The Memory Bank

On profit and rent in the history of capitalism

December 10, 2011 by Keith Hart

A letter to Ed Philips on nettime in the thread, Debt Campaign Launch, 10th December 2011.

Well, Ed, that was worth waiting for, as Brian said. It may seem churlish, after your generous remarks, to harp on the one point of apparent difference between us, but I do so because, while I share many of your views on monopoly capitalism and bureaucracy, I believe that sharpening our historical vision and conceptual apparatus to grasp the changing composition and strategies of capital is important.

I start from the idea that we are going through the early stages of a world revolution as profound and far-reaching for humanity as the invention of agriculture. I also reject any linear evolutionary model of human history, which means that a shift as major as this calls into question the relationship between many modern revolutions of the last half-millennium whose legacies remain with us in an unstable mixture. So you are right to point out that many of the elements of today existed 150 years and vice versa. Making comparisons between periods involves judgment, not clearcut contrasting definitions or the idea that there is nothing new under the sun.

I stopped citing Marx as an authority long ago, but I do feel that his take on the Great Transformation of the mid-19th century is potentially fruitful for us. Das Kapital is difficult to interpret since he seems to have decided for rhetorical and political purposes to accept a number of propositions of liberal economics (which he had already refuted many times) so that he could reach the opposite, revolutionary conclusions while starting from shared premises. The opening chapter of Volume 1, which he wrote last, is an egregious example of this. Even so the book is a critique of political economy and there is a lot there about the relationship between the three components of surplus value — profit, rent and interest — which accounts for why he was unwilling to reduce capital to profit.

The idea of surplus value in turn rests on a homology between feudal and capitalist exploitation which gives the lie to any notion of capitalism as the revolutionary negation of its precursor. Even so, Marx held that capitalist profit in his time subordinated rent and interest to its logic and that is what matters for us here. In case anyone thinks this is a minor quibble, it is the main reason why Marx and Engels considered that what was going on in Victorian England then was the future of the entire world economy, one of the better predictions. It goes without saying that ever since we have tried to identify new phases of capitalist development and decline. We need to do so again now.

I find the notebooks of Grundrisse more helpful than Capital in some ways, partly because Marx was talking to himself and not to a public for complicated reasons. The introduction to this work is particularly illuminating. Here he tackles relations between the main economic categories — production, distribution, exchange and consumption — as well as offering some remarkable insights into his dialectical method of history. Of particular interest are his comments on production and consumption, on how distribution had been collapsed into exchange and why it was never the case that distribution dominated production (the main idea of agrarian civilization or the Old Regime). This is the crunch for any meaningful comparison between different phases of capitalism or with its precursors. It boils down to this, forging an iron bond between Marx and Locke’s labour theory of value: the way to get ahead in the past was always to use political power to extort value from its producers (if you wanna get ahead, get a gun). But what if producers got to keep what they made rather than hand it over to licensed bandits? Locke made no distinction between the owners and workers in enterprises, while Marx aimed to show that the difference was crucial. At the same time, he remarked famously that you can’t steal from a nation of shepherds in the same way as from a nation of bankers. So the mode of production conditions distribution.

The 1860s saw a transport and communications revolution (steamships, continental railways and the telegraph) that decisively opened up the world economy. At the same time a series of political revolutions gave the leading powers of the coming century the institutional means of organizing industrial capitalism. Capitalism has always rested on an unequal contract between owners of large amounts of money and those who make and buy their products. This contract depends on an effective threat of punishment if workers withhold their labour or buyers fail to pay up. The owners cannot make that threat alone: they need the support of governments, laws, prisons, police, even armies. By the mid-nineteenth century, it became clear that the machine revolution was pulling unprecedented numbers of people into the cities, where they added a wholly new dimension to traditional problems of crowd control. The political revolutions of the 1860s and early 70s, from the American civil war to the Meiji Restoration and German unification, were based on a new and explicit alliance between capitalists and the military landlord class to form states capable of managing industrial workforces and of taming the criminal gangs that had taken over large swathes of the main cities (Scorsese’s Gangs of New York!).

Before long, governments provided new legal conditions for the operations of large corporations, ushering in mass production and consumption through a bureaucratic revolution. The national system became general after the First World War and was the dominant social form of twentieth-century civilization. Its apogee or ‘golden age’ (Hobsbawm) was the period 1948-1973. This was a time of strong states and economic expansion when the idea of ‘development’ (poor nations growing richer with the help of the already rich) replaced colonial empire for most Third World countries. When, shortly before his downfall, Richard Nixon announced that “We are all Keynesians now”, he was reflecting a universal belief then that governments had a responsibility to manage national capitalism in the interests of all citizens. We all know what happened next. But neither Marx nor Polanyi (who had less excuse to miss it almost a century later) saw the social consequences of converting the class struggle that animated the liberal revolutions into a form of bureaucratic capitalism based on an alliance between the capitalists and the enforcers. But Weber did, with the Prussian junkers and Rhineland capitalists under his nose. And Hegel envisaged it in The Philosophy of Right as urban commerce and the family/land complex mediated by the state.

Selling stuff for profit means adding value through production. As Marx insisted, there is nothing intrinsically productive about tangible rather than intangible commodities (a mistake that Adam Smith made a century earlier). Productive labour under capitalism is anything that generates surplus value for capital, which could be teaching services (an example he uses). Rent-seeking is “an attempt to derive economic rent by manipulating the social or political environment in which economic activities occur, rather than by adding value” (Wikipedia). Marx claimed that rent and interest (banking) in his time took their scale, form and function from industrial capitalist production for profit; and this could probably said of the main capitalist countries before the 1980s, but no longer. Of course all three sections of surplus value co-existed then and now. I believe it is quite criucial to establish if the emphasis of political economy has tipped away from industrial production (in the broadest sense, not just manufacturing) towards rents derived from political privilege rather than adding value. It is hard to see how the richest 1% have done so well in the last three decades otherwise.

The digital revolution is highly relevant to this question, since many intangible commodities can be copied easily at no cost. It is also the case that, whereas if you steal my cow, I can no longer milk it, no-one loses out if I copy your song. The entertainment industry is the fastest-growing sector of the world economy after finance, so what happens there matters. Your emphasis on oligopoly and restrictions on competition is correct, Ed, but again a lot hinges on whether, under the stimulus of national capitalism, markets became more monopolistic in the last heyday of financial imperialism from the 1880s to the first world war than in the mid-19th century. We also need to be aware of what happened when that period ended if we wish to understand the economic crisis today.

It may be akin to angels on a pin head theology to worry about how profit and rent account for the spoils in the today’s market for DVDs as opposed to the cinema of the 1950s. But the crazy DRM regimes being installed around the world point to importance of political and legal coercion that follows the relative dominance of rent-seeking over value-added by production.

The war over intellectual property escalates to ever new levels of absurdity, but, when it comes to internet-based products, a powerful competitive sector based on principles diametrically opposite to those of corporate command and control, is no longer the pitiful loser that Brian takes from James O’Connor’s book, published in 1973. If I didn’t believe that the people have some powerful forces and principles on their side in the fight against states and corporations, I would have given up long ago. So would Marx and Engels if they hadn’t believed that the machine revolution was potentially a force for greater economic democracy.

Keith

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