When the sys­tem col­lapses:

A post-cap­i­tal­ist cap­i­tal­ism?

AQ: Australian Quarterly - - CONTENTS - PROF STEVE KEEN

Paul Ma­son’s pop­u­lar 2015 book Post­cap­i­tal­ism be­gins with the provoca­tive claim that “for the de­vel­oped world the best of cap­i­tal­ism is be­hind us, and for the rest it will be over in our life­time”. 1 Two un­de­ni­able crises drove his con­vic­tion: the Global Fi­nan­cial Cri­sis (GFC) 2 that be­gan in 2008, and the eco­log­i­cal cri­sis of Global Warm­ing. But are these the only ex­is­ten­tial chal­lenges fac­ing cap­i­tal­ism, and are they singly or col­lec­tively suffi cient to take us into a so­ci­ety which is, in a fun­da­men­tal sense, post-cap­i­tal­ist?

This de­pends on your def­i­ni­tion of cap­i­tal­ism, and the term is so ide­o­log­i­cally laden that some pro­po­nents as­sert that cap­i­tal­ism has al­ways ex­isted – be­cause there have al­ways been mar­kets – while oth­ers ar­gue that it has never ex­isted – be­cause there has al­ways been gov­ern­ment.

Leav­ing aside both ex­tremes of the Loony Right, in the con­text of this ar­ti­cle I will de­fine cap­i­tal­ism as a so­cial,

pro­duc­tion and mone­tary sys­tem where the profit mo­tive is dom­i­nant, whose ide­ol­ogy is pro-mar­ket (and broadly anti-gov­ern­ment), where most of the means of pro­duc­tion are owned by in­di­vid­u­als (cap­i­tal­ists) rather than the State, where fi­nance and money cre­ation are also pre­dom­i­nantly pri­vate, where the power of cap­i­tal­ists and fi­nanciers to man­age their busi­nesses and per­sonal af­fairs is only lightly lim­ited by the State (while also strongly en­forced by it), and where the non­cap­i­tal­ist ma­jor­ity of the pop­u­la­tion are de­pen­dent on work­ing for cap­i­tal­ists for a liv­ing.

Given that def­i­ni­tion, I agree with Ma­son that there will be a postCap­i­tal­ist so­ci­ety, be­cause of these two crises and one other: the near-elim­i­na­tion, in the same fore­see­able fu­ture, of the need to em­ploy all but the most highly skilled labour to pro­duce goods, and al­most all ser­vices.

Bank lend­ing cre­ates money, and the re­pay­ment of bank debt, or the fail­ure to do so through bank­ruptcy, de­stroys money.

Stran­gled by debt

In Can we avoid an­other fi­nan­cial cri­sis? 3 I show that (con­trary to con­ven­tional eco­nomic think­ing), credit is a sig­nif­i­cant com­po­nent of ag­gre­gate de­mand, and that a col­lapse in credit in the USA, UK and much of Europe caused the GFC.

Main­stream econ­o­mists were caught com­pletely un­awares by this cri­sis, since their macroe­co­nomic model pre­tends that credit plays no role in de­mand. In their model, bor­row­ing sim­ply trans­fers spend­ing power from saver to bor­rower, with­out sig­nif­i­cantly al­ter­ing it in the ag­gre­gate.

This model, called “Loan­able Funds”, pre­tends that banks do not orig­i­nate loans, but in­stead act as go-be­tweens be­tween savers and bor­row­ers, and profit on the spread be­tween loan and de­posit rates of in­ter­est (I par­ody this as the ‘Ash­ley Madi­son model of bank­ing’).

The non-main­stream band of econ­o­mists to which I be­long, have been call­ing this out as non­sense for al­most 40 years, to no avail – un­til the GFC. But since then, Cen­tral Banks have started to pro­claim that we are in fact cor­rect, and the con­ven­tional model of lend­ing is wrong: banks do orig­i­nate loans, and these loans cause a pre­cisely equal in­crease in the money sup­ply. Bank lend­ing cre­ates money, and the re­pay­ment of bank debt, or the fail­ure to do so through bank­ruptcy, de­stroys money.

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I’ve taken this logic one step fur­ther to show that, since peo­ple bor­row in or­der to buy both goods and ser­vices and as­sets, ag­gre­gate de­mand is the sum of the turnover of ex­ist­ing money, plus the change in bank debt, which is iden­ti­cal to – and causes – the credit-driven change in the money sup­ply.

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From this per­spec­tive, un­der­stand­ing pri­vate debt and credit is cru­cial to un­der­stand­ing cap­i­tal­ism, since credit is both a sig­nif­i­cant and highly volatile com­po­nent of ag­gre­gate de­mand. Just as us­ing your credit card in­creases what you can spend over and above your in­come, at the level of the na­tional econ­omy, credit in­creases de­mand over and above what it would be if only ex­ist­ing money could be used for spend­ing.

It is also much more volatile too: your credit card debt can go up much faster than your in­come is likely to rise. And fi­nally, just as your spend­ing will drop well be­low your in­come if you de­cide you have to pay your credit card down, credit can turn neg­a­tive at the level of the whole econ­omy, re­duc­ing de­mand sud­denly as it did back in 2008 in many coun­tries struck by the GFC. Aus­tralia only man­aged to avoid a cri­sis be­cause it con­tin­ued to ‘max out its credit card’, and it now has one of the three high­est lev­els of house­hold debt ever recorded (only Switzer­land has more now, and only Den­mark has ever had more house­hold debt com­pared to GDP than Switzer­land).

Credit-based de­mand there­fore has the draw­back that it can in­crease the debt bur­den on the econ­omy as it si­mul­ta­ne­ously boosts cur­rent de­mand.

Banks thus have enor­mous power in cap­i­tal­ism, but this power does not re­quire any par­tic­u­lar skill: their ca­pac­ity to cre­ate money is sim­ply a by-prod­uct

In macro­eco­nomics, ag­gre­gate de­mand is the to­tal de­mand for fi­nal goods and ser­vices in an econ­omy at a given time. – from Wikipedia

of both dou­ble-en­try book­keep­ing, and be­ing granted a bank­ing li­cence by the State.

A non-bank fi­nan­cial in­sti­tu­tion (like a credit union) can’t cre­ate money, be­cause it is only al­lowed to lend from a de­posit ac­count that it holds with a bank. Its lend­ing thus shuf­fles de­posits from one li­a­bil­ity ac­count of a bank (its own de­posit ac­count) to an­other (the bor­rower’s at the credit union), with­out cre­at­ing money. Any in­crease in ag­gre­gate de­mand that such a loan gen­er­ates is due sim­ply to dif­fer­ences in how fast the bor­rower spends rel­a­tive to the lender.

A bank­ing li­cence, on the other hand, al­lows a bank to cre­ate an As­set on its ledger—the debt of the bor­rower to the bank, and thus its claim on the fu­ture in­come of the bor­rower—and a match­ing Li­a­bil­ity (the de­posit ac­count of the bor­rower) si­mul­ta­ne­ously. This al­lows it to cre­ate money (which to­day over­whelm­ingly takes the form of bank de­posits).

Call­ing this process ‘lend­ing’ is a mis­nomer, since lend­ing im­plies a trans­fer from one stash of cash to an­other. But there is no ac­count from which banks trans­fer ‘their’ money to the bor­rower: in­stead they cre­ate the money and the debt si­mul­ta­ne­ously.

To coin an acro­nym, bank ‘lend­ing’ is not lend­ing, but ‘Bank Orig­i­nated Money and Debt’ (BOMD).

A bank­ing li­cence is thus a so­cially granted priv­i­lege, and it should be used both wisely, and in the in­ter­ests of the body politic that granted it. Of course,

Aus­tralia only man­aged to avoid a cri­sis be­cause it con­tin­ued to ‘max out its credit card’, and it now has one of the three high­est lev­els of house­hold debt ever recorded.

To coin an acro­nym, bank ‘lend­ing’ is not lend­ing, but ‘Bank Orig­i­nated Money and Debt’ (BOMD).

the op­po­site has hap­pened world­wide.

As Marx put it so evoca­tively over a cen­tury ago:

Talk about cen­tral­i­sa­tion! The credit sys­tem, which has its fo­cus in the so-called na­tional banks and the big money-lenders and usurers sur­round­ing them, con­sti­tutes enor­mous cen­tral­i­sa­tion, and gives this class of par­a­sites the fab­u­lous power, not only to pe­ri­od­i­cally de­spoil in­dus­trial cap­i­tal­ists, but also to in­ter­fere in ac­tual pro­duc­tion in a most dan­ger­ous man­ner—and this gang knows noth­ing about pro­duc­tion and should have noth­ing to do with it. 7

Bank money cre­ation has shifted from fund­ing the work­ing cap­i­tal and in­vest­ment needs of busi­ness and the large-item con­sump­tion needs of house­holds, to fi­nanc­ing as­set spec­u­la­tion pure and sim­ple.

This spec­u­la­tion has in turn driven as­set prices up in a pos­i­tive-feed­back loop, lead­ing to vastly over-in­flated as­set prices, and a level of pri­vate debt which is un­prece­dented in the his­tory of cap­i­tal­ism.

The GFC was caused by a col­lapse in credit-based de­mand, at a time when the level of pri­vate debt (rel­a­tive to GDP) was al­ready at these his­toric highs. Coun­tries which had a cri­sis then suf­fered a se­ri­ous down­turn when credit turned neg­a­tive.

In the USA’S case, credit, which had never been neg­a­tive since 1950, went from plus 15% of GDP in 2008 to mi­nus 6% in 2010. This caused only a slight fall in pri­vate debt, from a peak of 170% of GDP in 2009, to 146% in 2014. It has since started to rise again, and is now 150% of GDP.

Coun­tries that also had high lev­els of debt and credit but avoided a cri­sis then (like Aus­tralia) did so by pre­vent­ing credit from turn­ing neg­a­tive. Credit in Aus­tralia peaked at 24% of GDP in 2007, but did not turn neg­a­tive (as it had back in 1992 dur­ing Keat­ing’s “Re­ces­sion we had to have”). Con­tin­ued pos­i­tive credit drove Aus­tralia’s pri­vate debt to GDP

The only es­cape from a debt cri­sis is to write off the debt. But...politi­cians have en­forced cred­i­tors’ rights over debtors, lead­ing to a stag­nant global econ­omy.

ra­tio up from 190% of GDP when the GFC hit to a peak of 206% of GDP in mid-2016.

Credit, though still pos­i­tive, is now fall­ing in Aus­tralia, and in many other coun­tries that con­tin­ued bor­row­ing their way to ap­par­ent pros­per­ity dur­ing and af­ter the GFC. They will have re­ces­sions when credit turns neg­a­tive in the next few years, and when this hap­pens, of the or­der of 50% of the global econ­omy will be­come what I have termed the “Walk­ing Dead of Debt”.

As the US banker-turned-phi­lan­thropist Richard Vague has shown by ex­am­in­ing the roughly 150 credit crises that have oc­curred over the last 1.5 cen­turies, the only es­cape from a debt cri­sis is to write off the debt. But the

8 po­lit­i­cal power of banks has in­stead

meant that politi­cians have en­forced cred­i­tors’ rights over debtors, lead­ing to a stag­nant global econ­omy.

We there­fore face two dis­tinctly non­cap­i­tal­ist prospects: either per­ma­nent eco­nomic im­pov­er­ish­ment by debts that, to quote Michael Hud­son ‘can’t be re­paid’ and there­fore ‘won’t be re­paid. This would sap the eco­nomic dy­namism that has been cap­i­tal­ism’s main bul­wark against ide­o­log­i­cal crit­i­cism.

The other op­tion is a ‘Mod­ern Debt Ju­bilee’, which could use the State’s sim­i­lar ca­pac­ity to cre­ate money to can­cel pri­vate debt.

My money, if you’ll par­don the pun, is on the for­mer out­come: our politi­cians will tol­er­ate stag­na­tion rather than chal­lenge the power of the banks. But I ex­pect their hand will be forced by the sec­ond ex­is­ten­tial chal­lenge to cap­i­tal­ism: the eco­log­i­cal dam­age that in­dus­trial so­ci­ety has wrought on the planet.

Choked by Car­bon

Eco­log­i­cal Lud­dites like Trump and Tony Ab­bott aside, the ma­jor­ity of the pop­u­la­tion is at least aware that in­dus­trial pro­duc­tion has dras­ti­cally in­creased the level of CO2 in the at­mos­phere, and that this is driv­ing an in­crease in the planet’s tem­per­a­ture. If the cur­rent trend in over-pro­duc­tion of CO2 con­tin­ues, then by 2075 – within the life­times of many of those alive to­day – the level of CO2 in the at­mos­phere will have dou­bled com­pared to its prein­dus­trial norm of 280 parts per mil­lion.

This trend could be ended by a largescale switch to non-car­bon-burn­ing en­ergy sources, and so­lar power is rapidly be­com­ing cost-com­pet­i­tive with fos­sil-fuel power. But the odds of avoid­ing 500 ppm ap­pear slight, and we are still left with a residue of CO2 in the at­mos­phere that will take cen­turies to re­duce by nat­u­ral pro­cesses alone.

While these bare bones are ac­knowl­edged by most peo­ple, I don’t be­lieve that they com­pre­hend the scale of the threat posed by the im­pact of hu­man pro­duc­tion sys­tems on the planet’s ecosys­tem. The ac­tual threats are not my area of aca­demic ex­per­tise, but a more-than-lay­man’s in­ter­est in this is­sue has made me aware that, on cur­rent trends, the likely in­crease in tem­per­a­ture from sus­tained global warm­ing is per­haps three times the 2-de­gree in­crease that limp treaties like the Paris Ac­cords por­tray as re­al­is­tic; that we will also se­ri­ously de­plete the planet’s top­soil within 50 years; and that we are ef­fec­tively min­ing the planet’s ca­pac­ity to sup­port life, since at present hu­man pro­duc­tion and con­sump­tion alone uses 1.6 times the bio­sphere’s ca­pac­ity to re­gen­er­ate it­self (see the Hu­man Eco­log­i­cal Foot­print: https://www.foot­print­net­work.org/).

At some stage, eco­log­i­cal crises that even Trump and Ab­bott can’t deny – or

Labour with­out en­ergy is a corpse; a ma­chine with­out en­ergy is a sculp­ture. The real source of the phys­i­cal out­put hu­man so­ci­ety gen­er­ates is nei­ther labour nor ma­chin­ery, but en­ergy.

blame on Rus­sia or “Maaarx­ists” (to re­pro­duce both Tony’s favourite bo­gey men, and his nasal 'drawl')– will force us to re­alise that we have to re­spond to global warm­ing as Churchill once re­sponded to the chal­lenge of the Third Reich – by declar­ing WWIII on cli­mate and bio­sphere de­struc­tion.

When that day ar­rives, so will State­dom­i­na­tion of both con­sump­tion and pro­duc­tion: cap­i­tal­ism will give way to a State-di­rected econ­omy as it did dur­ing WWII, fi­nanced by gov­ern­ment money cre­ation—as in WWII, when the UK gov­ern­ment’s spend­ing ex­ceeded tax­a­tion by as much as 40% of GDP in 1940. Ra­tion­ing will limit con­sump­tion, and State-man­aged at­tempts to di­rectly re­duce CO2 in the at­mos­phere and seas will re­place mar­ket-di­rected cap­i­tal­ist pro­duc­tion.

Though pri­vate en­trepreneurs may well de­sign and build many of the sys­tems that will ex­tract CO2 from the at­mos­phere, there will not be a mar­ket-based so­lu­tion to our over-ex­ploita­tion of the planet’s bio­sphere.

If we sur­vive that chal­lenge and live, as a species and a civil­i­sa­tion on this planet, then our post-cli­mate-war so­ci­ety will face a third chal­lenge: man­ag­ing the dis­tri­bu­tion of the fruits of pro­duc­tion in a world where not just the work­ing class, but even the mid­dle class, is no longer nec­es­sary for pro­duc­tion.

Ob­so­les­cence of the work­ing class

One point where I strongly dif­fer from Ma­son is on the role of labour in cap­i­tal­ism. Ma­son cham­pi­ons the Labour The­ory of Value (LTV) as the an­a­lyt­i­cal means by which to un­der­stand the evo­lu­tion of cap­i­tal­ist so­ci­ety. I long ago ar­gued that Marx’s di­alec­ti­cal phi­los­o­phy in fact con­tra­dicted the pri­mary claim of this the­ory, that all sur­plus arises from labour. But in the

9,10

con­text of this es­say, the main fal­lacy of the LTV (and Neo­clas­si­cal the­ory as well) is that it pre­tends that out­put can be pro­duced by labour and cap­i­tal alone.

Put sim­ply, this premise con­tra­dicts Laws of the Uni­verse that can­not be dis­obeyed: the Laws of Ther­mo­dy­nam­ics. Noth­ing can be

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pro­duced with­out en­ergy, and the very idea of labour and ma­chin­ery with­out en­ergy does not make sense: labour with­out en­ergy is a corpse; a ma­chine with­out en­ergy is a sculp­ture. The real source of the phys­i­cal out­put hu­man so­ci­ety gen­er­ates is nei­ther labour nor ma­chin­ery, but en­ergy.

Labour and ma­chin­ery are of course crit­i­cal to ex­ploit­ing this en­ergy, but rather than be­ing the source of value, they are the means by which we har­ness the en­ergy we al­ready

find in the uni­verse (the First Law of Ther­mo­dy­nam­ics) to con­vert part of it into use­ful work. Part is also con­verted into waste en­ergy (and waste mat­ter), and in the ag­gre­gate the in­crease in dis­or­der (pol­lu­tion and en­ergy degra­da­tion) must ex­ceed the re­duc­tion in dis­or­der that turns raw ma­te­ri­als into fin­ished goods (the Sec­ond Law of Ther­mo­dy­nam­ics).

As a poly­math, Marx was aware of the early work on Ther­mo­dy­nam­ics, and ac­knowl­edged this in Cap­i­tal:

“Cre­ation of value is trans­for­ma­tion of labour-power into labour. Labour-power it­self is en­ergy trans­ferred to a hu­man or­gan­ism by means of nour­ish­ing mat­ter.”

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[Em­pha­sis added]

But he never con­sid­ered the im­pli­ca­tion that ma­chines also har­ness en­ergy and con­vert this into use­ful work, thus con­tra­dict­ing a key com­po­nent of the Labour The­ory of Value, that ma­chines only add to out­put what they lose in de­pre­ci­a­tion.

Labour of course played a huge and di­rect role in the con­ver­sion of en­ergy into use­ful work in early hu­man so­ci­eties, and har­ness­ing that en­ergy ini­tially in­volved ex­ploit­ing our fel­low hu­mans (and do­mes­ti­cated an­i­mals) very di­rectly in slav­ery. Then, the caloric work ca­pac­ity of labour was the dom­i­nant fac­tor in de­ter­min­ing the ca­pac­ity to pro­duce out­put.

But as our tech­nol­ogy (it­self the prod­uct of hu­man in­ge­nu­ity) im­proved, the com­par­a­tively puny en­er­gypro­cess­ing power of hu­mans (the av­er­age un­skilled worker’s use­ful en­ergy out­put is slightly less than that of a 100 Watt in­can­des­cent light bulb) gave way to the ex­po­nen­tially in­creas­ing en­ergy pro­cess­ing ca­pac­ity of our ma­chin­ery.

Labour’s role be­came con­trol­ling the ma­chines, rather than di­rectly con­vert­ing its own sur­plus calo­ries into use­ful work. The source of the in­crease in ma­te­rial pros­per­ity over the last quar­ter mil­len­nium has there­fore been, not ex­ploita­tion of labour, but the ex­ploita­tion of what Buck­min­ster Fuller termed ‘en­ergy slaves’.

Now our pro­duc­tion tech­nol­ogy – which the in­ven­tive­ness of hu­man brains cre­ates, but which only re­sults in pro­duc­tion once that in­ven­tive­ness is em­bod­ied in ma­chines – is de­vel­op­ing ma­chines with the ca­pac­ity to man­age them­selves.

The days of un­skilled labour as nec­es­sary to pro­duc­tion are se­verely num­bered, and even rel­a­tively high level (though not truly in­no­va­tive) skilled labour can and will be re­placed by al­go­rithms (even if we never do pro­duce true AI). The vast ma­jor­ity of the pop­u­la­tion will there­fore not be needed to pro­duce out­put, and labour’s ca­pac­ity to bar­gain for a share in out­put via the need for un­skilled

Ma­te­rial pros­per­ity over the last quar­ter mil­len­nium has there­fore been, not ex­ploita­tion of labour, but the ex­ploita­tion of what Buck­min­ster Fuller termed ‘en­ergy slaves’.

and semi-skilled work­ers to con­trol the ma­chines will dis­ap­pear.

There are two sce­nar­ios for such a world: a dys­func­tional Hunger Games world in which a wealthy mi­nor­ity en­joy vast wealth while the rest live in poverty if they live at all, or a hope­fully less dys­func­tional world where in­come for the vast ma­jor­ity is not de­pen­dent on their con­tri­bu­tion to out­put. A Uni­ver­sal Ba­sic In­come, rather than a wage, would need to be­come the pri­mary source of in­come for non-cap­i­tal­ists.

A Post-cap­i­tal­ist Cap­i­tal­ism

If we sur­vive these three ex­is­ten­tial threats, then this post-cap­i­tal­ist world will be a so­cial, pro­duc­tion and mone­tary sys­tem where the profit mo­tive is sub­servient to an eco­log­i­cal im­per­a­tive to re­store the bio­sphere af­ter the enor­mous dam­age we have done to it. The ide­ol­ogy will be Gaia first13 and mar­ket sec­ond, and broadly pro-gov­ern­ment be­cause of its role in har­ness­ing our re­sources to re­store the bio­sphere. The means of pro­duc­tion and en­vi­ron­men­tal reg­u­la­tion will be owned equally by in­di­vid­u­als and the State, and fi­nance and money cre­ation will be both pri­vate and pub­lic. The power of cap­i­tal­ists and fi­nanciers to man­age their busi­nesses and per­sonal af­fairs will be strongly lim­ited by the State to pre­vent fu­ture eco­log­i­cal dam­age, and the non-cap­i­tal­ist ma­jor­ity of the pop­u­la­tion re­ceive their in­come from the State via a Uni­ver­sal Ba­sic In­come.

Such a so­ci­ety will clearly be post-cap­i­tal­ist, but it will still be cap­i­tal­ist at the same time. The great ad­van­tage of cap­i­tal­ism over all pre­vi­ous large scale so­cial sys­tems, is that it en­cour­ages in­no­va­tion, far more ef­fec­tively than did slave, feu­dal and so­cial­ist economies.

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We need the in­her­ent dy­namism that the profit mo­tive gives cap­i­tal­ism but the days of un­con­strained mar­ket ide­ol­ogy that al­lows cap­i­tal­ists to pri­va­tise their prof­its and so­cialise their losses will be over.

The great ad­van­tage of cap­i­tal­ism over all pre­vi­ous large scale so­cial sys­tems, is that it en­cour­ages in­no­va­tion, far more ef­fec­tively than did slave, feu­dal and so­cial­ist economies.

This post- cap­i­tal­ist world will be a so­cial, pro­duc­tion and mone­tary sys­tem where the profit mo­tive is sub­servient to an eco­log­i­cal im­per­a­tive.

IM­AGE: © @sageso­lar-in­sta­gram

IM­AGE: © Mike Licht-flickr

IM­AGE: © By Stro­bridge & Co. Lith

IM­AGE: © aisletwen­tytwo-flickr

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IM­AGE: © Eva k-flickr

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