Boris Johnson has sounded-off again, this time to the Sun, with his demands about Brexit. The transition must be absolutely no more than two years, and the UK should not accept new EU regulations in that period. This keeps him in front of the 'hard Brexiteers' in the Conservative Party, ahead of what is certain to be a very painful party conference for the Prime Minister who decided to hold an election, then ran it the way her close advisers suggested, and so lost her parliamentary majority. Members of the party from all factions know that the Corbyn-McDonnell chances of winning a general election [in England, Wales, and - just possibly - the lost Labour heartlands of Scotland] are astonishingly high. Thus the Tories dare not topple the leader, simply because there is no obvious alternative who could surely prevent the party from disintegrating sufficiently to force a general election.
Thus the Conservatives have to negotiate Brexit: with an increasing majority of the party daily becoming more aware [as are Labour MPs] that the complete separation of the UK from the European Economic Area would put the livelihoods of all sixty million people who depend on the UK economy in grave jeopardy. The Minority of fervent Brexiteers, together with the ambitious chancers who have joined them, assert that the UK can open up huge vistas of trade all over the world, by making trade agreements with a whole raft of countries under WTO Rules.
The World Trade Organisation had its origins in GATT - the General Agreement on Tariffs and Trade - which was set up alongside the International Bank for Reconstruction and Development [normally called the World Bank] and the International Monetary Fund [IMF] by the victorious allies at the end of the Second World War in the belief that the two devastating wars of the twentieth century were largely economic in origin. The USSR was wholly, dogmatically convinced that the First World War was the result of expansionist imperialist competition between the European powers; and they ascribed the second to a re-run of the same conflict between a resurgent Germany and the 'Anglo-Saxon' states that had succeeded in 1918 and then dissipated the fruits of victory in the Depression of the 'thirties. The USA and the UK shared the view that the competitive inefficiencies of capitalism had exacerbated the economic problems of the late 'twenties and early 'thirties. The idea behind the new system was to provide transparent means by which each economy could grow as part of a successful international community.
The USSR soon withdrew from active participation in the institutions, and compelled its satellites to leave as well. Then the international organisations served the 'capitalist' world, in an uneasy relationship with the 'third world' of notionally 'non-aligned' countries [which asserted their independence of both the USSR-led and US-led pattern of alliances that maintained the cold war from 1949 to 1992]. During that period the GATT became the WTO, and had to accommodate itself to a global reality where the rhetoric of free trade was greatly modified by each country building up defensive mounds of regulations that kept out many imports that other countries could offer them in greater quantity and of more sophisticated design than their own factories could produce; without imposing tariffs that openly breached WTO rules. When such rules failed, and a government wanted to exclude some import, they could - and did - simply impose 'extraordinary' tariffs, usually 'temporarily' to keep out the unwelcome export. That is what I have called point protectionism in this blog. The recent spat engineered in the USA by Boeing is merely one of thousands of examples.
If Boris Johnson and Liam Fox are such starry-eyed innocents that they believe that WTO Rules will be enough to ensure that the UK can make a safe transit into a post-EU trading world, they are profoundly dangerous.
Showing posts with label capitalist. Show all posts
Showing posts with label capitalist. Show all posts
Saturday, 30 September 2017
Thursday, 1 June 2017
Capital, Labour and Donald Trump
In the long history of political economy [the science that existed before Economics was invented] the starting-point for understanding the economy was recognition that there were three 'factors of production', three inputs that were necessary to achieve any output that was useful to [or desired by] the human race.
'Land' stands for all the resources of planet earth: the surface of the earth and everything that is on it, under it or capable of capture above it [such as birds].
'Capital' is all the output of past periods of time, that people hold back from consumption so that it can be used to facilitate production in future. This came to include tools, equipment and machinery and the buildings that house them, breeding stocks of animals, stores of seeds for future crops, and [after the invention of money] a stock of money that some people accumulated with which to employ people over time to produce output in the future. Those people became known as 'capitalists' because they became the controllers of a large proportion of the capital the any nation carried forward from each period into the next.
'Labour' is the capacity of humans to work physically and mentally to extract the materials of the earth [and, in the case of capitalists, to organise the activities of other humans] so that the product of successive years could increase: subject to the risks that can arise from climate, geology and human behaviour to disrupt a smooth process of wealth creation.
After the creation of human society and political entities, some of the risk that were assumed to exist for humans in a 'state of nature' were lessened by the system of law and order. Other risks, such as subjection to tyranny and the possibility of destruction in war, were inherent in society.
From the very beginning of political entities, the people who gained control of communities, of cities and of states recognised that they could achieve a good lifestyle for themselves, and acquire the means of influencing and dominating others, by controlling and exploiting exchanges between the common people. Governors facilitated trade by creating money; then creamed off taxes from markets where exchanges took place. In early stages of social sophistication it was recognised that if some people concentrated on activities in which they had special skills or experience, or access to knowledge that was denied to other people, they could specialise in a small range of production, maximise their output and exchange some of their produce with specialists in other fields. Thus specialisation and exchange developed together, and produced economic expansion; and if the government facilitated this process there would be even more available in taxes to make for a luxurious court and a powerful military resource.
By 1700 there was a considerable literature on political economy, especially in northern and western Europe; and among the writers there was a general assumption that a 'good' government facilitated production. It was also recognised that due to climatic and other factors, no country produced everything that would satisfy the wishes - the wants - of the people and their rulers. So international trade [or the development of colonies in different climatic and geological zones of the earth] should be facilitated: provided it increased the aggregate wealth of the nation. International exchanges that led to a loss of wealth to a country were to be prevented wherever possible; except where a short-term dependence on some import facilitated an accumulation of capital that would, over a series of future periods ensure an even greater national product.
These might seem to be arcane points in terms of the second decade of the twenty-first century: except that, just last year, a man was elected to the presidency of the United States who accepted pretty well the pure understanding of political economy that I have just summarised. This leaves open the question: was the invention of Economics - foreshadowed in Adam Smith's 1776 Inquiry into the Nature and Causes of the Wealth of Nations - an intellectual aberration that has dogged humanity for 250 years?
That is a question to which I will return; not least, as relief from the depressing daily news about the UK General Election.
'Land' stands for all the resources of planet earth: the surface of the earth and everything that is on it, under it or capable of capture above it [such as birds].
'Capital' is all the output of past periods of time, that people hold back from consumption so that it can be used to facilitate production in future. This came to include tools, equipment and machinery and the buildings that house them, breeding stocks of animals, stores of seeds for future crops, and [after the invention of money] a stock of money that some people accumulated with which to employ people over time to produce output in the future. Those people became known as 'capitalists' because they became the controllers of a large proportion of the capital the any nation carried forward from each period into the next.
'Labour' is the capacity of humans to work physically and mentally to extract the materials of the earth [and, in the case of capitalists, to organise the activities of other humans] so that the product of successive years could increase: subject to the risks that can arise from climate, geology and human behaviour to disrupt a smooth process of wealth creation.
After the creation of human society and political entities, some of the risk that were assumed to exist for humans in a 'state of nature' were lessened by the system of law and order. Other risks, such as subjection to tyranny and the possibility of destruction in war, were inherent in society.
From the very beginning of political entities, the people who gained control of communities, of cities and of states recognised that they could achieve a good lifestyle for themselves, and acquire the means of influencing and dominating others, by controlling and exploiting exchanges between the common people. Governors facilitated trade by creating money; then creamed off taxes from markets where exchanges took place. In early stages of social sophistication it was recognised that if some people concentrated on activities in which they had special skills or experience, or access to knowledge that was denied to other people, they could specialise in a small range of production, maximise their output and exchange some of their produce with specialists in other fields. Thus specialisation and exchange developed together, and produced economic expansion; and if the government facilitated this process there would be even more available in taxes to make for a luxurious court and a powerful military resource.
By 1700 there was a considerable literature on political economy, especially in northern and western Europe; and among the writers there was a general assumption that a 'good' government facilitated production. It was also recognised that due to climatic and other factors, no country produced everything that would satisfy the wishes - the wants - of the people and their rulers. So international trade [or the development of colonies in different climatic and geological zones of the earth] should be facilitated: provided it increased the aggregate wealth of the nation. International exchanges that led to a loss of wealth to a country were to be prevented wherever possible; except where a short-term dependence on some import facilitated an accumulation of capital that would, over a series of future periods ensure an even greater national product.
These might seem to be arcane points in terms of the second decade of the twenty-first century: except that, just last year, a man was elected to the presidency of the United States who accepted pretty well the pure understanding of political economy that I have just summarised. This leaves open the question: was the invention of Economics - foreshadowed in Adam Smith's 1776 Inquiry into the Nature and Causes of the Wealth of Nations - an intellectual aberration that has dogged humanity for 250 years?
That is a question to which I will return; not least, as relief from the depressing daily news about the UK General Election.
Saturday, 22 October 2011
Capital, Capitalism and Humanity
No economy can function without capital: buildings, utilities, transport facilities, machinery and the cash float that is necessary for any household or firm to operate. This fact was recognised early in human history, and by 1800 it had become part of a systematic theory of Political Economy as one of the 'Factors of Production': Land, Labour and Capital.
The young Doctor Karl Marx absorbed Political Economy and combined that with a voracious acquisition of facts, and believed that he had found a more profound truth. This was his perception that a class had emerged in the modern economy who were not any part of the ancient classes of people as they had become segregated by economic role and circumstances over the centuries: farmers, handicraft workers, landlords, soldiers, priests and civil servants. This class was the capitalists. Marx reckoned that this group collectively aimed to seize control of capital and use it for their own purposes rather than for the general good of humanity. He assumed that the capitalists would use the capital that they brought under their control to expand industrial production [including ultimately production on factory farms] and that this would be taken to extreme lengths. As industry expanded and machinery improved, output would increase; but then would occur a crisis. The capitalists would have expanded productive capacity to a point where there was not enough demand to meet the output. So the capitalists would cut costs and, as their priority was to carry on buying more more-intensive machinery, the obvious economy that they could make would be to reduce the cost of labour. Some workers would be sacked and the others offered lower wages: there would be plenty of unemployed available to take the jobs if the remaining workers would not accept the lowering of wages. Meanwhile the natural increase of population would produce large numbers of relatively healthy young people looking for work on any terms.
Marx presented capitalism as a machine that would inevitably generate excess production, lower living standards and create a growing 'reserve army of the unemployed'. This did not happen.
For a century and a half after Marx's death economic growth produced a diversification of products and a rising general living standard in the relatively free economies of Europe and the Americas. Owners of businesses accepted being known as capitalists, and there was a consensual acceptance of the term 'capitalism' to mean 'an economic order in which a least a major portion of industry and commerce belongs to companies and to individuals'. Meanwhile the Russian Empire was captured by revolutionaries who claimed to be Marxists [and whose dogmas spread to central Europe and China after the Second World War] and those people made a disastrous mess of managing their economy by authoritarian means that were asserted to be leading towards the blissful condition of 'communism' that Marx had envisaged. Largely because Marxism failed, the people in the [relatively] free countries accepted their environment being described as 'capitalist'. But the term capitalism has no clear meaning, other than the pejorative term that Marx coined .
The fact that the members of a 'capitalist' society have no clear understanding of what they mean by the term has had disastrous consequences. If there had been acceptance of a definition of 'good' capitalism as an economic system that recognises the importance of managing capital investment effectively the present economic crisis could not possibly have arisen. Individuals in their various roles as politicians, business leaders, investors, voters, workers, pensioners and consumers would have seen that the crazy combination of de-industrialisation with untrammelled credit-creation and house-price inflation that built up after 1980 was preventing a rational allocation of capital from taking place. The survivability of the economy was being undermined in an orgy of imported consumption funded by borrowed money. Financial phenomena - mostly invisible in the internet - absolutely dominated the economy: and the creators and managers of those phenomena included many of the brightest graduates in maths, science and engineering who could have used capital to lead into new worlds of physical output, energy generation and medical science.
It is precisely because politics and society allowed the economy not to be capitalist in any rational sense that the crisis now exists. It is not a 'crisis of capitalism': it is the consequence of the economy ceasing to be capitalist.
The young Doctor Karl Marx absorbed Political Economy and combined that with a voracious acquisition of facts, and believed that he had found a more profound truth. This was his perception that a class had emerged in the modern economy who were not any part of the ancient classes of people as they had become segregated by economic role and circumstances over the centuries: farmers, handicraft workers, landlords, soldiers, priests and civil servants. This class was the capitalists. Marx reckoned that this group collectively aimed to seize control of capital and use it for their own purposes rather than for the general good of humanity. He assumed that the capitalists would use the capital that they brought under their control to expand industrial production [including ultimately production on factory farms] and that this would be taken to extreme lengths. As industry expanded and machinery improved, output would increase; but then would occur a crisis. The capitalists would have expanded productive capacity to a point where there was not enough demand to meet the output. So the capitalists would cut costs and, as their priority was to carry on buying more more-intensive machinery, the obvious economy that they could make would be to reduce the cost of labour. Some workers would be sacked and the others offered lower wages: there would be plenty of unemployed available to take the jobs if the remaining workers would not accept the lowering of wages. Meanwhile the natural increase of population would produce large numbers of relatively healthy young people looking for work on any terms.
Marx presented capitalism as a machine that would inevitably generate excess production, lower living standards and create a growing 'reserve army of the unemployed'. This did not happen.
For a century and a half after Marx's death economic growth produced a diversification of products and a rising general living standard in the relatively free economies of Europe and the Americas. Owners of businesses accepted being known as capitalists, and there was a consensual acceptance of the term 'capitalism' to mean 'an economic order in which a least a major portion of industry and commerce belongs to companies and to individuals'. Meanwhile the Russian Empire was captured by revolutionaries who claimed to be Marxists [and whose dogmas spread to central Europe and China after the Second World War] and those people made a disastrous mess of managing their economy by authoritarian means that were asserted to be leading towards the blissful condition of 'communism' that Marx had envisaged. Largely because Marxism failed, the people in the [relatively] free countries accepted their environment being described as 'capitalist'. But the term capitalism has no clear meaning, other than the pejorative term that Marx coined .
The fact that the members of a 'capitalist' society have no clear understanding of what they mean by the term has had disastrous consequences. If there had been acceptance of a definition of 'good' capitalism as an economic system that recognises the importance of managing capital investment effectively the present economic crisis could not possibly have arisen. Individuals in their various roles as politicians, business leaders, investors, voters, workers, pensioners and consumers would have seen that the crazy combination of de-industrialisation with untrammelled credit-creation and house-price inflation that built up after 1980 was preventing a rational allocation of capital from taking place. The survivability of the economy was being undermined in an orgy of imported consumption funded by borrowed money. Financial phenomena - mostly invisible in the internet - absolutely dominated the economy: and the creators and managers of those phenomena included many of the brightest graduates in maths, science and engineering who could have used capital to lead into new worlds of physical output, energy generation and medical science.
It is precisely because politics and society allowed the economy not to be capitalist in any rational sense that the crisis now exists. It is not a 'crisis of capitalism': it is the consequence of the economy ceasing to be capitalist.
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