Column No. 223
Among all of the others that we know of on Earth, the human species is unique in a number of ways. One is that while members of other species certainly can communicate with each other in a variety of ways, including sound, we are the only one (as far as we know, and outside of Pixar films) that has a complex language. We are unique in that we are the only one that for our survival needs to convert various elements found in our natural environment into more complex substances. And so foodstuffs, raw meat, vegetables, grains and etc., become food. Trees become wood, become shelter. Iron ore becomes iron, becomes at first various tools and other implements, and then more complex things, especially when we make it into steel. Thus the members of the other species can each take what they need for survival from the environment directly (assuming there is enough of it). If we are to survive, as individuals and as a species, ours needs to make the various elements that we find in the environment into a whole range of products made from those elements.
One term for the various modes of conversion from environmental elements into usable substances, structures, and so forth is “means of production.” Because the existence of each of us is dependent on such means, without them, our species would quickly die out. Very early humans presumably did their own personal conversions, for themselves and/or their family units, of hunted and gathered foodstuffs into food, of trees into wood into shelter, of animal skins into clothing, and so on and so forth. As those early humans began to organize themselves into social units, it certainly would have been possible for them to organize the control of the means of production so that it was shared in one way or another among all of the members of each social unit. But that is not what happened.
We cannot be certain just when it occurred, but back in the mists of time by one means or another certain members of each social unit would take over control of the means of production, leaving all of the other members without such control. This may have happened at some point in the hunter-gatherer phase of the development of our species, but it certainly happened when, for example, food production started to switch over from hunting-gathering to agriculture and animal husbandry, and where possible, fishing. Some individuals were owners of various elements of the means of production the use of which could supply relatively large numbers of individuals with various products. The rest were either not-owners entirely, or owners of a limited set of means of production, like their own animals and small agricultural plots, and/or their own fishing boats, from which they could supply their own needs, at least for the basic elements of human survival: food, clothing, and shelter.
But for most everything else, over a period of some millennia, to a greater or lesser extent depending upon their own particular circumstances, the not-owners became dependent upon the owners for their survival. The not-owners did have their labor-power, of course. Increasingly, they voluntarily or involuntarily put it in the service of the means of production owners. A combination of self-supporting and non-self-supporting peasantry, dependent and independent craftsmen, slaves, and means-of-production owners became the norm for the societal structure of that lengthy period.
The modern system of economic organization that we call “capitalism” has been under development since the Middle Ages. It is based on the private ownership of the means of production, just as under the slavery/peasant/craftsman system, but it took on a different nature. Capitalists were able to take accumulated wealth of one sort or another and use it to employ others to work for them, and pay them for doing that work. The system evolved such that the owners were able to earn more from the work of others, using their original investment plus the raw worth of the workers’ labor power, than the simple sum of the two. So there was an excess of value produced, that, as the system developed on top of the by-then age-old formulation of the private ownership of the means of production, went to its owners.
The first form was mercantile capitalism, in which money was made by organized trading at a level much higher than anything previously seen. Trade and the accumulation of surpluses from it had of course been going on for millennia. But in most cases the excesses, if any, earned, were earned by the persons doing the trading themselves. In mercantile capitalism, the capitalists invested their funds in the work of others and then proceeded to accumulate the profits earned, without actually doing any of the work themselves. Of course this wasn’t a totally “clean” break from the past forms. Certain mercantilists both worked in trading directly and also accumulated profits from the enterprises earned by others. The “capital” that they provided/paid for consisted of the land and sea-going vessels used for trading and the systems developed to keep track of everything.
The second form was industrial capitalism, still going strong in many countries around the world, especially those with cheap labor. In this form, profits are made by the owners of the means of production using the labor of others for which they pay (as little as possible in most cases), making and selling things in large numbers. The “capital” is literally the means of production that they own: the factories, the mines, the refineries, the means of transportation, on which they employ others and then accumulate the excess value, profit, produced by those others in the course of their work.
The third form is finance capitalism, in which money is made from the business of buying, selling and trading various financial instruments, for example, home mortgages, and most recently, their "securitized" form. That is the form which more and more is taking over American capitalism. In the first decade of this century, the financial sector made 41% of the total profits accumulated in the United States (“The Quiet Coup,” Simon Johnson, The Atlantic, May, 2009). Some that profit was made the old-fashioned way, by collecting interest on loans made.
But increasingly, in the financial sector, profits were made by trading pieces of paper, some of which were of such a complicated structure that very few people actually understood how they were pieced together, to say nothing of being to explain their structures to anyone else. The key to making profits with these instruments was to be able to convince a potential buyer that they would become evermore valuable. This was the case even though their intrinsic worth was based on other pieces of paper that had been sliced and diced into such small bits of supposed base value that no one could ever trace them to their source. We all know what happened when the belief-in-the-ever-increasing-value-of-financial-instruments-that-few-people-understood collapsed.
And therein lies the rub for financial capitalism and its potential for recovery. The “capital” on which profits were made is/was these financial instruments. They, the “toxic assets,” have no intrinsic value and thus cannot produce anything, ever again. In previous recessions/depressions, the capital was always there, in the form of the ships and etc. under mercantile capitalism, the factories, mines, and etc. under industrial capitalism. Once the market for goods and services under either system revived or was caused to be revived in one way or another, the capital, the “stuff” of production was there. It simply had to be brought back to a reasonably efficient functioning state. Then the capitalist could employ the workers once again, accumulate the excess value they produced once again, and the capitalist cycle would start over again.
But if the “capital,” the means by which profits were made, is simply pieces of paper that now have no intrinsic value and unlike a closed factory cannot be simply started up again, where does capitalism go from here? This is the question that the Obama Administration, the US owners of the means of production and indeed their counterparts all around the world are struggling mightily to come up with a workable answer for. I certainly do not have the answer in this case. I must say that I hope that these “captains of industry (and finance)” can come up with one soon or we will all really be in for it, at a level of economic and political suffering that presently one can only imagine.