Translated from Gegenstandpunkt: Politische Vierteljahreszeitschrift 1-2018, Gegenstandpunkt Verlag, Munich

Competition of Capitalists
II. Accumulation of capital: Expansion of production and commerce

§ 7 Growth

In the market economy, growth is an officially and quite generally recognized necessity. It is taken for granted that the growth of the economy is the precondition for prosperity; when growth slows down or actually stops altogether, there is a risk of want and need. Those who warn that continuous economic growth is an absurdity go more or less unheard in the culture section. Critics who maintain that a growth geared solely to immediate economic performance is too narrow a focus for society’s well-being and who call for broader criteria and values to be included are suspected of being anti-consumerist or anti-progress, or accused of ultimately having no idea of human nature and inherent human needs. Even the most sober reference to “natural limits of growth” will face the accusation of being divorced from reality. And indeed it is — reality being that those in charge of business definitely do not know or recognize any ‘natural limit’ that could thwart the economic purpose that is in effect and being practiced: a market economy needs growth. The only question is why? Where does this absolute necessity come from?

From the point of view of those doing business, it all begins with the most self-evident thing of all, namely, their irrefutable need. This need does not spring from nature, of course, as otherwise expounded and metaphysically justified in the academic picture of man as having infinite needs in the face of scarce resources. It derives instead from an interest and a problematic situation that result automatically from the nature of the businessman’s source of revenue.

1. Growth: The capitalist’s natural need, dictated by his source of revenue

The industrialist converts part of his assets to means of production and uses another part to pay wages, in order to earn money from selling the products he has had produced; he wants to earn continuously and as much as possible.

For this purpose, he has to make a distinction when it comes to the money he receives from the turnover of his capital, be it definitive proceeds or liquidity in the form of credit slips. He has to decide on his share as a private individual for satisfying his needs, and on the sum required for maintaining his business as a source of profit. What he takes in and does not immediately need for paying bills is not simply available for the purpose he is pursuing with his business, as his personal income. In order for this business to thrive continuously, for the use of his assets to function as a permanent source of income, there must always be enough liquidity — for any payment obligations, for business needs that can never be exactly calculated in advance, for dealing with the uncertainties of the market which have been made manageable through credit but come back on a higher level as an objective constraint. Ensuring the continuous reproduction of business, preserving his capital and a permanent money income, creates a need for money that cannot be measured in terms of a clearly determinable cost expenditure but must safeguard the course of business against all possibilities of failure. The result is an expenditure exceeding the original capital investment. The proper functioning of the capitalist's source of money conflicts with his interest in getting rich from his enterprise.

This interest is itself — quite fundamentally — not satisfied with a limited share of whatever surplus is obtained, especially a share restricted by operating requirements. The money income the factory owner sets his sights on opens up the wide world of consumer goods and luxury items to him. Its benefit to him is not limited to meeting some defined need. This benefit knows no criterion by which some particular amount might suffice. The wealth that matters to him does not consist in real riches but in taking possession of whatever, having the power that lies in money over whatever. Therefore, the sum of money earned can never really be enough for a capitalist. As a result, his private interest in enrichment always has to get into conflict with the requirements of his source of wealth.

2. The turnover of capital: The necessary requirement for additional capital as well as the source of it; Profit is reinvested, thereby guaranteeing income

So a purpose that knows no measure for its fulfillment is in conflict with a means that must be secured with available money against all kinds of eventualities. This conflict is always managed by the industrialist somehow, but that does not eliminate it. It in fact gives the owner of capital, which is his source of income, no rest. He feels compelled to look for a constructive, forward-looking way out — and unfailingly discovers the only possible one. He takes the contradiction of his source of wealth in the same way it thrusts itself on him, namely, as a quantitative problem, and finds the practical solution to that. It does not really take care of his problem once and for all but is the expedient way of dealing with it that is at his command: he divides up his proceeds in a different way, using one part for expanding his business. After all, the money proceeds are of the same kind as the assets whose investment produces them; that is, they are just as fit for accumulating, and are consequently the means for pushing out the barriers the capitalist runs against when using his source of revenue. So he takes a cut in the profits he withdraws for his personal life, makes a risk-conscious estimate of the liquidity needed for sustainable business, and puts money revenue not yet required for continuing his production, together with the shares of profit cleared for investment, into his business as additional capital in order to have more financial sums at his disposal in the future. In his cleverly calculating way, the industrialist intensifies the contradiction of his source of revenue in attempting to defuse it — the result being that he not only has more monetary proceeds to divide up on the same principle, but is confronted with the next, determining features of his self-serving business activities.

For now it is clear that his business goal cannot merely be profit but has to be growth. And this cannot merely be a project that may or may not succeed, but is a business necessity. On the one hand, it is not only that the eternal mismatch between possible wealth and a limited sum of money makes the industrialist interested in growth — his calculating sacrifice makes it imperative to demand that his interest in personal gain be served ever better. On the other hand, the use of temporarily unneeded business revenues for expanding production makes the success of this additional business a necessity in order to continue, i.e., maintain the enterprise without interruption. And this success must be both timely and big enough so that the invested funds are available again when they have to be available for securely continuing the enterprise. There has to be growth because the funds spent on it anticipate it — they would be lacking for continuing the enterprise if they didn’t increase the operating revenues on time and to the required extent. Continuing the course of business requires, and exists only as, continuous growth; successful growth is the first and foremost purpose for using the profits the enterprise generates.

This also clarifies the capitalist’s position toward his enterprise. With the power of disposal he exercises over work and wealth in order to enrich himself, he can only meet the requirements of his source of income by exercising that power as a service to the growth of his assets. His revenue accordingly takes on the character of a payment for the growth he brings about. His enrichment is at the same time restricted and guaranteed by the objective necessity of continuous growth.

3. This means more work, for the industrialist as well; The profession of ‘executive officer’

Growth as the purpose of the enterprise requires having not merely as much work done as possible, but more and more profitable work. The first result of this is the industrialist’s claims on the time his workforce is working in and for his company. He insists that the facilities and means of production he provides for the labor process be fully utilized before he invests in additional jobs. And before hiring new people, but especially when he can’t avoid it, he makes sure his workforce is fully utilized: in shifts around the clock, seven days a week, if possible without any breaks throughout the year.

The company boss has the tried-and-true means for gaining control over more and more working time: by paying wages for hours worked. The principle of hourly wages does not merely guarantee a profit-creating relation between the workers’ meeting the requirements of the workplace, that is, having to work productively, and the pay whose modest amount is what makes their work truly, meaning capitalistically, productive. The way wages are paid also proves valuable as leverage for extending, as needed, the time a worker spends serving the company.

For the worker is subject to the same thing — considering it abstractly enough — that ensures, in the case of his employer, that income earned is always insufficient and that contributes to that contradiction in his employer’s source of revenue that necessarily results in perpetual capital growth. Earning money places the wage earner, too, in a relation to the wealth of society, opens up to him the possibility of taking possession of all the elements of the great collection of commodities awaiting customers, while at the same time restricting — merely…! — quantitatively his real power over them. In fact, the hourly wage he receives leaves the result of labor’s productive power, realizable in money, with the company, largely excluding the productive worker from the wealth created. And that is not a mere quantity problem that he might cope with constructively, but rather a necessary consequence of the economic nature of his source of income. How he deals with that is entirely up to him, though. He is not restricted in his freedom to buy whatever he likes, but solely in the reach of his ‘buying power’; his poverty exists as the necessity to budget his earned money on his own responsibility. So his freedom to consume turns out to be fairly useless — in general, but especially in relation to the huge range of goods available. This contradiction inherent in his way of earning money presents itself to the worker, in the absence of an alternative, as a quantity problem, for which there is even a solution: to work more. Such a way out comes entirely at his own expense, it is detrimental to the life he needs money for; and he doesn’t even hold this solution in his own hands. However, his employer with his growth-oriented company can be sure that his (the employer’s) claim to more and more working hours will be taken by his hourly-wage earners as an offer to improve their financial position by applying their source of income more extensively. They become available to the capitalist as what makes them interesting to him in the first place, and what they indeed merely are economically: personified working time.

Gaining actual control over this increasing extent of working time requires not merely that the industrialist invest in wages, working material, and eventually also new facilities and means of production. It also requires more organizational effort — for procurement, production process, sales, money allocation, and planning the whole thing — as well as more supervision, which cannot be taken care of by a handful of foremen. The industrialist needs a management that can share his grueling responsibility for the successful, sustainable growth of his wealth. He partially delegates to people of his kind, in a proper hierarchy, his property’s private power that aims to continuously increase itself. And he pays them for that out of the rising surplus he expects from the growth of his enterprise, quite rightly holding his executive officers accountable for generating this surplus.

Additional remarks: The wage worker and his working time

The workplace initially represents a conglomeration of technical requirements — embodied in working materials and equipment — that the wage worker has to satisfy. Earning a livelihood depends on whether he proves himself under these conditions, which are created independently of him. Of course he does find out which standards apply to his being employed — from the form of payment.

The wage the worker collects at the end of the week or month is calculated from a rate of money per time that is set for each job. What a working hour “is worth” has been decided by the employer’s cost accounting, which is geared toward the profitability of labor costs. So how much a worker earns results from the time during which he performs his service at the workplace. The longer he works, the more of his lifetime he puts at the capitalist’s disposal, the more money he then has to live on. And the less he works, i.e., the more freedom he keeps for himself, the less money he has for pursuing his vital interests and satisfying his needs.

The extension of working time, which increases one’s earnings and broadens one’s access to goods of all kinds, clashes with its purpose — to freely take part in the world of needs and pleasures. And the reduction of earnings resulting from an increase in free time at the expense of working time brings the same contradiction home to the wage earner. He constantly has to juggle the two, alternative disadvantages and reconcile the lack of time with the lack of money.

Attempts to cope with this contradiction will inevitably fail. After all, time spent at the factory is working time, that is, exertion. Extending this time not only increases earnings but also creates the peculiar need to devote one’s free time to recreation. This endeavor that everyone takes for granted actually has very little to do with freely chosen activities, with turning one’s energies to some physical or mental undertaking. Instead it is a matter of compensating for the wear and tear of work, which also costs money and eats up part of one’s wage. Conversely, a reduction in money-earning working time has a definite sparing effect when it comes to one’s health and spirits, but also forces one to spare one’s wallet: that way of doing wage labor is no means of living at all! With both alternatives, the wage earner is faced with the task of adapting his life to the demands of work, and conserving himself as labor power.

And not even the decision whether to go for the wearing-and-tearing wage or for the income-reducing free time is left to him. The determination of working time, the “choice” between money and free time, is, as a rule or as an exception, taken out of his hands. What is entirely up to him is to endure the conflict between them.

§ 8 Expansion of the market

1. Trusting in buyers’ ability to pay, and competing for it

When applying additional capital, all capitalists produce an increased quantity of goods. They take it for granted that the rising amount of means of production they require pursuant to their need for growth will be there if they pay for it. They are equally unconcerned in assuming that the increased mass of products they manufacture will find buyers, relying on “the market” to constantly hand over more from their customers’ ability to pay. And they further assume that this will always be more than they spend themselves, to an increasing extent even. After all, their investments are intended to boost production for the purpose of increasing the surplus of money taken in over the increased sum of money advanced.

Where this extra ability to pay is supposed to come from does not interest a capitalist industrialist in the least. He has other worries. The main one is how to succeed in competing with other suppliers of the same commodity who are also betting on growth themselves. On the one hand, he is confronted with the problem that his increased demand tends to make the required production factors more expensive, while he might have to sell his increased supply of goods at discount prices. On the other hand, he will also try to profit from his suppliers offering more goods and his (business) customers demanding more of his products for their own company growth. In this way, the growth pursued by industrial capitalists aggravates the clashes of interests in all their market relations, with their direct competitors as well as with their customers and vendors. In this contradictory way, while everyone is trying to exploit the market exclusively for himself, i.e., for the growth of his own business, they end up expanding the market as a whole and for all.

2. How the merchant class serves the business of industrialists, and the price of this service: A new front in the competition for sales and market price

Capitalist producers find out whether, and on what terms, they are achieving the growth their investments are aimed at from “the market” in the form of the merchant trade. This profession buys the manufacturers’ products and sells them what they need, thereby performing a great service to them. It relieves them of the risk of marketing their goods; and it spares them from financing the period of time between completing the goods, selling them, and procuring new means of production, as well as all the trouble this involves. The relevant expenses for transport, storage, and the like are defrayed by merchants on their own account.

These services by the merchant trade lead to some striking modifications of the market. A new branch of capital inserts itself into the competition of industrialists to achieve profitable prices for an increasing quantity of goods — companies that turn the conversion of goods to money and money to goods into a business from which profit can be made. This enriches competition with new disputes. The prices industrialists obtain by selling their products, the proceeds they receive, are determined by their competition with commercial capitalists over the sale of their products. And the prices productive capitalists, like all other consumers, have to pay as buyers result from the competition of merchants with their customers and with each other over as large, brisk, and profitable a sale of goods as possible. It is in this two-fold competition, with its relations to a great number of suppliers and demanders, that merchants make the market that industrialists need. And they make it a source of income for themselves by trying to make sure the difference between buying and selling prices is as advantageous to themselves as possible. This is how commercial capital (merchant’s capital) takes part in the achievement of capitalist producers of getting hold of significantly more of society’s ability to pay with the goods he manufactures than the money that has been invested in manufacturing them — in other words, of making a profit and growing.

The risk that commercial capitalists relieve their industrial colleagues of is not eliminated by this service. To be sure, it is now up to merchants to market the growing amounts of products. However, despite being in competition with each other, they powerfully — according to the scope of their business — confront commodity producers as the makers of the market and as representatives of society’s ability and readiness to pay. The risk that industrialists now have to bear lies in the calculation that commercial enterprises always present anew to their capitalist clientele whenever the future terms of business contracts are up for negotiation. There is consequently an entrenched, permanent competition over profitable buying prices and selling prices, in which the competing partners from commerce and industry assert their mutual dependence as effectively as possible against each other.

3. Liquidity for a growing market: Replacing money by money tokens; Bank (deposit) money

By taking on the costs of the circulation of commodities — and earning money in the process — commercial capital finances the growth of productive enterprises. It takes upon itself the contradiction that, on one side, each firm uses its commodity to take possession of more of society’s ability to pay than it has spent — “thrown on the market” — for producing its commodities, and, on the other side, that at the same time each company spends an amount of money on the growth of its production that its investment has yet to bring in. Utilizing their own assets, commercial enterprises provide the solvency required for capital growth, a solvency they have yet to get from the needs that a society is able and willing to pay for.

A crucial role in this is played by the subdivision of capitalist money dealers. They use their financial assets to handle their customers’ payment transactions without any time delay, transacting the money phase of capital turnover without money. The first thing they do is enter into the bill-of-exchange business of industrialists and merchants, transforming their payment orders and payment promises before the due dates into general, unconditionally usable means of payment. Money dealers take on the default risk that always remains; for a fee that varies according to the quality of the papers, i.e., according to the business reliability of the issuers and endorsers, and according to the period of time until maturity of the bills they take over. Once established, this service works without bills as well. As diligent accountants, they credit to their customers the money belonging and accruing to them, in an account that the dealers maintain not merely for accounting purposes but on their own responsibility; they deduct the money due for redeeming payment obligations from the payers’ account — even beyond the current balance, if agreed. They act in this respect entirely on their customers’ account. However, the payments — if they are not settled directly in-house, by transfer from one account to another within their own office — are made between the individual money-dealing enterprises in the circularity of payments due. Claims and obligations constantly arise between the institutions in charge of the accounts; at the expense or in favor of the customers, but between the institutions. Money dealers are answerable with their assets for balancing surpluses and deficits that arise in transfer transactions with their peers. This is no great sum in relation to the transactions handled in that way without real money, solely by book entry, but it is indispensable for their service as agencies that not merely relieve their business clients of the technical aspects of processing payments but also take on the responsibility for the payment transactions themselves.

To repeat: these financial assets ensure at all times the liquidity used by money-dealing enterprises to pay out deposited or received funds to their customers or to fulfill their customers’ payment obligations when balances to be settled are at their expense. In relation to the revenue from discounting bills and from account maintenance fees (where applicable), these assets prove themselves as a source of income analogous to real, productive capital: as an advance that is destined to increase. Insofar as this advance is actually made use of, it more or less regularly flows back to the liable institution in the to-and-fro of deficits and claims arising between money dealers. The money paid back and forth can therefore also be basically replaced by binding promises in the form of book entries, just like the sums of money that money dealers circulate on behalf of their customers. This benefits their own expenditure/yield ratio, but forces money dealers to take special precautions in terms of liquidity management. By professionally accomplishing this task, money dealing, which liberates industrial capitalists from the risks of commercial credit and from paying and being paid cash, becomes a universally offered business, and this branch of business makes cashless money transactions the prevailing capitalist practice.

4. How the need for more work is served in a cost-saving way

The production factors a company needs for its growth are there for the buying. Whether sooner or later, whether in abundant or in short supply, whether at falling or at rising prices — this is decided by its competition with its growth-oriented supplier firms or the commercial capital marketing these firms’ goods. The big exception is the production factor labor. In this case, there is no capitalist producer providing a sufficient or over-abundant (re)supply. Which does not mean the industrialist is at the mercy of his workers’ price expectations.

First of all, he can cover his increasing need for labor within very wide limits without hiring any new staff. As master of the workplaces where his employees earn his money, he can tailor the technically prescribed working conditions so as to have more work done there, and therefore greater performance demanded. And the pay is calculated in such a way that the free suppliers of their own working abilities tend to embrace longer working hours as a good opportunity to earn more.

Secondly, capitalist producers define the competition of job seekers at the same time they structure their need for labor. Sufficiently low wages make it impossible for a single earner to feed a family, expanding the potential labor force to include women and children. A clever employer will introduce an appropriate downward grading of wages at the various workplaces he has to fill. That reduces the additional cost when staffing increases, since newcomers end up in the cheaper positions first. And a moral effect for all employees is added for free. A proper wage hierarchy directs employees’ interest in making money to competition with each other for advancement, which not only promotes their eagerness to work but also makes working at a price worthwhile to the enterprise the workers’ own concern.

§ 9 State tasks
Within its borders

1. Capitalists’ demand that society serve their needs for growth: An agenda for the public power

By empowering capitalist owners to use their wealth to increase the accumulation of wealth, the bourgeois state establishes social relations that give it, as the monopolist over force, a lot to do.

  • It grants the owners of society’s means of production and monetary wealth the right to make the propertyless majority dependent, as workers, on them by paying wages, and to put them, along with the country’s material resources, at the service of their own growing enrichment. The industrialists’ power to exercise this right grows with their business success. They know no bounds, only the imperious necessity to keep showing a new willingness to take risks and to commandeer the country and its people to an ever greater extent for their courageous growth. They call on the state power to help them master this test of their business acumen — after all, the state has empowered them to use their property as a source of income. And the public power cannot deny that this call is justified, since that was how the business about property was meant. It deems it legitimate for the capitalist business world to monopolize production and supply of goods, work and wealth, livelihood, and the control of society’s economic life. It grants its industrialists the exclusive status of being the economically dominant class, and acknowledges its task to make the living and dead inventory of its country available for the industrialists’ limitless enrichment, using its order-enforcing power to make all resources utilizable for that purpose when necessary. What it has to do in this respect emerges first of all clearly enough just from the inherent necessities and the intolerable consequences of growth-oriented capitalist business. On the other hand, representatives of the capitalist class present the custodians of the public power with explicit lists of demands.
  • The majority are assigned by the state power the role of wage-dependent service to the private, capitalistic good and thereby to the common good. The state must, on the one hand, tie them down to this role and, on the other hand, enable them to voluntarily and lastingly perform their productive services for the wealth they remain excluded from to the extent and at the level of intensity required for its growth. Since it is impossible to take the constraints of earning money through wage labor and the limitations of a life financed that way, the political class is prompted to take sovereign measures to make the impossible real, to turn wage-earners into a viable social class of people. There is no “right to work,” but there is a right to be paid the agreed wage for work done. Even on that elemental level, work does not act as a source of income without state force.
  • The dominant class’s right to have complete control over the means and prerequisites for limitless growth of their assets includes the achievement that locations for factories, business premises, and the accommodation of workers are available on the free market, i.e., for money, just like all the other conditions for business. The bourgeois state ensures this, as lord of the land, by splitting off from its absolute political sovereignty over the national territory a power of disposal under private law over land and its use as an economic good, as a commodity, and awarding this power to landowners as property in the bourgeois/civil sense. With its binding demarcation of land boundaries, the state brings the ownership of land into law, recognizes the use of this exclusive power of disposal, too, as a source of income, and thus establishes a third social class defined by its position in the economy of property: landowners. In their hands, the elemental condition for capitalistic business activity as well as for private and social life in general, namely, to take place on a patch of land, becomes a means for business: a means for enrichment off of all the people who need a place for themselves and their moneymaking. Supplying such places is the productive contribution of the landowning class to society’s reproduction. With its source of income having been brought into law by the state, it demands and receives in return a tribute from those who need a place to carry on their business. This of course also applies — as befits a market economy — to those who only need a roof over their heads.
  • By establishing mere ownership of land as a source of making money, the state at the same modernizes farmers. For it causes their métier — supplying society with food and agricultural commodities — to be subsumed under capitalistic money-making life in a very particular way. The farmer working for himself uses his ownership of land not as a source of income in itself but as a condition for production. He first has to make something out of it himself, i.e., expend labor and use chemical and other aids to get products to sell that somehow let him earn enough money in competition with the industrial suppliers of the required means of production and with the commercial capital that buys up his goods. His arable land is of use to him only to the extent that it makes producing easier and thereby saves costs by comparison. This predicament of the free farmer is in striking contrast to the benefit the professional landowner draws from his pure power of disposal over a necessary element of capitalist business life by having others pay him for the use of it. For an independently producing farmer, such a land rent is at best a value calculated within his total, usually not too lavish income — or it subtracts from it as rent that he has to pay someone else who owns the condition for his production, i.e., that he first has to generate somehow.

None of these social institutions, none of the obligatory requirements for capitalist growth across the board, exists or works all by itself. Everything the actors in the market economy need and want from each other, and do with each other, works only through the force that the state lends, that it thereby at the same time keeps hold of, and that it brings to bear in accordance with its society’s all-round dependency on capital growth. The stereotypical catalog of supervisory and organizational tasks in the form of the ministries belonging to a modern government testifies to the objective necessity of the functions for which a capitalist polity needs proper force and to which the political authorities have to measure up.

2. The first service of the bourgeois lawgiver: equipping the money interests of citizens with the necessary quantity of proper force according to their class position

The bourgeois state makes the diverse conflicting interests of its citizens take effect as rights. That means they are equipped with force, but at the same time subject to a proviso, obligated formally to be compatible with each other, and tied down to their politico-economic functionality in this alienated form.

This applies to:

  • competition on a market that is set up for capital growth. With a growing supply of goods and growing demand, competition over prices for purchase and sale takes place as a variety of obligations between merchants in which equivalents are exchanged only as the result of all-round efforts to overreach and to apply the corresponding pressures; in which legal claims become offensive or defensive weapons, and contractual relationships become pitfalls; in which no industrialist can do without lawyers to give his interests legal levers. The lawgiver familiarizes itself with the fact that the obligation to respect each other’s freedom — the guiding principle of its contract law — does not relax, much less end, the antagonism between the interests of like-minded merchants, which are simply to buy cheap and sell as much as possible at the highest possible price. Instead, it causes the antagonism to flourish, necessitating ever new clarifications, restrictions, and protective provisions, which are straightaway exploited to damage business partners or third parties. The codes of law are never finished; they offer experts a treasure trove for legally grounded extortion maneuvers.
  • the division of labor in managing capitalist property. The separation between the private power of property and its application — established by an industrialist delegating his ultimate responsibility — sets loose nothing less than the contradiction between managerial service for the usefulness, i.e., the power, of the property itself, and the executive officer as the authorized decision-making authority over the operation of capital. The state supports this contradiction with its law — at the same time banishing it into functional channels. Precisely this sphere of mutual business understanding necessitates legal masterpieces so that the private power of wealth can be delegated without being relinquished; a host of liability issues are raised between legally contestable breaches by the authorized property representatives and an economic failure for the property itself. There is a lot for the state to define here, starting with commercial-law provisions of a “power of attorney” and, as competition progresses, a whole “corporate law” for the coexistence of responsibility-buffs.
  • the particular clashes of interests that capitalists and landowners have to work out with each other. With the force of the law, the open-ended monetary interests of landowners — monopolists over an elementary business condition — become part of the costs of industrial business activities. These interests, too, have to be served out of the revenues earmarked for growth, and thus make competitive conditions unequal, since land as a business condition is not a means of production like any other purchasable commodity. Its owner’s exclusive right of disposal, which not infrequently turns into legal blackmail, stands between the — competing — parties interested in commercial use of a piece of land, which usually has a natural endowment and location particularly suitable for certain business purposes, and their use of it. The state is called on as the authority for restricting and sovereignly allocating rights to use landed property, in order for the land to be turned into a condition for all-round capital accumulation in an orderly way.
  • the relations between “capital” and “labor” in a growth-oriented company. Industrialists use their authorization to employ paid workers for business purposes as carte blanche for adapting their utilization to changing needs: maximizing their use, while ordering unpaid non-use alongside, i.e., alternately ruining their people’s living time and their livelihood. Contract law between the two parties is therefore adjusted in such a way that the business owner’s legitimate regime over his employees leaves the worker a quantum of personal life, and an employment relationship also obligates the employer to pay for the agreed employment. Though the converse is self-evident — work paid for has to be performed — this likewise requires a whole number of specific regulations.
  • the mass of wage-earners foundering on the landowners’ monopoly over room for shelter. The state does not take back its authorization of real-estate owners to make money unproductively on this mass’s elementary need for housing, and subjects their freedom to do so to its regime only by way of exception, but it does set up land-use plans and the like to provide some supply for the massive demand. In addition, politicians make out a state of distress here that they have to attend to in a different way than with legal conditions, namely, by drawing on the state budget.

All in all, the mammoth loose-leaf publications that the bourgeois lawgiver untiringly updates in these areas offer an impressive collection of the nasty tricks that are all perfectly legal in a capitalist polity. They also show what people move on to do once the lawgiver recognizes the system’s inherent competitive interests as rights. One move is to test the restrictions mandated with the authorization — where they actually take effect, how much blackmail they allow. Another is to circumvent them — legally advised industrialists are more inventive in that than the lawgiver. A third is to overstep them — with an attitude of legal entitlement that, if the offender is caught and convicted, is regarded as “criminal energy” that affords bourgeois beholders a deep look into human nature.

So the state complies with the requirements and consequences of its citizens’ sources of income with its organizing and supervising activities, and in so doing establishes their identity as economically defined classes in relation to itself. That is, their economic nature is set politically through the general public power, as a right they have as citizens. This is the basis for the politicization of the interests that factually follow from the capitalistic determination of their sources of income. The antagonistic relations within and between the classes of capitalists, wage laborers, and landowners are subsumed under state power from the outset. It is state power that people turn to with all the hardships, demands, and disappointments that follow from their class position — with all the consequences for their class-specific claims for justice.

3. First requirements for the national budget: The country and its people must be tailored to capitalists’ drive for growth

Being allowed and obligated to grow by law is not enough: capital must also be able to so so, reliably and continually. Aware of society’s dependence on their business success, industrialists hold the state and its finances accountable for their success — and as the world is made useful to them, society’s dependence on them becomes complete. The state sets up its budget according to this logic.

On the expenditure side, that relates to:

  • the territory where capitalist growth takes place. The legal definition of land as commercially usable property of landowners establishes only a first, formal business condition that drives system-conforming conflicts. The practical usability of the nation’s terrain requires everything known as infrastructure as a material business condition. And that requires an expenditure of money that often enough fails to promise any profitable business, whether in the construction phase or in the subsequently necessary expansion and maintenance periods. After all, the prerequisites for industry and trade have to exist before any capital can use them and “make money.” But even when they do exist, it is an open question whether industrialists will actually use them, to what extent, and how much at most it is worth to them.
  • the natural conditions of a country. What the business world with its professionally greedy point of view sees as mineral resources not only raises the interesting legal question of how deep the ownership of a piece of the earth’s surface extends. “Natural riches” first have to be discovered, identified as such, i.e., as means of business, and methods for extracting them have to be developed before a whim of the earth’s history can become a profitably manufactured commodity. These are business conditions that capitalist industrialists expect their ruler to bring about.
  • the people who populate the country. To be useful for capital growth, it is not enough that they be designated as legal entities, just as territory and nature need more than legal status as property. Their propertylessness constantly reproduced by wage labor, their poverty in relation to the wealth they create, and the living conditions defined by all this produce nothing but obstacles to the profitable use of people. On their own, with just their wage income, they are regularly hardly able, if at all, to afford shelter for themselves and their families, keep their heads above water as long as they live, and provide their offspring with an education that qualifies proletarian youth to be usable human material. It is also questionable whether the morality that the capitalist polity demands of its members in order to be sure of their loyalty will result from the constraints of a wage-dependent lifestyle without persistent instruction. Philanthropically-minded business tycoons have taken on all these problems on their own initiative, finding no contradiction in caring for the poverty that is one of the conditions of their wealth, and that they themselves make productive and reproduce. But, on the whole, factory owners and merchants are happy to leave the problems resulting from their enrichment to the authority in charge of the common good, not that they see any sense in the state spending money on poor people.

For its services for capital growth, the state requires a great deal of personnel, who need to be paid in accordance with their responsibility for proper legal relations and for tailoring the country and its people to meet the needs of business. At the top, they need to be very well paid indeed, if only so as to be taken seriously as political bosses by the members and representatives of the dominant “ruling” class, who possess the private power of property that really counts in this society; and so as to be less easily bribable pursuant to particular private interests.

4. State money with a fixed exchange rate, for the liquidity requirements of money dealing; The first necessity for a national treasury

There is a special problem that capitalists create for themselves by their growth and the expansion of their markets, a problem they likewise expect their state to solve. For the money phase of their ever-increasing circulation of capital they — as overall industry and commerce — need ever more money: bearers of value whose procurement is an additional expense, a deduction from their growing wealth. They have largely got rid of this burden by handing over their payments to money dealers, to financial institutions that circulate monetary tokens among themselves and manage quite well with just book entries and no cash. What still remains, however, is a sizable amount, growing with their growth, of a money that meets state regulations for objectified abstract wealth, just the way it comes out of the mint. This abstract wealth has to fulfill the technical requirement of settling the balances that are outstanding between money dealers at the time of settlement and that obligate them to definitively pay; this is an economic necessity insofar as the insolvency of a money-dealing capitalist who is only temporarily overextended can bring down entire sectors of money circulation. Money dealers must furthermore be able to present real financial assets in order to meet the moral requirement of being reliable in the eyes of industrial and commercial capitalists, who are after all entrusting them with their property at the decisive transition from taking proceeds from the market to making a new advance. And capital turnover also takes place through the use of paid wages for everyday purchases, i.e., in the very world of “ordinary people” with their small-scale need for money, which involves the circulation of a large amount of money that must actually exist and be above any suspicion of being counterfeit.

All in all, the growth of capital devours a considerable and increasing amount of material wealth solely for the unproductive circulation phase of its turnover. This prompts the state to be self-critical about the stipulations it makes for the stuff representing the private power of property. It learns from the habits of its money dealers: it acts not only as a mint but creates paper money, which has the form of payment orders like those the shrewd inventors of bank money recognize and use as means of payment among themselves. The state now prints on a basically worthless slip of paper the hallmark it already uses to distinguish an official coin from a gold nugget or similar material bearer of value. With its sovereign authority, it declares this slip to be its society’s definitive money, thereby replacing the precious metal treasuries of private money dealers, centralizing them with itself, and thus feigning the backing of the monetary tokens that it circulates through the genuine money-commodity it holds. To the extent that its paper money is actually not backed in that way at all, but solely by its sovereign force and the anti-forgery features of its legal tender, the state saves itself and thus its business world the added expense of a money that has the value it represents as a commodity — and that is not supposed to be held on to as material wealth but rather used as an advance for further growth in accordance with its true capitalist purpose.

5. Ensuring sufficient state funds while sparing capital and its growth (1): The tax system

Governing and administrating, providing for infrastructure and public order, supervising poverty and, yes, also maintaining the institution for producing and allocating legal tender: all this costs money that the state has to procure from its people with their variously earned incomes, i.e., ultimately from business. The bourgeois state responds to the unavoidable contradiction between its politico-economically well-founded need for money and the reason for and purpose of this need by carefully structuring its budget. Taxes are levied on the transactions by which money is earned, i.e., by which capital ultimately increases. In this way, the indispensable burden on growth is imposed in accordance with its success.

First of all, the tax authority takes its share of people’s money-making by direct taxation. It follows two opposing principles here. Taking the poverty of the mass of its taxpayers into account, it lowers the percentage it demands, to the point of exempting from taxes a minimum subsistence level that it defines. Conversely, it reduces the higher tax burden of higher earners through a large number of possible deductions and allowances, which apply to everyone in principle but naturally only really matter when higher incomes are involved. The unattained ideal of this way of procuring money is known as tax equity. In practice, it entails a considerable degree of complexity, which offers high earners fine opportunities to “plan” their taxes in money-saving ways, gives the profession of tax adviser its basis for making money, and at the same time ushers in the ideal of tax simplification complementary to equity. The way these taxes are levied — taking Germany as an example — is appropriate to the matter at hand. The wages of normal employees are taxed through payroll accounting by withholding “at the source,” it being a sure thing that there would otherwise be nothing left for the state. The society’s “self-employed” achievers, including all those who live on really non-self-generated investment and similar income, are allowed to declare their income along with their tax-reducing expenses to the tax office after the fact. Taxation of corporate profits follows this latter pattern, not only reflecting that this is where the largest sums are to be found, but also taking particular account — albeit never enough in the opinion of business people — of the function of these sums. Private enrichment serves the overall growth that the state is after; more enrichment, more growth. People who don’t benefit and call for tax equity are treated, not only in the U.S., to the fairy tale that big money “trickles down” to the poor.

The permanent contradiction between promoting and burdening economic growth through the state budget is handled more simply by the system of so-called indirect taxation. In this case, the tax authority has direct access to the sums that are turned over on the markets. It participates directly in the business and growth of capitalists without really harming either. Companies keep passing along the taxes on their goods’ selling prices until they are finally paid by that desolate figure, the final consumer. By making various distinctions in this area, between consumption taxes on certain goods and a general transaction or sales tax, and applying different sales-tax rates, a fiscal state pursues the secondary purpose of sparing necessities of life from being “unduly” expensive, steering its citizens’ consumption habits a little — and above all being present whenever its people treat themselves to something special. Normal buyers have become accustomed to this type of tax, as to rising prices in general; it again bothers mainly business people, who pay these taxes but don’t bear the burden in the end. The way they see it, everything the state collects is really their own additional turnover being basically taken away from them.

In the never-ending to and fro between the need for state financing and for sparing growth-serving tax sources, budget policymakers are constantly developing a new need to reform the types and methods of taxation. At the same time, they never lose sight of these two key aspects. First, they want to increase tax revenues and, second, this has to be done taking proper account of the crucial differences in the tax sources. As a result, every tax reform aims to readjust the relationship between the burden on household incomes and the taxation of surpluses of an economy that on principle and in detail needs more and more “tax relief” because its success is responsible for every cent allocated for in the state budget. It goes without saying in any case that when it comes to government spending, all the more is thrift called for the less the spending benefits growth and the more it is prompted by the unproductive consequences of growth.

Beyond its borders

As consequences of the growth of capital, for which the state adapts the country and its people to be useful business conditions, both the economically run territory with its natural resources and the population in its functions as labor reservoir and market become barriers for companies. Some companies encounter a scarcity of raw materials, sources of energy, means of production, or even workers. Merchants discover what is needed, and also not yet needed, abroad: foreign-made products for domestic needs and a domestic market for exotic goods. And quite apart from all the use-values beyond national borders that the nation’s business world may covet, the need for increasing sales owing to the necessities of growth leads manufacturing and trading capitalists to conclude that the home country their state has set up for them is too small. In the interest of their growth, they demand of their state the additional service of encroaching on foreign soil and giving them worldwide access to buying and selling markets. And on the basis of its economic reason of state, with its powerfully organized dependence on economic growth, the state arrives at the same conclusion and agrees with the demand.

1. Contracts between force monopolists for capital growth beyond national borders

The bourgeois state fulfills the task of opening up foreign markets as a business area for its own capitalists by approaching or going at its peers with the mixture of demands and offers it deems appropriate, and negotiating agreements on free trade of goods. These first of all provide for protection of persons and property and private contracts for one’s own citizens in the foreign country by its authorities, and conversely for citizens of the partner states on one’s own territory. Such agreements are no easy matter because they involve ultimate powers having to overcome themselves, so to speak. They are placing in foreign hands the legal protection they grant their citizens, a protection by which they make their subjects representatives of their sovereign guarantees of freedom and thus of their sovereignty. Conversely, they are turning themselves into a subsidiary body of a foreign state force that keeps a watch on the rights and freedoms and property of its citizens even and especially when they are roaming around doing business abroad. In this respect, mutual legal protection is not merely an act of mutual recognition, but involves elements of one sovereign state force subordinating itself to another. Extending one’s protection area for the business world beyond national borders can only be had at the cost of relativizing to a certain extent one’s sole sovereign responsibility for one’s people and for all the activities in one’s country.

But the bourgeois state brings itself to do this, following the dictates of its politico-economic reason. That is why it also complies with a second requirement of cross-border trade that has a massive effect on its sovereignty, namely, in regard to the money to be earned and paid abroad. In unburdening capitalist growth through an inherently worthless legal tender, it has limited the scope of the private power of money and thus the freedom of capital, restricting it to the national territory in the decisive phase of its turnover, as proceeds and advance. That can’t be allowed to stay that way either. It is necessary to abolish the limits on the usability of liquid capital assets in the form of national monetary tokens, and to guarantee that monies acquired abroad can be used as full-fledged liquid capital assets in one’s own country as well. The monetary sovereigns therefore agree to conditionally recognize each other’s national means of payment as if they were backed by material bearers of value accepted as money worldwide — by a treasury of precious metals — and were consequently reliable representatives of a world money valid independently of any state’s decree. This recognition is conditional insofar as foreign money is not directly declared valid and released for general use, or one’s own for use as a general means of circulation and payment abroad. Instead, what is agreed is that the monies are exchangeable; their actual exchange — according to rules that follow more specific interests and criteria — establishes a nice additional business for money dealers, who charge for the effort of changing monies. However, this requires that state banknote creators do more than just formally demonstrate their mutual respect. The agreed exchangeability must be guaranteed materially by the participating states being able and willing to provide practical proof that their national monetary tokens are indeed backed, as asserted and accepted, by a money material that is beyond all doubt. That is, they must be prepared to redeem their own means of payment with such ‘real’ money when required. The necessary statement of guarantee is aimed directly at the business world intent on using foreign money at home and one’s own abroad, or engaged in exchanging national monetary tokens. But the statement is made between the responsible sovereigns; each one is answerable vis-à-vis all the others for the soundness of its products, for its legal tender being underpinned economically. It is the sovereigns, or the appointed administrators of their national gold and silver reserves, that transfer real, material monetary wealth between themselves from one nation to another if necessary on the final settlement date in order to attest this guarantee. This requirement makes it permanently necessary for states to have a national treasury, and is therefore a challenge for state finances.

2. Government revenue from the commercial success of foreign capitalists: Tariffs

The first property-related question that directly affects public finances and must be resolved between the contracting parties concerns taxing the transactions by which capitalist producers and traders make money in foreign trade. They reach agreement on the basis that exports are not to be taxed — in the interests of the sales that domestic products are to find abroad, because they not only enrich export companies but also bring money into the country from abroad; furthermore, the transaction to be taxed only takes place abroad. In the case of imports, the relevant tax collector takes a share by its so-called revenue tariffs, thus strengthening its finances through the commercial success of foreign capitalists in its country.

A few other considerations for levying tariffs — to be dealt with later — result from the effects that international trade (more precisely, the flow of money between industrialists and merchants and their money dealers across national borders) has on the national monetary reserve, the tokens of which circulate as legal tender and are in fact utilized internationally.

3. How states settle cross-border trade between each other, and the second function of the national treasury

What is always welcome, in principle, is the inflow of foreign money due to a positive trade balance. It is the basis for claims to the real wealth of other nations in monetary form, ultimately in the primitive form of standardized lumps of chemically pure gold. This underpins the semblance that the means of payment in circulation are economically backed, i.e., sound, thereby improving the state’s financial position. Conversely, the net outflow of national money is disadvantageous if the state has to end up spending budget funds to increase its reserves of world money for the purpose of attesting its monetary tokens.

This trade balance does not necessarily coincide with the growth of domestic capital that the state sets free and wants to promote with its trade agreements and its responsibility for the country’s money. A positive balance in foreign trade may result from “weak growth” on a national scale, which obviates the need for imports more than it harms exports. Conversely, massive domestic capital growth that makes the business world happy as a clam may develop an “import pull” that exceeds export growth. In any case, there is a discrepancy between two of the state’s success criteria, only one of which — the positive contribution of foreign trade to national capital growth — matches the business interests of the country’s producers and merchants. Capitalists are indeed also interested in sound public finances and a national treasury that makes them reliable buyers abroad with their growing wealth in national currency, but only as a means for their growing business. Even though this means of business, a sound national money, arises from the sum of their business deals, they are far from making it their own concern. They expect it to be made available, without any responsibility of their own, by the state, which provides them with, and prescribes, a national monetary token as their means of business. For its part, the state considers and treats the competition of capitalists in cross-border trade as a means in its efforts not only for growth altogether but also for its financial position that is secured by having world money at its disposal. On this point, the competition of states over distribution of the world’s real monetary wealth competes with the competition of capitalists over their growth.[1]

4. Subjecting the globe to the necessities of growth: Imperialism & colonialism

When capitalists of a “developed” country have discovered foreign lands as a source of growing enrichment, they will not put up with geographical restrictions on their risk appetite. Just as they tolerate no reservations about their monopoly on production and consumption within their own society, they accept no restrictions on their thirst for growth, whether due to spatial distance, foreign rule, or foreign customs. They not only demand that their state “remove the divisive elements from its borders”;[*] they also expect it to open up no less than the whole globe as a business field for them.

States with a developed capitalist mode of production make this interest of its capitalists part of their reason of state. They ensure as far as they are able that capitalists have the right to pursue this interest beyond their borders, just as they have within them. The states encounter barriers, however. First of all, there are the efforts of their peers to gear the countries of the world, including their own of course, to the need of their nation’s business world for growth, and to groom them accordingly. Secondly, there are the self-interests and needs for survival of the remaining states and peoples that these competing claims are aimed at. It is not merely commercial interests that are colliding, it’s the rights that states award, and assert for, the interests they recognize. In other words, there is a collision of the means and methods by which the political actors of the modern world enforce the rights they take for themselves.

Using this state force expediently beyond one’s borders, both in its civilian forms and especially in its no longer civilian forms, costs money, in fact a considerable portion of the growth for whose freedom from borders the expenditure has to be made. That of course does not deter any state with a developed class society from procuring access to foreign countries for itself and its business world — domineering political access for itself, and commercially profitable access for its capitalists — as far as its strength allows. There may be something contradictory about serving the dominant class’s interest in global business activities by a foreign-cum-world-order policy that requires an enormous amount of wealth to be spent and occasionally sacrificed. But nevertheless, nothing is too costly for a state intent on the nation’s honor when it comes to gaining respect for its rights, i.e., the goal of enforcing these rights against all competitors and all resistance. Therefore, the higher the necessary expenses are, the more the public power is goaded to assert itself successfully against others and to justify the expenditure and sacrifice also economically through a corresponding increase in growth. The criterion of whether expenditures pay off does not apply when it comes to using force; but as expenditures grow, so does — disproportionally greater — the demand for them to pay off; namely, in such a way that costs are no longer a question. The symbiosis of business and force is already burdened with contradictions at its simplest level — on a world scale it is part of that capitalist reason of state from which modern imperialism follows.

This achievement has a past history, when venturesome business sense and ruling force first had to find common ground and come to terms about “dividing up the work.” Commercial greed — for gold, exotic goods, and slaves — was one motivation for the undertakings in the heroic phase of colonialism, when Europeans, for the growth of their early capitalist wealth, “discovered” the world, with their conquistadors and state-licensed private armies plundering it and in some cases bleeding it dry. The contradiction between outlays and returns, which drove many a company active in this sphere into bankruptcy and ultimately became too great for all of them, brought the responsible state powers onto the scene — with their not merely economic ambition to conquer exotic provinces and masses of new subjects. In competition with each other, they subjected the globe to their rule, installing with a lot of armed force a kind of racially modified bourgeois order based on the model of the “mother country.” In this way, they did humankind the great service of teaching them to be a giant echo chamber of their culture of violence. In the case of North America, this even gave rise to an independent prototype of capitalist rule and a powerful competitor to the European colonial powers. The end of the story, reached around the mid twentieth century, was that people everywhere were transformed into citizens of formally sovereign nation-states modeled on bourgeois (or in exceptional cases socialist “people’s”) democracies. They were tied down to making money as their means of survival, even if the created nations were never up to the requirements of capitalist profiteering, and are still unable to meet them today. In any case, their corresponding, however desolate, self-interest in participating in “globalization” has made them functionally accessible for the world-order-cum-business of modern imperialists. For it is in just this way that the family of peoples, thoroughly spread out over national territories, offer “First World” business people and politicians the appropriate field for their competitive battles.

§ 10 Loan capital

1. Lever for growth by separating the expansion of production from the turnover of capital

Capitalists use the liquid funds generated by the turnover of their assets to expand their operations in order to increase their proceeds. In this way, they make the continuation of their business dependent on the additional revenues arriving on time and in the required amount. Their growth strategy thus means going beyond the limits that the attained volume of their capital sets on its sure, constant reproduction. They claim ever more of buyers’ ability to pay, relying on a market growth that they have absolutely no control over. By using their capital turnover to expand the scope of their business, they risk what they are expanding; this means of growth that they have at their disposal by their own efforts and use to achieve growth is not a means to achieve growth on their own.

That is no reason for them to stop expanding their business. After all, the means for attaining sure growth are there. In the money phase of its turnover, the capital of the business world is more or less completely in the hands of money-dealing companies. With their services handling the payment transactions of the producing capitalists, they have bought themselves disposal over the sums of money that are in the accounts they keep and posted back and forth internally or between each other at the expense or in favor of their customers. With this power of disposal over their customers' money, they find themselves in the fortunate position of being able to help along their customers’ needs for growth in quite a different way than simply by taking over and perfecting the circulation of bills and the commercial credit relations between companies that are geared toward and dependent on growth. They use this money as a basis for loan transactions, making funds available to capitalists for an additional advance exceeding the volume of their assets, over longer time periods exceeding the turnover time of the individual capitals. To do so, on the other hand, they have to make sure they have their customers' money at their disposal for a longer period of time as well. This they do by paying them interest, paying more the longer they have their customers’ monetary assets at their free disposal. They charge their debtors interest as well — charging more the longer the term, and also directing a critical eye at the safety of their money with the particular loan customer as far as servicing and repaying the debt is concerned; the interest rate of course exceeds what they have to pay for other people’s money. They thus turn their power to endow capitalists with additional advances into a lasting source of income for themselves, whose yield they assess in relation to the total outlays for their lending as an autonomously generated gain of the same kind as the profit of the producing companies.

Money dealers, having mutated into money lenders, are taking advantage of the fact that the money capital they provide to their debtors appears in turn as an accounting item in the accounts they manage. That is, it only has to exist theoretically, as a promise of payment, or as bank (deposit) money, until payments become due between them to offset accrued liabilities. Thus in their money transfer between each other, they have to vouch for the payment obligations their debtors enter into with the borrowed money, and this sets the very broad limits of their freedom to assess the scope of their lending solely in terms of the prospects of success of the business being financed. By metamorphosing into professional bankers, they give the other capitalists the freedom to plan and realize their growth so that it matches market opportunities, the material requirements of their business, and their calculation for its successful expansion; and so that their increased power to accumulate money is worth the price the lenders charge them.

2. The equation ‘capital = credit’: The two-sided business with debt

With their loan capital, banks are useful to industrialists’ business growth in three ways. They allow industrialists to get hold of additional advances; they create the conditions for the increased demand of companies growing on credit to find a likewise growing supply; and they create the conditions for the increased production to meet with an increased ability to pay.[2] At the same time, this service of theirs sets an additional, new purpose for the producing capitalists’ business: the money lender shares in the result of this business; the borrower is required to service the debt before being able to use the increased proceeds for his company and for himself. Borrowers make use of other people’s money, which doesn’t belong to them, entirely as their own capital; but the capital yield reveals that this equation involves an unmistakable “as if” — the yield does not simply belong to them. Even though the debt they operate with as their own capital makes up only part of their total advance, the use of others’ money gives the turnover of their total assets a new quality — it is a service to the transformation of debt into growing capital.

This new quality enters the calculation of industrial capitalists in an interesting way. Their business profit is in any case reduced by the credit cost. This forces them to earn at least that amount, but it does not stop there. They apply the yardstick of credit cost to their entire productively turned-over assets. For as their creditor calculates, the power of accumulation inherent in financial assets as such is responsible for that much financial return — which makes perfect sense to the debtors, since they would have had such a return themselves if they had lent out their assets instead of investing them in their business. In other words, the capitalist is entitled to that amount of profit solely for doing without — but no longer meaning the way his job is ideologically justified, renouncing the sphere of private pleasures that he could have used his money to indulge in. Instead, he is forgoing the practical alternative of using his own money as loan capital. If the capitalist earns beyond that, he is entitled to it under a different heading: not as something achieved by his assets as distinct from his person, but as the reward for his personal achievement of letting his assets work profitably in his company. Capitalist industrialists count as profit in the true sense only the amount by which the surpluses earned exceed the sum of loan interest, the “opportunity cost” of imputed interest, and a managerial salary remunerating the efforts of running their business.

Financial capitalists make the complementary calculation and apply the complementary method. They take it for granted that the capitalistic production process for whose growth they lend money exists primarily to increase their wealth. Accordingly, they calculate and claim their interest income as a predetermined return independent of their debtors’ actual business success, as if this income were achieved by the granted loan itself. They act as capitalists making a surplus with an advance, but without themselves setting up a factory, buying production equipment and manpower, having goods produced that are worth more than their advance, and selling them. They turn the capitalistic power of money without its capitalistic substance into their source of profit, as if it were capitalistically effective just by being lent. For them, money’s power to increase itself exists twice, so to speak: first in the use of the loaned sum of money as industrial capital, and second, alongside that and formally independent of it, in the money lender’s claim on the borrower, as if this debt per se were already capital.

This equation is of course one big “as-if.” Whether it works out to the predetermined degree, or at all, depends on the borrower’s capitalistic success. Money-lending pros are so sure it will work out, however, that they in turn make society’s money owners the firm promise to pay interest, on their own responsibility, on all sums of money made available to them for a longer period of time. They themselves incur debts with everybody, vouching to maintain and multiply their creditors’ financial assets. So they really follow through with the basic premise, i.e., the constitutive lie, of their business — that by commanding the power of loaned money to increase itself, they hold sway over an independent source of profit. Sure of this, they promise interest so as to take possession of the business world’s monetary proceeds and all other attainable money as freely usable funds for their lending business. And, vice versa, from their resulting possession of society’s money, they derive the power to equip the business world with the ability to pay for growth and thereby enrich themselves and all their creditors to the agreed extent.

In this way, the banks, as universal lenders and borrowers, involve the entire business world in their activities. They socialize private capitalist wealth, making it the means for a double private enrichment: the twofold equating of debt and capital.

3. Pitfalls of the cooperation between industrial capital and bank capital

The business world’s monetary assets are socialized by way of a sui generis competition between banks and industrialists, and between the companies on both sides. On one side there is the power of money that credit institutions obtain by their service handling society’s payments and, in the longer term, by their interest payments. On the other side, by servicing their debt from the surpluses they generate, credit customers have to make a reality out of what the banking sector claims to be its own achievement: the return on loaned money. On both sides the companies compete at the same time with each other: in the one case for the highest income from the soundest customers, in the other for the easiest and cheapest credit. This is not suppliers of goods competing on the basis of given cost prices over sales and the price to be realized, but rather lenders and borrowers competing on the basis of money’s power to increase itself, applied in that way and made independent in credit, and competing over this very same power. From this competition — and only from it — arises an average interest rate, always anew; always anew because this quantity marks the lower limit of one side’s incentive to grant credit, and the upper limit of the other’s willingness to pay interest. In this permanent trial of strength, the money capitalists are at a certain advantage: they have the money the others need for their growth, thus some power over the scope and success of capitalist production. And they use this power entirely in the spirit of capitalist brotherliness: the more problematic a company’s business situation and prospects, i.e., the more pressing a customer’s need for liquidity and the necessity for an additional advance, the higher the interest claims. First, because the customer will be more likely to accept; second, to compensate for the uncertainty of the yield. For that is the other side of this competition: no party can be sure in advance, either in an individual case or in general, that the expected credit-boosted growth of industrial capital will be realized, i.e., that the equating of debt and capital yield is justified. It might well be that the lender is faced with the decision whether to inject more “good money” into a bad business in the hope that more credit will restore the company to profitability, or to refuse the required liquidity and allow the customer’s ruin, i.e., actually bring about its ruin and write off its own advances.

Thus, the lending business gives rise to a new contradiction, inherent to the system: bank capital and productive business are dependent on each other for their success without their cooperation diminishing the antagonism of their interests.

4. The means of circulation: From money tokens to credit tokens

As said, the money-handling trade gains the power of disposal over the business world’s monetary wealth and uses this power to turn its own debt into the business world’s debt and source of growth. As a result, the deposit money that banking institutions use to manage their customers' payments changes its economic character. What they enter in business accounts and transfer as debit or credit to the account holders no longer stands merely for the account holders’ ability to pay. Instead, thanks to the banks’ power of disposal over credit, it now stands for the credit the banks grant, credit that lets capitalistic business life grow and in turn has to be justified by successful growth. This money represents the available monetary assets of society on the basis that banks have turned the money into freely usable funds for their lending business, into a capital advance in a double sense: into debts of industrialists who use the money to run their companies, and into their own debt, whose success as capital they claim to be their own achievement. The value of this money, i.e., its fitness to function as society’s assets and means of payment, is based on the banking industry’s achievement of feeding a growing business life with its own debt and the debt that in turn can be created with it, owed by others. This money does not — any longer — represent the result of general business activity, but rather the advance that has yet to be capitalistically successful, i.e., it is credit. That is what banking institutions have their customers pay with.

The clearest, quasi-literal material expression of this equation of advance and earned money was the private banknote. This was a private yet unconditional promise of payment; a bank’s promissory note that was to be regarded as its own fulfillment and was to circulate like the official national money-token, or like coins that themselves have the commodity value their stamp claims. This presumption to issue a definitive value bearer without any value of its own, virtually in competition with official paper money, has been forbidden to banks by the state. The money that they lend and circulate between their customers’ accounts must be in units of national money and promise to be redeemed in this solely valid token. This of course does not alter the fact that the means of payment they use and have their customers use for payment are, according to their economic nature, tokens of their loans — or, conversely, that the credits and debits representing their lending business perform all the functions of legal tender, of valid means of payment.

§ 11 The state as creator of a national credit money
Within its borders

1. How the lawgiver recognizes and controls the use of debt as money and capital

When capitalists use loan capital to secure and advance their companies’ growth, and when money dealers serving the growth of capital assets develop a business of their own on the basis of money’s power that has taken on an independent form, then that is fine with the state, but not without some attention. From its point of view, problems of a new kind arise for the security of property it guarantees when, on the one hand, industrialists operate using money they haven’t earned themselves that actually belongs to other owners, as if it were their own, and thereby earn money that definitely belongs to them; and when, on the other hand, the money lent by finance capitalists passes completely into the hands of others but at the same time continues to exist as their assets in the form of a binding claim, and even increases to a predetermined extent as if they had used it as capital themselves. When one and the same sum of money thus gains a doubled quality as capital, separate property-law regulation is required.

The lawgiver regulates this by guaranteeing the debtor a right of disposal over the borrowed money as if he owned it, and legalizing the lender’s claim to repayment with interest, i.e., backing the claim by its force. An owner’s right to control the work of others by paying money and in this way to enrich himself also holds when he pays with borrowed money. And to this clarification the state adds the right of loaned money to increase by accruing interest. It thus recognizes the lending business as an independent, second method of turning money into more money, allowing banks to buy the right to have society’s money at their disposal by promising interest in order to operate and expand their own business, whether it be the industrialists’ money that they are already managing, or other assets. In this way, the lawgiver gives the banking industry the legal framework for the autonomy it claims vis-à-vis the world of applied capital, thus institutionalizing the competition between producers and lenders as a sui generis legal relationship. With a fairly extensive and constantly updated body of legal regulations for credit institutions, and a supervisory system set up to make sure they are followed, a state under the rule of law testifies in its own way to how much cause for conflict there is between the various participants in the credit business. Among other things, it sees a need to limit free enterprise, giving the terms “bank” and “banker” protected status and requiring a state license for running a banking business. Binding regulations for “capital adequacy” and “liquidity,” special directives for lending and for protecting deposits, and banks’ obligation to provide information to state supervisory bodies: all these requirements document a) the specially precarious content of the lending business, which speculates with everyone’s money on the business success of others; b) its susceptibility to fraudulent operations on both sides; as well as c) the lawgiver’s interest in this business functioning with its special role in the doings of a market economy.

2. The state as “bank of banks” with a “banknote monopoly”:
Guarantor of doing private business with debt, and autonomous credit creator

When banks take the liberty of managing capital growth by issuing their own banknotes whose value is effectively based on the success of their lending business, but that formally claim to be really backed by a real money-commodity in the bank’s possession, then the state feels challenged in two ways. On the one hand, it must provide legal clarification. It is out of the question that private promises of payment circulate on its territory not merely as such, as a functional substitute for money, but as definitive representatives of state-protected property. Not only because the unit of measurement indicated on such means of payment would then ultimately depend on the issuer’s economic power, the private money would acquire a price in the national currency, and its alleged existence as property might even be completely forfeited when put to the test and no concrete value was found behind the issued money-tokens. The state is called for as an authority to bindingly prescribe for its society what units of measurement its wealth is to be quantified in, and moreover to guarantee that the official money denominated in a number of such units really and inviolably represents state-protected property. That is, the state must make the validity of money, its society’s capitalistic lifeblood, a matter of its sovereign monopoly on the use of force. The money that the banks’ promises of payment are denominated in and that their book entries refer to must be, and remain, separate from the banks’ promise to their clientele to manage their financial assets and provide their debtors with the ability to pay. The state therefore reserves for itself the monopoly on producing and distributing banknotes. It can happen that the banks’ deposit money does not take care of all society’s payments itself; the means of payment they promise their customers by their lending, whether in the form of account credits or of overdraft facilities, falls short. In that case, the banks have to procure the means of payment from the central bank — the institution through which the state issues banknotes that have the quality of money.

On the other hand — this being the second challenge for the state — this monopoly must not limit the banks, as the holders of society’s monetary assets, in their power to equip the business world with the ability to pay that is needed for growth and that promises growth. After all, this power is recognized as the banks’ prerogative. They must be able to procure what they have to procure in order to remain liquid in every business situation. The state complies with this requirement by issuing its legal tender in the same way that credit institutions grant loans: it lends the required funds to commercial banks at interest and against “collateral,” which in turn consists in the prospects for success of credit-financed business. The state thus confirms in very real terms that the money the banks post and use to circulate their credit between each other is a bearer of value recognized by the ultimate power. In this way, the state at the same time ties the banks’ freedom to create deposit money, to the extent of their lending business, to real money, which it reserves for itself to create and which can function by virtue of state authority. It grants the necessary freedom for creating money by issuing its paper money, which society’s financial assets refer to as their true and definitive mode of existence, in line with the banks’ needs as recognized by the central bank. Thus, the master of the national means of payment also copies the banking industry’s achievements in the way it provides and issues its legal money. It does not take as a basis — even fictitiously, as an idea — a treasury of money that its banknotes might represent, but rather the soundness and volume of the loans the banks need liquidity for, i.e., their process of money accumulation. The state ensures the soundness of the banking business by firstly demanding collateral assets in the form of “first-class” debt instruments and collecting interest. Secondly, it obligates commercial banks to hold legal tender as a contingency reserve, in cash or in accounts with the central bank, in a stipulated ratio to the type and volume of their various liabilities.

In making it such a means for the private credit business, for its growth and for the growth of the capital turnover it credits, the state turns its very money into a — national — credit money. Thus, quite logically, legal tender is no longer the representative of a fixed value. Its legal validity as the monetary form of property in state-defined units of measurement becomes formally distinct from its economic substance, which is measured in this way. By law, the central bank’s products are and remain the sole, valid monetary form of the nation’s capitalistically reproduced wealth. In terms of their economic nature, as liquid means of national credit, however, they represent state promises of payment, “backed” by the future growth that national credit finances and anticipates. They do not represent a business result that has “stepped outside of circulation and been held on to against it”[†] but rather the turnover of growing capital financed by the banking industry.

3. Inflation (1):
Necessary collateral damage from credit-financed growth

In their antagonistic symbiosis, industrialists, merchants, and credit dealers manage, in the course of their growing business, to water down the national credit-money that measures the participants’ increased assets. The credit denominated in this national money presupposes that it is being successfully used for capital accumulation and benefiting both sides. However, it carries no inherent guarantee that on the battlefields of capitalist competition it will produce nothing but a solid increase in the applied assets and in the potency of the lent money by way of interest. Producers and sellers of commodities feel they really have no choice — not least in view of their credit costs — but to always make the most of any upward latitude in their pricing. Thanks to their borrowed ability to pay, they are also equal to those competitive situations that make the prices of required goods more expensive. That need not lead to a slump in their profits or their growth if their commercial customers likewise have credit for paying higher prices and the power to pass them on to their buyers. After all, the amount of credit that banks create for this purpose is not limited by being — fictitiously, but effectively — connected back to a reserve of a real money-commodity. In the end, even with fierce price competition, the prices that industrialists pay with increased debt rise all around. In sum, then, credit is financing a capital growth that in part consists purely of a price rise and thus does not increase the real power of command over the world of commodities at all. However, it does increase the command over the work to be paid for as long as there is no offset through a rise in wages, which is something very different from the competition between capitalist merchants over sales and prices. Statisticians register an inflated price level, across the board or in large segments of the market, checked by comparing the prices for certain “shopping baskets” over time. This is an inflation that, once it has taken effect generally, can be expressed as a percentage loss of value of the money that is so abundantly loaned and used: as monetary depreciation.

This harms the money and those who receive a fixed payment for their work. But it does not really harm capitalists — they are the ones who make the rising prices and accumulate their capital accompanied by the depreciation of money. It is clear, of course, that this only happens with the calculating permission of the state, which is committed to the task of keeping an eye on property and its capitalist accumulation.

4. Ensuring state funds (2): State credit-tokens with the quality of money as the source of government debt capacity; Inflation (2)

This first cause of inflation, the credit-financed growth process, is not the only one. The power of the banking industry to finance the growth of capitalist enterprises with debt, together with the circumstance that it is the state that attests this power by providing the necessary liquidity, allows the state to use this power for itself, namely, to finance its budget. It incurs debt for its expenditures — like capitalists do for their growth — as far as its outlays are recognized as necessary, but exceed its tax revenue, which is always limited to spare the economy; and it pays interest — as if it were earning money with debt like the capitalists. While earlier rulers financed debt interest and repayment by harsher taxation, or else were driven to ruin or to make violent assaults on their creditors, the modern constitutional state manages this with money it procures through new debt. The first and last guarantee for its debt being not an unfounded promise of payment but as good as money is the fact that it has a central bank, an institution that produces valid money itself, i.e., can create any amount of it, so that the state itself ultimately vouches for its debt being identical with money. A modern state with its monetary sovereignty can simply not become insolvent.

The state’s budget debt is incurred not for any business but for the needs of rule. So it lacks the economic justification that capitalists must furnish for their loans through successful growth. This of course has consequences — not for the state’s solvency, but for the money it uses for payments. Unlike loans given to industrialists and merchants, loans to the state treasury create an additional ability to pay that is neither related to foreseeable growth and thus limited, nor endangered by insolvency if successful growth fails to come about. These loans accordingly expand the extent to which overall debt finances a growth of business that does not represent any real increase in the capitalistic power to buy and command, but only increases the numerical values quantifying the turnover of capital in society as a whole. The loans the state uses to pay for its rule, which are “backed” by nothing but its sovereignty over money but nevertheless circulate as additional buying power, make a prominent contribution to the depreciation of national money.

As the guardian over property and the private power of money, the state registers this effect, takes responsibility for it, and reacts restrictively. It admonishes itself in general to be thriftier. In particular, it distinguishes items in its budget that are bad because they are only for “consumption” from those called “investment” because they can make future expenditures superfluous and consequently act or look like profitable investments. And there are even better items that not only have a directly beneficial effect on its capitalist suppliers but can also promote the growth of the nation’s capital as a whole. So they at least do not worsen the relation between capital growth and government debt, can to that extent be regarded as economically justified and, in the best case, hardly increase monetary depreciation. Altogether, the politicians in charge see government debt and the negative consequences attributed to it, which they identify essentially in the rate of decline in the value of money, as the fairly unavoidable necessity to use their budget to do all the more for real economic growth in the country.

Within its borders, actually, the state is not confronted with any really effective constraint to stop increasing its inflationary debt. In contrast to workers, who see their real wage drop while the nominal wage stays the same or even rises, the nation’s capitalists are not really victimized. They are first and foremost on the offensive as the calculating originators of all price increases, and in a position to cope with them and continue growing as long as banks lend them what that requires. Money capitalists, for their part, know how to adapt the interest they charge their customers to the dwindling potency of their business article — preferably in advance — and they finance what pays off. Monetary depreciation only becomes a real problem domestically when the tallied “nominal” growth “adjusted for inflation” no longer involves any “real” growth, and might merely be concealing a shrinkage of the nation’s capitalist wealth; in other words, when a general, “excessive debt” is ruining the use of the nation’s credit money as capital — this of course not being due to the debt but to industrialists failing to achieve any more growth. For the state, debt converted into money by its central bank remains — up to this extreme case and then all the more — the means for ensuring that its needs are financed in the proper, capitalistic way.

The ever present, real barrier to this great freedom of the bourgeois state to finance itself lies in the comparison of national credit monies that is constantly being carried out and brought home to the nations by international money dealers in the course of their handling cross-border buying and selling.

Beyond its borders

1. Foreign trade on the basis of credit monies created autonomously by states

As credit grows, so does cross-border trade. More money flows across the borders in all directions, for purchasing and as the proceeds from exports. But the power to take possession embodied by these monies is now no longer guaranteed by a national treasury, the value of whose real holdings the monies are supposed to represent, no matter how fictitiously. Instead it is backed by the particular nation’s central bank providing liquidity to the credit business of its country’s banks. The nations’ money is credit money: definitive means of payment by law, backed economically by a capital growth fueled by bank credit. What money dealers serving international trade are exchanging, i.e., treating as equal, are currencies whose values are determined domestically by the relation between the mass of credit for growth and state financing, on the one side, and the actual increase in capitalistic power to command and take possession, on the other side. So the currencies’ units of measurement are subject to a certain shrinkage rate. But the reference quantity and yardstick for exchanging national monies is still a bearer of value whose validity is independent of the states’ monetary sovereignty, which remains limited to a particular country. This means a world money that measures the private power of capital and its profits in a supranationally binding way, and materializes them in a quantity sufficient for transferring wealth between states.

This no longer fits with the economic nature of the exchanged monies. The means of growth — credit money, which frees capital turnover from its barriers — has to be made suitable for cross-border trade.

2. The central bank ensures convertibility of currencies

For the sake of the foreign trade of their economy with its credit-financed growth, states arrange for their national credit-monies to be convertible. They agree to accept the fluctuations in value of their monies — part and parcel of being credit money — in relation to traditional precious-metal world money when exchanging them with each other. The exchange ratio of national credit-monies is determined by money dealers. In the course of doing their business, they are constantly creating a new relation between supply and demand in the barter with different currencies, a relation that measures the value of these currencies against each other. In this quantitative relation, the peculiarity of credit money takes effect: the variability of the quantum of the capitalist power to take possession that a unit represents. Consequently, the exchange rate determined by foreign exchange dealings reflects a permanent comparison of national credit monies in terms of their respective purchasing power as modified in the course of the growth of capital and of public debt: a permanent comparison of inflation. This is the economic substance of the shift in the national units of capitalist wealth as measured against each other that takes place in foreign exchange dealings. It is thus the ultimate reason why the monetary wealth of nations is not only determined by its mass, but also determined and continuously redetermined in comparison through the change in the comparative value of its national unit of measurement.

For capitalists, this means that the terms of their cross-border trade change in a way they have no control over. The growth of the nation’s capital, which their capital is only a part of, in relation to the growth of the nation’s credit (in particular public debt), with its unpredictable impact on prevailing market prices: all this has repercussions on their individual, foreign business; and this in very different ways. A relative increase in one’s own money’s power to take possession is good for the import business, freeing up the ability to pay for imports. The corresponding decrease in the value of foreign money reduces the value of the proceeds from one’s export business that are intended to flow back into credit servicing and growth in one’s own country. At the same time, relatively higher prices abroad allow exporters to increase prices, i.e., to acquire a larger amount of the depreciated money, while importers have to pay higher prices with their increased purchasing power. All this applies in reverse the other way round, too. The sure thing in any case is that industrialists have to reckon with constantly changing competitive conditions both abroad and on a domestic market open to foreign merchants.

States that make their currencies convertible are prepared to water down the property guarantee that both their own and foreign capitalists rely on and that they are responsible for vis-à-vis other sovereigns and hold other sovereigns responsible for. They no longer confine themselves to promising to redeem each other’s means of payment in a supranationally valid world money and doing or demanding it when foreign trade balances are due for settlement. They are permanently involved with their central bank in the business of exchanging money. Depending on what is needed and the applicable legal situation, it issues its own money and accepts foreign credit monies at the given exchange rate, which it naturally influences in the process. These foreign credit monies thus become part of its balances, i.e., part of the state’s financial assets; when necessary it hands over funds from this reserve for purchases abroad. In this way, the state ensures that any required, foreign credit monies are available, and its own remains usable, for a cross-border trade expanded by credit. It is willing to pay the price of its currency ending up at foreign central banks that can demand it be exchanged into other currencies, thereby treating its lawful money as outstanding claims, as debt to be settled in foreign currency at the currently valid exchange rate. Conversely, the corresponding balances of its own central bank fill up with monies that have no fixed value, so that the value of its reserve fluctuates not only with its volume but also with the exchange rate of foreign currencies accumulated in it. These currencies constitute the state’s international solvency while at the same time being, to a greater or lesser extent, merely other states’ debt.

Watering down the property guarantee in this way, as states are willing to do for the sake of expanding their foreign trade, has consequences that they of course manage to the best of their ability. As soon as the foreign-exchange reserves posted at their central bank threaten to lose value, they demand that the sovereign with the precarious credit money redeem its property guarantee by buying its currency back with better foreign exchange — or with world money in its old, barbaric commodity form, in gold or silver at the applicable rate. At this point, the build-up of foreign wealth in the form of money representing wealth accumulating in the foreign country, but also representing its prevailing inflation rate, changes into actual payment. This deprives the nation with the inferior money of international solvency, and lets the other nation’s treasury grow with reliable world money.

3. The state’s purpose for cross-border trade: Mass and quality of national credit money

In the interest of its national treasury — and thus of its industrialists, who, to enrich themselves in international trade, need a guarantee that money earned abroad will be fully usable in their own country and domestic credit money likewise for imports — the state places new requirements on its nation’s business life. First of all, the demand for a positive trade balance acquires a new importance,[3] for the foreign exchange a nation earns increases not only its ability to pay in that form. The backing of its own credit money through corresponding balances at the central bank secures this money’s worldwide acceptance as a reliable bearer of value, attesting its direct usability as ability to pay abroad. What is decisive for the stability of its value, of course, is how the nation’s credit money performs in the comparison of the various currencies’ capitalistic potency, measured in terms of purchasing power. From this follows the other demand the state places on the national economy and above all on its own debt policy. In order for a nation to be permanently globally liquid with its own money, the growth of its capital must show itself in sums of money that firstly are large and secondly represent real, not merely nominal, capitalistic power of disposal. Just as important as the quantity of the nation’s growth measured in money is the quality of the unit measuring that growth.

As clear as these demands are, the way to realize them is not. They relate to the overall economic consequences of the many individual turnovers of capital. They thus concern the effects of credit on the nation’s capital growth, which arises from individual companies’ growth but is not the purpose of these companies nor within their control and is moreover modified by the state’s budget debt. These effects concern all capitalists, but with their very different competitive interests and in very different ways. With every advance, the symbiosis of state power with the dominant class becomes more and more a permanent task for politics.

§ 12 The dogma of growth as the good purpose of all economic activity, and the solution to all the problems it creates

It is no secret to anyone that companies are run in a market economy with the exclusive aim of increasingly enriching their owners. It follows from this that the private interests pursued by the members of a very small minority in competition with each other dominate the reproduction process of society as a whole and dictate the conditions for success for all other interests. Nonetheless this is not considered to be the truth about contemporary economic life. Instead, its actual purpose and true benefit is identified, by the agencies of the common good as well as by the general public, as being a total of all economic activities. It is a sum calculated in the official statistics as the “gross national product” from the money value of the “goods and services” created and consumed in the country, or complementarily calculated as “national income” from the people’s money incomes however earned. It is habitually adopted into a conformist’s view of the world under the acronym “GNP,” and always shows a blatant disinterest in determining in any way the sources of income and the corresponding private interests of the actors. Instead, it takes for granted that the nation’s economic performance, conceived abstractly like this, is to be measured by a yardstick for success that derives from the quite class-specific aim of capitalist industrialists but without its banal, real substance. It generalizes this aim into an again totally abstract aggregate: the decisive criterion for success is the question, is “the economy” growing or not growing, might it actually be shrinking? The latter is the worst case scenario, for which the term “negative growth” was invented. There is discussion of all kinds of parameters for appropriately measuring and recognizing growth that lead away from the simple origin of the invoked necessity, the industrialist’s interest in capitalist enrichment. Some wish for “growth” to be “qualitative,” some would also like it “sustainable.” But however it should be, the decisive thing is the sum, or change in the sum, that the state determines and announces; if it’s not on its way up, “things” are going downhill and that is definitely bad. The question of how bad it is, or how good the determined growth percentages are to be rated, is as controversial as befits a free, pluralistic shaping of public opinion. However, the firm basis of all disputes is the unquestioned agreement that without growth the economy will definitely “falter” and if that persists the whole country will likely go to the dogs.

1. “Growth” in popular thinking

1. Growth is great, since it provides more of everything you need

Using ‘growth’ as the criterion for judgment requires no justification; it is not contingent on any higher ‘why’ or ‘what for.’ Even though it evokes a sum, an amount of money, one is welcome to associate this mainly with all the necessary, useful, enjoyable things that everyone and the whole of society live on: more gross national “products.” Nothing is more plausible than that the multiplication of nice things is a fine thing itself. Of course on closer consideration it is not at all plausible that the desire for and enjoyment of useful goods should result in the imperative “more and more,” disconnected from any real need — in the automatic demand that production and mountains of goods must grow. Every real, material need has its “enough”; things that satisfy real needs can be “too many” or “too few,” as evidenced by the overabundance of cars in the cities of this world, as well as the corpulence of a lot of their occupants… And beyond all examples of excess and shortage: the benefit of useful goods as well as the variety of interests they serve are a matter of quality, and cannot be grasped by being abstracted to a question of pure quantity.

Or maybe they can, because as soon as there is talk of benefit and satisfaction of needs under the prevailing economic conditions, it is not about needs or the means for satisfying them in any concrete, material sense. It is about the power to procure means for satisfying needs of whatever kind and whatever qualitative nature, a power that is in fact determined purely quantitatively. Under the regime of money, all needs and their fulfillment are subject to the one abstract criterion: the quantity of financial means that open up access to useful things of every kind but have to be available in a sufficient amount. Every inhabitant of a market economy is directly confronted with money as the first indispensable commodity. Without it there’s nothing doing; it stands, in the form of the price to be paid, between a person and everything he needs and desires. With money, however, a person enters into a relation, constrained only by quantity, with the great variety of goods the modern world has to offer; this is the other, the positive side of money and of the daily felt dependence of all needs on the available sum.

This leads the experienced consumer, on the one hand, to take for granted that material benefit and money are equal, thereby completing the abstraction from the qualities of his various needs just as it is assumed in the imperative of “growth.” This very imperative at the same time assumes, on the other hand, a fundamental inequality that the inhabitants of a market economy likewise take for granted: there is always too little of the number one commodity, seeing as its multiplication is such an unquestionable necessity. It is as a lack of money, as a quantitative problem, that they register the contradiction that is put into effect (and not overridden!) by the positive side of money, the power of access it provides: the contradiction between the variety of possible pleasures and the limit, entirely extraneous to them, to being able to realize them. The restriction facing a person and his needs does not relate to the extent of his needs in terms of their quality — that would not be any restriction and would not be perceived as a lack. It relates to the extent to which the sum of money available to him breaks through his general exclusion from everything his interest may be directed to. This gives him the lifelong task of budgeting his needs and their fulfillment according to his financial means. That necessity is the basis for the universal need for — ever — more money. So, for an individual accustomed to a market economy, the imperative of “growth” is synonymous with the promise of overcoming, or at least reducing, the lack of money that is the way he perceives the contradiction between his needs being put in the subjunctive mode and the opportunity to make use of actually existing commodities. It is because this contradiction is not eliminated by real growth but reproduced by it, always being felt as a lack of money anew, that the imperative of “growth” is so popular and so enduring.

At the same time, it is clear that the lack of money to be repeatedly overcome not only varies greatly in degree but also has a completely different and even clashing significance for the various actors in the market economy. As everyone knows, the quantitative differences in income and wealth are so great that they determine the quality of life. But general experience also shows most clearly that these differences are mainly due, not so much to random personal events such as inheritances or other strokes of fate, but to people’s sources of income. The great majority budget their money for subsistence and nothing else; the way they earn money is just not good for any more than this necessity. The minority, known collectively as “the economy,” first distribute their wealth over the business it comes from, which has to grow as the source of their earnings and wealth, and then they indulge in whatever they feel they need. And it is yet another, rather banal, empirical fact that this difference in sources of income involves a clash of interests that follows from the economic identities of those with and those without wealth. In their capacity as employers, businessmen pay wages; they enter them in the books as expenses that reduce the operating result and interfere with its purpose of ensuring the growth of their wealth. And they treat them accordingly, frugally allotting their employees the amount of money they will have to make do with.

However, this clash fades away in the perception of both sides when, faced with the promise of general advancement that lies in the demand for growth, everyone agrees from one money owner to the next that more money would be useful and desirable for all of them. In the light of this fundamental agreement, what is left of the conflict between employers using paid work to serve growth and employees performing work for money is nothing more than a distribution problem. And even in its polemical version deploring the “gap” that actually keeps “widening,” this idea that there might be a problem reduces the economic antagonism to a mere quantitative difference in the share of the company’s turnover that each side personally earns, “withdrawing” profit or collecting a wage. So this consideration of the various means for achieving the objective of “growth,” which is somehow shared by all, does not lead back to the real clash between work and its capitalist use, but puts the antagonism of interests in paid work, which still lingers in the “distribution problem,” into the right perspective once and for all. Both at the company level and taken altogether, this objective is better served the more money proceeds remain in the company, i.e., the less is paid away to the mass of employees. Even the worst experience of wages being dependent on company success is converted by the abstract imperative that there must be growth into the standpoint that this great, common cause requires services that are full of sacrifice.

Wage earners resign themselves to this insight because their service is their only source of income, and the hope of an indefinite increase in possible income is the only prospect in life that their market-economy home offers them. And even though people generally find the relation between work and earnings one-sided and unequal in a market economy, in the end it is all right and makes sense, being the condition for more wealth to come about as a result. This wealth will only be distributed even more one-sidedly and unequally, of course, but at least there will be something to distribute…

2. So it's good if money works too …

Capitalist businessmen dutifully divide up their money income in such a way that an ever larger sum is available for the growth of their business. In their moral self-image, their private enrichment ranks as a residual amount. What the major part of their income is supposed to do — basically the true mission of the total incoming sum — is to bring about the growth that government and society need.

On the basis of this insight, which is by no means limited to the circle of businessmen willing to do without “consuming” their capital, public opinion develops a profound appreciation of the business conducted by banks as well. When such institutions lend money to businessmen, they are not simply supporting the latter’s enrichment in order to make money themselves, but are boosting the power of businessmen’s money to make the economy grow. When they pay interest or even only facilitate society’s payment transactions to gain access to the financial assets of those taking part in the market economy, they are not simply procuring the material for enriching themselves. Instead, they are mobilizing society’s potentials for the good cause of public welfare rather than letting them lie idle. The fact that they are not acting as mere assistants or agents of the producing capitalists, but as independent businesses, for their own account and for their own benefit, enters into this sympathetic judgment of financial institutions the way the image of financial assets “lying idle” so vividly expresses it: when banks attract and lend others’ money, they are managing a potential source of wealth in such a way as to release its potential for the common good. So they are attributed a double responsibility. On the one hand, they have to make sure the economy is adequately supplied with its essential element, money, whose nature is to grow just like any seed. On the other hand, they shower on society — that is, on anyone who has money and doesn’t need it at the moment — a completely effortless increase in money, by means of interest and compound interest or else by not so transparent maneuvers when interest rates are not good for much. They are grandmasters of the alchemy of accumulating money without any dirty industry or vile commerce, and at the same time the actual life and soul of professionally increasing the material wealth “we all” live on. Both compliments apply, as the yardstick for their actions, even when (in fact quite explicitly when) a lack of business success gives occasion to accuse them of failure, or of inexcusably neglecting their high responsibility.

So companies in the financial industry do not only turn debt into capital. By doing their business they confirm the semblance that the nation’s workforce commanded by capitalist managers has not been that crucial for growth, since the money commanded by banks has done the real, productive work and caused its accumulation by itself. They like to promote this semblance in a big way by publicly displaying the wealth they are raking in. The “cathedrals to money” they build outdo the culture of church building; by making major donations for sports and culture they point to themselves as patrons and benefactors of humanity. And of course they also let the rank and file — all those who work for money in normal life and certainly do not get rich that way — participate in the miracle of self-increasing money: banks promise to help employees build their “own nest egg” in exchange for some of their earnings to work on. They furnish proof that even the bits of wages that have not been eaten up have some productive force in them if only they are allowed to do their stuff. Then a lot of small deposits turn into real business, unlike the “nest egg” employees end up with for regularly doing without something.

3. … but bad when there is inflation, which is the government’s fault

As nice as it is that money so readily generates growth under the direction of the banking industry, there is a catch to its powerful action: society periodically has to accept a loss in value of the means of payment that has increased through its own productivity.

This “phenomenon,” inflation, hits high and low earners, merchants and customers, producers and employees in the same place — the metaphorical wallet — but in quite different ways, depending on what their function in the market economy is; and that determines how they cope with it too. The first ones above make the rising prices — in competition against each other; and also pay them — providing they fit in with their calculations; if necessary with loans from their house banks, in order to then pass them on by raising their own prices. They have long since become accustomed to figuring out the real increase in their power over goods and labor from the nominal growth of their capital. After all, percentage losses in purchasing power in no way make their money unable to bring about its own increase. And such losses definitely don’t impair the ability to pay that credit institutions “create” and lend. The majority of people, who do not capitalistically use what they’ve earned, but merely use it up, do not have to make any big change either. They only have to adapt their art of managing their lack of money to demands that get tougher and tougher seemingly all by themselves. That is, they have to cope with a trending loss in value of the means of payment directly affecting its shabby function as a means of sustenance.

The dissatisfaction inevitably arising in particular among the wage-earning clientele is served by the system’s experts with a criticism that is aimed at anything but compensating for their lost buying power by corresponding raises in wages. Any wishes or ideas pointing in that direction are countered by the prevailing consensus that warns the result would be a “wage-price spiral” causing even more inflation. This warning takes for granted that employers would react by doing what they always try to do with their pricing policy anyway, even without the goad and the justification of possibly having to pay higher wages. What is publicly lamented is the fact that the capitalist power of money altogether is growing more slowly than the figures that measure it. And this complaint is not directed against the right and might of enterprising merchants to take what they can get for their goods. Nor is it directed against the banking industry’s achievement of providing credit and any desired amount of liquidity and thereby pushing out the limits of growth to the point where the unit of measure of capitalist wealth is ultimately compromised. Business people tend to count — themselves — among the victims; victims of an anonymous process, whose result experts have nicely dubbed “monetary overhang.” When prices rise across the board this is understood as a kind of bloat, grandly abstracting from those who make the prices. Very abruptly turning things around, it is blamed on the circumstance that enough money is evidently around for paying higher and higher prices — that is, too much money for maintaining a given price level. This “overhang” of means of purchasing is blamed by system-compliant thinkers on that one, great participant in market activity that does not earn any money or increase any capital itself but can nevertheless procure money, as much as it needs. It is, it must be, the state with its uncapitalistic budget debt that is ruining the general price level. In reality, of course, no businessman wants to do without the ability to pay that credit-financed government budgets provide, and the banking industry is even less willing to do without state-guaranteed IOUs. But when there is a general price increase to bemoan, it is common to recall the idiotic maxim — which the banking industry refutes on a daily basis — that you can’t spend more money than you’ve earned, and accuse the state of using its power to do exactly that and living “beyond its means.” The representatives of the public power like to go on about this themselves: the opposition “can’t do the math” when they demand this or that; those in office “can’t handle money” whatever they are doing. And when it is a matter of expenditures that don’t have their capitalist usefulness and necessity to the system written all over them, but are instead aimed at the livelihood of the wage-dependent masses in some way, something knowledgeable citizens can’t see any capitalist need for, then it is definitely clear who’s to blame for the devaluation.

Meanwhile, the alleged beneficiaries of such “handouts” are left with the damage that inflation inflicts on their standard of living. And the general public understands that the state is not to be reproached in any way for expending money and debt to subject its people to the capitalists’ growth requirements across the board and let its businessmen earn more and more. But the state must be criticized with regard to inflation for ultimately acting contrary to the system by not letting money work in peace.

2. “Growth” in academic thinking

1. Business administration does its own calculations to show how a company is supposed to calculate — while growing

The theory of business administration conceives the individual company as the place of origin for general growth, and this company’s growth as an element of that growth. For this practically orientated discipline, dedicated to the goal of a successful profit-maximizing business management, the requirements of such a business are utterly identical to successfully implementing a mode of calculation that operates with inpayments and outpayments. Its view of what businessmen do when trying to promote their company’s growth is determined by the idea that it is all about managing the relation between these two monetary quantities, in all banality: between (cash or account) receipts and outflow. This discipline takes it for granted that such a company has to grow, as a necessity requiring no explanation and meriting no clarification. And it assumes — quite rightly — that this necessity is served if and as long as the management of such a company succeeds in using the company’s available money for maximum business growth while at the same time ensuring the business remains liquid at all times. That is in any case how this discipline ultimately sums up the task that management has to perform: according to the textbook, its job is make sure “neither excess nor deficient liquidity comes about.”[4]

An investment, for this scholarly field, is consequently nothing more than “handing over money (= outpayment) today with the intention of achieving by use of the funds a higher cash return (= inpayment) in the future.” The business management expert therefore knows about investing at least that it has to pay off for the company. On the one hand, this is an honest statement about the essential purpose of market-economy dealings. There's nothing doing with growth, which the whole of society is groomed for and society’s entire reproduction is made dependent on, unless the company owners' interest in private enrichment is served. On the other hand, this honest statement shows a clear commitment on the part of the representatives of this academic discipline to want to help the owners of capital and their managers work out the ‘right,’ profit-maximizing investment decisions.

Accordingly, they explain that the question of whether an investment will pay off and whether it should be made is to be decided against the benchmark of a minimum interest rate, which in turn is determined by the interest rate to be had on the capital market for investments. One is welcome to find this plausible on various grounds. Firstly, it is the method of calculation that is usual ‘in practice.’ Secondly, it is only fair for the investor to be rewarded with interest for making his money available to the company, especially as he himself has to pay interest when he obtains money on the capital market. And, thirdly, the claim to such interest is backed by definitely more than just the morally legitimate claim to it. Evidently, investors can expect that the private power their financial assets give them to get hold of society’s wealth and its sources will increase as if by its own nature if they just let their money ‘work.’ Like the practitioners of profit-making, business administration takes it for granted that everything is available for this purpose, forgetting how much state there is behind a market economy being able to prevail here, and treating the increase in money in its theorems as an inherent characteristic of money itself.

According to its findings, the investment-planning problems it deals with are all ultimately due to outpayment and inpayment diverging in time. Outpayment is due today while (increased) inpayment only happens in the future and a lot of things can happen in between. It is part of the ethos of this “ancillary discipline,” which seeks to “optimize” decision-making so that investments will be as profitable as possible, to move from an ex-post calculation of the return on already made investments to an ex-ante calculation. And it goes without saying that this discipline is too ambitious to be held back by the fact that the money figures taken as a basis for calculating the expected profit are determined by the course of competition, therefore being speculative in nature. It is committed to the ideal — expressly acknowledged as unrealistic — of the return on an investment being exactly calculable in advance. It comes up with model calculations that — “regarded realistically” — deal with all kinds of “unknown environmental data.” The data that business experts see as the reason for “investment risk” are “uncertain,” which for them makes it all the more urgent to be able to mathematically objectify at least the level of risk, or more precisely, its probable level. And to that end they can boast of having developed methods for theoretically producing “probability forecasts.” While that is of no real use, it is definitely meant to be consistently dedicated to what is good for capital.

This also applies to the other textbook section where business administration deals with financial-planning problems. Here its standpoint is that a company must invest in its growth, so that the only question for this discipline is what means this requires. That the scope of business has to be constantly expanded and that this is the focus of all business activity is so self-evident to the representatives of this academic discipline that they see no need to offer the slightest explanation, state any reason for it, or even mention that this is what it’s all about. Business administration is taking for granted that company growth is the essence of business activity when it declares “excess liquidity” to be a problem to be avoided. Here one again encounters the standpoint — now at the level of the individual business — that money lying idle is bad because it is not ‘working’; it is a squandered resource for growth.

The money that business administration is envisioning this way is cash flow, or, more precisely, the surplus of return flows from current operations over current and later payable outflows per period that are to be paid from these return flows. This is where business management experts discover some opportunities to use money not needed right away for financing “replacement investments”: to invest in expanding business. Above all, they greatly appreciate the fact that the funds for boosting company growth can be multiplied if one does not limit oneself to investing the actual money available to the business in the expansion of the firm, but uses it to finance the cost of financing with borrowed capital. Business administration explains the considerable complications this involves in calculating incoming and outgoing payments, because now one must also reckon with the outpayments due for principal and interest in relation to the inpayments not yet known today. It knows about the additional risks this entails for the firm, and advises taking precautions to avoid “deficient liquidity” because this “generally means the end of entrepreneurial activity.” It offers the wise rule that the principle of “inpayments ≥ outpayments” must apply for every planning period. And it would not be itself if it had not long since tried to develop procedures to determine an optimum between deficient and excess liquidity.

2. Economists rave about I = S

The reality of capitalism is that society’s production and reproduction are completely subsumed under the necessities of growth that arise from capital owners’ interest in enrichment, and clearly bear the marks of that. For this reality, science in the form of economics (‘macroeconomics’) delivers the perfect denial. To provide a ‘better understanding’ of things, it draws a picture of “the economy” that completely omits anything like a capital-owning class increasing its private wealth, much less showing this as the purpose and overriding principle of the whole show. It chooses an “explanation attempt based on circular flow analysis,” which features a very neat arrangement of economic relationships and is characterized above all by the principle of equilibrium dominating the to-and-fro of economic transactions.


The economists’ corresponding circular flow model has two opposite poles. On the one side are the firms responsible for production and for generating the national product available to society as a whole. On the other side are the households whose consumption this national product is produced for. The relations between these two poles are in one direction such that households provide firms with factors of production, and in return for this useful contribution of theirs to generating the national product they receive an income, regarded in terms of society as a whole as the national income. In the other direction the relations presented in the model are such that households spend their income on consumption, thereby causing money to flow back to the firms for them to continue doing business, i.e., to be able to pay for the production factors necessary for production all over again.

This model of economics ties in with the common awareness in several respects. The juxtaposition of firms that produce the national product and households that consume it readily reflects the ideology fundamentally equating economic growth with social prosperity. The categories ‘national product’ and ‘national income’ are due to the same mix-up between value and use-value that consistently characterizes bourgeois ideology. On the one hand, national product and national income stand for the creation of value over a period, for the money earned by society as a whole, and thus for what actually matters to the state, which sums up the total performance of its capitalist economy in precisely this monetary quantity in its ‘national accounts.’ On the other hand, the same aggregated quantities also stand for the wealth of goods, which in this mode of production is only a means to the end of profit production, while at the same time its growth is commonly taken to be the purpose of the whole show. The sources of the households’ income — ownership of one’s own labor power, of capital, of land — are not even addressed as such in the model; they appear from the outset as factors of production, so that the incomes themselves appear as remuneration for the productive performance the households deliver by making their respective factors of production available to the firms, and the relation between production output and income presents itself all in all as a wonderful equivalence.[5] When capital is mentioned in this connection, economists intend it to mean, on the one hand, nothing other than the innocent means of production that every society needs to produce goods, regardless of the prevailing mode of production that owes its name to capital. On the other hand, it is thought of as a sum of money that, through its use in production — as one of the factors of production — makes its contribution to the creation of value in the economy as a whole. Just as ordinary people like to speak of the economy and just plain society, academic economists abstract from the fact that the firms it groups together as one pole in its model are linked to each other as competitors, and the households that make up the other pole have nothing but conflicts of interest with each other due to their different sources of income.

This picture the science of economics paints does twist things in its own way, however. Households of course also include firm-owner households that, according to the model, provide firms with the production factor ‘capital’ for production and receive interest in return. This juxtaposition of households and firms detaches firms from their general, capitalist production purpose, the accumulation of money in private hands, which dictates how work and production are organized in a market economy. It turns this purpose into a subjective motive; it is just the specific benefit that the type of household contributing the production factor ‘capital’ derives from participating in the great, joint effort known as ‘production,’ while other households owe their income to the use of their different kinds of production factors. By juxtaposing firms and households, one abstracts altogether from the fact that firms are a matter of property; that, as such, they are entirely subject to their owners’ power of disposal and are accordingly handled by them as their source of income, as a means of their private enrichment. The model turns firms into entities with no identity of their own, being nothing but the functions they perform for households: in one direction their purpose is supposedly to generate income, in the other to supply society with goods. The reverse applies to households. Their essence, too, is to be nothing but the functions they perform for the other ‘pole.’ On the one hand, they provide firms with the production factors they require for carrying out their good work. On the other hand, their consumption has no other significance or purpose, according to these economists, than to bring firms the money they need to continue operating.

According to the economists’ model, the economic relationship between firms and households is to be considered as, in principle, nothing other than an exchange of goods taking place between these poles. Economic services of equal value are being exchanged: the factors of production that households make available to firms, for the product that firms create with the help of the production factors, consisting of goods intended for consumption by households. The money generated by firms through the production and marketing of goods, and earned by households, is reduced to the function of mediating this exchange of goods. It serves economic ‘agents’ as a convenient unit of account and a mere means of circulation in their exchange operations aimed at either acquiring the means of consumption or purchasing factors of production. This view cancels out money as an economic purpose, as the object whose increase is what the economy that really exists is all about. So it cancels out this increase — the creation of a surplus of money over advanced capital — although this is the crucial achievement of this economy, what it factually yields.


Economists imagine there is an exchange of goods between firms and households in society as a whole, presenting this as the essence of the national economy. They assign money the function of mediating this exchange, and on this they base the functionalism of the economic analyses they come up with when constructing their model. They compose from this fictional function a functional law by which the monetary flows toward a pole must correspond in amount to the monetary flows in the opposite direction. Taking this law as the basis for their analyses, they deduce from it — i.e., from their postulate! — in the most simple-minded way (because in total defiance of reality[6]) those relations between the aggregate quantities in their model that they scientifically judge to be the explanation for how firms and households interact and thus for no less than how the economy functions as a whole.

They accordingly arrive at their first, most elementary scientific finding on the big economic picture:

“According to the law of circular flow, the sum of factor payments matches the sum of consumer goods purchases. Factor incomes = consumption expenditures.” (Felderer/Homburg, p. 36)

Or Y = C, where Y stands for the yield of production, which economists sometimes take to be the goods produced, sometimes their value, and sometimes the money firms realize by selling these goods. In their attempt to present what capitalistically operating, profit-making firms do as production strictly for the purpose of satisfying society’s consumer needs, economists like to regard goods, value, and money all as one and the same thing. According to the premises of their model, the yield of production is equal in value to the sum of factor incomes that firms pay households, so that Y also stands for the sum of factor incomes as in the above equation. The same mess of categories that results from equating incommensurables arises on the other side of the equation, for the same ideological reason. The variable C stands for consumption, the value of consumer goods, which the model sees as identical to the consumption expenditures that households make and that constitute the incomes of firms.

Experts in economics of course know that outside their model world, in the real, capitalistic world, firms do not make their money by giving away the money they take in from producing and marketing goods to households in the form of income. They are perfectly aware that companies’ activities are calculated to generate a surplus of money over the money invested in them and that they invest this surplus in their growth. They are also familiar with all the calculations that are relevant to companies when they invest. And when they pay tribute to investment as “the essential condition for economic growth,”[7] they are showing they realize how important this managerial activity is for the national economy in general, for the state, and for society as a whole and that they definitely welcome investment. But as theorists with their “model of an economy” in mind, which they regard as the valid “theoretical basis” for their teachings, they see only one consequence: that investment is “realistically” to be considered an indispensable component of such an economy, especially if it is also supposed to grow, so that their model is to be extended by the variable I (for investment) — according to the premises they have based their modeling on, of course. As a result, after inserting investment into their picture of a balanced functioning of the economy in this way, they determine its attributes in accordance with these model premises, thereby distorting the matter at hand beyond recognition.

On the side of the firms, which are known to be responsible for investment, the introduction of I makes it necessary to modify the equation C so that Y (the total yield of production) now no longer goes completely into household consumption but is reserved in part for investment, turning the equation Y = C into Y = C + I. The quantity I is thus defined negatively as the residual quantity (I = Y − C) resulting when the value of consumption goods is deducted from Y, the value sum of the produced goods. The idea of this definition is based on the equivalence of production and consumption demanded by the theoretic model; the value of consumption goods is the determining variable in it. Taken objectively, as a judgment of what an investment is, the definition is therefore utter nonsense. It says that whatever part of the total economic product does not go into consumption is automatically an investment, meaning that even unplanned inventories, unsold and even unsaleable goods are to be regarded as investment. It is likewise for the sake of maintaining the theoretical model’s equivalence between firms and households, while disregarding the actual matter at hand, that economists introduce into their model construction on the side of the households, which they leave money-saving to, the variable S (for savings) as the variable corresponding to I. This is also a residual quantity that (now on the side of households) remains of Y, the factor incomes, after the consumption expenditures have been deducted from them, resulting in the equation S = Y − C or Y = C + S. The first advantage this has for the modelers is that it allows completely incommensurable quantities to be subsumed under the category of ‘savings’ due to this purely negative definition, and thus incorporated into the model. In addition to the money saved by households, ‘savings’ also includes financial items that households never get to see; e.g., business write-offs, and “profits” remaining “in the corporate sector” which one hears of in this connection quite incidentally. Economists “realistically” do assume profits exist — even if they somewhat contradict the principle of equally-valued economic services being exchanged. They, too, can be understood as savings, taking the economists’ concept of ‘savings’ as a basis. This makes them “retained factor incomes,” i.e., factor incomes that are just not paid out by firms to households, and consequently not polished off by households since they never even get a glimpse of them. With these variables I and S of theirs, the modelers have created the basis for a magnificent ‘conclusion.’ Since, on the premises of the model, the total product of firms and the total income of households are equivalent quantities — i.e., Y (the value sum of production) = Y (the sum of factor incomes) — it is now possible “by equating these two definitional equations” (Felderer/Homburg, p. 37)[8] to directly deduce the equation I = S.

To economists, this equation is a source of valuable insights into economic affairs. First and foremost there is their mantra that investment is “only possible by cutting consumption by the same amount, i.e., by building up savings.” Conversely, it can be just as compellingly concluded from this equation that what has gone into savings also has to be invested, because otherwise the equality of money flows demanded by the model is no longer given.[9] Economists thus place the possibility of investment in a repurposing of the money that households are entitled to; that is, in their forgoing spending their income completely on consumption. They locate the necessity of investment in the gap that this forgoing of consumption opens up on the side of firms, which, due to this forgoing of consumption, get back only part of the money they need to be able to pay the factor incomes again. There is nothing left of investment the way it really is — the acting subjects who go through with it, their purpose, the means available to them and that they use, the necessities and criteria they follow in the process.


In their further “macroeconomic analyses,” economists devote themselves to attempting to trace the complex laws of an economy functioning in balance, in which the “economic agents” “plan” their dispositions and transactions “independently of each other.” The equation I = S now acts as the normative guideline for these investigations no longer in terms of being ever valid, because of the “definitional equality of actual aggregate variables,” but rather as conceived target of the relationship between the planned aggregates based on subjective decisions: planned saving by households has to match planned investment by firms in order for the planned aggregate economic demand to coincide with the planned aggregate economic supply.[10] Starting out from this postulate, the discipline looks into the crucial variables that affect households in their budget planning and firms in their investment planning, and into the determining effects this has on the goods, labor, and capital markets, the general business situation, and growth. From all these determinants, it constructs production, consumption, investment, and other “basic functions,” whose essential characteristic is that they can be used in calculations. With the help of these “functions,” and applying its mathematical apparatus, macroeconomics derives solutions for the problem its analyses presuppose, i.e., which configurations between all the factors fulfill the equilibrium condition, and it artfully illustrates them with intersections between curves and straight lines.

Economists also turn to growth following this script. They attribute it to a certain investment-related “income and capacity effect,” for which they identify the following “determinants”:

“The economy grows because there has been an increase in either the input (quantitative expansion of the production factors used) or the output per unit of input (improvements in the quality of production factors = technical progress in the broad sense).”

By citing these two reasons, economists reduce growth to the boon of increasing all the useful goods that can be provided to society for consumption. And otherwise, they are interested in only one thing about growth: the problem of how to imagine “balanced growth.” For in the model world of economics, regarded from the point of view of circular flow and its laws, economic growth initially appears to be a disturbance of the previously constructed “stationary equilibrium,” although in the real world it is of crucial importance and the measure of all business success.[11] Economists look for solutions to this problem in their now innumerable growth theories and models. And the nature of the problem itself guarantees that these theories and models all end up disregarding growth — particularly the growth that matters in the real world — because economists only draft them to worry about functional conditions and “adaptive processes” that might guarantee growth’s equilibrium.[12]

But that doesn't matter at all. Economists just continue working on elaborating their distorted image of economic reality, which presents the economy as an admirable system of balanced functioning whose laws they know. It is to be seen as a world of common benefit and fair exchange, where people are in the best of hands.

3. On the contribution of foreign trade to growth & prosperity

International trade is the field of extremely stiff competition of capitalist enterprises that is supported by political power. Importers and exporters are concerned with their profit, while states want as much good money as possible to flow in from other countries. The latter concern coincides with the interests of globally active merchants only conditionally and in part, which increases and intensifies the conflicts of interest in this field of business. And so on.

All this is of course known to economic experts. As academics, however, they take the liberty of completely disregarding profit as the purpose of trade, money as the focus of states, and the conflicts of interest that this involves. They prefer to explain what is happening by drawing up a model which depicts the participating countries — the real actors of international trade in the eyes of this discipline — as being interested only in the best possible way of supplying goods to their peoples and to mankind in general. This model — which they lay at their forefather Ricardo’s door — construes a “barter trade without money,” a foreign trade consisting of directly exchanging some useful goods or other and inevitably bringing “gains in prosperity” for all participants. And the assumption is not only that trading nations supply each other with whatever the other doesn’t have, or with what one country can produce better, i.e., with less expenditure, than another, for whatever reason. The model’s dogma that foreign trade aims to do good also applies when one country is more productive across all sectors and another country is consistently less productive. This is substantiated by a calculation with “comparative advantages” that emerge by way of example when comparing two countries that can both produce — for clarity of exposition — two different commodities, such as wheat and cloth, and have to decide how much of their overall available “production potential” to devote to which commodity. Each of these fictitious producers measures the necessary expenditure, i.e., the price for a unit of its two products, by the lost possibility of producing a certain amount of the other commodity. For example, for one producer one unit of cloth costs ¼ unit of wheat, or one unit of wheat costs four units of cloth; the scholars speak of “opportunity or forgone costs,” and already it sounds like an explanation. If we now assume that this ratio is different in the other country, one to five for example, then the math clearly indicates that the country with the higher “forgone costs” for wheat — five units of cloth for one wheat of unit — will gain by producing correspondingly more cloth instead of wheat and exchanging it for wheat in the other country at the ratio prevailing there — one unit of wheat for just four units of cloth. The trading partner will gain correspondingly by increasing its wheat production because this will bring it a relatively larger quantity of cloth units through foreign trade than if it produced cloth itself. So, in the end, both countries are better off by specializing in the production of that commodity that costs them comparatively less productive expenditure compared to the other country, and supplying each other with that commodity — Q.E.D.![13]

This model evidently has nothing to do with reality, with the real calculations of the real actors of world trade. But this doesn’t bother economists at all. They aren’t claiming that countries actually identify and compare such “comparative advantages” before proceeding to export or import. They are thinking in terms of the desired result and postulating conditions under which it might come about. The result they want to have is a common gain. This gain is to be had by a “country” — not any real one, certainly not a capitalist nation, but rather an imaginary ensemble of branches of production. And this “country” is only another way of expressing the same figment: an entity that first sets about organizing its domestic economy down to the last detail as a division of labor aimed at achieving a maximum supply of goods. Between such entities the model then stages an exchange of goods that leads to further maximization of each participant’s maximum.

The whole thing is not an intellectual game, of course, but bourgeois science. To economists, this fiction captures the essence of real foreign trade as being a work of reason, of cooperatively achieving maximum, all-round prosperity through a skillful “international division of labor and specialization.” When confronted with reality, next to which their whole construction looks as weird as it actually is, they either say the real world possesses a complexity that foreign-trade theory has to keep trying to approach through ever more sophisticated models, or they say markets and states show a certain degree of imperfection that should be corrected in line with the wonderful rationality of the international division of labor. Or they say both.

Translators' Notes

[*] This phrase was coined by German president Weizsäcker with reference to European unity: “Reconciliation that transcends boundaries cannot be provided by a walled Europe but only by a continent that removes the divisive elements from its borders.”

[†] “Money, as we have seen, in the form in which it independently steps outside of and against circulation, is the negation (negative unity) of its character as medium of circulation and measure.” (Marx, Grundrisse, The Chapter on Money)

Authors' Notes

[1] This critical relationship is fundamentally maintained through all the modifications of capitalistic world business by credit and financial business.

[2] Granting loans to the general public, to ‘consumers,’ is also a valuable service to capital growth.

[3] Those who would like to see more fairness in the world economy often argue against positive trade balances of nations, asserting that only balanced trade can counteract ‘imbalances’ in the to and fro of global commerce. Foreign-trade policymakers are also hardly unfamiliar with this ideal of evening out trade balances. Particularly from the perspective of their own money’s superior standing in the world, they always note the consequences of their foreign-trade successes for deficit-running partners, namely, the danger of their international solvency shrinking. Not that this prompts any high-export state to start curbing its successful exporters.

[4] All quotations from the standard textbook: Wöhe, Einführung in die Allgemeine Betriebswirtschaftslehre [Introduction to General Business Administration], 24th edition, 2010, or 25th edition, 2013, Vahlen Verlag, Munich

[5] Today’s economics has made unmistakable progress vis-à-vis the ‘vulgar’ economics that Marx was faced with and criticized in detail. The analysis of the economy in his day still started out from the three ubiquitous sources of income in capitalism — labor, capital, and landed property — and from the practical experience that these sources of income, the way everything is set up, pretty regularly bring their respective owners the matching money revenue — a wage, a payment of interest, or a ground rent. Following its need to justify these economic relations, it — like the common awareness enmeshed in the practice of these relations — treated these sources of income as identical to sources that really bring forth the wealth itself that the owners of the sources of income can appropriate due to their ownership of these sources of income. What the vulgar economists of yore achieved in the scientific study of the economy was essentially to make this wrong but ideologically immensely valuable identification the principle of their economic analyses and establish it as such in the science of the economy in general. The modern discipline has thus put behind itself any theoretical examination of the factual interrelations the manufacturer, his workforce, and the landowner owe to their sources of income, while earlier economists still stumbled over the contradictions they involve. Today's economics, in contrast, deals only with the abstraction ‘households,’ which provide firms with — whichever — production factors and receive an income in return. It abstracts from the different natures of the sources of income and how different the positions are that their owners occupy within and relative to the production process due to their owning one of the sources of income. Today’s economics notes only the abstract principle, cleansed of its material content. It ideologically transforms the sources of income into production factors, and the incomes into a compensation for what households contribute to production with their production factors.

[6] Arguing that the money flows are the “monetary mirror image (equivalent) of the real flows” (Cassel/Müller, Kreislaufanalyse und Volkswirtschaftliche Gesamtrechnung [Circular-flow analysis and national accounts], Stuttgart 1975, p. 23), the model builders take the liberty of “eliminating the circuit of goods” from their depiction of the economy (Felderer/Homburg, Makroökonomik und neue Makroökonomik [Macroeconomics and the new macroeconomics], 1987, p. 32) and making the balanced circulation of money flows between the ‘poles’ the key point for explaining all economic relations.

[7] All quotations can be found more or less as such in any economics textbook; the ones here are taken, unless otherwise mentioned, from Woll, Allgemeine Volkswirtschaftslehre [General economics], Munich 1981.

[8] In order to justify this equation, the economics textbook at this point explicitly refers to the “double meaning of Y”: “On the one hand, Y is the value sum of produced goods; on the other hand, it is the sum of paid and retained factor incomes.”

[9] The necessity of investment is explained by economists with explicit reference to their axiom of circular flow: “The axiom of circular flow is violated because the factor income of the household sector exceeds its consumption expenditures when savings are positive…” (Felderer/Homburg, p. 37). The violation of the ‘axiom’ consists in firms paying Y away to households in the form of factor incomes but only getting Y − S back from them. In order for the economic cycle to continue cycling, this violation must be remedied. And economists face this task first of all theoretically by introducing another assumption into their model. They postulate an “imaginary pole of asset formation” (ibid.) between firms and households that — however one might imagine it being realized — is assigned the function of ensuring that the money saved by households is not just saved but made available to firms in the same amount for investment:

“This [pole] absorbs the savings, and from it the investments are financed.” (ibid.)

This is economic modeling at its finest: economists dream up an entity that expressly exists only in their imagination, because they need something to perform the function of “closing the cycle” that their theoretical model demands.

[10] As economists emphasize, the equation I = S is by definition always valid, “its validity [being] unaffected by the nature of reality” (Cassel/Müller, p. 3), because the two variables I and S are determined “in identically the same way” as the residual quantity that results when consumption is deducted from the yield of production. Anyone who is surprised that this equation mutates here into an “equilibrium condition" that may or may not be fulfilled by investment and saving is told that this contradiction is due to some things not turning out in retrospect (“ex post”) the way the participants planned beforehand (“ex ante”). Economists do justice to this “reality,” the “deviation between desired and actual values” — as they programmatically proclaim — by making their model’s norm of equilibrium the starting point and yardstick for the analysis of “planned variables”: “Equilibrium is given; what is sought are the determining variables."

[11] Economists employ the term “stationary” to describe the equilibrium of a circular-flow system in which “all stocks,” in particular the “capital stock of firms” and “the real assets of households,” are constant. This “stationary equilibrium is” — as economists are ready to admit — “a fictional state of rest of the economy … i.e., something that certainly doesn't ‘exist.’ Nevertheless, stationary equilibrium is an indispensable tool for explaining what happens in an economy.” This modeler’s idealism prompts the task of “reinterpreting the concept of economic equilibrium.” What remains in the end is the insight that “the definition of stationary equilibrium … [needs] only to be somewhat generalized when the environmental conditions are subject to constant change” — to then permit a clear definition of when the “system … is in growth equilibrium.” (Richter/Schlieper/Friedmann, Makroökonomik [Macroeconomics], Berlin 1973, pp. 451, 495)

[12]The growth models describe … the process captured by three basic functions that leads to balanced growth.”

[13] Many an assumption taken for granted in this so-called “Ricardian model” of “comparative advantage” is certainly quite absurd. For example, one must disregard the difference between products, and the means of production and labor activities required to manufacture them, so completely that the production of cloth — economists’ favorite example — can directly take the place of producing wheat. This makes identical expenditure appear in a purely quantitative relationship between products that are nevertheless to be thought of as different goods whose production then even costs different quantities of expenditure in different countries. Product-specific units of measurement are supposed to measure each other without any measure unspecific to the product being introduced to function as a common denominator for area (in the case of cloth) and mass (for wheat), and to also function as an identical unit of measurement defining the exchange relationship (“foregone costs”). To provide an example that should really make sense to every student, the master teachers of economics, who reject Marx's ‘labor theory of value’ as one-sided, like to calculate working hours here for a change. So they go ahead and make the mistake of the labor voucher theory for explaining prices that Marx already criticized. This theory paints the picture of a well-planned, cooperative exchange of useful things in accordance with the working time used for producing them. In contrast, if different goods have the same exchange value, this points objectively to abstract labor as the source and determinant of value, which is a scathing criticism of the capitalist production of goods, where the competition of independent private producers brings about this forceful reduction of labor to its value-creating quality.

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