A Current Contradiction of Capitalism?

[Rocky Rococo]

I'd like to get the opinions of people here , particularly the Marx scholars, on a point that has been going through my mind for a few weeks now.

Many, probably most of you, are familiar with the whole mortgage/foreclosure crisis that is the current face of the ongoing financial crisis. There's an interesting, sort of philosophical issue I see arising here that I don't think I've ever seen before.

Usually, in capitalism, property and profit are like the chicken and the egg, one produces the other in a rolling ongoing process, where one years profits become invested as the next year's property which in turn produces the year after's profits etc etc etc. We're all familiar with that process of the accumulation of capital.

But something really strange has happened here. The pursuit of maximum rates of return on investment, and the opportunity for the big score by the "securitization" of the secondary mortgage market, has led to a series of practices which are in effect undermining the integrity (in the structural sense) of the entire system of real property ownership, and title. We hear constant reports now that tens of millions of mortgages have been transferred and "securitized" without those doing all this actually acquiring the underlying debt notes, the property has become separated from the debt, but then the holders of the mortgage have proceeded to behave as if they in fact do hold the notes, up to and including carrying out foreclosures, by the tens of thousands. Judges, naturally enough in bed with banks and their lawyers, for several years apparently issued judgments in favor of these foreclosures without themselves bothering to see that the paperwork and the title were in order. Now there are all these properties which stand revealed as having defective title or no title at all as a result of these essentially fraudulent practices.

So my basic question is this: if the pursuit of corporate profit results in the undermining of the basic principles of the capitalist system of private land tenure, does that represent a "contradiction of capitalism"? Also, did Marx or other theorists ever address any cases of conflict between the profit motive and private property itself And what does this mean for us as contemporary revlefts, how do we tackle these large theoretical questions raised by this rather unique conflict between profit and private property? How do we enhance and advance our critiques to take maximum political advantage of this breakdown in the very basic pillars of capitalism?

[ckaihatsu]

So my basic question is this: if the pursuit of corporate profit results in the undermining of the basic principles of the capitalist system of private land tenure, does that represent a "contradiction of capitalism"?


The capitalist system of private land tenure is still in place -- it's just that it's undergoing deflation and consolidation in the hands of the major banks. I'd say it'd be more accurate to term this phenomenon 'market failure' rather than any aberrant functioning of capitalism itself.





Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where market participants' overall gains from the new outcome would outweigh their losses (even if some participants lose under the new arrangement). Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point-of-view.[1][2] The first known use of the term by economists was in 1958,[3] but the concept has been traced back to the Victorian philosopher Henry Sidgwick.[4]

Market failures are often associated with information, non-competitive markets, externalities,[5] or public goods. The existence of a market failure is often used as a justification for government intervention in a particular market.[6][7]

http://en.wikipedia.org/wiki/Market_failure








investment in non-productive physical assets such as residential real estate [emphasis added]

[C]apital accumulation can refer variously to

real investment in tangible means of production.

financial investment in assets represented on paper, yielding profit, interest, rent, royalties, fees or capital gains.

investment in non-productive physical assets such as residential real estate or works of art that appreciate in value.

"human capital accumulation," i.e., new education and training increasing the skills of the (potential) labour force which can increase earnings from work.

http://en.wikipedia.org/wiki/Capital_accumulation


The 'contradiction of capitalism' is best described by Marx's 'tendency of the rate of profit to fall':





The tendency of the rate of profit to fall, commonly abbreviated to TRPF, is a hypothesis in economics and political economy, generally accepted in the 19th century[citation needed], but rejected by mainstream economists today. Economists as diverse as Adam Smith, John Stuart Mill and Stanley Jevons noticed a long-run empirical trend for the internal rate of return on capital invested to produce industrial products to decline, but the hypothesis was most famously expounded by Karl Marx in chapter 13 of Das Kapital Vol. 3. Marx called this tendency "the most important law of political economy" and sought to give a causal explanation for it, in terms of his labour theory of value.

[...]

Simply put, Marx argued that increased investment in and growth of constant capital (factories, machines, land, buildings, raw materials) relative to variable capital (labor) reduced the margin of surplus labor time relative to the total production capital invested (constant capital plus variable capital.) Since surplus labor time is, according to Marx, the source of surplus value, and since the general rate of profit equals total surplus value divided by total capital, then the tendential fall in surplus labor time relative to total production capital owned results in a tendential fall in the rate of profit for newly produced commodities.[1]

[...]

This is then the general tendency in capitalism, but it is only a tendency, because there are also "counteracting factors" operating which had to be studied also.

[...]

http://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall

[Vladimir Innit Lenin]

Capitalism is in itself a contradiction in terms.

There is no law that says that Capitalism can continue only so long as there is a link between property and profit, in the chicken/egg sense. The current crisis wasn't because traditional property holdings weren't generating profit, but because they weren't generating enough profit to satiate the greed of the 'top' Capitalists, hence their ever increasingly risky trades and securitsation of debt into incredibly complicated financial deals.

Greed was at the root of the sub-prime crisis, greed is at the root of Capitalism. Ergo, Capitalism, and it's inherently confused and contradictory economic mode, was at the root of the sub-prime crisis and all other economic crises in the western world, hitherto.

[KC]

Speculation is inherently a destructive act. The entire point of speculation is buying in and speculating on peak values for maximum profits. This creates an additional exacerbation of crises, as when the peak has been reached and the value starts falling massive sell-offs take place which only further increases the momentum of the drop.

This is made more widespread when taken out of its abstract form and put into not only an integrated world financial system, but a globally integrated debt market. Speculative bubbles send shockwaves throughout the entire economy. In an economy where there is a market for the buying and selling of debt, various second and third order financial instruments cause further destruction.

This is, in part, what we are seeing right now. The full picture is obviously more complicated but this is certainly a part.

[ckaihatsu]

If you'll allow the metaphor, I'd liken capitalism to the practice of finding hilltops, or high points, for physical positioning and viewing the landscape. No one can argue that everyone would be content to remain on flat ground -- this would be akin to a basic materialistic argument that people are going to want stuff, period.

So at some point capitalism was progressive in that it mobilized mass resources, including labor, to get more people to hilltops than ever before. It even began *constructing* hilltops, but of course that required labor and the laborers didn't actually get to *be* at those hilltops -- maybe they could *visit* a few designated ones, at most, but that was about it.

Financialization allowed the *generalization* of the hilltop-constructing process, so that labor wouldn't be wasted in the sense of the capital invested. But the contradiction here is obvious -- just because capital exists to mobilize labor doesn't mean that actual *people* are allowed to then occupy hilltops once they're constructed. Worse, it turns out that there's *so much* capital in existence that some hilltops just get built higher and higher, more vertically, even though it's far riskier and incurs the increasing possibility that the hilltop will *collapse* under its own weight.

Nonetheless capital gets so desperate for markets that that's *exactly* what it turns to -- gambling at higher odds for elevated positioning, despite the risks to their capital, to the hilltop itself, to the laborers constructing the hilltop, and to the natural environment in the moving of earth, etc., for the construction of the hilltops. We could also mention warfare between different geographical sections of capital-based hilltop-construction financiers, especially during historical periods when they see the rising positions of newcomers closing in on their *own* altitude.

[ckaihatsu]

I have to take issue with some of the details here....





There is no law that says that Capitalism can continue only so long as there is a link between property and profit, in the chicken/egg sense.


Yes, there *is* a "law" -- or capitalist materialist dynamics -- that says that extant capital is going to seek out ways to increase its own value. Capital abhors stasis, and is only valuable to the extent that it can mobilize the production process (thereby exploiting labor) to increase its financial value.

Capital *is* private property, *is* linked to profit, and therefore *will* continue as long as it *is* linked in a chicken-or-the-egg sense, to profit, iterated endlessly going forward, if allowed.





Most generally, the accumulation of capital refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. Capital can be generally defined as assets invested with the expectation that their value will increase, usually because there is the expectation of profit, rent, interest, royalties, capital gain or some other kind of return.

http://en.wikipedia.org/wiki/Capital_accumulation





Greed was at the root of the sub-prime crisis, greed is at the root of Capitalism. Ergo, Capitalism, and it's inherently confused and contradictory economic mode, was at the root of the sub-prime crisis and all other economic crises in the western world, hitherto.


"Greed" is an individualistic and moralistic term and is really not the most accurate term to use in the context of overall capitalist materialist dynamics like 'capital accumulation'. Individuals can be "cured" of "greed" on an individualistic basis, but doing so for thousands or even millions is *not* going to stop the system of capital accumulation generally.

There is nothing "confusing" about the way capitalism works -- it may use increasingly leveraged and/or diversified financial methods, in attempts to disaggregate risks, but that's different from saying that it's somehow inherently difficult to do or understand in the abstract.

[RedMaterialist]

Also, did Marx or other theorists ever address any cases of conflict between the profit motive and private property itself

Profit is created when the capitalist uses labor (workers) to produce commodities from material and machines (past labor and private property of capitalist.) When workers produce a commodity they add value to the product over and above the value of their own labor time. This added value is the profit.

The capitalist is in extreme competition to produce more things more cheaply. This he does by reducing the amount of labor and increasing the productivity of labor by increasing the use of machinery.

As this process gains momentum the capitalist system produces more things at a higher overall profit, but at a lower rate of profit. The things have less value, are cheaper. Finally there is the familiar glut of overproduction and businesses begin to go bankrupt, workers thrown out of jobs, etc. Thus, production of too much wealth, too much profit, too many goods and services. How is this possible in a capitalist society where production of material well-being is supposed to be the Holy Grail?

In the housing crisis, housing (McMansions) mortgages were produced at a faster and faster rate. Probably made possible by the use of the computer. Banks were competing with each other to produce more and more mortgages; these ballooned into mortgage products (securitization, etc.) Finally the total amount of mortgage products became so enormous they overwhelmed the underlying home values. The homes were "underwater." The banks started going under. The very biggest ones got saved at the expense of taxpayers while the lesser ones (Lehman, etc.) got eaten.

Under capitalism the pursuit of profit will always lead to overproduction. Socialism will plan, rationalize and manage production.

[S.Artesian]

Also, did Marx or other theorists ever address any cases of conflict between the profit motive and private property itself And what does this mean for us as contemporary revlefts, how do we tackle these large theoretical questions raised by this rather unique conflict between profit and private property? How do we enhance and advance our critiques to take maximum political advantage of this breakdown in the very basic pillars of capitalism?Marx indeed analyzed the conflict between private property and the profit motive, not just in the form of landed property vs. profits. The core of Marx's analysis is that capitalism becomes the barrier to its own expansion-- that its organization of the means of production as private property in order to aggrandize surplus value first precipitates explosive growth in the means of production, and this in turn causes the ratio of profits to production to decline. Then in order to offset this decline in the rate of profitability, the bourgeoisie devalue, and destroy, the accumulated means of production, which exist as private property.

Marx also analyzed the conflict between industrial capital and landed property in his discussions on rent, where rent is seen as a form of "tax" on profits and excess profits paid to the landowner as rent for the use, the capacity, to transform land into a value, and into a component of the production of value.

Regarding the current mortgage crisis, the direct roots of this are actually in the 2001-2003 recession, and the recovery. In both recession and recovery, industry in the US clamped down severely on capital expansion, and wage increases. Borrowing by industry dropped dramatically after 2001, and the "mix" between industry loans and consumer loans on banks' books changed from 50/50 in 2001 to 30/70 by 2005. Banks, profit driven organizations, had to find their profit somewhere, and so they reprised, only on a much larger scale, the securitization bust of the 1980s/1990s that involved the S&Ls, and the trading in CDs, and issuance of collateralized debt instruments to back loans in construction and real estate.

Other elements of the recovery were the depreciated dollar, with the US increasing exports and beggaring its neighbors; increased oil prices, channeling oil income into bank cash flows; capital exports, shifting greater amounts of production to Asia and less developed countries, thus driving down the total wage bill, and of course low interest rates which allowed finance, real estate, insurance sectors to engage in essentially what was a universal "carry trade," where money was borrowed cheaply, and from each other in repo markets, structured investment vehicles, securitized "asset"-back debt issue, and then reinvested for apparently "higher returns" in exactly similar structured investment vehicles, and securitized asset-backed deals. Except at core, the borrowing was really short-term borrowing for long term investment, as the maturities on the the asset-backed securities were pushed out. This could work as long as the issuers,-- lenders, and the borrowers, could keep "flipping" the issues-- find another entity to purchases the securities. Stripped of its fancy terms, this is called the "bigger fool theory" of investing.

In 2005-2006, industry resumed capital spending, driving down the rate of profit, overproduction resulted [in industries like semi-conductors, etc.] and the shells of debt in this shell game cracked open, revealing no egg, and no chicken.

Didn't deter the asset-backed-securities issuers, as nothing engenders overproduction, and overspeculation like overproduction and overspeculation.

[Dave B]

The issue of the mortgage crisis is that the working class around the world have sold their future labour power or a proportion of the ‘rump and stump’ of it ‘once for all’, well for thirty years or so or whatever, and entered into what Karl called debt peonage.

To buy a house or whatever; or perhaps just as much for some, to gamble and speculate on the property market.

That becomes a bit clearer I think in real situations with double income families ie the husband and wife etc or whatever.

As it is as I have often heard it discussed here in the UK; from one income earner or the value of their labour power will go towards the ‘necessities’ of keeping their bodies and souls together etc.

And the other wage slave will effectively sell the proceeds and dedicate the next 30 years of their labour power in exchange for the borrowed money to purchase the house.

But they are of course not irresponsible idiots in as much as they are not speculating and using the money to bet on a sure winner.

As they can bail out, sell the house and buy back their future labour power that they have previously sold, the collateral is there in bricks and mortar.

Others of course will buy stuff on credit visa cards etc and piss it up against the wall, literally when it comes to students. And when they get a job if they ever do, for an hour or so of their working day for some indeterminate period they will be the peons of American Express or whatever.

Anyway from Karl;

Karl Marx. Capital Volume One

Chapter Six: The Buying and Selling of Labour-Power




The continuance of this relation demands that the owner of the labour-power should sell it only for a definite period, for if he were to sell it rump and stump, once for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity. He must constantly look upon his labour-power as his own property, his own commodity, and this he can only do by placing it at the disposal of the buyer temporarily, for a definite period of time. By this means alone can he avoid renouncing his rights of ownership over it.3


Hence legislation in various countries fixes a maximum for labour-contracts. Wherever free labour is the rule, the laws regulate the mode of terminating this contract. In some States, particularly in Mexico (before the American Civil War, also in the territories taken from Mexico, and also, as a matter of fact, in the Danubian provinces till the revolution effected by Kusa), slavery is hidden under the form of peonage. By means of advances, repayable in labour, which are handed down from generation to generation, not only the individual labourer, but his family, become, de facto, the property of other persons and their families. Juarez abolished peonage.

The so-called Emperor Maximilian re-established it by a decree, which, in the House of Representatives at Washington, was aptly denounced as a decree for the re-introduction of slavery into Mexico. "I may make over to another the use, for a limited time, of my particular bodily and mental aptitudes and capabilities; because in consequence of this restriction, they are impressed with a character of alienation with regard to me as a whole. But by the alienation of all my labour-time and the whole of my work, I should be converting the substance itself, in other words, my general activity and reality, my person, into the property of another." (Hegel, "Philosophie des Rechts." Berlin, 1840, p. 104, § 67.)

http://www.marxists.org/archive/marx/works/1867-c1/ch06.htm#n3 (http://www.marxists.org/archive/marx/works/1867-c1/ch06.htm)

Actually within the capitalist class if you read and interpret the stuff carefully you can detect a division of interests between the sections. So you can find bleeding heart protests from within the capitalist class about their own industrial wage slaves falling foul of loan sharking and peonage of which the mortgage crisis is just a part.

There does look like their might be a working class movement emerging in the US with the mortgage interest repayment strike which may have similarities with the collective non payment rent strikes of the past.
The details are a bit obscure to me at the moment but I believe in common US law the creditor or lender needs to agree to foreclose on a debt that isn’t being serviced or returning interest.


As the loaned money has been ‘sliced and diced’ or securitised, and the lenders have been homogenised into an amorphous mass in computer programmes; locating the original lenders is a problem.

I have every confidence that this formal legalistic problem will be solved quickly.

.

[RedMaterialist]

Also, did Marx or other theorists ever address any cases of conflict between the profit motive and private property itself

Here is Marx from the Communist Manifesto:

"It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented."

[Ocean Seal]

So my basic question is this: if the pursuit of corporate profit results in the undermining of the basic principles of the capitalist system of private land tenure, does that represent a "contradiction of capitalism"? Also, did Marx or other theorists ever address any cases of conflict between the profit motive and private property itself And what does this mean for us as contemporary revlefts, how do we tackle these large theoretical questions raised by this rather unique conflict between profit and private property? How do we enhance and advance our critiques to take maximum political advantage of this breakdown in the very basic pillars of capitalism?
I see this merely as evidence that capitalism has outgrown itself. The desire for a greater profit has undercut the principles of the current capitalist system showing that capitalism is no longer creative and that its tenets are no longer applicable hence it is the beginning of the end for capital and a bright new day for socialists.

[arm]

Capitalism is inherently contradictory, according to MarxHere is something I've written elsewhere on the two contradictions of capitalism.


...capitalism moves through time, always forward – looking backwards. That is, the present exists in some form of the future in relation to the past. We can see this in the everyday jargon used to talk about our economy. Debt and interest are of course the pinnacle geniuses of our current form of capitalism. Debt and interest allow for the future economy to exist in the present in some form of speculation about economic conditions that will exist due to knowledge about the past. Thus, capitalism needs an unlimited amount of resources to continue existing; however, resources are limited. Whether “resources” is understood in terms of time, humans, or oil they are not endless, and will eventually be consumed. It is at this point that capitalism collapses. At the point where the system fails to produce enough to consume, it can no longer exist.



The second inherent contradiction in capitalism is closely related to the first, as they progress in tandem. Capitalism is inherently unequal and exploitative. Stratification exists in capitalism par excellence because commodities can never be distributed equally. Therefore, our relationships are conflict based: “the history of all hitherto existing society is the history of class struggles.” Those with ‘more’ can never be a substantial majority. Furthermore, those with more wealth will continue to gain more leaving an increasing number with less. This leads to an ultimate consolidation of wealth and eradicates capitalism.

[S.Artesian]

Capitalism is inherently contradictory, according to MarxHere is something I've written elsewhere on the two contradictions of capitalism.


...capitalism moves through time, always forward – looking backwards. That is, the present exists in some form of the future in relation to the past. We can see this in the everyday jargon used to talk about our economy. Debt and interest are of course the pinnacle geniuses of our current form of capitalism. Debt and interest allow for the future economy to exist in the present in some form of speculation about economic conditions that will exist due to knowledge about the past. Thus, capitalism needs an unlimited amount of resources to continue existing; however, resources are limited. Whether “resources” is understood in terms of time, humans, or oil they are not endless, and will eventually be consumed. It is at this point that capitalism collapses. At the point where the system fails to produce enough to consume, it can no longer exist.

I like the spirit, but don't agree with the material analysis.

That's not when capitalism fails at all. Not producing enough for consumption is part of capital maintains itself; producing scarcity in the midst of overproduction is capital at its peak.

The contradiction of capital is immanent; meaning it is within its very basis of organization, the social relation from which it arises and which makes it powerful-- the expropriation of the labor power of the laborer. In it's need to increase that expropriation, accumulate that expropriated labor in the form of value, capital must amplify the productive power of labor by reducing, expelling labor in the production process.

This creates the tendency for the rate of profit to fall, leading to overproduction. It represents the conflict between means and relations of production.

Capitalism is not about to run out of gold, coal, natural gas, semiconductors, or oil. Not even close. And neither the existing supplies, nor use of those supplies has anything to do with capital's current, or future predicament. It's all about value and value production.