products is distributed throughout all the 
commodities produced in the form of profit -- the difference between the 
cost price and the market price). 
<p>
Obviously, pro-capitalist economics argue against this theory of how a
surplus arises. However, one example will suffice here to see why labour 
is the source of a surplus, rather than (say) "waiting", risk or capital
(these arguments, and others, will be discussed below). A good poker-player 
uses equipment (capital), takes risks, delays gratification, engages in 
strategic behaviour, tries new tricks (innovates), not to mention cheats, 
and earns large winnings (and can even do so repeatedly). But no surplus 
product results from such behaviour; the gambler's winnings are simply 
redistributions from others with no new production occurring. Thus, 
risk-taking, abstinence, entrepreneurship, etc. might be necessary for 
an individual to receive profits but are far from sufficient for them 
not to be the result a pure redistribution from others (a redistribution,
we may add, which can only occur under capitalism if workers produce
goods to sell). 
<p>
Thus, in order for a profit to be generated within capitalism two things
are required. Firstly, a group of workers to work the available capital.
Secondly, that they must produce more value than they are paid in wages.
If only the first condition is present, all that occurs is that social
wealth is redistributed between individuals. With the second condition,
a surplus proper is generated. In both cases, however, workers are
exploited for without their labour there would be no goods to facilitate
a redistribution of existing wealth nor surplus products.
<p>
The surplus value produced by labour is divided between profits, interest 
and rent (or, more correctly, between the owners of the various factors 
of production other than labour). In practice, this surplus is used 
by the owners of capital for: (a) investment (b) to pay themselves dividends 
on their stock, if any; (c) to pay for rent and interest payments; and (d) 
to pay their executives and managers (who are sometimes identical with the 
owners themselves) much higher salaries than workers. As the surplus is
being divided between different groups of capitalists, this means that
there can be clashes of interest between (say) industrial capitalists and
finance capitalists. For example, a rise in interest rates can squeeze
industrial capitalists by directing more of the surplus from them into
the hands of rentiers. Such a rise could cause business failures and so
a slump (indeed, rising interest rates is a key way of regulating working 
class power by generating unemployment to discipline workers by fear of
the sack). The surplus, like the labour used to reproduce existing capital, 
is embodied in the finished commodity and is realised once it is sold. This 
means that workers do not receive the full value of their labour, since the 
surplus appropriated by owners for investment, etc. represents value added 
to commodities by workers -- value for which they are not paid.
<p>
So capitalist profits (as well as rent and interest payments) are in 
essence <b>unpaid labour,</b> and hence capitalism is based on exploitation. 
As Proudhon noted, <i>"<b>Products,</b> say economists, <b>are only bought by products</b>. 
This maxim is property's condemnation. The proprietor producing neither by 
his own labour nor by his implement, and receiving products in exchange for 
nothing, is either a parasite or a thief."</i> [<b>Op. Cit.</b>, p. 170] It is this 
appropriation of wealth from the worker by the owner which differentiates 
capitalism from the simple commodity production of artisan and peasant 
economies. All anarchists agree with Bakunin when he stated that:
<p><blockquote>
<i>"<b>what is property, what is capital in their present form?</b> For the
capitalist and the property owner they mean the power and the right,
guaranteed by the State, to live without working. . . [and so] the power
and right to live by exploiting the work of someone else . . . those . . .
[who are] forced to sell their productive power to the lucky owners of
both."</i> [<b>The Political Philosophy of Bakunin</b>, p. 180]
</blockquote><p>
Obviously supporters of capitalism disagree. Profits are not the product 
of exploitation and workers, capitalists and landlords get paid the value 
of their contributions to output, they say. A few even talk about "making 
money work for you" (as if pieces of paper can actually do any form of work!) 
while, obviously, human beings have to do the actual work (and usually for 
money). However, all agree that capitalism is not exploitative (no matter 
how exploitative it may look) and present various arguments why capitalists 
deserve to keep the products others make. This section of the FAQ presents 
some of the reasons why anarchists reject this claim. 
<p>
Lastly, we would like to point out that some apologists for capitalism cite 
the empirical fact that, in a modern capitalist economy, a large majority 
of all income goes to "labour," with profit, interest and rent adding 
up to something under twenty percent of the total. Of course, even if 
surplus value was less than 20% of a workers' output, this does not change 
its exploitative nature. These apologists of capitalism do not say that 
taxation stops being "theft" just because it is around 10% of all income. 
However, this value for profit, interest and rent is based on a statistical 
sleight-of-hand, as "worker" is defined as including everyone who has 
a salary in a company, including managers and CEOs (income to "labour" 
includes both wages <b>and</b> salaries, in other words). The large incomes 
which many managers and all CEOs receive would, of course, ensure that a 
large majority of all income does go to "labour." Thus this "fact" ignores 
the role of most managers as de facto capitalists and exploiters of surplus 
value and ignores the changes in industry that have occurred in the
last 50 years (see section C.2.5 - <a href="secC2.html#secc25">Aren't Executives workers and so
creators of value?</a>).
<p>
To get a better picture of the nature of exploitation within modern capitalism
we have to compare workers wages to their productivity. According to the
World Bank, in 1966, US manufacturing wages were equal to 46% of the 
value-added in production (value-added is the difference between selling
price and the costs of raw materials and other inputs to the production
process). In 1990, that figure had fallen to 36% and (using figures from
1992 Economic Census of the US Census Bureau) by 1992 it had reached 19.76%
(39.24% if we take the <b>total</b> payroll which includes managers and so on).
In the US construction industry, wages were 35.4% of value added in 1992 
(with total payroll, 50.18%). Therefore the argument that because a large 
percentage of income goes to "labour" capitalism is fine hides the realities
of that system and the exploitation its hierarchical nature creates.
<p>
We now move on to why this surplus value exists.
<p>
<a name="secc21"><h2>C.2.1 Why does this surplus exist?</h2>
<p>
It is the nature of capitalism for the monopolisation of the worker's
product by others to exist. This is because of private property in the
means of production and so in <i>"consequence of [which] . . . [the] worker, 
when he is able to work, finds no acre to till, no machine to set in
motion, unless he agrees to sell his labour for a sum inferior to its real
value."</i> [Peter Kropotkin, <b>Kropotkin's Revolutionary Pamphlets</b>, p. 55]
<p>
Therefore workers have to sell their labour on the market. However, as 
this "commodity" <i>"cannot be separated from the person of the worker like
pieces of property. The worker's capacities are developed over time and
they form an integral part of his self and self-identity; capacities are
internally not externally related to the person. Moreover, capacities or
labour power cannot be used without the worker using his will, his 
understanding and experience, to put them into effect. The use of labour
power requires the presence of its 'owner'. . . To contract for the use
of labour power is a waste of resources unless it can be used in the
way in which the new owner requires . . . The employment contract must,
therefore, create a relationship of command and obedience between
employer and worker."</i> [Carole Pateman, <b>The Sexual Contract</b>, pp. 150-1]
<p>
So, <i>"the contract in which the worker allegedly sells his labour power
is a contract in which, since he cannot be separated from his capacities,
he sells command over the use of his body and himself. . . The 
characteristics of this condition are captured in the term <b>wage slave.</b>"</i>
[<b>Ibid.</b>, p. 151] Or, to use Bakunin's words, <i>"the worker sells his person
and his liberty for a given time"</i> and so <i>"concluded for a term only and
reserving to the worker the right to quit his employer, this contract
constitutes a sort of <b>voluntary</b> and <b>transitory</b> serfdom."</i> [<b>The
Political Philosophy of Bakunin</b>, p. 187]
<p>
This domination is the source of the surplus, for <i>"wage slavery is not
a consequence of exploitation - exploitation is a consequence of the
fact that the sale of labour power entails the worker's subordination.
The employment contract creates the capitalist as master; he has the 
political right to determine how the labour of the worker will be used,
and - consequently - can engage in exploitation."</i> [Carole Pateman, 
<b>Op. Cit.</b>, p. 149]
<p>
So profits exist because the worker sells themselves to the capitalist, 
who then owns their activity and, therefore, controls them (or, more
accurately, <b>tries</b> to control them) like a machine. Benjamin Tucker's 
comments with regard to the claim that capital is entitled to a reward 
are of use here. He notes that some <i>"combat. . . the doctrine that 
surplus value -- oftener called profits -- belong to the labourer 
because he creates it, by arguing that the horse. . . is rightly 
entitled to the surplus value which he creates for his owner. So 
he will be when he has the sense to claim and the power to take 
it. . . Th[is] argument . .  is based upon the assumption that 
certain men are born owned by other men, just as horses are. Thus 
its <b>reductio ad absurdum</b> turns upon itself."</i> 
[<b>Instead of a Book</b>, 
pp. 495-6]
<p>
In other words, to argue that capital should be rewarded is to
implicitly assume that workers are just like machinery, another
"factor of production" rather than human beings and the creator
of things of value. So profits exists because during the working 
day the capitalist controls the activity and output of the worker 
(i.e. owns them during working hours as activity cannot be
separated from the body and <i>"[t]here is an integral relationship
between the body and self. The body and self are not identical,
but selves are inseparable from bodies."</i> [Carole Pateman, <b>Op. Cit.</b>,
p. 206]). 
<p>
Considered purely in terms of output, this results in, as Proudhon noted, 
workers working <i>"for an entrepreneur who pays them and keeps their 
products."</i> [quoted by Martin Buber, <b>Paths in Utopia</b>, p. 29]
The ability of capitalists to maintain this kind of monopolisation of 
another's time and output is enshrined in "property rights" enforced by 
either public or private states. In short, therefore, property <i>"is the 
right to enjoy and dispose at will of another's goods - the fruit of 
an other's industry and labour."</i> [P-J Proudhon, <b>What is Property</b>, p. 171] 
And because of this "right," a worker's wage will always be less than the 
wealth that he or she produces. 
<p>
The size of this surplus, the amount of unpaid labour, can be changed 
by changing the duration and intensity of work (i.e. by making workers 
labour longer and harder). If the duration of work is increased, the 
amount of surplus value is increased absolutely. If the intensity is 
increased, e.g. by innovation in the production process, then the amount 
of surplus value increases relatively (i.e. workers produce the equivalent 
of their wage sooner during their working day resulting in more unpaid 
labour for their boss).
<p>
Such surplus indicates that labour, like any other commodity, has a use
value and an exchange value. Labour's exchange value is a worker's wages, 
its use value their ability to work, to do what the capitalist who buys
it wants. Thus the existence of "surplus products" indicates that there 
is a difference between the exchange value of labour and its use value,
that labour can <b>potentially</b> create <b>more</b> value than it receives back 
in wages. We stress potentially, because the extraction of use value from
labour is not a simple operation like the extraction of so many joules
of energy from a ton of coal. Labour power cannot be used without subjecting
the labourer to the will of the capitalist - unlike other commodities, 
labour power remains inseparably embodied in human beings. Both the
extraction of use value and the determination of exchange value for labour
depends upon - and are profoundly modified by - the actions of workers.
Neither the effort provided during an hours work, nor the time spent in
work, nor the wage received in exchange for it, can be determined 
without taking into account the worker's resistance to being turned 
into a commodity, into an order taker. In other words, the amount of
"surplus products" extracted from a worker is dependent upon the
resistance to dehumanisation within the workplace, to the attempts by
workers to resist the destruction of liberty during work hours.
<p>
Thus unpaid labour, the consequence of the authority relations explicit 
in private property, is the source of profits. Part of this surplus 
is used to enrich capitalists and another to increase capital, which 
in turn is used to increase profits, in an endless cycle (a cycle, 
however, which is not a steady increase but is subject to periodic 
disruption by recessions or depressions - "The business cycle." The basic 
causes for such crises will be discussed later, in sections <a href="secC7.html">C.7</a> and <a href="secC8.html">C.8</a>). 
<p>
<a name="secc22"><h2>C.2.2 Are capitalists justified in appropriating a portion of surplus value for themselves (i.e. making a profit)?</h2>
<p>
In a word, no. As we will attempt to indicate, capitalists are not justified
in appropriating surplus value from workers. No matter how this appropriation
is explained by capitalist economics, we find that inequality in wealth and 
power are the real reasons for this appropriation rather than some actual 
productive act. Indeed, neo-classical economics reflects this truism. In 
the words of the noted left-wing economist Joan Robinson:
<p><blockquote>
<i>"the neo-classical theory did not contain a solution to the problems 
of profits or of the value of capital. They have erected a towering 
structure of mathematical theorems on a foundation that does not exist."</i>
[<b>Contributions to Modern Economics</b>, p. 186]
</blockquote><p>
If profits <b>are</b> the result of private property and the inequality it
produces, then it is unsurprising that neo-classical theory would be
as foundationless as Robinson argues. After all, this is a <b>political</b> 
question and neo-classical economics was developed to ignore such questions. 
Here we indicate why this is the case and discuss the various rationales 
for capitalist profit in order to show why they are false.
<p>
Some consider that profit is the capitalist's "contribution" to the value
of a commodity. However, as David Schweickart points out, <i>"'providing
capital' means nothing more than 'allowing it to be used.' But an act of
granting permission, in and of itself, is not a productive activity. If
labourers cease to labour, production ceases in any society. But if owners
cease to grant permission, production is affected only if their <b>authority</b>
over the means of production is respected."</i> [<b>Against Capitalism</b>, p. 11] 
This authority, as discussed earlier, derives from the coercive mechanisms 
of the state, whose primary purpose is to ensure that capitalists have this 
ability to grant or deny workers access to the means of production. 
Therefore, not only is "providing capital" not a productive activity, it 
depends on a system of organised coercion which requires the appropriation 
of a considerable portion of the value produced by labour, through taxes, 
and hence is actually parasitic. Needless to say, rent can also be considered 
as "profit", being based purely on "granting permission" and so not a 
productive activity. The same can be said of interest, although the 
arguments are somewhat different (see <a href="secC2.html#secc26">section C.2.6</a>).
<p>
Another problem with the capitalists' "contribution to production" argument
is that one must either assume (a) a strict definition of who is the
producer of something, in which case one must credit only the worker, or
(b) a looser definition based on which individuals have contributed to the
circumstances that made the productive work possible. Since the worker's
productivity was made possible in part by the use of property supplied by
the capitalist, one can thus credit the capitalist with "contributing to
production" and so claim that he or she is entitled to a reward, i.e.
profit.
<p>
However, if one assumes (b), one must then explain why the chain of credit
should stop with the capitalist.  Since all human activity takes place
within a complex social network, many factors might be cited as contributing 
to the circumstances that allowed workers to produce -- e.g. their upbringing 
and education, the government maintained infrastructure that permits their
place of employment to operate, and so on.  Certainly the property of the
capitalist contributed in this sense.  But his contribution was less
important than the work of, say, the worker's mother. Yet no capitalist, so
far as we know, has proposed compensating workers' mothers with any share
of the firm's revenues, and particularly not with a <b>greater</b> share than
that received by capitalists!  Plainly, however, if they followed their own
logic consistently, capitalists would have to agree that such compensation
would be fair.
<p>
Therefore, as capital is not autonomously productive and is the product 
of human (mental and physical) labour, anarchists reject the idea that
providing capital is a productive act. As Proudhon pointed out, <i>"Capital,
tools, and machinery are likewise unproductive. . . The proprietor who asks
to be rewarded for the use of a tool or for the productive power of his
land, takes for granted, then, that which is radically false; namely, that 
capital produces by its own effort - and, in taking pay for this imaginary 
product, he literally receives something for nothing."</i> [<b>Op. Cit.</b>, p. 169].  
<p>
Of course, it could be argued (and it frequently is) that capital makes 
work more productive and so the owner of capital should be "rewarded" 
for allowing its use. This, however, is a false conclusion, since providing
capital is unlike normal commodity production.  This is because capitalists, 
unlike workers, get paid multiple times for one piece of work (which, in all 
likelihood, they paid others to do) and <b>keep</b> the result of that labour. 
As Proudhon argued:
<p><blockquote>
<i>"He [the worker] who manufactures or repairs the farmer's tools receives 
the price <b>once</b>, either at the time of delivery, or in several payments; 
and when this price is once paid to the manufacturer, the tools which he has 
delivered belong to him no more. Never can he claim double payment for the 
same tool, or the same job of repairs. If he annually shares in the products 
of the farmer, it is owing to the fact that he annually does something for 
the farmer.
<p>
"The proprietor, on the contrary, does not yield his implement; eternally he 
is paid for it, eternally he keeps it."</i> [<b>Op. Cit.</b>, pp. 169-170]
</blockquote><p>
Therefore, providing capital is <b>not</b> a productive act, and keeping the
profits that are produced by those who actually do use capital is an act of
theft. This does not mean, of course, that creating capital goods is not
creative nor that it does not aid production. Far from it!  But owning the
outcome of such activity and renting it does not justify capitalism or 
profits.
<p>
Some supporters of capitalism claim that profits represent the productivity 
of capital. They argue that a worker is said to receive exactly what she has 
produced because (according to the neo-classical answer) if she ceases to 
work, the total product will decline by precisely the value of her wage. 
However, this argument has a flaw in it. This is because the total product 
will decline by more than that value if two or more workers leave. This is 
because the wage each worker receives under conditions of perfect competition 
is assumed to be the product of the <b>last</b> labourer in neo-classical theory. 
The neo-classical argument presumes a "declining marginal productivity," 
i.e. the marginal product of the last worker is assumed to be less than 
the second last and so on.
<p>
In other words, in neo-classical economics, all workers bar the mythical
"last worker" do not receive the full product of their labour. They only
receive what the <b>last</b> worker is claimed to produce and so everyone
<b>bar</b> the last worker does not receive exactly what he or she produces.
It looks like the neo-classical claim of no exploitation within 
capitalism seems invalidated by its own theory.
<p>
This is recognised by the theorists. Because of this declining marginal
productivity, the contribution of labour is less than the total product.
The difference is claimed to be precisely the contribution of capital.
But what is this "contribution" of capital? Without any labourers there
would be no output. In addition, in physical terms, the marginal
product of capital is simply the amount by which production would decline 
is one piece of capital were taken out of production. It does not reflect 
any productive activity whatsoever on the part of the owner of said
capital. <b>It does not, therefore, measure his or her productive 
contribution.</b> In other words, capitalist economics tries to confuse 
the owners of capital with the machinery they own. 
<p>
Indeed, the notion that profits represent the contribution of capital
is one that is shattered by the practice of "profit sharing." <b>If</b>
profits were the contribution of capital, then sharing profits would
mean that capital was not receiving its full "contribution" to
production (and so was being exploited by labour!). Moreover, given
that profit sharing is usually used as a technique to <b>increase</b>
productivity and profits it seems strange that such a technique
would be required if profits, in fact, <b>did</b> represent capital's
"contribution." After all, the machinery which the workers are
using is the same as before profit sharing was introduced -- how 
could this unchanged capital stock produce an increased "contribution"?
It could only do so if, in fact, capital was unproductive and it
was the unpaid efforts, skills and energy of workers' that actually
was the source of profits. Thus the claim that profit equals capital's 
"contribution" has little basis in fact.
<p>
While it is true that the value invested in fixed capital is in the course 
of time transferred to the commodities produced by it and through their sale 
transformed into money, this does not represent any actual labour by the 
owners of capital. Anarchists reject the ideological sleight-of-hand that
suggests otherwise and recognise that (mental and physical) labour is the 
<b>only</b> form of contribution that can be made by humans to a productive 
process. Without labour, nothing can be produced nor the value contained 
in fixed capital transferred to goods. As Charles A. Dana pointed out in 
his popular introduction to Proudhon's ideas, <i>"[t]he labourer without capital 
would soon supply his wants by its production . . . but capital with no 
labourers to consume it can only lie useless and rot."</i> [<b>Proudhon and his 
"Bank of the People"</b>, p. 31] If workers do not get paid the full value of 
their contributions to the output they produce then they are exploited and 
so, as indicated, capitalism is based upon exploitation.
<p>
So, in and of themselves, fixed costs do not create value. Whether value is 
created depends on how investments are developed and used once in place. 
In the words of the English socialist Thomas Hodgskin:
<p><blockquote>
<i>"Fixed capital does not derive its utility from previous, but present labour; 
and does not bring its owner a profit because it has been stored up, but 
because it is a means of obtaining a command over labour."</i> [<b>Labour Defended 
against the Claims of Capital</b>]
<p></blockquote>
Which brings us back to labour (and the social relationships which exist
within an economy) as the fundamental source of profits. Moreover the idea 
(so beloved by pro-capitalist economics) that a worker's wage <b>is</b> the 
equivalent of what she produces is one violated everyday within reality. 
As one economist critical of neo-classical dogma put it:
<p><blockquote>
<i>"Managers of a capitalist enterprise are not content simply to respond 
to the dictates of the market by equating the wage to the value of
the marginal product of labour. Once the worker has entered the 
production process, the forces of the market have, for a time at least,
been superseded. The effort-pay relation will depend not only on 
market relations of exchange but also. . . on the hierarchical relations
of production - on the relative power of managers and workers within
the enterprise."</i> [William Lazonick, <b>Business Organisation and the
Myth of the Market Economy</b>, pp. 184-5]
</blockquote><p>
But, then again, capitalist economics is more concerned with justifying 
the status quo than being in touch with the real world. To claim that
a workers wage represents her contribution and profit capital's is 
simply false. Capital cannot produce anything (nevermind a surplus) 
unless used by labour and so profits do not represent the productivity
of capital.
<p>
Other common justifications of profit are based on claims about the
"special abilities" of a select few, e.g. as "risk taking" or "creative"
ability, and are equally unsound as the one just outlined. 
<p>
As for risk taking, virtually all human activity involves risk. To claim
that capitalists should be paid for the risks associated with investment
is to implicitly state that money is more valuable that human life. 
Afterall, workers risk their health and often their lives in work and
often the most dangerous workplaces are those associated with the lowest
pay (safe working conditions can eat into profits and so to reward 
capitalist "risk", the risk workers face may actually increase). In the 
inverted world of capitalist ethics, it is usually cheaper (or more 
"efficient") to replace an individual worker than a capital investment. 
<p>
Moreover, the risk theory of profit fails to take into account the 
different risk-taking abilities of that derive from the unequal distribution 
of society's wealth. As James Meade puts it, while <i>"property owners can 
spread their risks by putting small bits of their property into a large 
number of concerns, a worker cannot easily put small bits of his effort 
into a large number of different jobs. This presumably is the main reason 
we find risk-bearing capital hiring labour"</i> and not vice versa [quoted 
by David Schweickart, <b>Op. Cit.</b>, pp. 129-130]. Needless to say, the most 
serious consequences of "risk" are usually suffered by working people who 
can lose their jobs, health and even lives. So, rather than individual 
evaluations determining "risk", these evaluations will be dependent
on the class position of the individuals involved. Risk, therefore, is
not an independent factor and so cannot be the source of profit. Indeed,
as indicated, other activities can involve far more risk and be rewarded
less. 
<p>
As for the "creative" spirit which innovates profits into existence, it is
true that individuals do see new potential and act in innovative ways to
create new products or processes. However, as discussed in the 
<a href="secC2.html#secc23">next section</a>, 
this is not the source of profit. 
<p>
<a name="secc23"><h2>C.2.3 Why does innovation occur and how does it affect profits?</h2>
<p>
There is a given amount of surplus value in existence within the economy at 
any one time. How this surplus is created by or divided between firms is 
determined by competition, within which innovation plays an important role.
<p>
Innovation occurs in order to expand profits and so survive competition
from other companies. While profits can be generated in circulation (for 
example by oligopolistic competition or inflation) this can only occur at the 
expense of other people or capitals (see C.5 - <a href="secC5.html">Why does Big Business get a 
bigger slice of profits?</a> and C.7 - <a href="secC7.html">What causes the capitalist business 
cycle?</a> - respectively). Innovation, however, allows the generation of profits
directly from the new or increased productivity (i.e. exploitation) of labour. 
This is because it is in production that commodities, and so profits, are 
created and innovation results in new products and/or new production methods.
New products mean that the company can reap excess profits until competitors 
enter the new market and force the market price down by competition. New
production methods allow the intensity of labour to be increased, meaning
that workers do more work relative to their wages (in other words, the
cost of production falls relative to the market price, meaning extra 
profits).
<p>
So while competition ensures that capitalist firms innovate, innovation is
the means by which companies can get an edge in the market. This is because
innovation means that <i>"capitalist excess profits come from the production 
process. . . when there is an above-average rise in labour productivity; 
the reduced costs then enable firms to earn higher than average profits in 
their products. But this form of excess profits is only temporary and 
disappears again when improved production methods become more general."</i> 
[Paul Mattick, <b>Economics, Politics and the Age of Inflation</b>, p. 38]
<p>
In addition, innovation in terms of new technology is also used to help 
win the class war at the point of production for the capitalists. As 
the aim of capitalist production is to maximise profits, it follows that
capitalism will introduce technology that will allow more surplus value 
to be extracted from workers. As Cornelius Castoriadis argues, capitalism 
<i>"has created a capitalist technology, for its <b>own</b> ends, which are by 
no means neutral. The real essence of capitalist technology is not to
develop production for production's sake: it is to subordinate and
dominate the producers."</i> [<b>Workers' Councils and the Economics of a 
Self-Managed Society</b>, p. 13]
<p>
Therefore, technological improvement can also be used to increase the 
power of capital over the workforce, to ensure that workers will do as
they are told. In this way innovation can maximise surplus value production
by trying to increase domination during working hours as well as by 
increasing productivity by new processes.
<p>
These attempts to increase profits by using innovation is the key to 
capitalist expansion and accumulation. As such innovation plays a key 
role within the capitalist system. However, the source of profits does 
not change and remains in the labour, skills and creativity of workers 
in the workplace. And we must stress that innovation itself is a form 
of labour -- mental labour. Indeed, many companies have Research and 
Development departments in which groups of workers are paid to generate 
new and innovative ideas for their employers. And we must also point out 
that many new innovations come from individuals who combine mental and 
physical labour outside of capitalist companies. In other words, arguments 
that mental labour alone is the source of wealth (or profits) are false. 
That this is the case can be seen from various experiments in workers' 
control (see the <a href="secC2.html#secc24">next section</a>) where 
increased equality within the 
workplace actually increases productivity and innovation. As these 
experiments show workers, when given the chance, can develop numerous 
"good ideas" <b>and</b>, equally as important, produce them. A capitalist 
with a "good idea," on the other hand, would be powerless to produce 
it without workers and it is this fact that shows that innovation, in 
and of itself, is not the source of surplus value.
<p>
<a name="secc24"><h2>C.2.4 Wouldn't workers' control stifle innovation?</h2>
<p>
Contrary to much capitalist apologetics, innovation is not the monopoly
of an elite class of humans. It is within all of us, although the
necessary social environment needed to nurture and develop it in ordinary
workers is crushed by the authoritarian workplaces of capitalism. If
workers were truly incapable of innovation, any shift toward greater
control of production by workers should result in decreased productivity.
What one actually finds, however, is just the opposite: In the few
examples where workers' control has been implemented, productivity
increased dramatically as ordinary people were given the chance, usually
denied them, to apply their skills, talents, and creativity. 
<p>
As Christopher Eaton Gunn notes, there is <i>"a growing body of empirical
literature that is generally supportive of claims for the economic
efficiency of the labour-managed firm. Much of this literature focuses
on productivity, frequently finding it to be positively correlated
with increasing levels of participation. . . Studies that encompass
a range of issues broader than the purely economic also tend to support
claims for the efficiency of labour managed and worker-controlled
firms. . . In addition, studies that compare the economic preference
of groups of traditionally and worker-controlled forms point to
the stronger performance of the latter."</i> [<b>Workers' Self-Management
in the United States</b>, pp. 42-3]
<p>
This has been strikingly confirmed in studies of the Mondragon
co-operatives in Spain, where workers are democratically involved in
production decisions and encouraged to innovate. As George Bennello
notes, <i>"Mondragon productivity is very high -- higher than in its
capitalist counterparts. Efficiency, measured as the ratio of utilised
resources -- capital and labour -- to output, is far higher than in
comparable capitalist factories."</i> [<b>The Challenge of Mondragon</b>,
p. 216]
<p>
The example of the Lucus workers in Britain, during the 1970's, again
indicates the creative potential waiting to be utilised. The workers in
Lucus created a plan which would convert the military-based Lucus company
into a company producing useful goods for ordinary people. The workers in
Lucus designed the products themselves, using their own experiences of
work and life. The management just were not interested. 
<p>
During the Spanish Revolution of 1936-39, workers self-managed many
factories following the principles of participatory democracy.
Productivity and innovation in the Spanish collectives was exceptionally 
high. The metal-working industry is a good example. As Augustine 
Souchy observes, at the outbreak of the Civil War, the metal industry 
in Catalonia was <i>"very poorly developed."</i> Yet within months, the 
Catalonian metal workers had rebuilt the industry from scratch, 
converting factories to the production of war materials for the
anti-fascist troops. A few days after the July 19th revolution, the
Hispano-Suiza Automobile Company was already converted to the manufacture
of armoured cars, ambulances, weapons, and munitions for the fighting
front. <i>"Experts were truly astounded,"</i> Souchy writes, <i>"at the expertise
of the workers in building new machinery for the manufacture of arms and
munitions. Very few machines were imported. In a short time, two hundred
different hydraulic presses of up to 250 tons pressure, one hundred
seventy-eight revolving lathes, and hundreds of milling machines and
boring machines were built."</i> [<b>The Anarchist Collectives: Workers'
Self-management in the Spanish Revolution, 1936-1939</b>, ed. Sam Dolgoff,
p. 96]
<p>
Similarly, there was virtually no optical industry in Spain before the
July revolution, only some scattered workshops. After the revolution, the
small workshops were voluntarily converted into a production collective. 
<i>"The greatest innovation,"</i> according to Souchy, <i>"was the construction of a
new factory for optical apparatuses and instruments. The whole operation
was financed by the voluntary contributions of the workers. In a short
time the factory turned out opera glasses, telemeters, binoculars,
surveying instruments, industrial glassware in different colours, and
certain scientific instruments. It also manufactured and repaired optical
equipment for the fighting fronts . . . What private capitalists failed to
do was accomplished by the creative capacity of the members of the Optical
Workers' Union of the CNT."</i> [<b>Op. Cit.</b>, pp. 98-9]
<p>
Therefore, far from being a threat to innovation, workers' control 
would increase it and, more importantly, direct it towards improving the
quality of life for all as opposed to increasing the profits of the few.
This aspect an anarchist society will be discussed in more detail in
section I (<a href="secIcon.html">What would an anarchist society look like?</a>). In addition, 
see sections <a href="secJ5.html#secj510">J.5.10</a>, <a href="secJ5.html#secj511">J.5.11</a> and <a href="secJ5.html#secj512">J.5.12</a> for more on why anarchists
support self-management and why, in spite of its higher efficiency 
and productivity, the capitalist market will select against it.
<p>
In short, rather than being a defence of capitalist profit taking (and the
inequality it generates) the argument that freedom increases innovation and
productivity actually points towards libertarian socialism and workers'
self-management. This is unsurprising, for only equality can maximise 
liberty and so workers' control (rather than capitalist power) is the
key to innovation. Only those who confuse freedom with the oppression 
of wage labour would be surprised by this.
<p>
<a name="secc25"><h2>C.2.5 Aren't Executives workers and so creators of value?</h2>
<p>
Of course it could be argued that executives are also "workers" and so
contribute to the value of the commodities produced. However, this is 
not the case. Though they may not own the instruments of production, 
they are certainly buyers and controllers of labour power, and under 
their auspices production is still <b>capitalist</b> production. The creation 
of a "salary-slave" strata of managers does not alter the capitalist 
relations of production. In effect, the management strata are <b>de facto</b>
capitalists. As exploitation requires labour (<i>"There is work and there is
work."</i> as Bakunin noted, <i>"There is productive labour and there is the 
labour of exploitation"</i> [<b>The Political Philosophy of Bakunin</b>, p. 180]),
management is like the early "working capitalist" and their "wages" come
from the surplus value appropriated from workers and realised on the
market. Or, to use a different analogy, managers are like the slave
drivers hired by slave owners who do not want to manage the slaves
themselves. The slave drivers' wages come from the surplus value
extracted from the slaves; it is not in itself productive labour. 
<p>
Thus the exploitative role of managers, even if they can be fired, 
is no different from capitalists. Moreover, <i>"shareholders and
managers/technocrats share common motives: to make profits and to
reproduce hierarchy relations that exclude most of the employees from
effective decision making"</i> [Takis Fotopoulos, <i>"The Economic Foundations 
of an Ecological Society"</i>, p. 16, <b>Society and Nature</b> No.3, pp. 1-40]
<p>
This is not to say that 100 percent of what managers do is exploitative. 
The case is complicated by the fact that there is a legitimate need for 
co-ordination between various aspects of complex production processes -- 
a need that would remain under libertarian socialism and would be filled 
by elected and recallable (and in some cases rotating) managers (see 
<a href="secIcon.html">Section I</a>). But under capitalism, managers become parasitic in proportion 
to their proximity to the top of the pyramid. In fact, the further the 
distance from the production process, the higher the salary; whereas the 
closer the distance, the more likely that a "manager" is a worker with 
a little more power than average. In capitalist organisations, the less 
you do, the more you get. In practice, executives typically call upon 
subordinates to perform managerial (i.e. co-ordinating) functions and 
restrict themselves to broader policy-making decisions. As their 
decision-making power comes from the hierarchical nature of the firm, 
they could be easily replaced if policy making was in the hands of 
those who are affected by it. 
<p>
<a name="secc26"><h2>C.2.6 Is interest not the reward for waiting, and so isn't capitalism just?</h2>
<p>
The idea that interest is the reward for <i>"abstinence"</i> on the part of
savers is a common one in capitalist economics. As Alfred Marshall argues,
<i>"[i]f we admit it [a commodity] is the product of labour alone, and not of
labour and waiting, we can no doubt be compelled by an inexorable logic to
admit that there is no justification of interest, the reward for waiting"</i>
[<b>Principles of Economics</b>, p. 587]. While implicitly recognising that
labour is the source of all value in capitalism (and that abstinence is
not the <b>source</b> of profits), it is claimed that interest is a justifiable
claim on the surplus value produced by a worker. 
<p>
Why is this the case? Capitalist economics claims that by "deferring
consumption," the capitalist allows new means of production to be
developed and so should be rewarded for this sacrifice. In other words, in
order to have capital available as an input -- i.e.  to bear costs now for
returns in the future -- someone has to be willing to postpone his or her
consumption. That is a real cost, and one that people will pay only if
rewarded for it.
<p>
This theory usually appears ludicrous to a critic of capitalism -- simply
put, does the mine owner really sacrifice more than a miner, a rich
stockholder more than an autoworker working in their car plant? It is far
easier for a rich person to "defer consumption" than for someone on an
average income.  This is borne out by statistics, for as Simon Kuznets has
noted, <i>"only the upper income groups save; the total savings of groups
below the top decile are fairly close to zero."</i> [<b>Economic Growth and
Structure</b>, p. 263] Therefore, the plausibility of interest as payment
for the pain of deferring consumption rests on the premise that the
typical saving unit is a small or medium-income household.  But in
contemporary capitalist societies, this is not the case. Such households 
are not the source of most savings; the bulk of interest payments do not 
go to them. 
<p>
To put this point differently, the capitalist proponents of interest only
consider "postponing  consumption" as an abstraction, without making it
concrete. For example, a capitalist may "postpone consumption" of 48
Rolls Royces because he needs the money to upgrade some machinery in his
factory; whereas a single mother may have to "postpone consumption" of
food or adequate  housing in order to attempt to better take care of her
children.  The two situations are vastly different, yet the capitalist
equates them.  This equation implies that "not being able to buy anything
you want" is the  same as "not being able to buy things you need", and is
thus skewing the  obvious difference in costs of such postponement of
consumption! 
<p>
Thus Proudhon's comments that the loaning of capital <i>"does not involve an 
actual sacrifice on the part of the capitalist"</i> and so <i>"does not deprive 
himself. . . of the capital which be lends. He lends it, on the contrary, 
precisely because the loan is not a deprivation to him; he lends it because 
he has no use for it himself, being sufficiently provided with capital 
without it; be lends it, finally, because he neither intends nor is able 
to make it valuable to him personally, -- because, if he should keep it 
in his own hands, this capital, sterile by nature, would remain sterile, 
whereas, by its loan and the resulting interest, it yields a profit which 
enables the capitalist to live without working. Now, to live without working 
is, in political as well as moral economy, a contradictory proposition, 
an impossible thing."</i> [<b>Interest and Principal: A Loan is a Service</b>]
<p>
He goes on:
<p><blockquote><i>
"The proprietor who possesses two estates, one at Tours, and the other 
at Orleans, and who is obliged to fix his residence on the one which he
uses, and consequently to abandon his residence on the other, can this 
proprietor claim that he deprives himself of anything, because he is not,
like God, ubiquitous in action and presence? As well say that we who live 
in Paris are deprived of a residence in New York! Confess, then, that
the privation of the capitalist is akin to that of the master who has 
lost his slave, to that of the prince expelled by his subjects, to that 
of the robber who, wishing to break into a house, finds the dogs on the 
watch and the inmates at the windows."</i> [<b>Ibid.</b>]
</blockquote><p>
In the capitalist's world, an industrialist who cannot buy a third 
summer home "suffers" a cost equivalent to that of someone who postpones
consumption  to get something they need. Similarly, if the industrialist
"earns" hundred times more in interest than the wage of the coal miner who 
works in his mine, the industrialist "suffers" hundred times more discomfort
living in his palace than the coal miner does working at the coal face in
dangerous conditions. The "disutility" of postponing consumption while
living in luxury is obviously 100 times greater than the "disutility" of
working for a living and so should be rewarded appropriately. Of course, 
the difference is that proponents of capitalism feel that capitalists 
deserves compensation for their "restraint" in anticipation of future 
gain, while at the same time refusing to recognise the ambiguity of 
this statement. 
<p>
All in all, as  Joan Robinson pointed out, <i>"'waiting' only means owning 
wealth."</i> [<b>Contributions to Modern Economics</b>, p. 11] Interest is 
not the reward for "waiting," rather it is one of the rewards for being
rich. 
<p>
Little wonder, then, that neo-classical economists introduced the term 
<b>waiting</b> as an "explanation" for returns to capital (such as interest). 
Before this change in the jargon of economics, mainstream economists used 
the notion of "abstinence" (a term invented by Nassau Senior) to account 
for (and so justify) interest. Just as Senior's "theory" was seized upon
to defend returns to capital, so was the term "waiting" after it was 
introduced in 1887. Interestingly, while describing <b>exactly</b> the same 
thing, "waiting" became the preferred term simply because it had a less 
apologetic ring to it. According to Marshall, the term <i>"abstinence"</i> 
was <i>"liable to be misunderstood"</i> because there were just too many 
wealthy people around who received interest and dividends without ever having 
abstained from anything (as he noted, the <i>"greatest accumulators of 
wealth are very rich persons, some [!] of whom live in luxury"</i> 
[<b>Op. Cit.</b>,
p. 232]). So he opted for the term <i>"waiting"</i> because there was <i>"advantage"</i>
in its use, particularly because socialists had long been pointing out
the obvious fact that capitalists do not <i>"abstain"</i> from anything (see 
Marshall, <b>Op. Cit.</b>, p. 233). The lesson is obvious, in mainstream 
economics if reality conflicts with your theory, do not reconsider the 
theory, change its name!
<p>
Indeed, as Joan Robinson points out, the pro-capitalist theories of who
abstains are wrong, <i>"since saving is mainly out of profits, and real wages 
tend to be lower the higher the rate of profit, the abstinence associated 
with saving is mainly done by the workers, who do not receive any share 
in the 'reward.'"</i> [<b>The Accumulation of Capital</b>, p. 393]
<p>
To say that those who hold capital can lay claim to a portion of the social
product by abstaining or waiting provides no explanation of what makes
production profitable, and so to what extent interest and dividends can be
paid. Reliance on a "waiting" theory of why returns of capital exist represents
nothing less than a reluctance by economists to confront the sources of value
creation in an economy or to analyse the social relations between workers and
managers/bosses on the shop floor. To do so would be to bring into question
the whole nature of capitalism and any claims it was based upon freedom.
<p>
<a name="secc27"><h2>C.2.7 But wouldn't the "time value" of money justify charging interest in a more egalitarian capitalism?</h2>
<p>
More needs to be said about interest, since a more egalitarian capitalism 
(if such a thing could exist) would still have interest, and the greater 
egalitarianism could even be used as the basis of a justification for it.
<p>
Indeed, the conceptual history that supporters of capitalism present to
justify interest (or the appropriation of surplus value in general) 
usually start in a fictional community of equals. The time preference 
theory of interest bases itself on such a fiction. We are presented 
with the argument that individuals have different "time preferences." 
Most individuals prefer, it is claimed, to consume now rather than 
later while a few prefer to save now on the condition that they can 
consume more later. Interest, therefore, is the payment that encourages 
people to defer consumption and so is dependent upon the subjective 
evaluations of individuals.
<p>
Based on this argument, many supporters of capitalism claim that it is 
legitimate for the person who provided the capital to get back <b>more</b> 
than they put in, because of the "time value of money." This is because 
the person who provided the machinery, tools, etc. had to postpone X 
amount of consumption which he could have had with his money. Capital 
providers will only get back X amount of consuming power later, after 
they have been paid back for the machinery etc. by receiving a portion, 
over time, of the increased output that it makes possible. Since people 
prefer consumption now to consumption later, they can only be persuaded
to give up consumption now by the promise of receiving more later. 
Hence returns to capital are based upon this "time value" of money
and the argument that individuals have different "time preferences."
<p>
That the idea of doing nothing (i.e. not consuming) can be considered 
as productive says a lot about capitalist theory.  Even supporters of
capitalism recognise that interest income <i>"arises independently of any
personal act of the capitalist. It accrues to him even though he has not
moved any finger in creating it. . . And it flows without ever exhausting
that capital from which it arises, and therefore without any necessary
limit to its continuance. It is, if one may use such an expression in
mundane matters, capable of everlasting life."</i> [Eugen Bohm-Bawark, 
<b>Capital and Interest</b>, vol. 1, p. 1] Needless to say, Bohm-Bawark
then went on to justify this situation.
<p>
Lets not forget that, due to <b>one</b> decision not to do anything (i.e. 
<b>not</b> to consume), a person (and his or her heirs) may receive <b>forever</b> 
a reward that is not tied to any productive activity. Unlike the people
actually doing the work (who only get a reward every time they "contribute" 
to creating a commodity), the capitalist will get rewarded for just 
<b>one</b> act of abstention.  This is hardly a just arrangement. As David 
Schweickart has pointed out, <i>"Capitalism does reward some individuals 
perpetually. This, if it is to be justified by the canon of contribution, 
one must defend the claim that some contributions are indeed eternal."</i> 
[<b>Against Capitalism</b>, p.17] In addition, the receiver of interest can 
pass the benefits of this <b>one</b> decision to his family after he or she 
dies, weakening the case for "abstinence" even more. 
<p>
It was in the face of the weaknesses of the "abstinence" or "waiting"
theories of capital that Bohm-Bawark suggested the "time preference"
theory (namely that surplus value is generated by the exchange of 
present goods for future goods, as future goods are valued less than
present goods due to "time preference"). Of course, this theory is subject 
to exactly the same points we raised in the <a href="secC2.html#secc26">last section</a>. An individual's 
psychology is conditioned by the social situation they find themselves in. 
Just as "abstaining" or "waiting" is far easier to do when one is rich, 
ones "time preference" is also determined by ones social position. If one 
has more than enough money for current needs, one can more easily "discount" 
the future (for example, workers will value the future product of their
labour less than their current wages simply because without those wages 
there will be no future). And if ones "time preference" is dependent on 
social facts (such as available resources, ones class, etc.), then 
interest cannot be based upon subjective evaluations, as these are not 
the independent factor. In other words, saving does not express "time
preference", it simply expresses the extent of inequality.
<p>
Even if we ignore the problem that inequality influences the subjective
"time preference" of individuals, the theory still does not provide a 
defence of interest. It is worthwhile quoting the noted post-Keynesian 
economist Joan Robinson on why this is so:
<p><blockquote>
<i>"The notion that human beings discount the future certainly seems to
correspond to everyone's subjective experience, but the conclusion
drawn from it is a <b>non sequitor</b>, for most people have enough sense 
to want to be able to exercise consuming power as long as fate permits, 
and many people are in the situation of having a higher income in the 
present than they expect in the future (salary earners will have to retire, 
business may be better now than it seems likely to be later, etc.) and
many look beyond their own lifetime and wish to leave consuming power
to their heirs. Thus a great many . . . are eagerly looking for a
reliable vehicle to carry purchasing power into the future . . . It is
impossible to say what price would rule is there were a market for
present <b>versus</b> future purchasing power, unaffected by any other
influence except the desires of individuals about the time-pattern
of their consumption. It might will be such a market would normally
yield a negative rate of discount . . . 
<p>
"The rate of interest is normally positive for a quite different reason.
Present purchasing power is valuable partly because, under the capitalist
rules of the game, it permits its owner . . . to employ labour and 
undertake production which will yield a surplus of receipts over costs.
In an economy in which the rate of profit is expected to be positive,
the rate of interest is positive . . . [and so] the present value of
purchasing power exceeds its future value to the corresponding extent. . .
This is nothing whatever to do with the subjective <b>rate of discount
of the future</b> of the individual concerned. . . "</i> [<b>The Accumulation
of Capital</b>, p. 395]
</blockquote><p>
So, interest has little to do with "time preference" and a lot more to
do with the inequalities associated with the capitalist system. In effect,
the "time preference" theory assumes what it is trying to prove. Interest
is positive simply because capitalists can appropriate surplus value from
workers and so current money is more valuable than future money because
of this fact. Indeed, in an uncertain world future money may be its own
reward (for example, workers facing unemployment in the future could 
value the same amount of money more then than in the present). It is
only because money provides the authority to allocate resources and
exploit wage labour that money now is more valuable. In other words,
the capitalist does not supply "time" (as the "time value" theory
argues), it provides authority/power.
<p>
So, does someone who saves deserve a reward for saving? Simply put, no.
Why? Because the act of saving is no more an act of production than is
purchasing a commodity. Clearly the reward for purchasing a commodity is
that commodity. By analogy, the reward for saving should be not interest
but one's savings -- the ability to consume at a later stage. 
<p>
Capitalists assume that people will not save unless promised the ability
to consume <b>more</b> at a later stage, yet close examination of this argument
reveals its absurdity.  People in many different economic systems save in
order to consume later, but only in capitalism is it assumed that they
need a reward for it beyond the reward of having those savings available
for consumption later.  The peasant farmer "defers consumption" in order
to have grain to plant next year, the squirrel "defers consumption" of
nuts in order to have a stock through winter. But neither expects to see
their stores increase in size over time. Therefore, saving is rewarded by
saving, as consuming is rewarded by consuming. In fact, the capitalist 
"explanation" for interest has all the hallmarks of apologetics.  It is
merely an attempt to justify an activity without careful analysing it. 
<p>
To be sure, there is an economic truth underlying this argument for 
justifying interest, but the formulation by supporters of capitalism 
is inaccurate and unfortunate. There is a sense in which 'waiting' 
is a condition for capital <b>increase</b>, though not for capital per 
se. Any society which wishes to increase its stock of capital goods 
may have to postpone some gratification. Workplaces and resources 
turned over to producing capital goods cannot be used to produce 
consumer items, after all. So, like most capitalist economics there is
a grain of truth in it but this grain of truth is used to grow a forest 
of half-truths and confusion.
<p>
Any economy is a network, where decisions affect everyone. Therefore, 
if some people do not consume now, production is turned away from 
consumption goods, and this has an effect on all. Or, to put it slightly
differently, aggregate demand -- and so aggregate supply -- is changed
when some people postpone consumption, and this affects others. The
decrease in the demand for consumer goods affects the producers of these
goods.  Under capitalism, this may result in other people having to
"defer consumption," as they cannot sell their goods on the market; but
supporters of capitalism assume that <b>only</b> capitalists are affected by
their decision to postpone consumption, and therefore that they should get
a reward for it.  Indeed, why should someone be rewarded for a decision
which may cause companies to go bust, so <b>reducing</b> the available 
means of production as reduced demand results in job loses and idle 
factories, is not even raised as an issue by the supporters of capitalism. 
<p>
Lastly, we must consider what interest actually means. It is <b>not</b> the
same as other forms of exchange. Proudhon pointed out the difference:
<p><blockquote>
<i>"Comparing a loan to a <b>sale</b>, you say: Your argument is as 
valid against 
the latter as against the former, for the hatter who sells hats does not
<b>deprive</b> himself.
<p>
"No, for he receives for his hats -- at least he is reputed to receive for 
them -- their exact value immediately, neither <b>more</b> nor <b>less</b>. 
But the 
capitalist lender not only is not deprived, since he recovers his capital 
intact, but he receives more than his capital, more than he contributes 
to the exchange; he receives in addition to his capital an interest which 
represents no positive product on his part. Now, a service which costs no
labour to him who renders it is a service which may become gratuitous."
</i>[<b>Interest and Principal: The Circulation of Capital, Not Capital Itself, 
Gives Birth to Progress</b>]
</blockquote><p>
Thus selling the use of money (paid for by interest) is not the same as
selling a commodity. The seller of the commodity does not receive the 
commodity back as well as its price. In effect, as with rent and profits,
interest is payment for permission to use something and, therefore, not 
a productive act which should be rewarded. Ultimately, interest is an 
expression of inequality, <b>not</b> exchange:
<p><blockquote>
<i>"If there is chicanery afoot in calling
'money now' a different good than 'money later,' it is be no means
harmless, for the intended effect is to subsume moneylending under the
normative rubric of exchange. . . [but] there are obvious differences...
[for in normal commodity exchange] both parties have something [while in
loaning] he has something you don't. . . [so] inequality dominates the
relationship. He has more than you have now, and he will get back more
than he gives."</i> [Schweickart, <b>Op. Cit.</b>, p.23]
</blockquote><p>
Therefore, money lending is, for the poor person, not a choice between
more consumption now/less later and less consumption now/more later. If
there is no consumption now, there will not be any later. In addition,
even in a relatively egalitarian capitalism, interest implies that the
producer of new capital is <b>not</b> producing commodities. Would-be
capitalists have "deferred consumption" and allowed a machine to be
created.  They then offer to let others use it for a fee, but they are 
<b>not</b> selling a commodity, they are renting the use of something. And
giving permission is not a productive act (as noted above).
<p>
Therefore, providing capital and charging interest are not productive acts.
As Proudhon argued, <i>"all rent received (nominally as damages, but really
as payment for a loan) is an act of property - of robbery [theft]."</i> 
[<b>What is Property</b>, p. 171]. In other words, capitalism is based on 
usury, i.e. paying for the use of something. The machine owner has 
"deferred consumption" and so is "rewarded" with wage labourers to boss 
about and payment in excess of what he or she originally put forward.  
In addition, the commodity producers have made goods which the owner of 
the machine gets paid for and still has the machine!  This means that the 
interest paid has been taken from the labour of those who use the machine, 
who end up with <b>nothing</b> at the end beyond their wages and so are still 
wage slaves, looking for a new boss. Little wonder Proudhon argued that 
<b><i>"Property is theft!"</i></b>
<p>
Interest is a con, pure and simple. Little wonder both social and
individualist anarchists have opposed it.  Ben Tucker assumed that mutual
banking, besides  reducing interest to zero, would also increase the power
of workers in the economy, meaning that workers would be in a position to
refuse to work for a capitalist unless they agreed to a hire-purchase deal
on the capital they used (see <a href="secGcon.html">section G</a>). As for the social anarchists,
they realised that free agreements between syndicates and communes would
ensure suitable investment in new means of production. They also
recognised the network of common influence in any advanced economy, and
thus that since everyone is affected by investment decisions, all should
have a say in them (see <a href="secIcon.html">section I</a>).
<p>
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