This is why!!!

Jonathan Nitzan and Shimshon Bichler in their work ‘Capital as Power’ bring us directly to the essential point: the fundamental fact of our socio-economic system is power. Capital isn’t a “factor of production”; it’s simply power, nothing more. That capital is power and power is capital is a highly fruitful simplification which must be accepted if we are to understand the nature of our system.

A brief look around shows us that the capital / power identity is self evidently true. In the United States, we know that the bottom 80% of the population owns just 7% of financial wealth and it’s about the same everywhere else. It’s certainly even more unequal than this given the massive hoards held in secret “offshore” accounts. Just 500 corporations control 40% of global sales and every major industry is under oligopolistic control. David Rothkopf, well connected former managing director of Kissinger Associates, observes in his book ‘Superclass – The Global Power Elite and the World They Are Making’, that “A global elite has emerged over the past several decades that has vastly more power than any other group on the planet” and estimates that this elite numbers just 6,000 individuals. Stefania Vitali, James B. Glattfelder, and Stefano Battiston performed a comprehensive network analysis of direct and indirect corporate control and found that control is concentrated within a “tightly knit” core of financial institutions which they brand a “super-entity”. According to them, just 737 global holders control an incredible 80% of the value of all transnational corporations.

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The unprofitability of worker consumption is a fundamental and greatly under-appreciated reality of the capitalist system. Simple logic tells us that workers will not be employed to produce for their own good. They won’t because it can’t ever be profitable. That many call the system “consumer capitalism” is in fact darkly humorous in an Orwellian way. The profitability problem was recognized over 100 years ago by Rosa Luxemburg and it’s a key reason for worldwide poverty and insecurity. Workers will not yield profits to owners through the activity of producing for their own consumption; to garner profit, workers must produce for the consumption of some “outsider” who will provide the profit increment to the owners.

The extreme concentration of today’s capitalism demands more than ever that we consider the system from a consolidated global class view, and when we assume that perspective, the only “outsiders” we can find are the owners themselves and the government. There’s simply no one else that could possibly supply the increment over the wage which is the profit. This absolutely absurd circularity was clearly demonstrated by economist Michal Kalecki through his well known profit equation for a purely “private” economy:

Profit = Capitalist consumption + Investment

Power is the ability to monetarily spend (command); profit is the monetary amount spent (commanded). Profit itself should be seen as a meaningless circularity when we consider the capitalist class as a whole and this makes sense when we realize it’s only about power. Nitzan and Bichler are right – the only meaning of profit and capital is in its competitive differential level between individual capitalists and that’s where they put their focus. But for the class as a whole, profit and capital valuation have no meaning at all. It makes no difference whether their ownership of Earth is valued at $100 trillion or $10 trillion or $1 trillion when there’s no one outside of Earth to whom they could possibly sell the planet. God help us if there were! It’s not about profit; it’s about power.

Those sitting at the pinnacle determine how and to what level the productive resources of humanity are used. The basic flow isn’t “economic”, it’s political and it goes something like this:

Command to produce is issued by owners ==> Command is executed by workers

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We should see capitalism as a top down hierarchical process whereby workers are ordered into production to produce for the interests of the owners – either for their consumption or investment. Investment in worker consumption goods is not stand alone profitable so the investment will normally be in things that don’t directly benefit the worker.

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It’s a simple power struggle between the owners and workers and supply and demand curves have almost nothing to do with it. If there are more resources brought online for the workers, then the real wage is higher and so is total output and employment. Luxury consumption and investment, and therefore profit (remember the equation), are completely unaffected. As Kalecki clearly showed, high wages (or low wages) have no effect on profit – the conditions of the worker are immaterial to the ownership class as a whole from a profit point of view since wages are always both an income and expense and net to zero. That the ownership class constantly seeks to reduce wages and impose austerity is a clear demonstration of the power nature of the relationship. The reason is power and not profit. A fully secure and prosperous population is not remotely conducive to a hierarchical system of power.

Of course many will explain the drive for reduced living standards as due to the neutral forces of international competition and the dynamics of the globalized market economy. But that should be seen as absurdly unconvincing. The drive existed well before international competition was as high and agreements could easily be reached to turn the viscous cycle into a virtuous one. Arguments of competitiveness, flexibility, “sound finance”, and the like are frivolous diversions. The system is power, nothing more. sursa

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