critisticuffs.org

A Companion to David Harvey's Companion to Marx' Capital, Chapter 1

Wed, 29 Jul 2026 20:08:22 +0000

Listen to the Auxiliary Statements podcast where we discuss this text

Introduction

David Harvey is the dominant commentator on Capital¹ in English. Many Capital reading groups use his video lectures or his book – A Companion to Marx’ Capital² – as a guide. Capital can be a daunting book and David Harvey’s commentaries have encouraged many to pick it up and work through it. This, in principle, is a valuable project as much can be learned about the world we are forced to live in from that old book.

The authors of this text, too, have recently spent time reading Capital. During the course of our engagement with Capital we found problems with David Harvey’s Companion and with the account it gives of Capital. It is important to highlight these problems not because they misrepresent Marx – although this is often the case – but because David Harvey’s account in A Companion does not adequately explain the commodity, money and capital; in short capitalism. As a consequence, the solutions he suggests to the misery around us do not offer any way out but presuppose the social relations that produce this misery.

As an example for such an attempt at a solution, we look at David Harvey’s more recent suggestion for an alternative form of money: oxidisable money, which he argues would prevent the accumulation of social power. This view on money stands in direct opposition to what can be learned from Capital about what money and value are, as well as to Marx’s view on the matter of alternative monies.³ In this article we will show that this opposition stems from David Harvey’s misunderstanding of one of the most fundamental categories of political economy: abstract labour, the labour that produces value. We will hence look at and explain what Marx says about abstract labour in chapter 1 and contrast it with Harvey’s commentary on it. We then move on to Harvey’s recent proposal for a new money and show that it is based on an appreciation of commodity circulation and production, i.e. the conditions under which labour is expressed in value. Finally, we critique David Harvey’s account of the fetish-like character of the commodity.

There is more to critique about A Companion than what we deal with here: Harvey’s tendency to turn Capital into an enigma full of “cryptic assertions” and “a priori leaps”, his advise to look out for specific words without explaining why, his tendency to talk about entirely different points instead of what is in front of us⁴ and his tendency to discuss processes, movement and pattern of arguments instead of explaining the specific argument about the actual process of movement he is commenting on. While all these limit the usefulness of A Companion as a guide to reading Capital, our focus shall be on A Companion’s economic content and how it relates to the content of chapter 1 of Capital.

Chapter 1, section 1: use-value, exchange-value, value

In order to understand how A Companion fails to critique capitalism correctly, it is helpful to look at Harvey’s summary of the argument in Capital up to the point at which the first fundamental mistake occurs. For readers unfamiliar with Capital (or with Harvey’s commentary on it) hopefully this will make Marx’s argument in the first few pages of Capital sufficiently clear to enable a move on to where A Companion begins to depart from Marx.

Below is an extract from A Companion in which Harvey summarises Marx’s argument as he has thus far explained it. We’ve split up what Harvey says to allow us to add our own comments following each bit of Harvey.

The story so far is roughly this: Marx declares that his aim is to uncover the rules of operation of a capitalist mode of production. He starts with the concept of the commodity and immediately establishes its dual character: use-value and exchange-value.

A Companion, p.25

As David Harvey mentions, a commodity is something which is both useful (i.e. can be used) and saleable. A commodity must have both of these qualities. Something that is not useful cannot be sold: a cheese which has gone off cannot be sold. The opposite is also true – a commodity that is not sold cannot be used: unsold food is thrown into locked skips.

Since use-values have been around forever, they tell us little about the specificity of capitalism.

A Companion, p.25

People cultivated grapes and made wine, long before they made wine in order to sell it. In every society, people make use of things which they have produced. Consideration of their useful qualities in general can therefore not help us to understand the specificity of the commodity.

So Marx puts them aside in order to study exchange-values. The exchange ratios between commodities at first appear accidental, but the very act of exchange presupposes that all commodities have something in common that makes them comparable and commensurable. This commonality, Marx cryptically asserts, is that they are all products of human labor.

A Companion, p.25

When we only consider one kind of commodity exchanging for another kind, then the rate at which it exchanges appears as accidental.⁵ So a bottle of a certain wine exchanges for three pieces of a particular type of smelly cheese. The exchange value of any one bottle of that wine is any three of those smelly cheeses. What does this tell us about the exchange value of the wine? It means the wine can be used as a resource to access a certain number of those cheeses. Marx comments that the ratio can in any event vary from place to place and over time – perhaps in another place I can get four cheeses for my wine or perhaps last year I got only two cheeses. If we just consider this relationship as between two particular commodities it can appear accidental. The variability of the proportion in which wine exchanges for cheese makes it seem as if the fact that this exchange is possible has nothing to do with some intrinsic property of the wine.

However, in principle every commodity can be exchanged for every other commodity. The wine can be used not just to get cheese – in other words, as a cheese access resource – but also, in sufficient quantity, as an access resource to anything else – pears, copies of Capital, iPhones. There is a social system in place that allows all commodities to be exchanged. Anything made by one producer can in principle be exchanged (used as a means of access) for anything made by another producer. The fact that bottles of wine have the quality that, in the appropriate number, they can be exchanged for any other commodity is clearly revealed not as a specific characteristic of the wine in relation to cheese but as a general characteristic of wine in relation to all other things produced. Wine has this characteristic of general exchangeability, of being an access resource to social wealth: it is value. The variability of the proportions in which it exchanges does not change this – exchangeability as such remains regardless of such fluctuations. Furthermore, what applies to wine also applies to cheese, pears, copies of Capital, iPhones and any other commodity: they, too, are access resources to social wealth, exchangeable, value.

From where does this general quality of exchangeability come from and why is it related to human labour as “Marx cryptically asserts”?

For useful things to have the quality that they can be used as an access resource to other commodities, there must be a division of labour: so that some people make some of the things needed and others make other things. That division of labour means people produce for each other and hence are dependent on each other for the satisfaction of their needs.

But for objects to be value more is necessary. Unlike the preceding requirement, this requires a particular form of social organisation: useful things have to be produced privately; what is produced is private property. That is, the producers exclude others from the things they own through the institution of private property.⁶ Hence, even though producers are dependent on each other they exclude each other from their products. The mutual dependence that arises due to the division of labour can thus be taken advantage of: owners of commodities can use other people’s need for what they have, as a means to force them to part with their property. Exchangeability or the fact that commodities are access resources to social wealth thus rests on the mutual and general exclusion from social wealth.⁷

But the ability – guaranteed by the law, i.e. the state – to exclude others from your products does not in itself compel them to part with their property in exchange. That piece of property which one lays claim to must take effort to produce it. The final necessity is that the production of useful things requires human effort.⁸ If it was possible to produce something without any effort then it could not be used as a means in this way (no one sells the air).⁹

The reason commodities are produced is to become access resource or power of access to social wealth, and being useful is only a necessary condition, rather than its purpose. The purpose of cheese-making is to produce commodities which can be exchanged. This implies a whole society organising its production for exchange rather than for needs. If you are a cheese-maker, other people’s hunger is just a means to being able to exchange your cheese, since your main concern is to validate your cheese as social wealth. For this you need to find people able to buy your cheese, and convince them that your cheese is worth exchanging for; only then will you be given access to the wealth produced in society.¹⁰

You coerce others through their needs to get what you need. It is a mutually antagonistic dependency. We are dependent on each other to produce the things we need – I need you to produce cheese to satisfy my hunger – yet our interests are in opposition to one another: I need you to need my wine, so that I can use it as a lever to access your cheese. It is production for each other organised as competition against each other.

Thus, in order for commodities to be bearers of exchange-value – to be value – a particular social system is required. In this system human labour is performed in order to produce private property – a bit of social wealth as such. This private property is used as a lever to exploit the needs of others in order to gain access to social wealth.

Abstract labour

Now that we have gained a bit of context, let us find the passage where Marx first talks about abstract labour – the fundamental concept we claim David Harvey fails to understand – and contrast it with the commentary in A Companion.

If we make abstraction from its use-value, we abstract also from the material constituents and forms which make it a use-value. It is no longer a table, a house, a piece of yarn or any other useful thing. All its sensuous characteristics are extinguished. Nor is it any longer the product of the labour of the joiner, the mason or the spinner, or of any other particular kind of productive labour. With the disappearance of the useful character of the products of labour, the useful character of the kinds of labour embodied in them also disappears; this in turn entails the disappearance of the different concrete forms of labour. They can no longer be distinguished, but are all together reduced to the same kind of labour, human labour in the abstract.

Capital, p.128

Both wine and cheese are exchangeable and this is founded on them both being products of labour, it takes effort to make them which allows them to be used as levers. Their exchangeability is not a quality of their specific physical bodies: one is liquid the other is solid. Put another way: when two commodities are equated in exchange, the point is that they are different.¹¹ But in the act of exchange, all their differences are abstracted away, so that all that we have left is their value. The labour that produced them is thereby transformed: It is not cheese-making or wine-making, but simply human labour as such, abstracted from its specific form, that counts and that constitutes value. This is not merely an intellectual exercise, but rather an abstraction that is made in practice when commodities are exchanged. What constitutes wealth in this society is the purely negative characteristic of labour, pure toil, effort, “expenditure of human brains, muscles, nerves, hands etc.”¹² – in short, abstract labour – and not that it produces all the useful things that we like and need to consume – that is only a condition.

Harvey offers the following commentary on this passage:

But, he [Marx] then immediately asks, what kind of human labor is embodied in commodities? It can’t be the actual time taken – what he calls the concrete labor – because then the longer taken to produce the commodity, the more valuable it would be. Why would I pay a lot for an item because somebody took a long time making it when I can get it at half the price from somebody else who produced it in half the time? So, he concludes, all commodities are “reduced to the same kind of labour, human labour in the abstract”.

A Companion, p.18

This commentary fails to engage with the quote it is commenting on. Let us explain.

Quality and quantity

Firstly, notice how “kind of human labor” becomes “time taken”. A Companion immediately jumps to the quantitative determination of labour, whereas Marx is discussing its quality. Harvey talks about “how much” – magnitude – without establishing how much “of what”. But the quality – “what is it?” – is what is being investigated here. It is as if David Harvey’s companion finds nothing noteworthy to explain about abstract labour, as if his only concern is how much of it there is.

Substance of value: congealed abstract labour

However, A Companion does not only neglect to discuss abstract labour, the example “why … pay a lot for an item … when I can get it at half the price” talks about a different point entirely. When you shop around for a chair you are not abstracting away its use-value: you need an object that you can sit on comfortably. You are also therefore looking for a skilled chair-maker who sells the chair cheaply. What Marx is talking about here is all the different types of products of labour and the labours which produce them being abstracted, equated and confronted by the act of exchange: cheese, wine and every other product is equated to chairs when the chair-maker sells her chair. They are certainly not the same thing and they are also the products of very different kinds of labour: cheese-making, wine-making and chair-making. Yet, insofar as value is concerned, they count as the same. But A Companion ignores that the products of cheese-making are equated with the products of wine-making.

In this society production is for each other, but the standard is not merely whether the other party needs a use-value but this use-value is to be used as a lever to gain access to social wealth. A lever whose force is as big as the amount of effort it generally takes to produce that use-value – I can demand social wealth in exchange for my product because it takes effort and others need it.¹³ You need my cheese but my cheese is my means to gain access to social wealth from which I am otherwise excluded. I can demand said access when my cheese counts as social wealth (i.e. finds effective demand). For this it does not matter if I make cheese or wine, but merely that it takes effort. Labour is not performed to merely produce use-values but to produce a bit of social wealth, to count as a part of social labour. Only under these social conditions does the fact that labour is effort assert itself as a quality of the products of labour: value.

Economic laws and common sense

But because A Companion does not ask “what is abstract labour?”, it also fails to explain how the magnitude of value is established. That is, posing the question “why would I pay more?” as a way to begin explaining the magnitude of value will not allow one to explain it. Fair enough, David Harvey does not want to pay twice as much, but why is this standpoint valid? Why can he pay less? Why can the slower chair-maker not assert that she worked all day on her chair and demand enough money in return to reproduce herself? Why is her standpoint not valid but the buyer’s standpoint? Why is the buyer’s standpoint to demand a cheap price only valid when a second producer managed to produce faster? This is what Marx explains when he discusses the magnitude of value – socially necessary labour-time – but the reduction of this discussion to the common sense standpoint of the shopper in A Companion removes all explanatory content: it argues with economic rationality based on the economic laws of this society without explaining what these laws are.

Socially necessary labour-time and productivity of labour

The observation “I can get it at half the price from somebody else who produced it in half the time” is the fact that needs to be explained as opposed to be used as an explanation itself.

Assume two chair-makers with different productivity levels. Chair-maker Alice makes twice as many chairs as chair-maker Bob in the same time. Alice may be prepared to accept a bit less in exchange for her chairs than Bob, underbidding him to ensure she exchanges all her chairs. As a result Bob might fail to exchange his chairs for sufficient stuff to allow him to reproduce himself, ruining him. As Alice’s level of productivity generalises, what she can get for her chairs drops to the newly established level of socially necessary labour-time: if one branch of industry lives it up earning much with little labour, other producers will switch into that branches of industry heating up competition there, driving down the exchange ratios of, say, chairs in their ruinous competition.

All this presupposes that Alice competes against Bob to attract effective demand, in David Harvey’s example his effective demand for a chair. This is a quite particular social relation. From the point of view of consumption, if 10kg of cheese have been produced, all that matters is whether it is smelly enough or not. If there is not enough cheese there is not enough cheese and more needs to be produced. However, in this society, if for some reason you were not able to produce as much cheese as usual or as others, you are also excluded from wine, iPhones etc. Furthermore, if the productivity of labour of chair-making doubles more chairs are produced in the same time. From the standpoint of consumption, two chairs sit more people than one, so wealth did increase. From the standpoint of commodity production the same amount of effort was expended so wealth did not increase. Finally, in this society, if my cheese does not count as social wealth – i.e. finds no purchaser – all my labour was in vain.¹⁴ I might have produced at the normal productivity level, it is just that too many producers produced cheese in their expectation to be able to exchange it. The standard of socially necessary labour-time is asserted against the immediate producers and any labour which does not pass the test is wasted. The society where abstract labour constitutes wealth is quite lavish with the expenditure of actual labour. All this is premised on chair-maker competing against chair-maker and all producers competing against all other producers.

A Companion treats this antagonism between different chair-makers as self-evident and as an a priori given just as it treats as an a priori given the antagonism between producers of different use-values. It casually takes the standpoint of someone engaging in this antagonistic relationship rather than trying to understand under which social relations this standpoint is valid.

Where Marx declares that “the twofold nature of the labour contained in commodities [concrete and abstract labour] … is crucial for an understanding of political economy”¹⁵, A Companion does not pick up on the critical content and fails to explain or even mention the difference and opposition between concrete labour and abstract labour. As a result, as we shall see, Harvey posits money against exchange and value.

Value-Form Analysis: Commodities and Money

What Harvey objects to – and what he posits against value – is not that money represents value and circulates commodities, but that one can hold on to it:

This means […] that the production and marketing of the money commodity as well as its accumulation (eventually as capital) lie in private hands even as it performs its universalizing social function.

A Companion, p.35, our emphasis

Or on the monetary question – we need money to circulate commodities, no question about it. But the problem with money is that it can be appropriated by private persons. It becomes a form of personal power and then a fetish desire.

David Harvey in an interview for Red Pepper

Now what is money and is there a contradiction in the monetary form? It turns out money is really a claim on social labor and there is therefore a contradiction in Marxist terms between money and value. […] As a medium of circulation money is fairly neutral. The big problem with money is its function as a store of value, because as a store of value it can store social power.

David Harvey, The Contradictions of Capital (17’‘24)

According to Harvey the situation is roughly like this: commodities are produced for exchange. This necessitates money to represent value, but somehow money also acquires the function as a store of value and this function is where the problem with the capitalist mode of production starts. This means that he has neither a problem with the subordination of production and consumption under commodity exchange; nor with the fact that socially necessary labour-time is asserted against the immediate producers as the standard they have to live up to; nor that the purely negative aspect of labour – effort – is what constitutes wealth in this society. In any case, according to Harvey there is no necessary connection between value and money as a store of value and hence there is an easy fix:

Representation of value in the money form is a perversion of what value is about, it’s a contradiction. […] What this would suggest is that if you want to prevent class formation, if you want to prevent the individual appropriation of social value, then you would have to come up with a money form that is anti accumulation. Marx says that gold and silver are the money commodities because they are not oxidisable. […] They maintain their character. You can accumulate value, social power. And we see what happens in societies. But if you had a money form that dissolved, that is oxidisable, we would end up with a very different kind of society. You would have a money form that would aid circulation but that would not facilitate accumulation.

David Harvey on Platypus panel Radical Interpretations of the Present Crisis (1’55”19), 14 November 2012¹⁶

This mis-characterises value, the value-form analysis, money and accumulation.

Value

Harvey characterises money as a form of social power and a claim on social labour and contrasts this with value. But what is value if not social power and a claim on social labour? As we have seen, a chair is not produced to be consumed by the chair-maker but to be exchanged. For the chair-maker it represents her claim against society to social labour, i.e. all the things that are produced. Her chair is her means of access to these things and it counts in this regard merely as a bit of social wealth as such. This is what exchangeability means. A chair-maker does not have a warehouse full of chairs to sit on, but to sell them. These chairs are her claim to possess social wealth. Hence, Harvey’s characterisation of money as social power is correct, but to contrast that with value is wrong: anything and everything that is produced for the market claims to be social power. It is this point that David Harvey overlooks in A Companion when he reduces the dual character of the labour embodied in commodities to a mere “why would I pay more?”, taking everything that allows him to take this standpoint as not worth troubling with.

The big difference, however, between a chair and money is that a chair still has to prove that it is social power of access – it has to be sold – whereas money immediately is recognised as such. How is that?

Value-form analysis

While David Harvey accepts one of the results of Marx’ value-form analysis, i.e. that value must be expressed in money, he does not follow the argument. Commodities are produced for exchange. But before they can be exchanged they must express that they are immediately exchangeable and thereby are a bit of social wealth. A commodity is not only this particular commodity, say, wine, but also anything else that is available on the market. An analogy from the world of vanity would be us expressing how famous we are. We could say: “We are as famous as David Harvey.” If David Harvey is universally recognised as famous, then we would have successfully expressed our claim to how famous we are.

If other people use Owen Jones as a reference point for fame, we would lack a common reference point for expressing our fame. Some people might not recognise our claim to fame as they only recognise Owen Jones as immediately famous, not David Harvey. This is one of the critiques of the simple form of value given in Capital, it has nothing to do with barter as claimed in A Companion on page 30. The transition from the simple form of value to the expanded form of value is not because we are in “a complex field of exchanges like the marketplace”¹⁷ as opposed to simple barter, but because the simple form of value fails to express that our commodity is truly value, or to return to the analogy that we are truly famous.

However, in expressing our fame by pointing to David Harvey, we would also attribute to David Harvey the ultimate quality of being famous – a person all of us immediately recognise as famous. Now, in doing so we would also deny our own immediate fame. If we were truly and immediately famous we would not have to point to David Harvey to express it: “Look, believe us, we’re famous, just like David Harvey!”, people would immediately recognise our fame. By asserting our fame by pointing to David Harvey we are also expressing that we do not immediately have it. We hence would open ourselves up to the critique: “You claim to be as famous as David Harvey? Prove it!”

Money

To leave the somewhat silly analogy behind: when all commodities express that they are value in that one commodity, they also declare that this one commodity is the commodity which is value pure and simple. This commodity is money. After all, they always point to this one commodity to express that they are value just like it. All commodities have a price tag to express how much of social wealth they are. At the same time they deny that they are immediately value, the price tag indicates that they are not immediately money. Hence, they have to prove it. It is not enough to have a price, commodities must be sold. Only after a commodity has successfully exchanged with money is it successfully validated as a part of social wealth. In a society where people deny each other the means to satisfy their needs and where production for each other happens in competition against each other, proving that a commodity is indeed value and hence allows access to the wealth of society is the precarious step, the “salto mortale” of the commodity. A chair may or may not sell for money. Money, however, can – in sufficient quantity – always be exchanged for any other commodity.

Put differently, in a society based on commodity production and exchange, private producers produce hoping that their private labour is validated as social labour, that their product is validated as a bit of social wealth. Did they produce in vain or did they produce a chair which commands social wealth? Only money counts immediately as social wealth and allows access to all wealth of society. Hence, becoming money is the successful validation that a particular private labour is social labour. Money as social power of access pure and simple is the necessary direct form of appearance of social wealth in a society where production is independent and private, in competition against others, but for others.

Accumulation

Storing value is hence not the exclusive domain of money, it is merely better at it than stuff which is just commodity. However, David Harvey’s fix for “accumulation” with oxidisable money misses the point. The way money is accumulated is not by holding on to it. Harvey’s account of accumulation is in fact an account of hoarding. Hoarding works by denying money its capacity to satisfy your thirst for exquisite wine, you get richer by withdrawing from consumption. What the hoarder does is to hoard social power by not using it as power whilst she hoards it: her money does not exercise its access power to social wealth, it is withdrawn from circulation. It is merely latent power, as Marx points out in the critique of the hoarder.¹⁸ Indeed, capitalist accumulation is not mere hoarding. Companies do not simply sit on their money, a capitalist who does that is not good at being a capitalist. Companies instead invest in something that will make them expand: for example, industrial capitals hire workers for less than the value these workers produce.

That Harvey’s fix is no fix at all is aptly demonstrated by the fact that oxidisable money kind of exists: money in all successful capitalist states constantly looses its value – inflation. While this is certainly not the kind of oxidisable money Harvey has in mind, it underlines that hoarding your cash is not what makes capitalist firms successful.

In a society based on commodity exchange, private property owners use their commodities as leverage against others in order to access what they need and want. They equate every commodity on the market, thereby reducing the different kinds of labours that are needed to reproduce them to human labour in the abstract. Their products of labour count as a part of abstract social wealth which in money finds its appropriate expression. This abstraction of human labour is at the heart of Marx’s critique of the capitalist mode of production. No oxidisable money can affect this. It is this misunderstanding of Marx’s critique of value and of abstract human labour that is the premise that allows Harvey to propose a money system that would reproduce the social relations we presently have, and leave intact the generalised misery of our world. Challenging that would require challenging value itself and production for exchange which gives rise to it.

Fetish

David Harvey does not trouble the readers of A Companion with an account of what abstract labour is, what value is and what it means for those subjected to it. For him, commodity production as such is not a mode of production that needs commenting on, explanation or critique. Consequently, he also struggles to explain the fetish-like character of commodities. Here is what Marx had to say:

The mysterious character of the commodity-form consists therefore simply in the fact that the commodity reflects the social characteristics of men’s own labour as objective characteristics of the products of labour themselves, as the socio-natural properties of these things. Hence it also reflects the social relation of the producers themselves to the sum total of labour as a social relation which exists apart from and outside the producers.

Capital, p.164-165

Objects of utility become commodities only because they are the products of the labour of private individuals who work independently of each other. The sum total of the labour of all these private individuals forms the aggregate labour of society. Since the producers do not come into social contact until they exchange the products of their labour, the specific social characteristics of their private labours appear only within this exchange. In other words, the labour of the private individual manifests itself as an element of the total labour of society only through the relations which the act of exchange establishes between the products, and, through their mediation, between the producers. To the producers, therefore, the social relations between their private labours appear as what they are, i.e. they do not appear as direct social relations between persons in their work, but rather as material relations between persons and social relations between things.

Capital, p.165

As we have seen, production is carried out on the basis of private production units who produce for others and then place their products in the market based on a calculation that they can use them as a means of access to social wealth. Under these conditions the products of labour, commodities, become imbued with social properties. These social properties appear as properties of the commodities themselves which then react back on their producers.

On the market, commodities establish a relationship with other commodities. A certain amount of coffee exchanges for a certain amount of wine and this becomes reflected in a price. Through this process these commodities not only appear to have, but in fact indeed do have, relations with each other. It is through the relations between their commodities that the social relations of production between producers manifest themselves.

To these private producers the fact that their respective concrete labours are reduced to homogeneous abstract human labour appears in the form of the equality of the products of labour: “my commodity exchanges for theirs”. The socially necessary labour time to produce a given commodity appears as the relationship of the value of that commodity to other commodities: “my thing is worth twice as much as theirs”. The relationships between the different concrete labours of commodity producers appears as a social relation of products of labour: “my wine does not sell on the market any more, well, then I’ll have to produce cheese instead”. Marx describes this situation where the products of labour appear to and actually have power over their producers as the fetish-like character of the commodity.

Even if a commodity producer studies Capital, and comes to an understanding that the magnitude of value which their product commands in the market is an expression of the average production times taken by producers of such products (better work faster!); or whether overall for example more of these products were made than people were prepared to pay for; or that what a sum of value can purchase expresses a relationship of labour in this industry to labour in others – all these realisations change nothing about the fetish. Commodities still relate to one another and so people still do not control their own relationships with one another in production, but they are controlled through the result of the comparisons of their products on the market.

In David Harvey’s hands however, the fetish-like character of commodities becomes a problem, not of the lack of conscious control over human productive activity but simply a lack of knowledge about production relationships. A Companion takes a head of lettuce as example:

You go into a supermarket and you want to buy a head of lettuce. In order to buy the lettuce, you have to put down a certain sum of money. The material relation between the money and the lettuce expresses a social relation because the price – the “how much” – is socially determined and the price is a monetary representation of value. Hidden within this market exchange of things is a relation between you, the consumer, and the direct producers – those who labored to produce the lettuce.

A Companion, p.39

So far so good. Unfortunately, the presentation then becomes a bit of a mixed leaf salad:

Not only do you not have to know anything about that labor or the laborers who congealed value in the lettuce in order to buy it; in highly complicated systems of exchange it is impossible to know anything about the labor or the laborers, which is why fetishism is inevitable in the world market […] You cannot, for example, figure out in the supermarket whether the lettuce has been produced by happy laborers, miserable laborers, slave laborers, wage laborers or some self-employed peasant. The lettuces are mute, as it were, as to how they were produced and who produced them.

A Companion, p.40

Yet, the fetish-like character of commodities is not a description of the fact that we lack knowledge about the production chain. Any reasonably complex social division of labour presents the possibility that we will not know about how things we consume were made.¹⁹

Fair trade products, which display something about the conditions of the workers who produced them on their label, or even webcams next to the t-shirts on sale at any high street store showing the interior of the sweatshop where they are produced do not change the fact that the labour expended on producing those items is related to other human labour through the sum of money expressed in the price.

In the conclusion, the emphasis on the fetish-like character simply being down to a lack of knowledge rather than about the objective domination of people by the products of their labour, emerges again – apparently we are only “at risk of being ruled by fetishistic concepts that blind us to what is actually happening”²⁰. Last time we checked we were not ruled by concepts but by a reality that is described by these concepts, i.e. we actually are dependent on money in order to have some wine and cheese, not only at risk. We understand why this is, yet, here we are.

What David Harvey in A Companion takes away from the fetish chapter of Capital is that value is “not a fact of nature, but a social construction arising out of a particular mode of production.”²¹ While this is correct, he does not actually explain, let alone properly critique, this particular mode of production. Like many commentators before him, he is content with putting down in writing that value is a product of history and a social relation without asking what it is that was produced and what stands in a social relation to what.

A Companion cites Marx’s charge against political economists, a charge that would seem to equally apply to Harvey:

Political economy has indeed analysed value and its magnitude, however incompletely, and has uncovered the content concealed within these forms. But it has never once asked the question why this content has assumed that particular form, that is to say, why labour is expressed in value and why the measurement of labour by its duration is expressed in the magnitude of value of the product. These formulas, which bear the unmistakable stamp of belonging to a social formation in which the process of production has mastery over man, instead of the opposite, appear to the political economists’ bourgeois consciousness to be as much a self-evident and nature-imposed necessity as productive labour itself.

Capital, p.174

The difference, however, between these political economists and David Harvey is that the latter – being a Marxist and all that – recognises that value is not natural. Though, what it actually is, what constitutes its substance and what that means for those subjected to it, he does not seem to find worth troubling the reader with.

Hence, those who read A Companion to guide them through Capital will be disappointed: it neither gives an adequate account of what Marx said nor of the capitalist mode of production.

Karl Marx. Capital: Critique of Political Economy, Volume 1. Penguin Classics, 1990. In the following, we cite this work as Capital. ↩
David Harvey. A Companion to Marx’s Capital. Verso Books, 2010. In the following, we cite this work as A Companion. ↩
See Marx’s critique of labour-money, Capital, p.181, footnote 4 ↩
For example, we learn little about the rate of surplus-value in A Companion, p.131 but are treated to a deliberation on the rate of profit which is only introduced in volume 3 of Capital. ↩
Here we – following Marx – avoid talking about money but talk about commodities exchanging directly with other commodities. The category money and its necessity is developed later and we discuss this necessity later on in this text. ↩
Contrary to popular belief, the economic substance of the institution of private property is not that people are left alone with their own stuff. Instead, everyone is excluded from the stuff they do not own and is forced to use whatever they do own as a means to get access to the wealth of society. ↩
This is the first abstract reason for the juxtaposition of poverty and wealth in this society. ↩
“The chatter about the need to prove the concept of value arises only from complete ignorance both of the subject under discussion and of the method of science. Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour. It is self-evident that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.” – Marx To Ludwig Kugelmann, London, 11 July 1868, available at https://archive.ph/m9RY ↩
There are other things which can be used as access resources to social wealth and which cannot be produced such as undeveloped land. The economic laws governing the prices of those things are hence different from those that govern products of labour. ↩
Just because someone is hungry and cheese is available does not mean she is going to get cheese. If she cannot come up with something to exchange for cheese, she will starve to death. The fact that the means to alleviate hunger exist is not a factor in the determination of whether you can access it or not. ↩
“Coats cannot be exchanged for coats, one use-value cannot be exchanged-for another of the same kind.” – Capital, p.132 ↩
Capital, p.134 ↩
The relationship is not that I can gain access to social wealth because I spent effort to make my commodity – value is no reward for labour performed – but because it needs effort to make it and others need it, which means I can use that as a lever. ↩
In one of its better moments A Companion recognises this, but strangely enough only when the fetish chapter is discussed: “I can make something beautiful and take it to market but if I don’t manage to exchange it then it has no value. Furthermore, I won’t have enough money to buy commodities to live.” – A Companion, p.42 ↩
Capital, p.132 ↩
Similarly: “People mobilise their lives around searching for this money even when nobody knows that it is. So we’ve got to change the monetary system – either tax away any surpluses people are beginning to get or come up with a monetary system which dissolves and cannot be stored, like air miles.” – David Harvey http://www.redpepper.org.uk/david-harvey-interview-the-importance-of-postcapitalist-imagination/ ↩
A Companion, p.31 ↩
In order that gold may be held as money, and made to form a hoard, it must be prevented from circulating, or from dissolving into the means of purchasing enjoyment. The hoarder therefore sacrifices the lusts of his flesh to the fetish of gold. – Capital, p.231 ↩
Of course, there are reasonably complex divisions of labour where you can easily rule out slave labour, wage labour and self-employment: rational production for use-value. ↩
A Companion, p. 47 (our emphasis) ↩
A Companion, p.46 ↩

One Nation

Wed, 29 Jul 2026 20:08:22 +0000

Today, our country risks becoming two nations, with a million young people out of work, the gap between the richest and everyone else getting worse, and hard work not rewarded. My core belief is in leaving this country a better place than I found it, and that when people join together, we can overcome any odds. We did it during the second world war and we did it when rebuilding the country afterwards. That is the spirit Britain needs today.

One Nation, Ed Miliband

With the One Nation campaign — from which the above quote is taken — Labour is making its case to rule over us. In the campaign quote Ed Miliband sees that wages are so low, unemployment is so high and inequality so extreme that he fears for the unity of British society. He recognises the problems with poverty that those he addresses are facing and thus asks everyone to stick together as a nation to overcome these and any odds. At the same time, though, he touches on everything we need to know in order to come to a rather different conclusion.

“with a million young people out of work”

We cannot find anything wrong with being out of work. If all the required work is done, why do we not get to relax and enjoy life? On the other hand, if there is work to be done because something is lacking, why can we not just produce it, given that we are idle?

In the world we live in, these questions seem naïve. The relationship between work and wealth is somewhat troubled in the society Ed Miliband would like to be Prime Minister of. People being out of work does not mean that all useful things are readily available, that there simply is nothing left to do. Instead, those out of work are poor, i.e. they do not have what they want and need. The first thing to note is that these poor people live in a society where there is an abundance of stuff for those who can afford it, i.e. their problem is not a lack of material wealth in society.

Under the current social conditions unemployed people cannot just produce what they need. They lack the means to produce what they need, if they detect a shortcoming they cannot simply — alone or collectively with others — go about fixing it. They are excluded from the means of production. These means are in the hands of companies which decide based on their own calculations whether they employ workers and under what conditions. Those out of work are simply not useful for the purposes pursued by companies.

“the gap between the richest and everyone else getting worse”

The purpose pursued by those who control the material conditions of production and therewith command the labour of those who do not, is no secret either: getting richer. Companies are successful if they make profits.

They spend money on “inputs” such as workers to earn more by selling the “outputs”. The difference between the sum of what they pay their workers and other “inputs” such as machines and what they make by selling their products is their profit.

Whatever their industry, the success of a company depends on the poverty of its workers. The purpose of profit-making is not only indifferent towards the gap between rich and poor but produces it and is premised on it. Profit produces poverty because profit is the difference between what it costs to buy machinery and to hire workers on the one hand and for what their products sell on the other hand.¹ This means the exclusion of employees from the wealth produced in their companies is what constitutes profit. Secondly, it is premised on it because the exclusion of those people from the means of production and the products produced with these means makes them come to work. The reason unemployed people seek work is because this is the only way to extricate themselves from state-maintained poverty.

That gap which Ed Miliband notices getting worse is the consequence of a world where most people have no control over the conditions of their own reproduction and hence seek employment with those who do.

“hard work not rewarded”

Hence, Ed Miliband is wrong about “hard work not rewarded”. No work is ever done without some expectation of some sort of “reward”. Work is an activity to produce a product. That is, the purpose of labour is not the activity itself — as it is with, say, a hobby — but to produce a particular result: food, shelter, Star Wars: A New Hope, profit etc. The products change based on social conditions. You may think highly or little of them, what does not change, though, is that labour is done for some purpose. In any society, if you want food, you need to cook it. In this society, if you need labour to grow your capitalist business, you need to set it in motion, you need to make your workers work. Hard work in this society is indeed rewarding when it realises its intended purpose: profit. It just is not very rewarding for those doing it.

In fact, no “hard work”, or any work performed for a capitalist company, is ever “rewarded”. The wage is not a reward or recognition for a worker’s contribution but simply the lever necessary to convince people to work for a purpose which is not theirs. This lever is as high and low as companies can get away with in the universal competition of workers for jobs (and a lot less often: companies for workers).² The wage is the reason why people come to work, they work to earn a living, but the observed unsatisfactory discrepancy between work and reward, i.e. wage, points to the fact that their reasons to work are not the effective reasons why labour is put in motion in this society.

“our country risks becoming two nations”

That people toil for a purpose which presupposes and reproduces their poverty, however, is not what Ed Miliband means when he criticises the poverty of his constituency. He and the rest of his party have no intention to get rid of such conditions.³ His problem is not the strange relationship between labour and wealth that exists in capitalist societies but that the wealth gap between the two might become so large that it might threaten the unity of British society.

There are those who work hard, not for their own benefit but for the accumulation of wealth from which they are excluded — one nation! There are those whose ability to labour is not useful to this purpose which is why they are condemned to state-maintained poverty — one nation! The success of companies is based on the poverty of their employees — one nation! Workers and employers — one nation! The Labour Party has no problem with people toiling away for a purpose that is objectively hostile towards their needs. Ed Miliband just fears the whole operation might be undermined, if it is not carefully moderated.

When Labour asks people “to join together” to overcome “any odds” and reminds us of the successful sacrifices in World War II and afterwards, it asks employed and unemployed workers to ignore that their labour serves an antagonistic purpose. Instead, they ought to adopt the “spirit” that sacrifice for Britain is for them, that in some way and at the end of the day their labour serves their own purposes, a claim denied by the poverty (“the gap between the richest and everyone else getting worse”) of those in (“hard work not being rewarded”) and out of work (“with a million young people out of work”).⁴

Ed Miliband makes no promise but to “leave the country better than he found it” by putting a million young people to work for the purposes of capital. He expresses quite openly that his project is directed against those he encourages to campaign for him … if only people would listen to politicians more, they could learn so much.

That this whole exercise does not imply “unfair trade” but instead works perfectly well with “fair trade” being the norm is something Marx explained very well in Capital. A book which we wholeheartedly recommend. ↩
See http://antinational.org/en/wage-and-profit-rate for how the wage functions as a means for profit. ↩
With its appreciation of these conditions the Labour party does not stand alone. Any other party which is more or less seriously competing for power in the next general election — Tories, Liberal Democrats, UKIP, Greens — agrees with it. This is no accident. Those who want to rule over a capitalist society — perhaps even in order to alleviate its ill perceived effects — will find that they have to obey its principles, which is why a strong capitalist state is not a means to rein in capital and to abolish poverty. For example, those who aim to spend the state’s taxes on poor people must take an interest in the success of those making the profits from which these taxes levied. However, this is a topic for another text, as the question of what a government could or could not do presupposes that there is someone who actually objects to the status quo. ↩
That many workers share this idealisation of the capitalist mode of production as an harmonic division of labour — if it wasn’t for a few black sheep — and that this idealisation has its material basis in the dependency of workers on a hostile environment which they treat as their means, does not speak for Ed Miliband’s idealisation but against these material conditions. ↩

Austerity & Debt Interview

Wed, 29 Jul 2026 20:08:22 +0000

Tell us a bit about yourself? A bit about Gruppen / critisticuffs / kittens journal?

I’m a member of the London-based group Critisticuffs. Some of us in Critisticuffs are also involved in the Kittens journal, together with some people from “Gruppen gegen Kapital und Nation” (groups against capital and nation). Our project is to explain and criticise capitalism, the nation and the wrong ideas that people have about them and each other, such as racism, sexism, antisemitism. For this, we mainly do workshops, seminars, reading groups and produce texts. This is because we observed that many people are aware of, say, the poverty around us, but unfortunately, they then also have wrong explanations for why this is, which leads to wrong practice.

What are we encouraged to think about austerity?

Austerity is actually a good example of wrong explanations being in circulation. Many people will know that austerity produces hardships but most people will misunderstand why. Most people on the left dismiss austerity as a (misguided) political project by conservative, “neoliberal” governments without any basis in economic necessity (“Tory cuts”). Against this, those who support austerity say it is a simply given necessity. In this narrative, sovereign debt is a result of frivolous spending, a deviation from good, sober governance. The argument usually put forward is an analogy to credit card debt. We are encouraged to think of the state’s finances like consumer credit: you have to pay it off or the debt collectors take your TV: “you can’t live beyond your means forever”.

Why is that last bit wrong?

A capitalist state is not constrained in what it can spend in the way, say, a private household is. Furthermore, unlike a company, it does not earn money by partaking in capitalist endeavours: investing in order to make a profit. Instead, the state has the power to decide on its earnings itself – by collecting taxes.

So the state could just collect what it wants in taxes?

The way the state arranges its tax regime is that it participates in the economic success within its territory. Any economic activity gets taxed, from companies tax, to income tax and sales tax (VAT); the state takes a percentage of the economic activity of companies and private citizens. The income of the latter in turn again being dependent on the success of companies. In this way, the state makes itself dependent on the economic activity and success of the companies active on its territory, an activity which it neither controls nor wants to control.

At the same time, imposing taxes on companies means that they have less money available for investments which stifles their growth. Collecting taxes is detrimental to capitalist growth.

Is that an argument for lower taxes from the state’s point of view?

Well, taxes are used to spend on infrastructure, the military, the police, education, healthcare, research and so on. Regardless of the popularity of the individual expenditures, they all aim to serve a common purpose: to create the conditions for and the continued success of the national economy. The police and judicial system make sure that the foundation of capital accumulation – private property – is protected through the maintenance of law. Education and healthcare are supposed to provide capital with a sufficiently healthy and competitive workforce, now and in the future. The creation of industrial areas and business parks allow new businesses to settle and to expand. Roads and public transportation allow the workforce, materials and goods to reach their destinations.

Hence, in order to provide the capitalist economy with the infrastructure it needs to function, the state spends money, which is why it can be precarious to implement massive spending cuts. From the standpoint of facilitating growth, therefore, cutting spending can be rather counterproductive.

So that’s an argument for higher taxes from the state’s point of view?

Indeed, the state has to deal with the following self-made dilemma: It uses taxes to provide the conditions for capitalist growth on its territory and its tax income is dependent on the success of the capital operating on its territory. But at the same time, these taxes also stifle growth, a purpose of the whole exercise in the first place: taxes are used to create the conditions for capitalist growth and taxes are detrimental to capitalist growth.

So we see, when it comes to the national budget it is not easy, arguments can be made both against higher taxation and against reduced spending. It is quite neat then that there is another way for a state to pay for the expenditures considered necessary, without immediately taking the money out of the economy: debt.

Debt allows a state to finance what it wants without impairing its capital’s capacity to invest: now credit is used to finance the conditions under which future resources of revenue, e.g. taxable profits, are supposed to develop. By this I mean the following. For example, the state takes on new debt in order to finance high speed train lines to connect the South of England with the North, hoping for a revitalisation of a sluggish area. If this speculation works out then the new bit of infrastructure is a tidy boost for the national economy allowing it to grow. More debt in this sense then hopefully means more growth, which then justifies this debt.

The mounting debts of nation states are hence not the result of frivolous spending. Because there are always good reasons to spend, and because it is an apt way to pay for these things, we find that most states have a huge amount of outstanding debt and have had so for some time. This way successful capitalist states live permanently “beyond their means”: so that their means develop in the future.

Austerity is a policy to tackle sovereign debt. What is the relationship between the two?

The point of austerity is not pay off the debt, to reduce the absolute amount of debt a state owes. Actually, no successful capitalist state would be able to pay off its debt obligations from taxation – contrary to popular belief that the taxpayer has to shoulder the burden of debt – unless it would be willing to severely impair its economy and ruin it. Instead, when states have to pay up to one investor they borrow the money from another (or the same) investor – a process called refinancing. Whether this works out, crucially depends on that they find investors who are willing to buy these debts.

States borrow by issuing bonds. Bonds are a form of loans. By purchasing a bond the buyer is lending money to the state – with the promise of repayment in full, at a certain time, with regular interest payments in between. In addition to having this entitlement on repayment, the bonds can also be sold to other people on the so-called secondary bond market. The secondary market is simply the name for the fact that those who bought these bonds trade them as well. The buyers of bonds are mostly financial institutions such as banks and pension funds on the one hand and other states on the other hand. Financial institutions buy bonds as a form of investment, in order to make profit, either by taking the interest paid or by reselling the bonds at a higher price. What makes bonds issued by successful capitalist states particularly interesting for financial institutions is that, firstly, they were and are considered comparatively safe investments, even though usually at the expense of paying only low interest. Secondly, successful capitalist states have issued a lot of these bonds and many investors are interested in them, which means there is a huge secondary market where these securities are traded. These two qualities of state bonds taken together mean that financial institutions hold on to rather safe titles of revenue streams that they can sell at any time – usually for a price which does not fluctuate much. To them it is almost like having money which also pays interest – the best kind of money.

Indeed, this is how these banks use state bonds and this usage is encouraged by state regulation. However, this also means that any doubt about the quality of a state as a debtor is of immediate relevance, not just for when its bonds mature a la “Will the UK be able to repay me in 10 years time?” Instead, the question affects the ability to sell these bonds on the secondary market now and hence can undermine their money-like quality: can I sell my bonds at any time for a stable price?

Since investors rely on other investors buying and selling bonds, they do not only have to consider their own assessment of safety of these bonds but also what the general market’s verdict is. They speculate on the speculation of other investors. Doubt about whether other investors would be willing to buy a certain bond makes the bond less attractive, possibly leading to a downward spiral of devaluation.

In response to declining trust in its quality as an investment – expressed through changing assessments by rating agencies – states implement measures to boost confidence in themselves as debtors and/or have to offer higher interest rates to their creditors. So, when financial institutions distrust each other’s willingness and hence their own ability to trade a state’s debt, that debt becomes more expensive to maintain for the state. Therefore, the ability of a state to find someone to buy its new bonds at a good price (that is low interest), in order to be able to fulfil their old obligations and to spend money on future growth, is heavily dependent on the verdict that they are able and willing to service their debts.

And this is then what led to the consensus about why there was no alternative to austerity: In the past, the risk of sovereign defaults was generally seen as low for successful capitalist states. However, the financial crisis and subsequent sovereign debt crisis changed that. The growing deficit in most states, because of the bailouts, because of reduced income due to the recession, and because of increased spending to combat its effects on the economy led to an increased concern about the security of sovereign debt even of successful capitalist states like the UK. The shrinkage or stagnation of economic performance of their respective national economies only added to that concern. Even worse from the perspective of their creditors was that the states just spent all that money to secure bad debt of businesses which have failed in their purpose of capitalist growth. That is, money was spent unproductively – not on the development of national economies but merely to preserve the status quo – and it was put into question whether these states were still good investments. Austerity programmes are therefore mainly measures to boost trust from investors so that they keep on lending.

How does cutting spending restore trust from investors when state spending is necessary for the economy?

The key data point that investors use to gauge the quality of a state as an investment is the often referenced ratio of gross debt to GDP. This relates the total debt a state has with the Gross Domestic Product. This figure is meant to express the overall economic output of a national economy. The debt/GDP ratio is hence meant to express how much a state’s debt is in line with the growth of its national capital. If the ratio remains steady both grow at the same rate, if the ratio increases – say from 60% to 100% – a state’s debt has grown faster than the national economy.

While investors and (mainly) commentators use this ratio to assess a state’s credit worthiness, it should be noted that none of the ratios discussed in the media for themselves express a “healthy” or “unhealthy” relationship. Regardless of whether the ratio is 60% as stipulated in the EU Maastricht treaty or 150%, no state could or plans to pay off its gross debt by confiscating 60% to 150% of its economy’s output. As explained above, states rely on investors lending them new money whenever they have to pay back some other investor.

Still, regardless of whether these numbers are in themselves meaningful, a state now is concerned with managing capitalist growth of its national economy on credit where that economic growth justifies that credit. In this situation the point is not so much to achieve a specific debt to GDP ratio or certain absolute saving in expenses, but to demonstrate to investors that the government does everything necessary to restore growth to justify debt levels.

In this situation the state is especially self-critical in its spending. When it looks at all the areas it might want to spend money on, it always decides where to spend it based on considerations of what it considers most important. No expenditure is safe from this consideration. Creating a national budget means to compare the benefits of such wildly differing expenses as the NHS (keeping the population healthy enough so that it can function as human resources) and the nuclear warfare programme (for respect from other states in international competition). The questions simply are: will the potential target of expenditure be worthwhile in comparison to other priorities the state might have? And: will the potential target of expenditure justify the burden on the economy through taxation of deficit? Often the decision where to spend money and how much is not without tension: a lot of disagreements between political parties and factions are about what part of the budget is more important than another one. This is not different in an austerity budget, except that every item in the budget has to survive even more scrutiny regarding its usefulness for the power of the state and the growth of the economy.

Why does it always seem to be welfare spending which is targeted by cuts? What does the bedroom tax have to do with the UK’s AAA rating?

Welfare spending is a common target of cuts. This is partly because it is a good chunk of state spending and also because it is easily identified as an unproductive expenditure. Merely providing for people who are not used by the national economy to produce profits – so that they can in the future – is considered a waste of good money. The bedroom tax is a good example of this. It sends the signal that the UK is revisiting all its expenditures and cuts those deemed superfluous for the purposes of a strong economy and state. In contrast, cutting down on nuclear weapon spending decreases the imperialist respect from other state directly, whereas cuts in the welfare sector “only” lower the standard of living of those on benefits.

Cutting welfare spending has another benefit. It does not just save money and simultaneously signals to creditors that the state will only spend money on what is now seen as productive projects. In addition, a reduction of welfare benefits will also put pressure on the unemployed, people with disabilities, or low income earners to accept (second) jobs. That is, to accept jobs regardless of how bad the pay is, working conditions are or the suitability of the job. By making it even harder to survive on benefits, the state can “persuade” people to accept worse jobs under worse conditions. This puts additional pressure on wages which in turn is a basis for increased profits for capital. Working 40 hours a week for less money than the dole makes little sense and hence out-of-work benefits effectively establish a minimum wage. More generally, if more people are competing on the labour market, this drives down the price of labour. Cutting benefits means worse conditions for those with a job.

The left frequently criticises austerity measures for punishing the poor and vulnerable. However, you state that “proposing alternative ways for the state to save money is missing the point: mass impoverishment is not a side effect but a deliberate goal of these policies” – could you expand on this?

The hardships of austerity are not a fact of life, a by-product of stripping away excess or an expression of a misguided policy. They are the direct result of

a programme which is intended to show to the financial markets that their concerns are being taken seriously, by cutting costs which are now considered superfluous. This way the government demonstrates that the costs of the state remain in balance with a nations’ capital growth as demanded by the markets.
a programme which is intended not to burden the growth of capital. On the contrary, states improve the conditions for companies to accumulate, not least by making people more desperate jobseekers.
a programme which is intended to serve – if necessary – as a signal to express the government’s willingness to implement even painful and unpopular measures against popular discontent in the interest of servicing the debt: servicing debt obligations is and will remain the highest priority.

Would there be any difference in the fiscal policies of an ostensibly left wing government?

The left response has been one of Keynesian measures: counter cyclical spending, deficit spending or stimulus packages. This is not completely off. For example, spending has been a response to the crisis from the very beginning. The government knows that state spending can be useful for the economy. However, in the left-wing variant, spending would go directly to the people in the form of increased welfare and tax cuts for the poor. This money then is supposed to generate demand for various goods and services which in turn stimulate the economy to meet this demand. This increase in economic activity then is supposed to allow the repayment of debt or to justify the increased sovereign debt when more is borrowed later. In short, what makes this variant of Keynesian ideas so interesting to people on the left or people campaigning against cuts to services is that they promise to bring about capitalist growth by giving poor people money – win-win, so to speak.

Note, though, that potential welfare programmes and hence welfare recipients play the role of a means not an end. Money spent on them ought to stimulate the economy; they are a means to the economy instead of the other way around. The end of this endeavour is economic growth and the state’s ability to maintain the services it deems necessary through debt. These reformers campaign for a plan in which the role of those addressed is that of being material for the sake of capital and the state.

In fact, this topsy-turvy relationship of economic growth and provision for those producing it expresses itself in the moderation of the proposed demand. If state spending on poor people was such a great means to get an economy going, why not increase benefits massively? Why not give everybody on the dole £5,000 each month? That would surely generate much more demand than simply maintaining the meagre current benefits. By restricting their demands to the current poverty level these reformers indicate that they too have not found a convincing argument why material provision for everyone would make sense according to the principles of capitalist economic growth. They implicitly recognise that widespread poverty and national economic success belong together. It also implies that these Left reformers understand that the dole is a means to convince people to find a job with a company – it is only meant as a “safety net”, a means to maintain the poverty of a worker – and not a means to end it.

That’s the contradiction of the left which, on the one hand, campaigns against poverty but does this via well-meaning suggestions on how to reform the welfare state to be better at what it is for. They know that their demands are demands against capital, but they think if they moderate them enough they can make them compatible with its accumulation. We do not claim that this cannot work, but it always means committing to a situation where the premise of economic success is generalised poverty.

This text was first published in Organise! iss. 85, autumn 2015, p. 17-20, the magazine of the Anarchist Federation.

Critiquing Corbyn: Capitalism Isn’t About Sharing

Wed, 29 Jul 2026 20:08:22 +0000

There was much hype over Jeremy Corbyn’s successful campaign to lead the Labour Party. What has been largely absent from the debate is an evaluation of Corbyn’s economic ideas and assumptions. In The Economy in 2020, Corbyn set out what his economic policies will be, if he becomes Prime Minister. A lot can be learned from this about how he understands the economy and the State.

A necessary mistake?

At the outset of the piece, Corbyn claims he wants “to have a serious debate about how wealth is created”. He says that “in reality wealth creation is a collective process between workers, public investment and services, and, yes, often innovative and creative individuals”. But Corbyn has a problem with how this system of collective wealth production works out in practice: workers and the State do not receive enough of the wealth they help to create. That is why he wants to “create a balanced economy that ensures workers and government share fairly in [a] wealth creation process […] that is more […] equal”.

There are two problems here. First, Corbyn wanted a debate about how wealth is created. But all he has done is given us a list of the things that are necessary under present social conditions for wealth creation. Yet, knowing the ingredients for a cake is something very different from understanding how a cake is made. Secondly, Corbyn moves from asserting that certain things are necessary for wealth to be created to the proposition that this means each of these necessary elements must receive its fair share. This is moralism, not economics: there isn’t an economic reason why if something is necessary it therefore deserves to be rewarded. The fact that workers or entrepreneurs are necessary for capitalist production does not lead to any conclusion that they therefore deserve a share of what is produced. If workers are necessary, then the question that has to be asked is what wages do they need to receive to ensure that they turn up to work: that is a different matter to what they ‘deserve’.

How do these necessary things combined create capitalist wealth – and poverty?

Let’s look at how the ingredients in Corbyn’s list of necessities actually combine to produce wealth. What sort of “collective process” do workers and companies engage in?

In this society, the workers are the ones who do the work which is needed to make the useful stuff they never get enough of for themselves (a result Corbyn regards as a problem). On the other hand, it is the companies who own the necessary tools and the raw materials. In this sense, it looks like the creation of wealth is indeed a collaboration: both workers and companies have a bit of what is needed for production.

However, the decision to make some new useful stuff is not a question of collaboration in this way. Useful things are only created if a company has decided profits are to be made in doing so. In deciding to produce something, a company calculates that hiring workers, buying materials and setting the workers to work to make stuff, which can then be sold, will make a profit. If successful, then more wealth has been created: whether this has happened is measured by whether the money made from selling the products is more than the total expended to make it. This is the dominant form of wealth in our society: wealth measured in money, especially money that can be spent in order to increase its quantity, i.e. capital. The fact that useful stuff that people need is made at all under this system is subordinated to this purpose of profit-making.

Workers, who Corbyn invites to share his ideas about wealth creation, are in a difficult position when it comes to engaging in this peculiar collective process. Firstly, the purpose for which the process of wealth creation is undertaken is one which does not care about their need for a wage. What that means for workers is that whether there is work for them to do is not something which they can determine. Being dependent on such calculations is a pretty difficult position given that most workers have no other way of earning a living than by agreeing to work for a wage. That leads on to the second difficulty. Profit-making isn’t just indifferent to workers’ need for a wage, but is hostile to the wage as a source of income – and therefore to workers. That is because the magnitude of capitalists’ profits depends on the excess in price of their products over their expenses. The wages of workers are an expense (albeit a necessary expense). Paying less in wages and getting workers to work harder increases profits.

Given that the wage is subject to such calculations, it is no surprise that the size of the wage is so often insufficient to meet the needs of the workers. Being dependent on a wage is therefore a particularly rubbish way of having to survive and not one we might think people are likely to willingly choose. However, companies can usually find as many willing workers in the marketplace as they can profitably make use of. To ensure that the condition of having no alternative but to work is widespread and persistent, it is necessary that the wage is not generally sufficient to enable an individual worker to obtain resources to prevent herself from having to continue in such a miserable state. The permanent poverty of the mass of people, in the sense that there must always exist a class who has no choice but to sell their time, is therefore a necessary feature of the creation of wealth under this system. The problem of poverty, which exists because of the exclusion of workers from access to most of the wealth, and to which Corbyn reacts, is just the flip side of the coin of the type of wealth that he wants to grow.

Pushing wrong ideas about wealth can’t help those excluded from it

When Corbyn agitates his supporters on the basis that as workers they are necessary for wealth creation in this society and therefore they should receive a fair share, he does not contribute to a proper critique of the capitalist production process that is needed if overcoming generalised poverty is the aim. Instead, he stands in the way of correctly understanding how this form of wealth creation relies upon and produces poverty. Failing to explain the relationship between work and wealth does not contribute to people’s ability to destroy that relationship. Corbyn’s acceptance that companies are necessary to wealth creation, whilst failing to explain that the purpose of production is for the increase of the wealth they control – capital – and not the satisfaction of everyone’s needs, encourages workers, who as a class have an antagonistic relationship to capital, to seek compromise with it, rather than the abolition of classes through the abolition of capital. That can be seen in the timidity of his policies (maybe a minimum wage of £10 an hour – so long as profits can still be made).

Mistaking the role of the State – a necessary step for any decent leader of the State

Additionally, Corbyn argues that “public investment and services” also participate in the “collective process” of wealth creation. Public investment and services are not the form of wealth which counts in the society ruled over by the State which provides them. They do not directly lead to an increase in wealth measured in money which increases itself. But Corbyn isn’t completely wrong to think that the State plays a role – it provides a lot of “public services” to enable this form of wealth creation to exist and thrive.

Firstly, it guarantees private property. This is the basic condition for the existence of the wealth creation which leads to the permanent generalised exclusion from wealth described above. These rights are the only reason why companies own the wealth that workers are compelled to create through their own lack of access to property. The State does not therefore simply encounter a world of competing workers and companies which it must then intervene in. Rather it provides the basic and necessary conditions for this world.

The mistake is an easy one to make in a world where it is the employer who does not pay enough without the State imposing a minimum wage, or where employers would force workers to work much longer hours without rules about working time. And indeed, the State must provide sufficient health and safety rules, minimum standards for pay, welfare support, subsidised housing, education and so on, as left untended capitalism destroys the workers on which it depends.

The State goes beyond merely maintaining the system but actually seeks its growth (something Corbyn also wants) – through investments that aim at increasing the opportunities for profit-making.

For the state to be able to invest, it too needs money – it receives that through taxation. For that, the State uses its power and simply dictates the amount by which it share the economic success of its subjects. Corbyn knows this as he promises to wield this power more effectively – however, he is committed to using it for the same purposes: growth of private wealth.

Corbyn paints the State as an equal victim of business alongside the workers. In doing so he denies its role as the enforcer of the conditions which guarantee useful poverty and recasts its role in ensuring workers exist to service capital as a benevolent service to them.

The Economists: Notes on CORE’s The Economy, Unit 1

Wed, 29 Jul 2026 20:08:22 +0000

Introduction

CORE is an “open-access platform” “for a changing world” and “for anyone who wants to understand the economics of innovation, inequality, environmental sustainability, and more”.¹ It attempts to readjust economics teaching towards taking the financial crisis into account. As of December 2017, its textbook – The Economy – is used to teach undergraduate economics at 64 universities, e.g. in the UK at Bangor Business School, Birkbeck (University of London), Cardiff Business School, Kings’ College London, London Metropolitan University, Northampton University, University College London, University of Aberdeen, University of Bath, University of Bristol, University of Manchester and University of Plymouth.² CORE has received praise from the New Statesman, the Guardian and the Financial Times to name but a few.

In these notes, we critique the first unit of this course, henceforth simply referred to as Unit 1.³ In particular, we want to show that the primary purpose of this unit is to convince the reader that capitalism is rather good by a sleight of hand: GDP per capita is posited as the standard for how people are doing in a society, and across different societies. Potential social-democratic objections to the celebration of capitalism’s success are addressed by mentioning them. They are thus appreciated but then demoted to policy concerns. This seeks to deliver on the promise that economics teaching in “a changing world” must take into account that capitalism and its academic treatment have an image problem after a decade perceived as a permanent crisis, especially amongst the target demographic:

“One important legacy the financial crisis has left us with is a new generation which is no longer satisfied with learning the economics which got this so wrong. No young person who has witnessed or participated in the #Occupy protests around the world – such as the one taking place in Hong Kong now – can remain wedded to a curriculum which fails to evolve in their wake.”

Wendy Carlin, 2014, Building a new economics for the #Occupy generation

The hockey stick

CORE starts its exploration of the capitalist mode of production with a look-see at pre-capitalist times as a preparation for the “hockey stick” given in Figure 1.1a. It shows flat curves for several countries from the year 1000 to 1700 and a very sharp upward movement from 1700 or later depending on the country.⁴

As far as CORE is concerned, this curve plots the living standard or, synonymously, wellbeing in each country over time for various countries. That is, CORE seeks to express a unified and quantifiable living standard in any given society. CORE explains:

“To compare living standards in each country, we use a measure called GDP per capita. People obtain their incomes by producing and selling goods and services.⁵ GDP (gross domestic product) is the total value of everything produced in a given period such as a year, so GDP per capita corresponds here to average annual income. GDP is also referred to as gross domestic income. In Figure 1.1a the height of each line is an estimate of average income at the date on the horizontal axis.”

The Economy, Unit 1, Introduction

Thus, Figure 1.1a expresses living standard or wellbeing as the sum of what a society produces divided by the number of people in that society. As far as this metric is concerned, this much is clear already on the first pages of this economics textbook, and before we learned a single thing about how this mode of production actually works: capitalism is rather good at producing wellbeing as such. The rest of Unit 1 is dedicated to creating the impression that this claim makes sense. These notes are dedicated to showing that this is wrong.

Distributions

Unit 1 immediately follows Figure 1.1a by addressing potential objections to it. The objection CORE in principle permits, but ultimately dismisses, is one of income distribution. That is, simply dividing the social product by the number of members in society, i.e. taking the average, is an arbitrary abstraction. In Figure 1.2 of Section 1.1 CORE illustrates distributions of household incomes in various countries over the last 50 years and then asks:

“Dividing by the population gives GDP per capita – the average income of people in a country. But is that the right way to measure their living standards, or wellbeing?”

The Economy, Section 1.2

CORE chooses to entertain the criticism of averages in the form of criticising another measure for wellbeing which it is not too keen on: disposable income.

“Consider a group in which each person initially has a disposable income of $5,000 a month, and imagine that, with no change in prices, income has risen for every individual in the group. Then we would say that average or typical wellbeing had risen.

But now think about a different comparison. In a second group, the monthly disposable income of half the people is $10,000. The other half has just $500 to spend every month. The average income in the second group ($5,250) is higher than in the first (which was $5,000 before incomes rose). But would we say that the second group’s wellbeing is greater than that of the first group, in which everyone has $5,000 a month? The additional income in the second group is unlikely to matter much to the rich people, but the poor half would think their poverty was a serious deprivation.”

The Economy, Section 1.2

In other words, CORE knows that taking averages does not express how people are doing since it extinguishes how something is actually distributed:

“Since income distribution affects wellbeing, and because the same average income may result from very different distributions of income between rich and poor within a group, average income may fail to reflect how well off a group of people is by comparison to some other group.”

The Economy, Section 1.2

Yet, taking the average of the output (GDP per capita) does not tell us any more about what wealth people have access to than taking the average of household incomes. In both measures, a society where (a) all produce goes to the king (save bare necessities for the rest) appears no different from a society where (b) all produce is distributed equally⁶ or (c) is made available to all members according to their needs and desires. Again, CORE knows and mentions this:

“The gaps between what we mean by wellbeing, and what GDP per capita measures, should make us cautious about the literal use of GDP per capita to measure how well off people are.”

The Economy, Section 1.2

This caveat is not meant to criticise measuring living standards by GDP per capita as in Figure 1.1a. Unit 1 continues:

“But when the changes over time or differences among countries in this indicator are as great as those in Figure 1.1a (and in Figures 1.1b, 1.8 and 1.9 later in this unit), GDP per capita is undoubtedly telling us something about the differences in the availability of goods and services.”

The Economy, Section 1.2

To review: In a first step, GDP per capita is introduced as the stand-in for wellbeing and living standards. In a second step, lest CORE be accused of having a blind spot, the first step is problematised. This problematisation, however, is not meant as the starting point for asking what the measure actually expresses and whether the initial claim holds water. Rather, we are told not to worry because GDP per capita undoubtedly must express something about the differences in the availability of goods and services. Thus, CORE’s way of addressing the question “who can access what wealth” is to side-step it: “whoever can access it, there certainly is a lot to be accessed by someone”. CORE follows its discussion of the ambiguity of GDP per capita as an expression of living standards with:

“Using these methods, we can use GDP per capita to unambiguously communicate ideas such as ‘people in Japan are on average a lot richer than they were 200 years ago, and a lot richer than the people of India today.’”

The Economy, Section 1.2

Section 1.2 started with asking “but is [the average, CC] the right way to measure their living standards, or wellbeing” and ends with the observation that we can communicate the average unambiguously; well, then.

If CORE were honest about its findings in Section 1.2 it would have to rephrase “Since the 1700s, increases in average living standards became a permanent feature of economic life in many countries” (Unit 1, Introduction) as “Since the 1700s, increases in GDP per capita became a permanent feature of economic life in many countries. This undoubtedly is telling us something about the differences in the availability of goods and services, but it is not quite clear what that means for the wellbeing of people in this society. The gaps between what we mean by wellbeing, and what GDP per capita measures, should make us cautious about the literal use of GDP per capita to measure how well off people are.” But this is perhaps less unambiguous-née-catchy.

At the end of Section 1.2 we are left with an implicit confession that CORE itself draws no specific claim about wellbeing from its own graphs, paired with an explicit resolve to ignore this.

Gross domestic product

However, basing objections to CORE’s boasts about capitalism’s achievements on income distribution means accepting its sleight of hand – the pretence that the provision of people with (or, more commonly, their separation from) the things they need and want in different societies or across one society is captured by:

reducing all wealth down to one dimension,
adding up the privately held wealth in society and
dividing the result by the number of members in society.

Reduction to one dimension

“GDP measures the output of the economy in a given period, such as a year. Diane Coyle, an economist, says it ‘adds up everything from nails to toothbrushes, tractors, shoes, haircuts, management consultancy, street cleaning, yoga teaching, plates, bandages, books, and the millions of other services and products in the economy’.

Adding up these millions of services and products requires finding some measure of how much a yoga class is worth compared to a toothbrush. Economists must first decide what should be included, but also how to give a value to each of these things. In practice, the easiest way to do this is by using their prices.”

The Economy, Section 1.2

CORE acknowledges the oddity of adding up toothbrushes, pigs and computers as the same thing. To write a text a computer is required and no amount of pigs can replace it.

But CORE discusses the problem as one of choice: economists must decide what to include and how to assign a value or a common dimension. CORE apparently does not find anything remarkable about declaring that its figures are products of its own subjective decisions rather than results derived from the object. As far as CORE is concerned, economists might as well add up weights (services get a zero), add up the water used up in production or how yellow things are. All of these choices would – in principle – work for counting stuff in some way. In practice, it is straightforward to estimate how much a thing weighs or how yellow it is.

Of course, these choices are easily recognised as silly. In capitalist economies, the worth of things is measured in money. Our thought experiment served to highlight that counting in money is in no way a mere pragmatic choice that economists make: instead, they, obviously, know what counts as wealth in capitalist societies. They do not choose prices but find them. Prices are not some convenient counting aid chosen by economists, but economic facts that economists need to explain. Somehow, the societies that CORE studies reduce toothbrushes, computers and yoga classes to a common dimension – money – “in practice”.

Unit 1 more asserts than explains its neoclassical view on what a price is. When Unit 1 speaks of “value” and “worth” it does not merely mean the economic categories which are expressed in a price and which have yet to be explained. Instead, following its predecessors, CORE literally means how much people appreciate, like or want something, how good something is: Unit 1 presupposes some abstract notion of utility or pleasure.

This notion is nonsense. Computers are not better or worse as such than pigs either subjectively or objectively. Their respective utility depends on the purpose being pursued, e.g. writing a text, for which pigs are ill-suited.⁷ Computers and pigs are different and thus satisfy different needs.⁸

CORE’s theory of utility not only asserts that people prefer sausages over socks but also that this preference is quantified: I like sausages twice as much as socks or, if I like (x) sausages and (y) pairs of socks, then I also like (x + a) sausages and (y - b) pairs of socks, as long as (a) and (b) have the right relative relation; proof: those happen to be the observed exchange relations on the market and the tautological theory of prices is complete:

“For goods and services that people buy we take their price as a rough measure of their value (if you valued the haircut less than its price, you would have just let your hair grow).”

The Economy, Section 1.2

It is a fact well-known to economists that poor people do not value haircuts, decent flats, food, clothing or entertainment as much as rich people, this is why they let their hair grow, live in small, cramped flats, eat junk food and do not go out as much. As absurd as it sounds when said out loud, CORE’s identification of price and pleasure appeals to experience. The reader is invited to think about their day-to-day life where questions like “How much money is a haircut worth to me?” are common. However, when asking this question we already compare the amount of our money with the price of the things we would enjoy doing. We come to the conclusion that these magnitudes – our means and the price we are confronted with – do not match up and hence have to limit ourselves. Only after we have compared the respective magnitudes do we then limit our needs and desires, and make the comparison forced upon us: what can I do without. This way the daily grind appears as if the exchange relations were determined by our own individual needs and desires, or as if prices express preference and pleasure. In other words, despite what CORE appeals to, we are not actually comparing the utility of different goods and then assigning prices, but are merely comparing our means with what is available for them based on the prices we are confronted with.

Addition, no matter what

While economists find prices in capitalist societies, they are not the convenient counting aids CORE chooses to treat them as. CORE notices this when it realises that not everything has a price. It knows of the fallacy of measuring things in prices which do not have one and mentions it when criticising disposable income as a measure of wellbeing:

“For example, disposable income leaves out: The quality of our social and physical environment such as friendships and clean air. Goods and services that we do not buy, such as healthcare and education if they are provided by a government. Goods and services that are produced within the household, such as meals or childcare (predominantly provided by women).”

The Economy, Section 1.2

Yet CORE is silent on the question of how the GDP measures goods and services that are never bought and sold, or hugs. On the other hand, CORE has a solution for valuing the actions of the state – the haircut quote above continues:

“But the goods and services produced by government are typically not sold, and the only measure of their value to us is how much it cost to produce them.”

The Economy, Section 1.2

CORE chooses to value state actions by precisely the magnitude – cost – it excludes when valuing everything else:

“Production: The total produced by the industries that operate in the home economy. Production is measured by the value added by each industry: this means that the cost of goods and services used as inputs to production is subtracted from the value of output. These inputs will be measured in the value added of other industries, which prevents double-counting when measuring production in the economy as a whole.”⁹

The Economy, Section 13.3, emphasis in the original

The question of what is to be measured – what it means to be part of the overall economic output – is replaced by a valuation method, with the mere appeal of being feasible: all items to be counted are selected and redefined for this purpose.

Prices fail to live up to CORE’s expectations as convenient counting aids in a second way: they keep changing, because they are the means by which different economic actors compete against each other. This is why CORE does not actually use the prices found “in practice” in a given society at a given point in time to compose its figures. In an “Einstein” section, CORE explains how the GDP is calculated and compared between different countries and times. The calculation starts by choosing a reference year and economy, e.g. 1990 in the UK. Then, the prices of all products and services produced that year are added up to calculate the GDP. For example, if a society produced 100 bottles of milk (£1 each), 10 tractors (£10k each), 2 nuclear weapons (£10M each) and 5 chickens (£10 each) that year, the GDP would be (100 \times £1 + 10 \times £10k + 2 \times £10M + 5 \times £10). Now, to compare this GDP with the GDP from 1450, economists estimate what products were produced that year. Let’s say: 10 bottles of milk, no tractors but 1 horse plough, zero nuclear weapons, 15 chickens and 5 bibles. These products are then added up using the 1990 GBP prices, where the prices for products that are no longer in production in 1990 Britain are somehow estimated. Comparisons between different countries proceed analogously: estimate how much of each thing was produced and add up these things using their 1990 GBP prices.

As before, while the method of adding up and comparing is feasible, CORE does not explain what can be learned from expressing and comparing the economic output of China in 1500AD with the output of India in 1750AD using 1990 USD prices.

Dividing the pie

It is peculiar that CORE and other economists add up the product of self-sufficient respectively private producers and proprietors as one social product, despite the fact and celebration that these products are very much not at the collective disposal of society. Joining in with CORE’s trip down history lane, why would a peasant in 1400 AD Britain be in the slightest bit interested in the production of a crop by some other peasant at the other end of the British Isles? Or why, for that matter, would it make sense to add up his crop and the castle their lord built as one gross domestic product? If anything, that castle represents a deduction from the peasant’s wealth or free time, as its production is premised on the peasant’s exploitation.

In modern times, how does it make sense to add up as one collective product the cars of one manufacturer, produced with the intent and effect of bankrupting their competitors, with the cars produced by those they bankrupted? How does it make sense to add up the management consultancy suggesting firing a bunch of workers with the products those workers produced before they got fired as one collective win for capitalism in the UK? In all these cases, the amounts added up belong to their respective, competing owners.

An analogy: when two states wage war against each other, they maintain military hospitals to tend to the wounds of their respective soldiers inflicted by the soldiers of the other side. These hospitals exist with the expressed purpose of breaking the power of the competing state by returning soldiers to the battlefield where their mission is to send the enemy’s soldiers to a hospital or morgue. Certainly, these hospitals are not available for tending to the enemy. Moreover, the better one of the two parties is at patching up its wounded soldiers, the more precarious the situation becomes for the other. Just because there are two numbers with the same unit does not mean it makes sense to add them up: It would be absurd to add up and celebrate the hospitals of these two warring states as humanity’s total sum of healing facilities. Unless you have the power to disregard the purpose for which these hospitals exist, that is.

Returning to private wealth, this power exists in the form of the capitalist state. No one bats an eye when CORE whips out its GDP sums because those kinds of calculations are anything but unworldly. Capitalist states commission GDP statistics on an annual basis, gauging the success of the economies they rule over. Thus, they express that from their standpoint, the wealth held in private hands in their respective societies indeed constitutes one social wealth that they can dispose over as the holders of the monopoly on force. Capitalist states partake in the success of their private economies, deciding on and collecting taxes. The better their economies thrive the better they can pursue their projects, such as looking after their economies, strong-arming other states into some favourable deal, etc. As such, the wealth accumulated in private hands determines the freedoms and limits of a state’s rule.

That is to say, from the standpoint of the capitalist state, adding up the privately held wealth as if it were one wealth – its own – makes sense. This added up wealth, though, is not what economists count as the GDP, as the actions of the state itself are included in the GDP. Furthermore, the fact that the state can add up the private wealth in society does not imply it is an operative economic category. Just as the average marks of a class of pupils may be a metric for their performance in some test, this benchmark score itself does not say anything about why students did well or poorly in this test. Indeed, capitalist states engage with their economies not by abstractly measuring GDP but by tending to the specific needs they identify for boosting economic growth: change a regulation here, tweak a tax, provide some subsidies there etc.

When capitalist states add up the wealth under their rule as one wealth, they do not intend to expropriate this wealth in its entirety. They appreciate wealth in private hands as the economic foundation of their rule. Even more, capitalist states know that partaking in the success of capitalist economies is also to the detriment of these economies: every penny expropriated is a penny that cannot be reinvested. Thus, capitalist states turn to debt. To assess their creditworthiness, creditors routinely apply the debt to GDP ratio. While this measure is about as scientific as the GDP on which it is based, it is nonetheless used (until it isn’t) as a standard.¹⁰ Consequently, GDP develops from a funny idea of economists into an economic datum to be reckoned with. In a modern capitalist economy, everything depends on credit, and credit decisions are routinely made taking the GDP into account.

CORE’s intended learning outcome in Unit 1 is nationalism: the identification of personal wellbeing with the success of the nation and state. CORE first adds up the wealth in separate, competing hands as one wealth and then divides that sum by the members of society because it wants to think of the wealth that its students and most people are excluded from as our wealth: marvel at the success of our economy in the hands of others.¹¹ When my competitor drives me into bankruptcy and uses their new position on the market to extend production, my average living standard rose. When my boss changes production, fires me and uses new machines to extend production, my average living standard rose. This pretends that the private wealth in society is a social good while affirming that it is in private hands. That is, CORE pretends that private property does not exist in its arithmetic to celebrate its successes. To square this circle, CORE appeals to potential or availability. The wealth of society is potentially ripe for the taking, something that each of us could, in principle, acquire if we apply ourselves – the meritocracy says “hi”. In the world of CORE, that accumulated wealth I am excluded from represents an earning potential. CORE’s response to those who point to the actual poverty in modern capitalist societies is that there is a lot of potential wealth in the hands of others to be competed for.

Much wealth

CORE asks:

“How can we explain the change from a world in which living conditions fluctuated if there was an epidemic or a war, to a situation in which most of the time each generation is noticeably, and predictably, better off than the previous one?”¹²

The Economy, Section 1.6

and explains:

“An important part of our answer will be what we call the capitalist revolution: the emergence in the eighteenth century and eventual global spread of a way of organizing the economy that we now call capitalism.”

The Economy, Section 1.6

CORE then “precisely defines” capitalism as

“[a]n economic system in which private property¹³, markets¹⁴, and firms play an important role.”

The Economy, Section 1.6

However, soon after, CORE realises that “playing an important role” is perhaps a bit thin for a definition¹⁵ and more narrowly considers the firm as the characterising feature of capitalism:

“But private property and markets alone do not define capitalism. In many places they were important institutions long before capitalism. The most recent of the three components making up the capitalist economy is the firm.”

The Economy, Section 1.6

CORE gives this definition:

“A firm is a way of organizing production with the following characteristics:

One or more individuals own a set of capital goods that are used in production.

They pay wages and salaries to employees.

They direct the employees (through the managers they also employ) in the production of goods and services.

The goods and services are the property of the owners.

The owners sell the goods and services on markets with the intention of making a profit.”

The Economy, Section 1.6

CORE, firstly, knows that the members of a capitalist economy are split into two classes insofar as production is concerned – those who own capital or firms and those who work for one – and recognises this as a particularity of the capitalist mode of production:

“Firms existed, playing a minor role, in many economies long before they became the predominant organizations for the production of goods and services, as in a capitalist economy. The expanded role of firms created a boom in another kind of market that had played a limited role in earlier economic systems: the labour market.¹⁶ Firm owners (or their managers) offer jobs at wages or salaries that are high enough to attract people who are looking for work.”

The Economy, Section 1.6

CORE, secondly, knows of the driving motive for production in capitalist societies: profit. Not the mere provision of people with what they need and want but a principled more, a surplus counted in money over what was advanced is to be realised. While no actual economic actor pursues the aim of maximising GDP – CORE’s mission assigned to the economy – firms do pursue the aim of maximising their own wealth, a fact which CORE celebrates in its first unit by adding up the successes of these shenanigans as one big win for us all.

CORE then asks:

“How could capitalism lead to growth in living standards?”

The Economy, Section 1.7

and answers: specialisation and technology.

Specialisation

“The growth of firms employing large numbers of workers – and the expansion of markets linking the entire world in a process of exchange – allowed historically unprecedented specialization in the tasks and products on which people worked. In [Section 1.8, CC], we will see how this specialization can raise labour productivity and living standards.“

The Economy, Section 1.7

CORE’s explanation of specialisation from marketisation starts with:

“When you hear the word ‘market’ what word do you think of? ‘Competition’ probably is what came to mind. And you would be right to associate the two words.

But you might have also come up with ‘cooperation’. [We totally didn’t, CC] Why? Because markets allow each of us pursuing our private objectives to work together, producing and distributing goods and services in a way that, while far from perfect, is in many cases better than the alternatives.”

The Economy, Section 1.8

Observing that this society organises the production and distribution of goods in the form of competition, CORE invites the reader to only keep in mind that there is production and distribution going on. CORE illustrates the benefits of the market with an example which introduces us to Carlos and Greta. They have different resources when it comes to producing apples and wheat. In such a situation, we would say that it makes sense for the two of them to have a little chat about how many apples and wheat they want/need, how to best organise their production, how to make use of the resources available to them, whether they want to specialise and how etc.

Yet this straightforward approach to the production of apples and wheat is not what Carlos and Greta engage in as we meet them in Unit 1. The reason is that CORE imagines them as private proprietors as they frequent the market in order to play a game of “what if there was no market”. The two forms of division of labour that exist for CORE are “no division of labour” and a market. From this premise CORE derives that some form of division of labour is better than none and this, somehow, ought to be taken as an advantage of the specific form of division of labour under consideration here.¹⁷

CORE’s example does not justify the praise. Here, Carlos happens to be the proprietor of less fertile land than Greta who happens to have a legal title to a more fertile piece of land. Thus, Carlos has to make do with whatever resources he happens to have a legal right to. Under these restrictions of the regime of private property where Carlos is excluded from Alice’s land and vice versa, CORE suggests the production of apples to Carlos, because his land is relatively less bad for the production of apples than wheat. That is, CORE suggests a way of working with the restrictions imposed by private property. Nothing in CORE’s example engages with the constraints imposed by the labour process itself to achieve the best outcome but instead it deals with the effects of the very regime that it intended to promote. Somehow, this ought to convince the reader that a mode of production, where you may or may not happen to have a legal right to the adequate means of production and where you must make do regardless, is “a way of connecting people” “in many cases better than the alternatives”.

On the other hand, CORE also knows “a way of connecting people” that deserves the same praise as the freedom of the market, namely its opposite: command in a firm.

“So when the owner of a firm interacts with an employee, he or she is ‘the boss’.

The Economy, Section 1.7

CORE is not quite happy, though, with what it, following Adam Smith, has arrived at here for a firm and suggests to simply pretend that what it described is the opposite:

“This description of the firm stresses its hierarchical nature from top to bottom. But you can also think of the firm as a means by which large numbers of people, each with distinct skills and capacities, contribute to a common outcome, the product [they somehow forgot to add ‘which the owners sell on markets with the intention of making a profit’, CC]. The firm thus facilitates a kind of cooperation among specialized producers that increases productivity.”

The Economy, Section 1.8

While we are at it, you can also think of firms as a means for organising Christmas parties and, by the same logic, a slave driver as facilitating “a kind of cooperation […] among producers that increases productivity”.

The sleight of hand here is the same as above: from the fact that in this economy production is organised under the command of capitalist firms and their agents, the reader is invited to keep in mind only that there is some sort of production going on. CORE’s praise for the particular institutions of capitalism proceeds by ignoring their specific nature and praising a truism: this division of labour – markets – in society is a good division of labour because it is a division of labour, that other division of labour in a factory – command – is a good division of labour because it is a division of labour.

What is even better than one form of division of labour? An unusual mix of two forms of divisions of labour! The “boss” quote above continues:

“But when the same owner interacts with a potential customer he or she is simply another person trying to make a sale, in competition with other firms. It is this unusual combination of competition among firms, and concentration of power and cooperation within them, that accounts for capitalism’s success as an economic system.”¹⁸

The Economy, Section 1.7

We may wonder why this particular mix accounts for capitalism’s success, but CORE’s explanation is as circular as the rest of its theory: capitalism is successful and we observe this mix.

Technology

“As we have seen, the permanent technological revolution coincided with the transition to firms as the predominant means of organizing production. This does not mean that firms necessarily caused technological change. But firms competing with each other in markets had strong incentives to adopt and develop new and more productive technologies,¹⁹ and to invest in capital goods that would have been beyond the reach of small-scale family enterprises.²⁰”

The Economy, Section 1.7

In The Economy there is no distinction between productive and unproductive labour or any of that Marxist stuff,²¹ but somehow the authors know that people make all that wealth which is counted in money, and they do this by turning previously produced capital goods – machines, raw materials, etc. – into more products which are then sold for more money than was advanced for their production.

For CORE, though, the relationship between technology and people is somewhat inverted. On technology, CORE explained in an earlier Section:

“In everyday usage, ‘technology’ refers to machinery, equipment and devices developed using scientific knowledge. In economics, technology is a process that takes a set of materials and other inputs – including the work of people and machines – and creates an output. For example, a technology for making a cake can be described by the recipe that specifies the combination of inputs (ingredients such as flour, and labour activities such as stirring) needed to create the output (the cake). Another technology for making cakes uses large-scale machinery, ingredients and labour (machine operators).”

The Economy, Section 1.4

Thus, we learn that cake making takes the work of people as input and it produces an output. The subject of the labour process is a technology, the actual subjects of this process – the people doing it – are its inputs or objects. On the one hand, this is upside down, technology never takes labour as an input: people in their process of production make use of technology. On the other hand, it is not surprising that disciples of the capitalist mode of production characterise the relationship between technology and workers this way. Workers on a modern factory floor are not the subjects of the process of production they are engaged in. Instead, their firm’s owners decide on what ought to be produced, how and with what intensity. The firm’s owners are the subject of production and indeed apply workers and machines as they see fit. They design that process to ensure that workers do what they want of them, applying and designing technology with this purpose in mind. That is, their purpose of profit making is programmed into the technology that confronts their workers.²² Workers are human resources as CORE highlights in a comparison with those “small-scale family enterprises”:

“Contrast this [a firm, CC] with a successful family farm. The family will be better off than its neighbours; but unless it turns the family farm into a firm, and employs other people to work on it, expansion will be limited. If, instead, the family is not very good at farming, then it will simply be less well off than its neighbours. The family head cannot dismiss the children as a firm might get rid of unproductive workers.²³ As long as the family can feed itself there is no equivalent mechanism to a firm’s failure that will automatically put it out of business.”

The Economy, Section 1.6

CORE is not coy about the role of workers in a capitalist firm: they eat if and only if the performance that their wage pays for contributes to a firm’s profit. With its celebration of hiring and firing workers and their application by technology, CORE implicitly addresses the core of the matter that explains the wealth growth that it set out to explain: squeezing more work out of workers than is required for their own reproduction.

Little cake, much work

At the beginning of Unit 1, CORE identifies the total social product and total social income.²⁴ GDP measures how much stuff is produced in a given time. Insofar as income ought to represent living standards, it must express what is available for consumption, products to be enjoyed.²⁵ However, part of the annual product has to be used to replace capital goods so that machines, raw materials etc. are again available in the next year. These goods are not for anyone’s consumption, they simply replace the goods used up in production. For example, let us return to Grete producing wheat and let us assume 10% of all wheat needs to be sown again to produce wheat next year. Then, 10% of the annual product of wheat are not available for individual consumption, but need to be retained in production.²⁶

Now, if Grete follows CORE’s advise to maximise production and expands her wheat production, more of this year’s wheat needs to be set aside for becoming seeds. Since GDP in the form of capital goods is a central premise for future GDP growth, making many things which can be used next year to make even more things ought to be prioritised over making things which are consumed unproductively; machines not Xboxes. Put differently, as a society, simply eating up your GDP sins against the objective of maximising it. The demand for GDP growth is a demand against the members of society to consume little. Thus, when firms pursue growth through profits and optimise the wage for this purpose,²⁷ they realise the objective of maximising GDP. Insofar as wages can be reduced without negatively affecting outputs, low wages are demanded from the standpoint of maximising GDP. Workers will merely consume their wages, profits can be reinvested to make even more profits, i.e. “living standard”.²⁸ A society which aims to maximise the GDP strives to waste as little wheat as possible for such unproductive goods as cake. Instead, it maximises the percentage of wheat it sows out again each year to produce even more wheat.

According to the logic of maximising GDP, if someone in a society figures out how to make nuclear weapons or underpants faster and then uses this productivity increase to make more of underpants to wear themselves or nuclear weapons to drop on others, “living standards” rise. If they simply use this productivity increase to get Friday afternoon off, living standards do not rise. If the members of a society all work additional night shifts for those nuclear weapons – you know, for the fatherland – living standards would rise, too. In order to maximise the GDP, the members of society must be applied by technology, i.e. work, a lot. Working longer produces more and, hence, from the standpoint of maximising GDP working long hours is demanded.²⁹ Increases in productivity, i.e. employing labour saving technologies, do not alleviate this demand: from the standpoint of maximising output, being able to produce more per hour does not imply less hours but the same hours which now simply produce more output.³⁰

A society with the purpose of maximising GDP, i.e. the kind of society CORE advocates for, positions itself in opposition towards the mere consumption and free time of its workers. The more they work and the less they consume the better for the growth of the GDP.

Thus, when CORE concludes:

“We have seen that the institutions associated with capitalism have the potential to make people better off, through opportunities for both specialization and the introduction of new technologies, and that the permanent technological revolution coincided with the emergence of capitalism.”

The Economy, Section 1.9

This should read: the advent of capitalism allowed firms to accumulate wealth at an unprecedented rate and in their pursuit of profit they use technology to squeeze more work out of their workers. Great stuff.

The travails of capitalism

CORE finishes Unit 1 with:

“Countries differ in the effectiveness of their institutions and government policy: not all capitalist economies have experienced sustained growth [gasp!, CC]. Today, there are huge income inequalities between countries, and between the richest and poorest within countries. And the rise in production has been accompanied by depletion of natural resources and environmental damage, including climate change.”

The Economy, Section 1.12

The Economy is a critical textbook and does not fail to mention that there are problems: poverty and the depletion of resources.³¹ These, however, are not considered as results of private property, markets and firms and the economic laws they imply but express a lack of “effectiveness” of “institutions and government policy”. Instead of investigating its object as what it is, it is neatly divided into its nice, essential and naughty, accidental parts.

With discussing poverty and pollution in this way, CORE manages to pigeon-hole them as secondary problems: they never pose any real questions to the capitalist mode of production, its beauty is presupposed from the beginning and where it is not, the object is redefined until it is. As far as CORE is concerned, capitalism is great, GDP measures living standard and when the reality of this mode of production rears its head: there lies a policy challenge.

Thus, at the end of Unit 1, CORE makes good on its promise to deal with capitalism’s image problem in economics teaching. Everyone involved – teachers and students – can feel content and critical at the same time: “Capitalism is rather good, but there are also many challenges.”

CORE considers previous economics textbooks to be insufficient, fearing that students will find these expositions of capitalism absurd in light of their negative experiences. CORE does not address this with new arguments or ideas – all of those gathered in Unit 1 can also be found in the previous textbooks CORE wants to stand out from. CORE simply pulls certain considerations, which come later in other textbooks, into its first unit. The reason is that CORE considers these thoughts to be useful in directly and clearly communicating: “yes, there are problems, but capitalism is actually incredibly effective and good”. Previous textbooks have tried this with the theorem of insatiability.³² CORE is now choosing GDP. That is all there is to this new approach.

Hence, those who read The Economy lured by its promise of an economics textbook committed to the “experience of real life“ will be disappointed: it does not avoid the mistakes of previous textbooks and thus does not given an adequate account of the capitalist mode of production.

The CORE Team, The Economy, 2017, https://www.core-econ.org. ↩
https://www.core-econ.org/universities-using-core/ ↩
Bowles, S., Carlin, W. and Stevens, M. (2017). “The Capitalist revolution”. Unit 1 in The CORE Team, The Economy. Available at https://www.core-econ.org/the-economy/book/text/01.html. We learned many of the arguments presented in this text by reading Capital by Karl Marx. Thus, occasionally we throw in a reference to Capital to make this connection explicit. Readers unfamiliar with Capital can simply ignore these footnotes. Page numbers refer to the respective Penguin editions. ↩
For a textbook that asks “Why has the subject of economics become detached from our experience of real life?” in its preface, this is a bold move: speaking to classrooms full of people who have reason to believe that they are worse off than their parents due to the financial crisis and its aftermath, CORE talks about the year 1000 AD. ↩
Prior to the “capitalist revolution”, almost no one made a living by “producing and selling goods and services”. Even after the “capitalist revolution”, this is still true for most people even in the capitalist centres of the world: most people have to sell their ability to work. For this outrageous Marxist claim we have to look no further than Unit 9: “The labour market functions quite differently from the bread market described in the previous unit because firms cannot purchase the work of employees directly but only hire their time.” ↩
While an appeal to equality might make common sense, it deserves critique. When people judge their own situation in comparison with others, they abstract from their actual needs and desires. Simply put, their unhappiness with receiving less can be addressed by given everybody else less too. The proverbial race to the bottom. This way, everybody is worse off, but according to the standard of equality all is well. To lament that your neighbour drives a bigger car will never fix your crappy car. See Benefit envy without benefit available at https://antinational.org/benefit-envy-without-benefit/ ↩
For a given purpose different things can be better or worse: for painting a ceiling a ladder is better than a wobbly chair, but the latter will do. ↩
“This common element cannot be a geometrical, physical, chemical or other natural property of commodities. Such properties come into consideration only to the extent that they make the commodities useful, i.e. turn them into use-values. But clearly, the exchange relation of commodities is characterized precisely by its abstraction from their use-values. Within the exchange relation, one use-value is worth just as much as another, provided only that it is present in the appropriate quantity. Or, as old Barbon says: ‘One sort of wares are as good as another, if the value be equal. There is no difference or distinction in things of equal value… One hundred pounds worth of lead or iron, is of as great a value as One hundred pounds worth of silver and gold.’ As use-values, commodities differ above all in quality, while as exchange-values they can only differ in quantity, and therefore do not contain an atom of use-value.” – Karl Marx, Capital Vol 1, p.127 ↩
This idea was already criticised by Marx in its formulation by Adam Smith, see below. ↩
See “Sovereign debt and economic performance” in Sovereign debt and the crisis in the Eurozone available at https://antinational.org/media/sovereign-debt.pdf ↩
When Unit 1 divides total social wealth by the members of society, CORE does not attempt to explain how this wealth comes about, i.e. this is not some “labour theory of value” in disguise. The economic content of GDP per capita is exhausted in the pure formalism of the quotient: GDP/capita. The arbitrary nature of this relationship is illustrated not least by the fact that economists also put GDP in relation to machine hours or to the floor space used for economic purposes in order to derive the respective productivity measures. ↩
So much for not being “detached from our experience of real life” of a student generation universally agreed to be worse off than the previous. ↩
“[Private property] means that you can: enjoy your possessions in a way that you choose; exclude others from their use if you wish; dispose of them by gift or sale to someone else … ; … who becomes their owner” (The Economy, Section 1.6) This account of private property is straight from a “get of my land” wild west fantasy, where self-sufficient farmers tend to their respective lands independently of each other. As far as CORE is concerned, private property protects the enjoyment of possessions, but in modern capitalism no commodity enters this world with the purpose of being enjoyed by its proprietor. Rather, commodities are produced in order to be exchanged against money and private property protects this purpose. In other words, they are produced for the consumption of others under the little condition that those others can pay. Then, when everyone excludes everyone else from their products in order to extract money, it is in no way a personal, idiosyncratic choice to “exclude others from their use if you wish” or to dispose of what you have “by gift or by sale”. Rather, insisting on sale over gift is the strategy implied by these social relations.

CORE pays the compliment to private property that it protects what happens to be yours: “‘The poorest man may in his cottage bid defiance to all the forces of the Crown. It may be frail, its roof may shake; the wind may blow through it; the storms may enter, the rain may enter—but the King of England cannot enter; all his forces dare not cross the threshold of the ruined tenement.’ – William Pitt, 1st Earl of Chatham, speech in the British Parliament (1763).” (The Economy, Section 1.6) If what happens to be yours does not amount to anything worth mentioning, well, tough luck, private property also protects the vast amount of wealth that happens not to be yours … from you. For most people private property means that they cannot enjoy what the need and want as they are excluded from the means of satisfaction and production by others who insist on only disposing of them by sale. Because this is the economic norm in e.g. the UK, the British State, recognising that the economy it rules over does not even provide minimal sustenance to its participants, provides benefits. Where this, too, does not suffice, the occasional food bank deviates from the “by sale” norm and disposes of food “by gift” to the most needy. ↩
“Markets are: a way of connecting people who may mutually benefit; by exchanging goods and services; through a process of buying and selling” (The Economy, Section 1.6) Markets are defined as mutually beneficial by mere fact that people decide to exchange: “They are voluntary: Both transfers – by the buyer and the seller – are voluntary because the things being exchanged are private property. So the exchange must be beneficial in the opinion of both parties.” (The Economy, Section 1.6) Paying 50%+ of your wages on rent in London is clearly beneficial to you. Proof: you are living in London, otherwise you’d move to Slough. CORE, the textbook that wants to teach us about the “economics of inequality” has never heard of only bad options to choose from. ↩
Other institutions that play an important role are e.g. banks or the welfare state, so did the steam engine and does oil. The list of important things is ever expanding. ↩
The actual relationship between labour market and firms is not as one way as CORE claims. The separation of people from their means of production, to turn them into wage labourers, is a prerequisite for capital: “In themselves, money and commodities are no more capital than the means of production and subsistence are. They need to be transformed into capital. But this transformation can itself only take place under particular circumstances, which meet together at this point: the confrontation of, and the contact between, two very different kinds of commodity owners; on the one hand, the owners of money, means of production, means of subsistence, who are eager to valorize the sum of values they have appropriated by buying the labour-power of others; on the other hand, free workers, the sellers of their own labour-power, and therefore the sellers of labour. Free workers, in the double sense that they neither form part of the means of production themselves, as would be the case with slaves, serfs, etc., nor do they own the means of production, as would be the case with self-employed peasant proprietors. The free workers are therefore free from, unencumbered by, any means of production of their own. With the polarization of the commodity-market into these two classes, the fundamental conditions of capitalist production are present. The capital-relation presupposes a complete separation between the workers and the ownership of the conditions for the realization of their labour. As soon as capitalist production stands on its own feet, it not only maintains this separation, but reproduces it on a constantly extending scale. The process, therefore, which creates the capital-relation can be nothing other than the process which divorces the worker from the ownership of the conditions of his own labour; it is a process which operates two transformations, whereby the social means of subsistence and production are turned into capital, and the immediate producers are turned into wage-labourers. So-called primitive accumulation, therefore, is nothing else than the historical process of divorcing the producer from the means of production. It appears as ’primitive’ because it forms the pre-history of capital, and of the mode of production corresponding to capital.” – Karl Marx, Capital Vol 1, p.874 ↩
“This division of labour is a necessary condition for commodity production, although the converse does not hold; commodity production is not a necessary condition for the social division of labour. Labour is socially divided in the primitive Indian community, although the products do not thereby become commodities. Or, to take an example nearer home, labour is systematically divided in every factory, but the workers do not bring about this division by exchanging their individual products. Only the products of mutually independent acts of labour, performed in isolation, can confront each other as commodities.” – Karl Marx, Capital Vol 1, p.131, the English translation is a bit off here: “primitive Indian” ought to be translated as “old Indian” and “performed in isolation” should be translated as “private” as in “private property”. ↩
“The same bourgeois consciousness which celebrates the division of labour in the workshop, the lifelong annexation of the worker to a partial operation, and his complete subjection to capital, as an organization of labour that increases its productive power, denounces with equal vigour every conscious attempt to control and regulate the process of production socially, as an inroad upon such sacred things as the rights of property, freedom and the self-determining ’genius’ of the individual capitalist. It is very characteristic that the enthusiastic apologists of the factory system have nothing more damning to urge against a general organization of labour in society than that it would turn the whole of society into a factory.” – Karl Marx, Capital Vol 1, p.477 ↩
Under capitalism, though, labour saving technology is only employed if it is cheaper than the wage: “The use of machinery for the exclusive purpose of cheapening the product is limited by the requirement that less labour must be expended in producing the machinery than is displaced by the employment of that machinery. For the capitalist, however, there is a further limit on its use. Instead of paying for the labour, he pays only the value of the labour-power employed; the limit to his using a machine is therefore fixed by the difference between the value of the machine and the value of the labour-power replaced by it.” – Karl Marx, Capital Vol 1, p.515 ↩
“The battle of competition is fought by the cheapening of commodities. The cheapness of commodities depends, all other circumstances remaining the same, on the productivity of labour, and this depends in turn on the scale of production. Therefore the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which large-scale industry has taken control of only sporadically or incompletely. Here competition rages in direct proportion to the number, and in inverse proportion to the magnitude, of the rival capitals. It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, and partly vanish completely.” – Karl Marx, Capital Vol 1, p.776 ↩
Well, implicitly there is: the production of economic textbooks is included in its sums of social wealth, the production of texts criticising these textbooks is not. CORE’s distinction between productive vs unproductive labour is whether something is sold (or is an action of the state) or not. ↩
“In handicrafts and manufacture, the worker makes use of a tool; in the factory, the machine makes use of him. There the movements of the instrument of labour proceed from him, here it is the movements of the machine that he must follow. In manufacture the workers are the parts of a living mechanism. In the factory we have a lifeless mechanism which is independent of the workers, who are incorporated into it as its living appendages.” – Karl Marx, Capital Vol 1, p.548 ↩
“Yet the concept of productive labour also becomes narrower. Capitalist production is not merely the production of commodities, it is, by its very essence, the production of surplus-value. The worker produces not for himself, but for capital. It is no longer sufficient, therefore, for him simply to produce. He must produce surplus-value. The only worker who is productive is one who produces surplus-value for the capitalist, or in other words contributes towards the self-valorization of capital. If we may take an example from outside the sphere of material production, a schoolmaster is a productive worker when, in addition to belabouring the heads of his pupils, he works himself into the ground to enrich the owner of the school. That the latter has laid out his capital in a teaching factory, instead of a sausage factory, makes no difference to the relation. The concept of a productive worker therefore implies not merely a relation between the activity of work and its useful effect, between the worker and the product of his work, but also a specifically social relation of production, a relation with a historical origin which stamps the worker as capital’s direct means of valorization. To be a productive worker is therefore not a piece of luck, but a misfortune.” – Karl Marx, Capital Vol 1, p.644 ↩
As mentioned above, this mistake goes back to Adam Smith: “The whole price or exchangeable value of that annual produce must resolve itself into the same three parts, and be parcelled out among the different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land.” (Adam Smith, Book II: On the Nature, Accumulation, and Employment of Stock, Chapter 2) Marx commented: “This is literally all that Adam Smith has to say in support of his astonishing doctrine. His proof consists simply in the repetition of the same assertion. He concedes, by way of example, that the price of corn not only consists of (v+s) [wages + profit, CC], but also of the price of the means of production consumed in the production of corn, i.e. that it consists of a capital value that the farmer did not invest in labour-power. Nevertheless, he says, the prices of all these means of production can themselves be decomposed, just like the price of corn itself, into (v+s). Smith simply forgets to add: as well as into the price of the means of production used up in their own creation. He refers us from one branch of production to another, and from this again to a third. The statement that the entire price of commodities is either ’immediately’ or ’ultimately’ resolvable into (v+s) would only cease to be an empty subterfuge if Smith could demonstrate that the commodity products whose price is immediately resolved into (c) (the price of the means of production consumed) (+ v+s) are finally compensated for by commodity products which entirely replace these ‘consumed means of production’, and which are for their part produced simply by the outlay of variable capital, i.e. capital laid out on labour-power. The price of these latter commodities would then immediately be (v+s). And in this way the price of the former, too, (c+v+s), where (c) stands for the component of constant capital, would be ultimately resolvable into (v+s). […] Smith’s first error, then, is to equate the value of the annual product with the annual value product. The latter is simply the product of the current year’s labour; the former includes, on top of this, all those elements of value that were used in the production of this annual product, but which were produced in the previous year and partly in still earlier years: means of production whose value only re-appears – and which, as far as their value is concerned, have been neither produced nor reproduced by the labour spent during the current year. This confusion enables Adam Smith to juggle away the constant component in the value of the annual product. The confusion is itself based on a further error in his fundamental conception. He does not distinguish the twofold character of labour itself: labour that creates value, by the expenditure of labour-power, and labour that creates objects of use (use-values), as concrete useful labour. The total sum of commodities annually produced, i.e. the total annual product, is the product of the useful labour operating in the current year; it is only by the social application of labour in an intricate system of varieties of useful labour that all these commodities have come into being; it is only in this way that the value of the means of production used up in their production is retained in their total value, and reappears in a new natural form. The total annual product is thus the result of the useful labour expended during the year; but only one part of the value of this product has been created during the year ; this part is the annual value product, which represents the amount of labour actually performed during the year itself.” (Karl Marx, Capital Vol 2, p.450-453) ↩
“Income: The sum of all the incomes received, comprising wages, profits, the incomes of the self-employed, and taxes received by the government.” – The Economy, Unit 13. ↩
In CORE’s arithmetic of the GDP, this part of the annual product does not appear as it is neither profit, wages, income of self-employed person or tax. ↩
The optimal wage is not necessarily the lowest wage, see Does capital always aim to suppress wages? available at https://antinational.org/en/wage-and-profit-rate/ ↩
Before some jokester suggests the counter point that high wages stimulate demand which in turn stimulates accumulation: the same holds true for demand created by investments, where it means accumulation on both the buying and the selling side. Secondly, if high wages were the key to successful capitalist accumulation, a minimum wage of £5,000 and up would be in order; the sky is the limit. However, the moderate wage demands by those who put forward such fixes express that they do not really believe in their own argument. See Jobs, Growth, Justice - an alternative that isn’t available at https://antinational.org/en/jobs-growth-justice-an-alternative-that-isnt/ ↩
“The prolongation of the working day beyond the point at which the worker would have produced an exact equivalent for the value of his labour-power, and the appropriation of that surplus labour by capital – this is the process which constitutes the production of absolute surplus-value. It forms the general foundation of the capitalist system.” – Karl Marx, Capital Vol 1, p.645 ↩
“The shortening of the working day, therefore, is by no means what is aimed at in capitalist production, when labour is economized by increasing its productivity.8 It is only the shortening of the labour-time necessary for the production of a definite quantity of commodities that is aimed at. The fact that the worker, when the productivity of his labour has been increased, produces say ten times as many commodities as before, and thus spends one-tenth as much labour-time on each, by no means prevents him from continuing to work 12 hours as before, nor from producing in those 12 hours 1,200 articles instead of 120. Indeed, his working day may simultaneously be prolonged, so as to make him produce say 1,400 articles in 14 hours.” – Karl Marx, Capital Vol 1, p.437 ↩
The Economy dedicates the whole of Section 1.5 to the environmental impact of capitalism: “Through most of their history, humans have regarded natural resources as freely available in unlimited quantities (except for the costs of extracting them). But as production has soared (see Figures 1.1a and 1.1b), so too have the use of our natural resources and degradation of our natural environment. Elements of the ecological system such as air, water, soil, and weather have been altered by humans more radically than ever before.” But, once again, mentioning the “downsides” is not meant as the starting point for discussing why and how “capitalist production […] only develops the techniques and the degree of combination of the social process of production by simultaneously undermining the original sources of all wealth – the soil and the worker.” (Karl Marx, Capital Vol 1, p.638).

In Section 1.5, the effects of capitalism are held against humanity as a whole and the solution is, naturally, more of the same: “But the permanent technological revolution – which brought about dependence on fossil fuels – may also be part of the solution to today’s environmental problems. Look back at Figure 1.3, which showed the productivity of labour in producing light. The vast increases shown over the course of history and especially since the mid-nineteenth century occurred largely because the amount of light produced per unit of heat (for example from a campfire, candle, or light bulb) increased dramatically. In lighting, the permanent technological revolution brought us more light for less heat, which conserved natural resources – from firewood to fossil fuels – used in generating the heat. Advances in technology today may allow greater reliance on wind, solar and other renewable sources of energy.” Thus, Unit 1’s way of addressing climate change is hoping that the next generation of technology in the service of maximising “living standards”-née-accumulation of capital may not destroy the planet while simultaneously suggesting that the maximisation of GDP is bliss. Under this premise the light/heat ratio is irrelevant as any improved efficiency merely translates to the production of more light.

The Economy does not leave the destruction of the planet up to chance and writes “climate change resulting from economic activity is a major threat to future human wellbeing, and it illustrates many of the challenges of designing and implementing appropriate environmental policies.” (Unit 20) and fails to see the indictment about the capitalist mode of production that this sentence is: only the superior force of the state can prevent this economy from destroying the natural environment we all depend on. The effects of capitalism that CORE appreciates are results of private property, markets and firms. The effects of capitalism that CORE does not like so much are humanity’s sins and a question of regulation. ↩
This posits that the fundamental problem of economics is the coordination of insatiable desires with scarce resources. ↩

“I pay my taxes” – so what?!

Wed, 29 Jul 2026 20:08:22 +0000

Every year the super-rich get together in Davos to pat themselves on the back about the ‘good work’ they’re doing. If they were really interested in making the world a better place they would PAY THEIR TAX!

UK Uncut

Some people feel good because they pay their taxes. For a left-wing person, they may feel that they deserve more NHS, for a right-wing person more responsible spending. These arguments often start from the person saying ‘I pay my taxes…’. We say – so what?

The relationship between the taxpayer and the state is quite different from what is imagined in the mind of a tax justice campaigner. This text aims to give a short account of how taxes work to challenge these ideas.

Taxes are taken by force

“I feel proud that I pay tax and contribute.” (Male, B, Labour voter, Exeter)

Daisy-Rose Srblin, The Tax Detox

When people are proud to pay for what they like or insist that they are not paying for whatever they’re objecting to – be it Trident or “benefit scroungers” – they are mistaken about the relationship that is taxation. The state does not make itself dependent on the ideas of its hard-working citizens. The payment of taxes is something which individuals and companies are compelled rather than requested to do.

Tax rates are set by parliament, as well as any exemptions and tax allowances. The state considers any economic activity within its borders as a potential source of revenue and chooses to levy taxes in various forms on income, sales, profits, investments and so on.

The state declares how much of any particular economic activity constitutes its cut. According to the rules it sets, HMRC then collects taxes from citizens. A failure to pay results in sanctions and ultimately legal proceedings.

So, yes, you are paying for Trident.

You don’t get anything in exchange for paying your taxes – the state spends where it wants

Taxation is a fundamental part of state-building and democracy. Collective bargaining around tax revenue creates a ‘social contract’ between people who pay taxes and vote for political parties, and officials who are expected to raise and spend those revenues in a way that benefits the constituents who elected them.

Tax should be understood

“What am I getting for my money? … A very good education system, a fabulous NHS, emergency services [that] are one of the best in the world, as are our defences…everything that you see around you really. Look out the window and you know, the highways are all paid for, street lighting – all those kinds of bits and pieces” (Male, C1, Conservative voter, Leicester)

Daisy-Rose Srblin, The Tax Detox

People often think they pay their taxes in exchange for some service from the government. This is wrong. Once the state has collected taxes from companies and individuals, the state decides how it spends the money.

Tax justice campaigners think that because they pay taxes they can expect certain things from the government: healthcare, ‘good’ schools, etc. Taxation is not restricted to a particular service or activity. The money used to finance Trident comes from the same pot as the one used to shape young minds to the demands of the labour market.

The state may name the different taxes according to their source and advertise how it uses them as a service to those it takes them from, but it always has the last say in how they are spent.

The budget is the way in which the government rules. The state doesn’t directly command the economy instead it makes laws and spends money. Through its budget, the state decides which spending is most useful for pursuing the national interest – NHS or prisons? Each potential expenditure is evaluated against each other and whether it is useful in pursuing the standard of the national interest. Put differently, by putting all tax revenue into one big pot from which the various functions of the state are paid, the state enforces that all its activities pursue the same, unified goal of the national interest.

What is the ‘national interest’? Creating the conditions for a capitalist economy

This Government is delivering on the British people’s priorities…
…supporting our public services…
…investing in Britain’s future…
…keeping our taxes low

Philip Hammond, Budget 2018

The state makes itself dependent on tax revenue. In doing so, it presupposes a specific economic order: one in which the state doesn’t directly command what its subjects produce, but where instead it partakes in the economic success of its free subjects’ competition on the market. In other words, when the state decides to collect taxes in money, it presupposes and commits to the existence of a capitalist economy where economic activity is in private hands. The view that corporations impose their agenda on the state portrays the state as their helpless dependent; but as we just saw, the state chooses to partake in their anticipated success, and therefore does what it can to encourage it.

A basic requirement for such an economy is a functioning legal system to ensure the maintenance of private property, which means courts, police forces and prisons. A successful economy also requires healthy and educated workers, which means a health and education system. The state builds roads, railways and airports to make sure goods and services can move easily.

What the state has available to spend depends on how much it collects through taxation. This creates a dilemma for the state. It wants to spend money on creating the conditions for a successful capitalist economy but when it collects taxes it takes money away from this economy. The money that is taken from companies through taxation could instead have been invested in developing new products, raw materials or expansion. More taxation for workers can also be a problem – too much taxation and workers might struggle to make ends meet. So in order to guarantee the success of the economy, the state deprives it of the means to do so.

This dilemma is the source of endless disputes between politicians.¹ One party may take the view that free dental care is worth spending on whilst another party might think that it is more important to fund apprenticeships schemes. The outline of what to spend on appears in election manifestos and politicians argue their case to the public. Since every penny taken by the state is a penny less available to workers and companies, whose success it wants to foster, every proposal can always be criticised for either being a waste of taxpayers money or not enough to stimulate the economy.

Depending on your source of income, these different measures will mean different things for you:

Taxes taken from wages and profits fund the conditions for the misery of wage labour and the continued conditions for making a profit

Genuinely progressive tax systems have more power than any other mechanism to build healthier, happier societies. Put it like that and tax is pretty incredible.

Frances Ryan, I hate doing my tax return – but I still love tax

To a tax justice campaigner, everyone should contribute their fair share from whatever wealth they happen to have. This ignores what taxes are paid from.

Companies pay taxes from profits. A company’s profit is whatever is left over after costs have been paid such as raw materials, tools, buildings and, importantly, wages. The cheaper a company can get the labour they need done, the higher their profits. From the standpoint of a company, a wage is a cost that ought to be optimised. How that optimisation is playing out can be observed by noting that many people live paycheck to paycheck or the fact that the state enforces a minimum wage to prevent companies from paying even less.

What happens when we ignore this difference can be illustrated by left-wing demands for higher taxes for companies to fund social and welfare programmes. Taxing a company’s profits implies the continued production of profits by this company, which, in turn, implies they were successful in optimising their costs, including their wages, for profits. This might, for example, mean lowering wages or making people work longer hours for the same wages. This particular left-wing strategy to tackle poverty presupposes it.

When companies and those who work for one both pay their share of taxes they are at the same time paying for rather different things. For those who have to work to earn a wage each week or month, it means to pay for the continued insecurity of living paycheck to paycheck. For those who employ workers to produce profits, it means to pay for the continued conditions to make such profits.

This dilemma doesn’t have a ‘correct’ solution. See Kittens #3, Sovereign Debt and the Crisis in the Eurozone. ↩

Our NHS

Wed, 29 Jul 2026 20:08:22 +0000

“Whose NHS? Our NHS”

Guardian, Thousands to Join London Protest Over NHS Funding

“Our National Health Service is the essence of solidarity in our United Kingdom – our commitment to each other, between young and old, those who have and those who do not, and the healthy and the sick.”

2017 Conservative Party Manifesto

The former chancellor of the exchequer, Nigel Lawson, once said that the NHS is the closest thing the English have to a religion. He was expressing a truth – that the NHS is almost universally cherished. It is not just the NHS, it is our NHS. This sense of common ownership, of shared pride was broadcast to the world in the opening ceremony of the 2012 Olympics. Conservative politicians posed with the Vote Leave bus’s slogan “We send the EU £350 million a week – let’s fund our NHS instead.” Left wing groups and unions marched in “Our NHS” demonstrations in 2017 and 2018.

Those last two expressions of appreciation for the NHS (divert EU money to the NHS, we need to fight for it) are telling. They speak of an NHS that does not meet the needs of those who depend on it. They tell the story that our NHS does not provide adequate healthcare to us, a point that seems to be almost as universally agreed upon as the appreciation of the NHS itself. It being ours does not seem to imply our needs dictate the healthcare provided. Moreover, when people campaign and demonstrate against the decisions taken over healthcare – the closing of a hospital, the outsourcing of a service – under the slogan “Our NHS” they are doing this because decisions about the NHS are made elsewhere. The decisions that impact on those dependent on NHS healthcare are out of their hands – they are reduced to appeals to and protests against the decisions by those with the power to make them. The slogan “Our NHS” says, first of all, that the NHS is, in fact, not ours. If it was, you would not have to protest.¹

One response to this observation might be to point out that although there are problems with the NHS in its current form, the principles underpinning the NHS – “that it meet the needs of everyone; that it be free at the point of delivery; that it be based on clinical need, not ability to pay” – are still worth cherishing. The first thing to note is that these principles, celebrated across all major political parties² need declaring – they are exceptions from the economic norm. The principle “free at the point of delivery” needs to be declared because otherwise most things cost money. If you need food, housing, or a new TV you have to pay. As trivial as this sounds, this means that “based on need” also does not apply: your need for a new boiler gets you nowhere close to a new boiler. In other words, the principles of the NHS speak of a society where unpleasant economic principles reign supreme. A society that aims to satisfy needs would not require proud declarations that some needs such as healthcare are exempt from the way things are usually done.

Exempting healthcare from the way things are usually done speaks of a society where people are too poor to afford healthcare without state intervention. This is a society in which you might skip a doctors appointment (you have to pay for) because you’d rather spend the money on a weekend away this year (and probably that pain in your stomach is nothing). You might have to shop around for the hip replacement, or some things might simply be completely unaffordable to you and you decide you will have to do without. You could take comfort from the fact that this isn’t how the NHS works but it is really an indictment of how society works in general: left to its own devices people would be so poor that they could not even maintain their health.³

The NHS is run by the same body that enforces, supervises and provides for the economic order that it is an exception to. Without the executive enforcing private property, without the courts settling disputes arising from the universal competition for private property, and without Parliament passing laws regulating the economy and e.g. what level of harm it is allowed to do, the capitalist economy would simply not exist. The state both provides for the conditions that make its subjects too poor to access healthcare and provides them with free healthcare.

It does so because otherwise their poor health would threaten the society the state supervises. Thus, the state has its own criteria by which it decides what level of healthcare it finds suitable for its population. For example, the state decides who must pay for prescription charges and how much. The introduction of certain treatments, e.g. cancer drugs or PrEP are blocked or delayed. Having to wait to be seen or treated is deemed an acceptable feature of medical care. This means that healthcare is always precarious under the NHS by being subject to the budgetary considerations of the state: “How important is this piece of healthcare compared to all my other activities from the standpoint of my purposes”.⁴

This also means that the argument “We fought for it” should leave a bitter aftertaste: if you have to fight for something as mundane as the treatment of an illness that can be treated and the success of this fight depends on whether it fits into the calculations of the capitalist state, this does not speak for the results but against the conditions producing it.

We do not own the NHS, we have no power over it – the NHS is not ours. Rather, we merely depend on it. And, like everybody else, that makes us the object of the calculations of the British State when it asks itself what healthcare needs it finds worth addressing for its population.

Sometimes, ‘our NHS’ simply means the same as ‘our Shakespeare’, i.e. some sense of national pride. That is not a good idea: Since you Mentioned Us ↩
For example see manifestos from Labour, Conservatives, UKIP, Green Party ↩
In other developed capitalist countries the state mandates that its citizens must put some money into an insurance scheme in order to pay for their healthcare – e.g. mandatory insurance schemes in Germany, and the Netherlands. This is simply a different way of handling the same problem – the poverty of the population versus its need for healthcare. A frequent complaint about Obamacare is that the “individual mandate” forces people to purchase health insurance or pay a penalty. That people complain about being required to buy healthcare insurance might seem absurd but it demonstrates the poverty of workers: they have to be forced, through law, to make the purchase of healthcare a priority. For many American workers health insurance is too expensive when compared to all the other things they need. It turns out in a capitalist economy health does have a price. ↩
I pay my taxes” – so what?! ↩

Economics 101: Immigrants Suppress Wages

Wed, 29 Jul 2026 20:08:22 +0000

“It isn’t rocket science. Just as a surplus of anything reduces its cost, so most reputable economists, from Karl Marx¹ to Milton Friedman, have agreed that an over-supply of labour depresses wages.”

Paul Embery, Executive Committee member of the Fire Brigades Union, Labour’s conspiracy of silence on immigration

“Immigration, overall, has made the UK a more productive economy and a more prosperous country – and can do so in the future.”

Jonathan Portes, Professor of Economics and Public Policy, Kings College London, Immigration has made the UK more productive and prosperous - and will again in the future

The “sober” immigration debate is characterised by two opposing viewpoints that have more in common than they like to admit. On the one hand, there are those who appeal to a heady common sense cocktail of nationalism and economics. Immigrants are stealing our jobs, and driving down our wages. It’s simple supply and demand. Too many people chasing too few jobs leads to lower wages. Jobs that should have gone to British people are taken by immigrants.

On the other hand, the counter arguments tend to play on the same terrain. Migration helps our economy. For some proponents “our economy” is enough to rest their case, others claim that a prosperous economy also leads to more jobs for British people. A greater supply of workers increases consumer demand, which in turn leads to more jobs or so the argument goes.

These two viewpoints share the mistake of declaring ownership of something which isn’t theirs: our jobs, our wages and our economy. They also misidentify what is being demanded and supplied on the labour market. As a result, they consider migrants to be the driving force for wage levels, economic growth and unemployment instead of the capitalist firms that make hiring, firing and investment decisions.

Let’s start with what is ours. When you land a job this is the result of successfully competing against other candidates for that job. If you don’t get that job, well, you lost out in the same struggle of all against all. The decision about whether someone is offered a job is not made according to the needs of those seeking a job or whether they deserve it, but by an employer who has their own criteria. These criteria include a cost-benefit analysis of how much it costs to hire someone vs how much they expect to make from the work that someone does. It is a little strange to talk about something being “yours” if you first have to compete for it and then have to continously fear that you may lose it as a result of someone else’s calculations.

When a firm fires its employees because it can find cheaper labour elsewhere, this somehow gets translated into a discussion about those people who are the objects of the same calculation. This way, the subjects of hiring, firing and wage levels – the employers – are exempt from criticism of their calculations. Arse about face.

This switcheroo is put forward in the form of an appeal to a force-of-nature like phenomenon: supply and demand. Economics 101.

Yet, this fails to account for what is being demanded for which purpose.

First, companies are not interested in hiring workers as such but they are interested in getting work out of these workers. For example, when a firm wants to get more work done (say to increase output), this does not necessarily mean they will hire more workers. Instead, it can demand that workers take less breaks, as Amazon does in their warehouses by controlling bathroom times. Another common tactic is to extend the working day (with or without overtime pay). Indeed, companies are so eager to and successful in deploying this tactic that the State feels compelled to intervene and regulate the maximum amount of hours companies can demand from their workers, lest they work them into the ground and deprive the economy of this precious resource.

The reason why companies need to be prevented by force from pursuing this strategy is that capitalist firms do not demand labour but profitable labour. Workers are hired only on the calculation that they will contribute to the creation of profit, they make stuff worth more money than has been paid out to hire them. Investors judge industries by how much profit they promise compared to the rest of the economy: if an industry only provides below average profits it becomes less interesting compared to other branches of industry and vice versa. In this calculation, the wage is a cost factor to be minimised relative to output. Here, cutting bathroom times increases output relative to the same wage and overtime (even paid) is often a better deal than hiring a new person. This is also why the experience of being asked to do more work for the same wage is so common.

Companies extending production is what the pro-immigration side of the debate appeals to when it points out that increased migration produces economic growth which then translates to more demand for labour and thus more jobs and/or higher wages. What this extension of production presupposes is successful profit making. For a company to increase production it needs to have accumulated additional money that can now be turned into new machines, buildings and wages. This money is the result of earning more from sales than was paid on raw materials, tools and wages.² In other words, the premise of the promised job wonder is that companies successfully managed to extract the money equivalent of more work out of their workers than is needed for their wages. The promise of high wages is off the back of comfortably low wages, allowing companies to make and invest profits.

If firms simply increase their production – buying more of the same machines, hiring more workers – this may lead to an increase in wages due to increased demand. Now, either these higher wages are compatible with further economic growth, i.e. those wages are still low enough for the purpose for which they are paid, or they are not. In the latter case, economic growth slows down and wages fall. The same might happen in the event of new anti-immigration legislation: either wage levels increase and stay high because they are low enough for economic growth or they fall as it slackens. Either which way, the reason why wages are high or low is the dynamic of accumulation of capital: profit making on the backs of workers and re-investment of those profits.

However, not all else is equal. Capitalist economic growth does not simply take the form of more of the same. Rather, companies deploy labour saving technologies, e.g. better, more productive machines, to produce cheaper, beating the competition on price. When a more productive technology allows to get £1000 per-worker out of 4 workers, instead of £600 per-worker out of 6 workers, then it overcomes the limitations of the number of available workers, perhaps imposed by stricter migration controls. This way, some workers might also be made redundant, leading to increased competition on the labour market, suppressing wages. Once again, we find that whether the accumulation of capital leads to rising or falling wages depends on itself: does it expand by hiring more workers in the ratio as it grows or does it deploy labour-saving techniques relatively diminishing the demand for labour.

The demand for work can therefore go up even as people flood through the borders, or go down even though not a single new soul enters the labour market. What determines demand is the rate of capital’s expansion, and the availability of workers at profitable rates. Workers are mere dependants in this relationship. Moreover, capital is playing both sides: its own accumulation creates the demand for labour and slackens it. Its own low demand (low wages) creates the conditions for high demand (rapid expansion, high wages) which then again creates the conditions for low demand. Capitals’ own techniques of increasing productivity modulate the supply of labour made redundant. The fundamental determination of wage levels is by the accumulation of capital, not by some poor suckers looking for a job like everybody else.

“Their ignorance and complete misunderstanding of the facts are worthily paralleled by the economists, who interpret the above phenomena of accumulation by saying that in one case there are too few, and in the other, too many wage-labourers in existence.” (Karl Marx, Capital, Volume 1, Chapter 25, p.771) ↩
With credit the situation changes somewhat: a company does not need to invest money that it earned already. Yet, a bank will still judge the company’s creditworthiness based on its previous ability to turn a profit. ↩

Housing Crisis

Wed, 29 Jul 2026 20:08:22 +0000

“In order to solve the UK housing crisis, the Government has set a target of building one million new homes in England by the end of the parliament in 2020 or 200,000 every year.”

Telegraph, How to solve the housing crisis/

“Housing is the greatest domestic challenge facing our country. Currently, there are 277,000 homeless households, including over 4000 rough sleepers. A staggering one million households are on the housing waiting list. A whole generation of young people have been shut out from home ownership and older people are increasingly getting trapped in the private rented sector too – by 2040, up to one-third of 60 year olds will be renting privately. More people in the private rented sector is bad news for everyone but landlords; rents are higher, conditions are poorer and tenancies are less secure than in the social sector.”

Novara Media, Why Labour needs a more radical housing policy

“This attempt by Newham Council to displace the mothers from London, removing them and their children from their families and local support networks, is just one example of a city-wide process of social cleansing, with low income people being forced to the fringes of London and beyond by soaring rents, benefit cuts, and a shortage of social housing.”

Focus E15, About

Housing is in crisis. Virtually everyone agrees, from the Conservative government to radical activists. The cost of having a roof over your head is, in some areas, becoming so high it threatens people’s ability to house themselves, and many more have to continuously weigh other basic purchases against the need to pay next month’s rent.

There are a number of solutions offered up for this problem. The government wants to encourage the building of more houses, increasing the supply and trusting the market to sort things out. An alternative approach is to support the building of affordable housing, weighing cost against the local average. Many housing campaigners would go further, calling for more social housing, recognising that incomes and house prices do not add up.

Build More Housing

The most immediate solution to solving the housing crisis appears to be to just build more houses. Both Shelter and Philip Hammond seem to agree on this, with the government pledging to support developers building 300,000 new homes per year from 2017.

However, building more houses does not imply building houses that most people can afford as housing activists have repeatedly pointed out. Developers are in the business of selling houses for as high a price they can ask for. On the one hand, developing a luxury project implies higher costs for, say, some premium materials, but the gap between price and cost still is worth it. On the other hand, also for standard developments they have an interest in realising as high a price as possible. That councils have to insist on developers building and selling homes at “affordable” prices suggests they would not do so otherwise. In other words, developers, if left to their own devices, will opt to develop housing beyond the reach of many. Thus, simply building more houses would do nothing to alleviate the housing problems it was supposed to solve.

Build Affordable Housing

To address the problems with simply building more houses, a (now) common solution is to create more affordable housing. The definition of affordable by the Government is:

“housing for sale or rent, for those whose needs are not met by the market”

UK Government, National Planning Policy Framework, Annex 2: Glossary, p.64

What is meant by “that people’s needs are not met by the market” is that they can’t afford to buy or rent housing. This failing is then addressed by the Government requiring developers to make sure some proportion of new build housing (usually 10%) is available at 80% of the going market rate.

Firstly, as housing activists have pointed out, the development of housing that includes affordable houses itself exerts upward pressure on market rates. This means that the affordable rates after a successful development can end up higher than previous affordable rates.¹

Secondly, the 80% of market price strategy produces those bizarre examples where an affordable home in Central London is way out of reach for average earners: 80% of the market price is not within reach of most people as the point of reference is not income, but what some are capable of paying. By capping rent at 80% of the market rate, this affordability measure doesn’t relate house prices or rents to people’s ability to pay, but simply to the market values which were previously recognised as being too high. Put differently, the average market value isn’t simply a bit too high for the average wage earner or benefit recipient, rather they are competing with buyers who have access to rather different means, who are not restricted to wages and benefits.

“Affordable housing” is a peculiar term: any house that is sold is affordable to someone, that prime property in London is bought and sold. Put differently, it is not correct to say that nobody can afford current house prices or that a “whole generation of young people have been shut out from home ownership”. Rather, what many people are struggling with is that some can afford those house prices. The question is affordable to whom with what means.

Many housing campaigners note that affordable housing does not address the difficulties poor people have in calling a place home. Instead, they propose the building of social housing. As Shelter describe it, social housing is “pegged to local incomes to keep rents more affordable. Changes to social rents – whether up or down – are controlled by central government.” An alternative demand can be rent control, limiting the cost of living in the current housing stock, preventing landlords from increasing rents on their tenants too quickly.² These solutions recognise that affordability means different things to people with different sources of income.

Thus, social housing speaks of a relation between means and price and notices that they do not match. However, how this difference is then discussed is that one side – the price of housing – is considered variable, while the other side – the money people have available – is strangely not. This way, poverty is silently presumed as a fact of life. The reason why many struggle with rent is because they are squeezed from two sides: their employers and their landlords. Their wages (or benefits) are low and rent is high. There is a difference between criticising “low income people being forced to the fringes of London” and criticising that people have to live on a low income.

The collective presumption of poverty is not an accident, despite the opposing political positions involved. What qualifies the “Housing Crisis” as a crisis in the eyes of those with the power to do anything about it is that useful poverty is under threat. Capitalist economies and cities within them make use of people who are so poor that they have nothing else to sell but their ability to work. After all, workers produce the stuff that companies sell. Yet, the existence of useful poverty is always precarious, with companies undermining the livelihood of those working for them: firing them when they are no longer needed, cutting their hours, suppressing their wages etc.

The constant threat to the condition of being a worker is recognised by the State and addressed by the welfare state. Benefits exist to allow poor people to continue to function in useful poverty, they are designed to provide poor people with what they need to continue to exist as poor people. It is for this reason that the concerns of housing activists find recognition and these activists are correct when they lend their voice to the unease about the ability to live a life in poverty. This way, and this way only, their concerns have a valid place in this society. The criticism of the conditions of poverty is a respectable business, the critique of poverty is not.

A contrived example to illustrate this point: suppose there is an area with 100 flats with a market value average of £1,000/month per flat. A developer is tasked with building 100 new flats, 10 of which are reserved for affordable housing. But the other 90 new flats will now go for, say, £1,400, raising the market value of the area. New affordable flats are now capped at 80% of the new market value of £1,189 = (100 × £1,000 + 90 × £1,400)/190, which gives £951, £151 above the previous 80% of the average. ↩
Rent control takes measure in the average rent, thus the arguments in the previous footnote about affordable housing apply here too. Furthermore, for the paradoxical effects that rent control – when landlords can increase rents if they make improvements to the building – can have on renters, see https://antinational.org/en/gentrification-economy-land-and-role-politics/ ↩

"Where there is discord, may we bring harmony"

Wed, 29 Jul 2026 20:08:22 +0000

The outcome of a successful election is a government. After the polls close and the result emerges a new government is formed by the winners, who promise to rule in the name of the whole nation, and the losers concede their defeat. This last step is often publicly ritualised in the form of a symbolic phone call to the victor or a concession speech. A successful election produces formal unity between the rulers and the ruled: “our government”. That this result is produced is presupposed but not necessarily achieved by an election. Indeed, election campaigns have the opposite immediate effect by declaring, opening up and emphasising disagreements between political parties competing for power. Each party educates the voters about the problems facing the nation and that their respective plan is preferable to the plans of their opponents.¹ Yet, the end result of a successful election is that one side concedes the other side’s rule is tolerable. An election opens up division within the nation to produce unity for the nation.
The central challenge facing the nation on which voters are educated and invited to rack their brains in this election is Brexit.² Both sides subscribe to the mantra of modern imperialism, which is to realise global power by respecting sovereign powers elsewhere: creating treaties between states to negotiate their relations. One side considers the national interest better served through individual treaties with different countries (Brexit), the other side considers this interest better served through integration into the EU (Remain).
In the past, both of the British parties that have handed power to each other since the Second World War were split on the issue and thus did not make Brexit a part of their platform. Consequently, elections could not resolve this divide among the professional nationalists, i.e. politicians. In an election voters may only choose a candidate not a policy, leaving some voters, when selecting a candidate, to choose, say, between their conviction of the need for more austerity and to leave the EU.
The split within the Tory party became untenable for its leadership. The 2016 referendum was meant to resolve this. The way to achieve this was to obtain consent from the population to maintain the status quo where the global might of the British State is realised both within and without the EU. Famously, this plan did not work, formal unity was established neither in the Tory party nor between ruled and rulers. Rather, the divisions produced during the campaign remained: a rift between the ruled (majority leave) and their representatives (majority remain), i.e. a political crisis.
A few reshuffles later the Tory Government claimed a mandate from “the people” against their elected representatives, who too held a claim to represent “the people”. To realise the true will of the people, the executive branch suspended Parliament to prevent it from sabotaging its Brexit strategy. This amounted to a suspension of democratic disagreement, i.e. debate in Parliament, and the enforcement of unity, i.e. that the nation speaks with one voice, the Government’s. The suspension of Parliament is not the opposite to democracy, but rather the pursuit of democracy’s own ends – unity between rulers and ruled – with different means for a nation perceived to be in crisis.
The legislative and the judicial branch were not amused and pushed back. The Supreme Court ruled the prorogation of Parliament unlawful on the grounds that the Government’s reasons were insufficient to justify the frustration of Parliament’s ability to scrutinise Government.³ Meanwhile, parliamentarians proposed national unity governments⁴ or a national caretaker government⁵, i.e. they proposed to suspend their disagreements in the interest of national unity, in light of the political crisis facing the nation. What the other side attempted to achieve by force, they aimed to realise by agreement.
Both sides claim to represent the “true will of the people”. They both tactically invoke formal arguments (the results of the referendum v the results of the last general election) but consider more to be at stake than formalism. The Government declared opposing MPs as “collaborators”⁶, accusing them of surrendering, and its friendly press called three High Court judges “enemies of the people”⁷. All of this after a remain MP was murdered by a fascist.⁸ Meanwhile, remainers investigated whether Brexit was a foreign plot⁹ or at least illegal¹⁰. Both sides accused the other side of undermining the common good, with a furore fuelled by nationalist indignation.
The outcome of this ruckus is that for one of the two main parties the question of Brexit has been resolved. The Tory party slung out its (strong) remain MPs, several of whom found a new home with the Liberal Democrats. Now, with Brexit on hold for a few months, another election is meant to resolve the crisis: reestablishing the unity between ruled and rulers. Most contenders vying to rule over the UK enter this contest with a strong preference for or against how the UK should structure its relations to other imperialist powers and the rest of the world. The one notable exception being the Labour party which pitches itself as a true representative of the nation as a whole in the form of a pledge for a second referendum.
It is questionable whether the election will deliver on what all relevant parties desire from it: the unification of the ruled under “their” government. On the other hand, what is not in question is that the election campaigns educate voters on the pressing question of the day: “What is best for Britain in the world?” Whichever way this is decided, it requires that the Government can rely on its population and is able to utilise it. For workers this means having to give more performance for less pay to help “their” companies and country with the travails of the world market, which is supervised and arranged by the UK, its rivals, and its partners.

It is no wonder that across the globe elections are the starting point for civil wars. That this is not the effect of elections in successful capitalist countries speaks to the unity despite opposition between political forces in these countries. ↩
In 2017 Labour in contrast to its main opponent defined the effects of austerity as the central challenge facing the nation. In 2019 Labour agrees with all its opponents that Brexit is a central national challenge. ↩
“The next question is whether there is a reasonable justification for taking action which had such an extreme effect upon the fundamentals of our democracy. Of course, the Government must be accorded a great deal of latitude in making decisions of this nature. We are not concerned with the Prime Minister’s motive in doing what he did. We are concerned with whether there was a reason for him to do it. It will be apparent from the documents quoted earlier that no reason was given for closing down Parliament for five weeks.” – UK Supreme Court, https://archive.ph/XwNYJ ↩
Caroline Lucas. “I’m calling for a cabinet of women to stop a disastrous no-deal Brexit”. 1 Aug 2019. ↩
The Guardian. “Opposition parties disagree over move to see off no-deal Brexit”. 30 Sep 2019 ↩
The Guardian. “Johnson accuses MPs and EU of ‘terrible collaboration’ over Brexit”. 14 Aug 2019 ↩
Daily Mail. “Enemies of the people: Fury over ‘out of touch’ judges who have ‘declared war on democracy’ by defying 17.4m Brexit voters and who could trigger constitutional crisis”. 3 Nov 2016 ↩
https://en.wikipedia.org/wiki/Murder_of_Jo_Cox ↩
The Observer. “Arron Banks, Brexit and the Russia connection”. 16 Jun 2018.; The Times. “Labour asks about Dominic Cummings’ years working in Russia”. 3 Nov 2019. ↩
The Guardian. “Johnson ‘knew about Vote Leave’s illegal overspend’, says MP”. 2 Nov 2019. ↩

Covid-19 and Crisis-20

Wed, 29 Jul 2026 20:08:22 +0000

The world is in the middle of a crisis, a breakdown of the normal functioning of society. The outbreak of a viral contagion has led to the prospect of casualties on the scale of the 1918 flu pandemic. This might seem serious enough, but politicians and policy makers are also worried about another crisis – this time an economic one. This fear is justified. Many businesses are likely to fail, with many more people losing their jobs. Financial analysts predict falls in GDP on a scale worse than the 2008 recession, unemployment is already rising rapidly and nearly 1 million people claimed Universal Credit in the last two weeks. These economic effects of the pandemic are being treated as inevitable consequences, as if they followed natural laws as surely as the replication of a virus. We disagree. A viral pandemic at the scale we are seeing does not have to produce an economic breakdown or general destitution. That in this society it does, requires explanation.

An external shock, for once …

No society would be unaffected economically by a natural disaster¹, especially one whose effects are widespread, as in the case of a pandemic. The extent of the disruption will differ greatly though, depending on which society we are talking about. For much of human history the level of productivity has been so low that a large part of the population has had to work long and hard just to produce basic necessities. In such a situation, a large proportion of people who work in production falling ill or otherwise becoming unable to work would threaten the entire society’s ability to reproduce itself. Successful capitalist societies only require a small number of people to produce these basic necessities. For example, 1.5% of the UK workforce works in agriculture, producing 61% of the food consumed in the country. Or to put it in another way, the capitalist mode of production is so productive that it can afford to provide for David Graeber to moralise about what jobs are “bullshit”.²

Of course, just because a small fraction of people suffices to produce significant wealth, this does not imply that these people can easily be replaced by other people should they fall ill or should a sudden expansion in the production of a particular class of products be required. In any society, some roles require skills and training, and some products are incredibly specialised. A pandemic could therefore produce a temporary shortage of some goods even in a well organised economy. While the capitalist mode of production famously lacks such central coordination, we are already seeing how quickly companies are retooling production to make masks, hand sanitisers and ventilators. Granted, recruiting specialised roles such as intensive care nurses takes longer, a problem that’s exacerbated by the chronic state of lack of funding and staffing for the NHS. However, while this gives cause to worry about the availability of medical care, this is not what is meant when commentators worry about an economic crisis.

Modern capitalist societies have the capacity to produce enough goods for the everyday material and non-material needs of their people, even when some kind of natural disaster occurs. Why then should something like COVID-19 threaten to leave so many more people unable to meet their needs? The generally agreed upon analysis is this. Illness and subsequent quarantine measures have slowed down production in China, impacting on global supply chains, which companies around the world rely on for their own production. This in itself would present an economic concern – in economic jargon, a supply shock. This is however not the primary concern – what is inspiring more fear is a demand shock. Outside of food and other necessities, social distancing means people are not buying stuff, many types of retail businesses (shops, cafes, bars) are being ordered to close or are otherwise restricted (airlines), production sites are standing still and so do not make purchases either. People not consuming things is the problem, not for them but for the businesses selling to them. These businesses then fire their workers, depriving them of their wages which they need to access basic necessities, a fact which is discussed as further exacerbating the demand shock. Some people not consuming enough leads to other people not being able to consume.

This is a profoundly weird result for a society to wind up with, but it reveals something about the relation between production and consumption under the capitalist mode of production: consumption is a means for the production of profit.³ Rather than the economy providing people with what they need, apparently people consuming what they can must provide for the economy. Means and end are the wrong way around. As crassly as they put it, this is what Trump and supposedly Cummings made reference to when they pondered just letting old people die to avoid an economic slow down. Populations serving the economy is also the premise for calculations of governments across the globe.

… and the state reacts accordingly

The capitalist freedom to ignore and thus exploit the needs of others is premised on significant social wealth and high productivity, which allows for speculative production decisions (that the eventual product will be successful) without threatening the survival of society when those speculations go wrong. The speculative decision to turn wheat into either bread or a beverage based on a slide deck cobbled together by some market analyst is only an option when the success or failure of this enterprise has no significant impact on the ability of society to reproduce itself. At certain times – and the coronavirus pandemic is a good example – this margin for error can look decidedly shakey.

Given this threat to the ability of society to reproduce itself, at the time of writing, many states are considering nationalising or directing certain industries, either in terms of what they produce or who they must sell it to, in order to ensure that some necessary products are available. The much vaunted ability of the market to provide is faltering, and a degree of central planning becomes an acceptable option. States and commentators calculate with magnitudes of useful things (how many ventilators or masks are needed) rather than Pounds Sterling. Yet, by acting in this way states are not giving up on the capitalist mode of production as the basis for their power. Rather they are taking action to shore up their societies, and the economies on which they have made themselves dependent. This is not in principle an unusual approach. States often become the provider of goods or services they judge are necessary and which private producers cannot or will not supply (at an affordable price) – healthcare being a common example. What is unusual is the extent to which and the speed at which it is being considered.

That these measures are stopgap measures rather than the new normal can be observed from the other interventions. In addition to infringing on the freedom of the economy by providing a coordination that the market will not, states are also providing money to businesses and individuals in the form of loans, debt payment deferral, worker retention schemes, tax reliefs and benefits. What is particularly notable is that this approach differs from the response to the financial crisis of 2008, which saw state credit mobilised to buy financial assets but little emphasis was put on maintaining the status quo in the rest of society. In contrast, the strategy of states now can be characterised as “hibernate”: put a pause on economic activity, mobilise significant state credit to keep social relations as they were – wage hierarchies intact, employment relations in place – and hope that the economy takes off where it stopped, as if once the pandemic is under control all will return to normal.

There are two things to note about this approach. First, that “normal” was one where the longest stock market boom in history was propped up by continued (post)-2008-crisis interventions and preventive measures by central banks. The success of the plan to see rapid economic expansion afterwards is thus uncertain. Second, and more importantly, after the crisis companies will have to produce economic successes to justify and pay off their new debt burden, in addition to their existing pre-crisis debts, and to produce the “V” upturn everybody is hoping for. This means: pressing more performance out of their employees at reduced costs, i.e. wages, to maximise profits.⁴

The Gross Domestic Product, the thing that measures economic growth, is a brutal abstraction that adds up all monetary results of production and services. The economy expanding after the crisis does not mean that losers (companies going under, self-employed people losing their business, workers losing pay or their jobs) are not produced. It also does not mean that the usual losers, i.e. workers, are not producing that expansion. On the contrary, they will have to, and for this purpose they are being fed during the crisis. The silver lining being that those breaking their backs might be in for a round of applause, some of them might even be able to sweat for the nation with newfound pride as “key workers”.

Fuck this shit.

Footnotes

We will use the term “natural disaster” for the COVID-19 pandemic, knowing that its spread is fundamentally linked to how society currently functions. ↩
Alternatively, to use the standard favoured by economists, if the UK GDP were to contract by 50% this would take it back to the size it had in the year 2000. By capitalist standards this is a dramatic collapse but the year the Playstation 2 was released hardly passes as a prime example for a destitute national economy. ↩
This arse about face fact of life under capitalism is so self-evident that even the organised working class appeals to its own spending power in the hope of earning a few percentage points more of the wealth they produce under the command of their capitalists. ↩
See Karl Marx, Capital, Volume 1, a book we highly recommend. ↩

Covid-19 and Harvest-20

Wed, 29 Jul 2026 20:08:22 +0000

This text is a translation and adaptation of a text by Groups against Capital and Nation

That the profession of farmer is in principle a precarious and arduous affair is something borne out by almost any news story on agriculture. As suppliers of raw materials for the food industry, a successful branch of capitalist production, farmers have to invest huge sums of money. In contrast to the food industry, however, the advances in productivity never really pay off for them. Agriculture survives in capitalist countries only with large state subsidies, the working hours of farmers are significantly higher than those of wage labourers, and yet their income is not really different from the average UK income. Somehow there must be a catch in the direct processing of nature with regard to monetary yields – which is a question for another time. In any case, it becomes clear that in cases where extremely cheap labourers are used in agriculture, this is not a case of the usual profit calculation of companies, i.e. “the more cheap labour, the more profit”. Rather, agriculture as an industry under capitalism does worse than most, even with low wages: low wages are a requirement for any income at all to be made in this sector.

Prior to the impact of Brexit, 75,000 people were employed as seasonal workers in agriculture, with 98% of them estimated to be from other EU countries – mostly in Eastern Europe. Migrant workers in Agriculture, House of Commons Library

So agriculture is not a particularly profitable sector of the economy and the industry is therefore dependent on particularly low wages. Fortunately, farmers have been able to fall back on people freed from Real Socialism, who want to work en masse in the West for poor wages (just as in the care sector), because the alternatives at home are even shittier. This happy situation has foundered on the rocks of two issues – Brexit, and now the Covid-19 pandemic.

Last year farmers were already complaining about the lack of workers willing to come to the UK. Romanian and Bulgarian workers had somehow got the message that they might not be welcome here, and in any case an unfavourable exchange rate made Germany, Spain and the Netherlands a more attractive destination. The National Farmers Union, fearing the loss of these workers, has decried government plans not to offer visas to low-skilled workers, and fought for the expansion of a Seasonal Workers pilot scheme.

Now, in 2020, the matter has been compounded by a pandemic and the international travel restrictions affecting borders across Europe. To make matters worse, anyone who did travel would be in cramped accommodation and working conditions that make social distancing impossible. This brought (and still brings) many farmers in the cauliflower, strawberry and pumpkin industry into hardship. There is simply a lack of workers.

Where can farmers turn to for help? One traditional answer has been undocumented migrants. After all, where can you find people who have worse prospects than the normal wage earner from Eastern Europe? In the form of people who, due to the particularly lousy legal position into which they have been put, have no access to the benefit system and consequently no choice but to accept any work they can get.

Reliance on dodgy gangmasters isn’t enough however. Economics 101 might suggest that the solution to a labour shortage is to increase the wage – but that lever is not available to employers in the agricultural sector and the State chooses not to make it available. Instead, two alternative strategies are pursued in parallel.

On the one hand, farmers, backed by the environment Secretary, therefore turned to nationalism, with a dash of WWII nostalgia, calling for a “land army” to “help feed the nation”, reckoning on the patriotism or desperation of unemployed and furloughed workers to keep calm, carry on, and dig for victory. 10,000 swiped right. But despite the initial enthusiasm, only 112 have actually accepted a job on a UK farm. The State has therefore made a renewed bid to encourage the unemployed, furloughed workers and students to ‘Pick for Britain’.

On the other hand, the farming industry had realised a land army wasn’t going to cut it¹. Taking advantage of the lifting of Romanian travel restrictions, planes were chartered to transport seasonal workers to support the celebrated volunteers and the less celebrated off-the-books migrants. But the numbers being brought over are only a fraction of the 80,000 Eastern European workers who are counted on to bring in the harvest.

Assembling enough workers aside, COVID-19 presents yet another challenge in this field – how to expose people on low pay to working conditions that break their backs while avoiding negative health implications - not for them, but for the nation, i.e. without spreading the virus. If enough patriots step forward and maintain their two meters this might work and strawberry season isn’t cancelled after all.

In the wake of the 2008 financial crisis the Departments for Work and Pensions and for Environment, Food, and Rural Affairs tried to encourage agricultural work as a solution to rising unemployment. On average, such workers stayed for one week. ↩

Love of the State in the time of Covid

Wed, 29 Jul 2026 20:08:22 +0000

“The State is back”: the COVID-19 pandemic has thrown a new spotlight on the actions of the State. Democratic states have taken steps that seem unthinkable in normal times – nationalising industries, coordinating the distribution of useful goods, paying the wage bill of millions of workers, effectively closing down many businesses and making it a criminal offence to leave the home without a “reasonable excuse”. It is therefore worth asking if the authority ruling over us is remaking itself.

What is the R value of bad ideas? Rumours of the demise of state power have been greatly exaggerated

COVID-19 has given us ready material to show just how wrong the popular idea is that state power has given way to corporate power as a consequence of globalisation. Somewhat inconveniently for proponents of this thesis, it was not Unilever or Apple that did or even could spring into action in response to the pandemic. Instead, states closed borders, suspended globalisation and even ordered Wetherspoons to close down. It could not be any other way, there is no other actor in a capitalist society able to pull off the feat of suspending it. The reason they could do so is because it has been states all along who have been making the decisions and who defined the rules.

Those who saw transnational corporations forcing their agenda on powerless nation-states through a forest of acronyms – NAFTA, the WTO, TTIP and the IMF – ignored who was and is making trade agreements (or not). As states base their might on the economic success in the private hands of their citizens, it is not surprising that states with successful corporations – the US, Germany, the UK – would want to widen the economic playing field for them – nor that states with less successful economies might make the calculation that it is better for them to permit such companies in and partake in their successes. Once a new factor arose – a virus – those calculations were updated.

Although COVID-19 has made it harder to sustain this particular wrong idea, it has encouraged a different one – namely that the actions and obvious power of the State in response to the pandemic show its usefulness as a tool for a reasonable cause. It merely needs to be won over to the light side of the force (i.e. the Left needs to be in control) to perpetuate that state of being: to ensure that the new normal is not the old normal. In the words of the Novara Media Team: “Already economic orthodoxies – things we’ve been told could never change – are shifting right in front of our eyes. The right find themselves talking about stimulus and basic income, intervention and social planning. The financial system is convulsing. The world which emerges on the other side of this crisis will look different, as opinions shift on the usefulness of the market and what the state can do. As this crisis develops, we believe the left will also need to think seriously about how to shape what comes next.”

What these writers pick up on is that the really existing central authority has been given a strong justification for its existence by the current pandemic. Through its very actions it appears that the State’s reason for being is to coordinate crisis responses: identify hotspots, assemble scientific expertise, coordinate the production and distribution of disaster relief and suspend the normal course of business while sustaining key elements of society to guarantee their continued existence. As persuasive as this case might be, it is utterly wrong. Rather, it is the free market (which as we’ve seen is currently being put on ice across the world) and not the need for central planning in a crisis which necessitates the State’s authority. It is the State’s rule of law which establishes private property and all the conflicts that derive from it: between employers and employees, renters and landlords, buyers and sellers, competitors within an industry, the list goes on. This society, where the owners of property exploit each other’s dependence on that property, is one which requires omnipotent deterrence to ensure these conflicts play out within the rules set out by the State. The decisive instance to suspend this condition of mutual antagonism is the same which guarantees the conflict and is required by it in the first place.

Science within reason

This point of view, which sees the State as a means of reason, is actively encouraged by the Government. Chief scientific advisors get air time, scientific panels get assembled and their evidence displayed, and politicians insist on “following the science”. Yet, this is not the age of Plato’s philosopher kings. This is already evidenced by the fact that each government selects its own, national scientific experts. These thus assembled scientists can then present their advice, but what matters in the end is not if it is convincing but if it convinces those in power. When the Government was finally persuaded by the scientific evidence it requested, it put a halt to most of social life in the UK. With the same authority, it is now weighing up the scientific evidence again – according to its relevance for the purpose it pursues. The case of Neil Ferguson is a lesson about the relationship of authority and reason: science is there to inform the authority to make effective decisions, but it shall not interfere with its priorities. Here, being a trusted public scientific figure, “the architect of the lockdown”, can become a problem when some parties push to ease the lockdown measures, so that missteps are trotted out when they are convenient.¹ The message is received and scientists demonstrate the humble submission of the authority of the better argument to the really existing authority.

On the other hand, the claim to scientific rule by the British State is met with disbelief given the COVID-19 death toll, for example by those who think that the State has yet to be appropriated by the Left to realise its reasonable potential. Rather “incompetence” is the word of the time. The mistake at the heart of this critique is the presumption that the purpose of the Government’s interventions is purely to minimise the death toll; on the contrary, reason is still at the heart of the decisions, but it is reason with a different target than that assumed.

Death rates are a datum politicians, in all countries, are comfortable calculating with if they are manageable – as we see with, for example, limits on fine-air pollutants. However, COVID-19 threatened to be anything but calculable: its transfer, fatality and hospitalisation rates, its long term effects, its interactions with other health and weather conditions were and are unknowns, such that the scientific advisors of the Government noted the unpredictable nature of the disease: “On 27th January 2020, SPI-M-O concluded that while there wasn’t sufficient evidence to estimate a reasonable worst case scenario (RWC) for 2019-nCoV, the RWC for pandemic influenza would be an appropriate planning scenario at that point. SPI-M-O will keep updating their assessment of the reasonable worst case as the outbreak progresses.“ By mid-march a reasonable worst-case scenario was drawn up estimating 250,000 deaths, a cost too high for the Government to accept.

Boris Johnson laid out why he was shutting down society in his March 23 speech: “To put it simply, if too many people become seriously unwell at one time, the NHS will be unable to handle it – meaning more people are likely to die, not just from Coronavirus but from other illnesses as well.” Here, Johnson gives an end – saving lives – and a means – allowing the NHS to cope. Since then, the Government has come under increasing criticism on its track record on achieving that end: near 60,000 people died, the disease ravaged care homes due to offloaded NHS patients; doctors and nurses became sick because of insufficient PPE. Yet, the Government does not accept this criticism but rather announces victory. In the words of Boris Johnson: “These enormous sacrifices [he is referring to being cut off from family and friends due to the lockdown; CC] have paid off. We have seen the number of positive cases plateau and fall, even as testing capacity has increased tenfold. The number of people admitted to hospital with Covid has steadily fallen. Despite predictions that critical care capacity would struggle to cope, the NHS was emphatically not overwhelmed.” Boris Johnson asks not to be judged on the number of actual deaths but on the NHS coping and thus preventing a larger, unacceptable, death toll.

This standard is not just one for Sunday speeches but is implemented in the five tests set out by the Government for easing the lock down: (1) protecting “the NHS’s ability to cope”, (2) a “sustained and consistent fall in the daily death rates”, (3) the rate of infection “decreasing to manageable levels across the board”, (4) “testing capacity and Personal Protective Equipment, […] in hand, with supply able to meet future demand” and (5) preventing the risk of “a second peak of infections that overwhelms the NHS”. The Government is not out to minimise the death toll but rather to achieve a manageable level of excess deaths. When Johnson spells out his brutal standard – the crisis is manageable and the death toll acceptable to the Government – the proponents of the socialism of the 21st century and their progressive siblings are so preoccupied with their fantasy of doing a better job at running the capitalist state that they accuse the Government in all earnestness of “complacency”, “inadequacy” and “incompetence”.

To curb the infection rate, the British Parliament – along with many other democratic states – suspended rights that were seen as fundamental to a democracy, such as leaving the house without a “reasonable excuse“. Similarly, the Government, along with many other democratic governments, is planning and deploying an invasive contact tracing programme to handle a second wave. As a result, some fear that COVID-19 is providing a pretext for the State to give itself the kind of authoritarian powers that it wanted all along, others that these powers could be abused.

First, these concerns that the State might be taking an authoritarian turn underestimate how effective democratic rule is as a tool of domination. The key productive power of the present rule is that its subjects agree with what is being done to them. We only have to look at how little enforcement has been necessary to mobilise people to follow the official guidelines to understand how productive a popular mandate is. It’s much more efficient to be able to simply tell people to stay indoors than it is to flood the streets with cops because people distrust the Government’s “stay at home” message – suspecting an ulterior motive behind it (as they do in other countries).

More importantly, these concerns invoke the idea of a power without measure or purpose. The irony of this warning of overreach and abuse is that it plays down the really existing authority and its publicly discussed purposes. State rule has a purpose. Not a hidden one, but one that is the daily subject of heated debate. The need to balance economic and population health is debated openly in Parliament, and newspapers never tire of weighing in on these questions. So the idea that there might be nefarious intentions at play behind COVID-19 measures ignores the grim reality of the stated intentions behind them.

In his “first, careful steps” speech on May 10, the PM laid out the trade-offs involved in the Government’s calculations: “We must continue to control the virus and save lives. And yet we must also recognise that this campaign against the virus has come at colossal cost to our way of life. We can see it all around us in the shuttered shops and abandoned businesses and darkened pubs and restaurants.” Furloughing, loans, NHSX apps and emergency hospitals exist so that “the economy” can start again at a point when the virus can be controlled and its effects managed. In the Government’s calculations the COVID-19 death rate is one datum, GDP growth at home – and abroad in the realms of competitors and rivals – another. So they deploy the best science available to them, and rely on the freedom of their citizens from the things they need to send workers back to work so that they can “be heroes”. Their sacrifice, as usual, will pay off.

The cute left-wing theory – that the Government would sacrifice one of its key scientific advisors to “hide” a well-reported statistic that does not go away – can confidently be ignored. ↩

Never gonna give you up: Trump and what elections are for

Wed, 29 Jul 2026 20:08:22 +0000

Trump’s refusal to concede the 2020 election has been a source of great upset. Concessions do not have an official status, and are not necessary for the transfer of power, yet the lack of a speech admitting defeat, congratulating the victor, celebrating democracy and imploring national unity has created a seismic shock that has rippled beyond the newsrooms of CNN and the New York Times.

The reason for this response is more than a sense of decorum and tradition. What Trump has done strikes at the heart of what an election is meant to achieve. The State – the democratic State – seeks more than rule over its people. It seeks to rule in the name of its people, that is, for ‘the people’. This shift from people, with their individual needs and interests, to the abstraction ‘the people’ allows the State to rule not just through its monopoly of force, but through the will of its subjects. As ‘the people’ individuals and groups who may have differing and often competing goals have a shared interest in a body that can regulate and adjudicate this competition. Elections both allow these competing interests to be expressed, and also reaffirm a common interest that the State can rule in the name of. By refusing to accept the results, Trump is suggesting – and many of his 74 million voters seem to agree – that there are divisions within the US society that cannot be resolved, a national unity that cannot be attained.¹

Godwin’s law: Elections bring opposition to the fore

Election campaigns offer the opportunity for political parties to set out arguments for or against particular positions. The language of political commentators over this period – the ‘struggle for power’, the ‘election battlefields’ – reflect that these are genuinely competing positions. Politicians sometimes refer to their opponent’s supporters as ‘deplorables’ – or worse, in the US, ‘socialists’ – and their members and supporters regularly throw sincere insults at each other.

Elections mean opposition. This is no sham – there are real antagonisms being expressed through political platforms. Interests within capitalist society are often at odds with each other, both between and within classes. For example, workers want higher wages, and capitalists lower ones. Coal miners want more coal-fired power stations, people with concerns about the damage caused by climate change want fewer, farmers want tariffs on food imports, poor people want cheap food. People at risk of brutalisation by the police want cops off the streets, those who feel they have property that needs defending want more cops.

Yet, in an election, the voters are presented with political platforms, grand visions for the nation, not with proposals to address their meagre and merely individual problems. Voters are invited to not just consider their immediate interests, case by case, but to transform those into political positions, opinions about how society ought to be run. What is at stake in an election is the fate of the nation, which means both that merely individual grievances need to prove their relevance to this fate and that issues promoted to that status are deliberated under this perspective. Voters are invited to consider what might be the correct position on whether the US is party to the Paris Agreement, how best to address the COVID-19 pandemic, and the role and extent of the criminal justice system. The concerns of the nation become their concerns.

While these are the questions the electorate is invited to ponder, what the people actually vote for is a candidate. They are asked which candidate they trust to execute rule in a way they find agreeable. In a society filled with antagonistic interests they are tasked with empowering rulers to set the conditions that affect all, producing gains and losses, bound by nothing but their consciousnesses and procedural rules. The objective question asked to voters is whose whims they trust: Who has the right moral character to pursue what I believe to be in our best interest?

Two parties, one cup: Elections rely on and ought to affirm unity

While elections bring antagonisms to the fore, what we tend to see – in successful capitalist countries – as the election process concludes, is a resulting unity. This needs explaining.

First, underneath the conflict there is a lot of agreement among those fighting for power and their supporters. An agreement that the purpose of the election is to establish who will rule. An agreement that this rule is in the name of the people. An agreement that the people need jobs, national security, a world market, etc. Democratic elections rely on unity and they are expected to affirm it. The expected outcome of the US election was ‘our president’.

Second, the potential for this unity is contained in the antagonism. The fight for power asks voters from the get go to abstract from their own individual interests and to adopt the standpoint of the nation. As described above, they are asked how to best mediate between their own interests and that of their opponents and deliberate such conflicts from the standpoint of the nation. How much brutalisation by the police is necessary to maintain law and order, how many COVID-19 deaths are acceptable considering the economic effect of restrictions, how does global dominance and leadership as part of the Paris Accord square off with the increased costs for US manufacturing? Budgetary concerns, border controls, and military spending become something the responsible voter should think about before putting an X in a box. That voters for the losing side will concede – or, more precisely, accept a concession by the leadership of their own side – is expected by the initial question they are asked.

The point of an election is to affirm this unity that is premised in the question being asked. Unity between conflicting interests within society and unity between the governed and the government.

Not today, Satan: Elections and moral choices

Now, famously this is not how things are playing out this time around in the US.

The transformation of individual, conflicting interests into moral choices contains within it the potential for escalation. In an election the democratic state makes a moral demand against its subjects and invites them to abstract from their individual interests for the greater good, i.e. the might of the state (“America is back” (Biden), “America First” (Trump)). But it does this by inviting its electorate to consider the State as an expression of their morality. This inversion, which – in passing – is the kernel of nationalism, means acceptance of concession is all but guaranteed. The citizens are free to fill the place holder “common good” with their respective ideals. Some hold up not being murdered by cops, some hold up their freedom to spread a pandemic, and centrist zealots wish everybody would shut the fuck up, all in the name of the absolute, the common good.

That elections are based on conflicting ideas about the common good leaves open the possibility that unity is not established. There is no necessity for the losing party to accept the result, and to mobilise its base to do the same, just the shared understanding that the election should result in the legitimising of a government and the affirmation of the unity between the State and its people.

I can has second term?: Trump and the concession

The response to Trump’s refusal to concede and questioning of the process has been playing out over both the corporate and social media. Some people fear a second US civil war, with a ragtag army of MAGA hatted militia, boogaloo boys and Q Anon adherents cosplaying as a new Confederacy. More sober democrats and moderate republicans are worried about instability; a substantial proportion of the population, spurred on by a sitting president, not accepting the legitimacy of the election’s outcome. Will this lead to violence? Will it affect business? Does it threaten the international standing of the US?

The approach that Biden has taken has been to unilaterally affirm unity. Once the results of the election were clear he gave a measured victory speech:

“I pledge to be a president who seeks not to divide, but to unify; who doesn’t see red states and blue states, only sees the United States”.

The most recent situation that came close to this current crisis would be the 2000 election. The result came down to a dispute over the results in Florida – in effect, a few hundred votes that would decide between Al Gore and George W Bush. Despite many concerns from Democrat supporters over the state’s electoral process, and subsequent court rulings barring recounts, Gore chose unity over continuing the fight:

“I accept the finality of this outcome which will be ratified next Monday in the electoral college. And tonight, for the sake of our unity as a people and the strength of our democracy, I offer my concession.”

Many people in the US may have been upset at this outcome, and questioned Bush’s legitimacy, but few rejected the results in any meaningful way – for starters, the leadership of their side, i.e. the people for whom they were mobilised in a bid to obtain power, decided to demobilise them. Future historians will refer to a cloud over Bush’s first term, rather than describing a revolt against his rule.

It is unclear whether this will be the case with the 2020 election. However, for all the appalled reaction, Trump’s formal approach is from the toolbox that the US legal system offers for redress. His legal challenges may be backed with evidence that only a Q Anon believer would accept, but they are no coup.

What is causing so much ruckus is the informal refusal to concede. He is not willing to resolve his conflicts with the other side through a Gore-esque conciliatory statement. What his opponents fear is that he is riling up his base to the point that they assert their particular idea of what is just in this world against the moral demand by the democratic state to fall in line and reach across the aisle. This highlights that it is not the mechanics of the democratic procedures which maintain national unity in successful capitalist countries but rather that the continued success of these procedures in these countries relies on a broad agreement, or at least acceptance, of the basic pillars of the liberal capitalist state – by those who run it and, to a lesser degree, by those whose lives are run by it.

This is not something that came into being only recently, already before Trump America was “divided”. The foundation for this often decried “polarisation” can be found in its decline from a status as the absolutely dominant power in the world. However, in this text we will not focus on this foundation but the general upset around Trump’s refusal to concede. ↩

Vaccine Imperialism: Oh the Humanity

Wed, 29 Jul 2026 20:08:22 +0000

Thanks to an unprecedented effort and some super-cool science, a number of COVID vaccines have been developed, offering the possibility of an end to the pandemic. What is clear to all is that there are many countries that lack the means and the clout to secure vaccine supplies for their people. The countries that do have these advantages have made strong pledges to ensure that such barriers do not stand in the way of a truly global distribution of vaccines, using the language of humanism, fairness and equity. It is on the face of it curious therefore, that when some States do take steps towards this, they are criticised for acting out of self-interest. Let us consider the matter more closely.

There is an agreement that Covid and the distribution of the vaccines are not just a humanitarian problem but a problem for humanity. When politicians invoke humanity (which has been at threat at various times from climate change and weapons of mass destruction amongst others), they are not referring to real people, with varying interests, experiences and needs, but to an abstract concept. As such, humanity does not have a common interest, a void eagerly filled by those who speak in its name.¹ That is, the term is not deployed as an empty platitude. When the leader of a nation asserts that action needs to be taken in the interests of humanity, they are casting their national interests as universal. When Trump made his ‘America First’ foreign policy speech, he was sure to note that this inward turn was the moral thing to do in the name of this abstraction: “The world is most peaceful and most prosperous when America is strongest. America will continue and continue forever to play the role of peacemaker. We will always help save lives and indeed humanity itself, but to play the role, we must make America strong again.”

When countries such as Russia and China act in accord with the humanitarian plea to ensure vaccines reach poorer countries, and in contrast to the “vaccine nationalism” of States such as the US, they are accused of having ulterior motives, of engaging in “vaccine diplomacy”, i.e. of exploiting the desperation of poorer countries for their own selfish ends. As the Americans say, no shit Sherlock. The standpoint of all States in this arena is their national interest, whether this is expressed through prioritising a supply of vaccine for their own population, or by appeals to humanity and the common good. As a driving force, this can explain (a) why States seek to secure vaccines for their own populations, (b) why they want people in other countries to be vaccinated, and (c) why they would want to play an active part in this.

The might of a successful capitalist state is based on its population as economic actors, creating the wealth that the State has made itself reliant on. Therefore the State cares about the overall health of its citizens – a significant portion of them unable to work is a serious threat to its position.² Thus all States have an interest in protecting their people from transmissible diseases, which means under pandemic conditions, taking steps to secure an adequate supply of vaccines. Inoculation of the population needs to be both comprehensive and timely. Speed is not just an epidemiological concern – in effect, a race is on at the moment for countries to be back to their usual productive activity before their competitor nations, to push ahead in the global competition. When your competitors are incapacitated, this provides an opportunity to capture market share. There are also secondary benefits to vaccinating their population swiftly, as a showcase for pharmaceutical and medical industries and expertise, to bolster national pride or to somehow turn this into a case for Brexit. Despite the logic of this focus, there is always however an awareness that the national interest will ultimately be undermined if a large number of people beyond the country’s borders remain unvaccinated.

Capitalist states of note continuously criticise themselves for their reach ending at their borders, their ambition extends beyond that which can be achieved on their territory and with its people. Thus, any State considering the impact of the pandemic on its people takes into account what is happening in the rest of the world. Even if they manage to inoculate their entire population, the ongoing spread of the coronavirus in the rest of the world increases the chances of a mutation that is vaccine resistant, and a threat to their people and therefore the national economy. In addition, they have an interest in the rest of the world as a means of enrichment for their national companies. While on the one hand any State wants to be doing better than their competitors, on the other they are aware that they need competitors with sufficient economic activity to purchase exports, supply necessary imports, or allow the expansion of their companies into other territories. Clearly therefore, all States want there to be a global distribution of vaccines – the question arises as to who should be providing them.

It sounds like a potential case of the ‘free rider problem’ economists like to cite – why should one country step up to help supply vaccines if they could just hang back and wait for other States to act? However, this problem does not arise because whilst there is a general interest in vaccines being made widely available around the world, nations with the capacity to do so have an interest in it being by their hands. This is precisely the ‘soft power’³ or ‘vaccine diplomacy’ that is given as a reason for countries such as China, Russia, and India choosing to help supply poorer countries around the world. By having something to offer, they seek to improve their access and influence. That these States enter into such arrangements for their own ends is true, but what the accusers fail to point out is that the same national interest is what lies behind every other State’s response to the pandemic – in fact behind any engagement they have internationally, whether arranging trade deals, taking military action or providing humanitarian aid. This is not an obscure Marxist theorem – e.g. a 2015 Treasury policy paper on foreign aid was titled UK aid: tackling global challenges in the national interest.

Our purpose here is not to point out hypocrisy, but instead to tease out the commonality that lies behind these claims of States to act as – as China puts it – a ‘friend of humanity’, the shared struggle within international economic competition. This has played out in differing forms. The EU and the UK threw their financial weight behind COVAX, a global initiative to ensure that poorer nations have access to vaccines. The UK is the largest single donor, a fact Boris Johnson noted, with his usual modest diffidence, at the UN General Assembly. Supporting a joint effort in itself does not mean altruism, bankrolling the thing buys influence on who gets the vaccine when. The EU has been hedging its bets by considering skirting COVAX to directly supply vaccines to poor countries – and at the same time restricting vaccine exports to a range of nations, including the UK, US, Canada, and Australia.

The US under Trump treated its vaccine policy under its general umbrella of America First, pulling away from the WHO, and refusing to join COVAX. Instead the focus was on ensuring that sufficient vaccine doses were being purchased and distributed for the American people. This approach did not go down well with many political commentators, who felt that the US was abrogating its traditional leadership position. One of Biden’s earliest actions was to reverse course and join COVAX, although this leaves the country playing catch-up against its rivals in the multilateral effort, and in practice the US approach to securing vaccine supplies for its own population hasn’t substantially changed.

Like the US, Russia decided not to join COVAX. But this did not prevent it from seeking to exert influence on the wider world: it entered bilateral arrangements to supply countries such as Venezuela and Nepal with its Sputnik V vaccine. China too initially spurned COVAX in favour of a number of bilateral deals, building on and extending its silk road trade framework, but realised that it had been presented with a great opportunity to distribute its own vaccines, get access to foreign vaccines and to bolster its international influence by joining the multilateral initiative.

Whether described by their rivals as vaccine nationalism – too little sharing – or vaccine diplomacy – oversharing –, these foreign policy approaches to Covid are all determined by the same thing – the competition between nations to use each other for their own gain aka imperialism. The result is that for a large number of people in countries that are losers in this global struggle, whether they receive necessary medical help is dependent on whether a powerful State feels that providing the resources to do so is in its own interests. ‘Soft power’ like hard power has its casualties. Of course, for the populations of these powerful States medical care, too, is contingent on the interest their State takes in them. However, as it stands these States consider their human resources a key weapon in their competition. Oh the humanity.

Bertolt Brecht criticised the invocation of humanity through the character Kalle in the play Talk of Refugees: “I always objected against the mission, instinctively so to speak. It sounds flattering, but the flatterers I always distrust, don’t you? […] They imagine an ideal state and we ought to establish it. We are the operators, they remain the leaders, eh? We shall save humanity, but who is that?” (Bertolt Brecht, Flüchtlingsgespräche. Frankfurt a. M. 2000, pp. 61f., our translation) ↩
Vaccination drives for rather old people, i.e. people no longer in work, is not a counter argument to this point. See Love of the State in the Time of Covid. ↩
Even as unsullied a figure as the Archbishop of Canterbury understands how soft power works, stating in an article for the Financial Times, sticking to previously agreed foreign aid commitments “… would demonstrate our leadership to the world, show we are genuinely global Britain, deepen our international interests and increase our soft power.” Although one cannot serve both God and money (Matthew 6:24) apparently for this Man of God it is an easy thing to serve God whilst prostrating himself before the nation … whilst also helping the poor: “[T]he commitment was not just a matter of national pride. It was one of national interest. Foreign aid provides the stability needed for trade and economic development and opens the way for a global Britain post-Brexit. It demonstrates that we are a reliable partner and friend, not seeking to conquer but to work alongside those in need.” ↩

Fantastic thoughts and where to find them: the unabated popularity of the capitalist mode of production

Wed, 29 Jul 2026 20:08:22 +0000

The practical critique of capitalism is “the simple thing that is so hard to do”.¹ On the one hand, the miserable conditions under which people are forced to live are no secret; nor that millions go hungry or starve; nor that many – also in the UK – rely on food banks; nor that the State, in every crisis, as regularly as clockwork, considers that the livelihood of its poor masses is too lavish; nor that states threaten each other’s populations with nuclear annihilation for geopolitical gains.

Moreover, a rough cut systematic explanation for this misery is easy to come to. You do not need to consume a lot of dense, obscure theory to understand that companies produce for profit, that the wages of their employees and the preservation of the environment are costs to them, that the performance of their human resources is their gain, that the State’s imperative is economic growth counted as GDP.

It is not even that the fully developed critique of capitalism is unknown: Capital by Karl Marx is referenced in colleges, universities and opinion pieces. Granted, many readers might throw the book against a wall when they are treated to a discussion of how the “defects of the expanded relative form of value are reflected in the corresponding equivalent form”,² granted also that many Marx explainers are nothing but charlatans lacking a basic command of the text,³ but anyone who claims that the difficulty of this text is the reason for Marxism losing the ‘battle of ideas’ has not tried to follow through the hoops and along the leaps that neoclassical economics textbooks treat their readers to.⁴

On the other hand, here we are. Judged by its success the critique of capitalism, our project, is a colossal failure. Even in the 14 years since the Great Recession, which alternated between crisis and lacklustre growth accompanied by unending austerity measures from the State – conditions ripe for a revolution according to the immiseration theory – the best ‘anti-capitalism’ has mustered in terms of mass support in this country was a guy who thinks workers “deserve” a higher share of the wealth they create because, get this, they are necessary for its creation.⁵ As if the exclusion from the wealth they produce was not what characterises the working class⁶ and as if the wage was a mechanism to remunerate contributions to society⁷; the critique of capitalism is reduced to a celebration of wage labour.⁸ Everybody is a critic or a cynic, but the critique of capitalism makes no gains.

Thus, judging from the standpoint of success, why does the critique of capitalism suck so badly?⁹ This is the subject of this text: common sense, the everyday ideology of the members of a successful capitalist society about its mode of production. It describes the relation between the “silent compulsion of economic relations”¹⁰ and the not-at-all silent compulsion by the State on the one hand, and people’s own, spontaneous and wrong ideas about their economic relations on the other.

Briefly, we will argue that this economy – which relies on the free, self-directed activity of its participants – necessitates a certain practical standpoint which its participants routinely translate into a theoretical verdict that obscures the conditions imposed on them as opportunities for them. Since this positive verdict is equally regularly presented with material for disappointment, they then turn to calls for moderation for the benefit of all. They direct their attention away from the reasons of their misery, and appeal to the State (hypocrisies included) which too often disappoints them by not living up to their fanciful moral demands. Criticism then is widely understood as moralism, and “radical” as “righteous”. This makes the critique of capitalism a difficult endeavour.

That economy

Let’s start at the beginning. Everybody needs stuff: food, clothing, beer, trainers, the complete collector’s set of Calvin & Hobbes … Since most of those products are quite complicated to put together, people are dependent on each other through a division of labour. In any form of division of labour the producers are materially dependent on each other. However, the division of labour in this society is something quite different from a rational, sane division of labour between producers working according to a common plan: “From each according to their ability, to each according to their needs.”¹¹ In this society the provision of people with what they need is made dependent on money, wage labour and capital.

In this society commodities are produced for the market and sold to earn money. A steel manufacturer does not primarily care about the steel that is produced in their factory or what nice goods can be made out of it but the profit they can make. Similarly, the workers in that factory do not have to give a damn about the final product, they work to earn a wage. The organisation of this process is done without direct coercion or immediate dependence. Economic subjects pursue their own private interests, a right granted to them by the capitalist state.

The capitalist state grants its subjects liberty from each other. What Alice wants is a barrier to what Bob can do: he cannot use force to make Alice do stuff she does not want to do. This applies in general, but it also applies to objects in particular: private property defines a material realm of freedom for everyone which is then protected by the State – whatever they each happen to own. The capitalist state insists that, for instance, Alice may dispose over her applesauce factory as she sees fit: Bob has no say because it is Alice’s property. Her will counts since she is the owner. Although Bob is dependent on the products (such as applesauce) produced by other market participants, Alice and her peers are licensed to be completely ignorant towards the needs and wants of Bob and others simply because the applesauce factory belongs to them. For all this, it does not even matter whether Alice or anybody is using the factory. You can own a piece of land in Northern Scotland without ever leaving Cardiff; this is how fundamental this exclusion is. In the same way Alice is dependent on products produced by others who were also granted their right to be indifferent to Alice’s need by the highest social power, the State. The way they agree on the basis of private property is to offer their own property in exchange; to exploit some other party’s interest in what they have to offer.

This implies the possibility of colliding interests: you are dependent on others and are thus required to exploit their dependence on you. That said, this opposition is rather abstract. While a high price is better for the seller and worse for the buyer, there is no general reason why the relationship cannot work out satisfactorily for everybody involved. Buyer and seller could in principle arrive at a deal that allows each side to get what they want, enough money to fulfil their needs and desires. However, money is the one thing that allows them to gain access to the world of commodities from which they otherwise exclude each other. All material wealth is the private property of someone, under that person’s exclusive right of disposal. But, with money everything is available – storms can be weathered, obstacles overcome, previously unknown desires fulfilled. Conversely, without money nothing is available. As a consequence, the pursuit of wealth measured in money is the dominant economic purpose of this society.

Therefore, those who can, make use of their wealth to make more: they invest to make profits. Companies produce commodities to sell them for more money than invested and are successful if they earn more selling their products than what they pay for wages, materials, machines etc. Their suppliers have the same measure of success – buy low, sell high, make profits – which means in their transactions a company and its suppliers confront each other with opposing interests. The suppliers want to sell dear, the company wants to buy cheap, both trying to maximise their respective bottom line. When a company asks for a loan from a bank, the bank and the company also oppose each other, for example about how much interest the bank charges – a source of profit for the bank.

The examples so far spoke of opposites who both pursue and realise a profit. The advantage of one is the disadvantage of the other, but both might still make a profit. Workers, in contrast, do not have the means to buy cheap to sell dear. They have no choice but to rent themselves out to employers. Their interest is a liveable wage while minimising the damage (time, exhaustion, stress, RSI) they incur for it. Their employers, in contrast, want to maximise the difference between what they pay, e.g. on wages, and what they earn – their profit. The result can be observed all around us, companies make profits while workers work long hours and remain excluded from the vast wealth accumulated in this society. Any success workers achieve against their employers such as longer breaks or higher wages is to the detriment of the expressed purpose of their employment: profit. In this relation, the opposition between the involved parties is anything but abstract, because one interest – more profit – is hostile towards the other and undermines it. It undermines it to such an extent that the State intervenes and provides workers with basic necessities in the form of the welfare state to enable them to be workers.

The fact that people busy themselves against each other in this way is something the State has an active interest in. It makes itself reliant on the self-interest of its subjects for its power: to use taxes to finance itself, to use the strength of its national economy against other states, and to create the conditions for better economic growth. This in turn sends signals to its creditors of its creditworthiness and the quality of the money its central bank issues.¹² The State supervises, fosters and relies on an economy that requires its participants to pursue their interests out of their own free will. This economy relies on the materialism of its participants. The State does not command its citizens what to produce and how. It merely sets conditions and everyone is free to use these conditions to their advantage, workers and capitalists alike. Even the most dependent participants – the working class – are not made to work using brute-force. Their material dependence on a wage produces in them an interest in working for someone else’s wealth: “The silent compulsion of economic relations sets the seal on the domination of the capitalist over the worker.”¹³

A necessary practical standpoint

The State controls the relations of its subjects, among themselves and towards itself, in the form of law. The capitalist state ensures that if people have a conflict – and they will – they execute this conflict according to its general and universal rules; usually expressed as rights. In exchange, it offers all counterparts the guarantee that their demands are valid and have as much reach as its law allows. The offer of the State under the rule of law is: if you restrict yourself (i.e. obey the law), you can make use of the highest social power (i.e. the State) and its might when pursuing your legally approved interests (i.e. your rights).¹⁴ Quite practically this means that the State arrests thieves, enforces contracts and evicts squatters. If, for example, a worker or tenant breaches their employment or rental contract, a capitalist or landlord can take action against them – with the help of a civil court. Vice versa the worker can sue their boss to get their pay if it is illegally withheld. What the State will not do, though, is to make you whole again if harm has been done to you, e.g. it will not get you a new bike if yours is nicked.

The State ensures with force that the materialism of its subjects stays within the limits set by its laws. It ensures that they must get by with what they happen to own. Thousands of coppers and judges watch over the subjects to ensure that they are law-abiding. Since this way the subjects are first of all excluded from society’s immense collection of commodities and are without alternative, they have no choice but to make use of whatever is available to them, no matter how meagre – wage-labour, money, law – as means. As workers, owners of corner shops and investment bankers they need these means.

This practical necessity of dealing with the conditions set by the State, its offer and the social relations produced by fellow market participants, requires the recognition and treatment of the objective conditions encountered not merely as obstacles but also as means. Private property excludes you from the wealth of society but you must rely on whatever you own to make ends meet, wage labour is the means to extract profit from workers but you must treat it as your way to generate an income. This is the way you get to make a living. This practical standpoint is not wrong, it is necessary.

This does not take place without thinking. When people do what they must to make ends meet, they think about what they are doing. No matter how they feel about the capitalist mode of production, thoughtful attention to the here and now is required to prevail: you must budget your money, you must hunt for a job, and you must think about how to go about that. The practical necessity of dealing with money, law and wages as means necessitates these appearing as such in thought, indeed consistently being the object of thought.

The spontaneous theoretical standpoint of a civil mind

#Hope

This practical necessity does not mean, though, that the inhabitants of capitalist societies cannot take a step back from their everyday practice, explore the reasons for their misery, and recognise the state of things the State imposes on them. Of course, some life situations make that easier or harder. But no matter how shitty your shift or how steep your career, nobody stops thinking, and nobody stops you from making sense of your conditions.

It is not like this society lacks reflection. Its members have thoughts about all kinds of stuff. Whether it is about their work, their relationship to the boss, the football club, God and the world – “philosophising” is going on everywhere and all the time. The travails of the free market are no exception to this.

How people make sense of their conditions is neither necessary nor inevitable. Yet, the conclusion that is as prevailing as it is wrong, is to translate the perspective that is practically necessary (as described above) into a verdict about these conditions. Common sense takes the perspective that everyday practice requires as the purpose of things: Commodities are produced to satisfy needs, money is a means to distribute them, jobs are there to provide a (just) wage and produce useful things, the wage is there to live, the State is there to support us, competition is my opportunity. This motivated reasoning considers the conditions it is confronted with from the point of view of what it is for me instead of what it is. This way, common sense construes the imposed conditions as a set of chances and opportunities.

This goes as far as practical necessities – getting your hands on money or for competition on the job market – turning into fantasies of loss when imagining their absence. Civil minds turn the imposition of wage labour through State and capital into the worry that, without the State’s protection and job offers by capitalists, workers could not secure a living. A world without money, private property and wage labour becomes unthinkable.¹⁵

#Cope

Yet, most people experience that their practical standpoint – to live from their work, to secure and develop their livelihood – is frustrated time and again. The wage is too low, the job is insecure, working conditions are poor, the necessary effort exceeds their capabilities. People constantly experience adversity and are confronted with the fact that the means available to them are not suitable to satisfy their needs. To explain this some intellectual effort must be made, which in the first step, separates the identified flaws from the reasons they arose. When decent citizens turn the necessary outcome into an accidental one they do not proceed uncritically.

Measure. Poverty and misery are explained by too little or too much of a “good” thing: It is not private property’s separation of want and means that defines poverty, but too little property in the hands of the poor; not the social relations that produce money which are the problem, but too little money; not wage labour, but too low – unfair – wages; unemployment is not caused by profit, but by too little profit or too much want for profit; there is too little (and sometimes too much) of the State in all areas of life. In this logic, for example, the destruction of the planet is because the State does not regulate pollution properly, as if the absence of something (regulation) could explain the presence of something else (pollution)¹⁶. Why capitalists pump toxins into the air and rivers, why they do what they do, is thus removed from consideration. Rather than asking the reason why something is happening, the question becomes: how much of this is good/too much/too little. The question is turned into one of quantity, of measure, of moderation.
Personal. Too much, too little, moderation – this logic is also applied to people. First, by looking inward. Confronted with a world of opportunity paired with recurring frustration the orthogonal conclusion is: “I did not apply myself”. Failure is explained by the fact that you did not make enough of an effort, did not give enough, did not sacrifice enough, did not meet the standard. You have to work on your attitude, so next time do it differently and work harder. And if that does not work either? Then you are a failure either in that field or perhaps altogether. When confronted with failure, the practical duress to relate to the given conditions as opportunities is translated into the verdict of not having done that. This means more effort or a redefinition of what to expect. The same thought is turned against others: If they are poor it is their fault, they must redefine the amount they need to live on or someone else should.
Social. Common sense concludes: If I always make an effort and nothing comes of it then society is not an ensemble of opportunities – although it should be. Something or someone keeps disturbing the conditions for my – all our – success: some people, many, a particular industry, finance capital, politicians, foreigners, Jews. A group or some individuals have subverted or perverted what otherwise must be described as good. In this way of thinking, it is not, say, the profit calculations that decides wage and rent levels¹⁷ of young people – and everybody else – but greedy pensioners bleeding the welfare state dry by enjoying their triple locked poverty levels, wasting the NHS’s resources by refusing to die already. They prevent all our realisation of moderate gains.

Everything in moderation, even moderation

This way, the interest in getting ahead extends into demands for correct behaviour directed at everyone. The object of concern is no longer the conditions they are confronted with but how people behave. In their respective search for personal advantage, everyone should ensure that the “good opportunities” for others are not damaged too much and that they make a contribution to the greater good. This is moral thinking.

Decent citizens appreciate the opportunities they are presented with – they can try to get that job, apply for that loan to start a business, win the lottery. Taking inspiration from the restrictions imposed on them and the offer made by the State, they think of moderation as reciprocal: if each of us moderates ourselves, gives and does not just take, and lives by the rules then we all prosper, get what we want. They expect this imagined relation of quid pro quo to be honoured, expect what is fair and what is deserved: a fair wage for a fair day’s work, a just minimum level of sustenance as a member of the national community, a just reward for providing jobs etc. In this ideal, if everybody takes a step back from their respective interests, if all work hard and contribute, if all interests are moderated in the name of the common good then they all get the fair share they deserve.

In a situation of competition, of state-supervised all against all, in which people go under if they do not look after their self-interest, they are asked to not only think of themselves but hold back, to think of others and the community. This, which is a contradiction, is turned into a mental maxim, a useful guideline, which ought to regulate relations to the satisfaction of all amid this mess. People expect each other to relate to their own practice in this way. But since this practice consists of competition that relies on state-imposed moderation, this contradiction cannot be eliminated in thought but consistently finds expression in the moral demands they make against each other – and in their outraged judgements when these standards are inevitably not met.

Despite being inspired by law, moral thinking has its own ideas about what people can and should be allowed to do – and those ideas deviate from the law. Q: “Is it okay for a company to lay off most of its workers?” A: “No, it ruins their livelihoods for selfish self-interest.” Alternatively: “Yes, it’s the only way to save jobs.” The particular answer is not so important here, what matters is the shared perspective: individual interests are justified in how they contribute to society. Individual interests are unjustified in moral thinking if they are oblivious to or detrimental to the common good. Morality claims to be absolute, each moral standpoint claims to be the standpoint of the universal good, but is individual and particular, it is just the product of the capriciousness of whoever holds that particular moral position. This is why morality is so refreshingly flexible on what is and isn’t in the general interest.

The versatility of moral thinking is also illustrated in its ability to provide the material for the justification of one’s own advantage. Success is “morally clean” when it is deserved: when there is achievement and effort behind it. Of course, “you can’t make a Tomelette without breaking some Greggs”. Moralists know that if they are always a stickler to the rules, they will not get far. Besides, they already paid quite a lot of tax. Those who have given a lot, can and must get something back: push ahead, think of themselves, assert themselves against their competitors. Far from being immoral, the self-interest of the competitive subject knows how to justify its own advantage.

The consistently produced losers, on the other hand, can hang their heads in shame for their lack of success or can rejoice in the opportunity to let off steam about the undeserving rich or poor. Whatever the target, this sort of envy and contempt does not improve the conditions for those who hold it. When left-wing moralists complain about Boris Johnson’s creative attempts to refurbish his flat or when right-wing moralists celebrate the x-th downward revision of the living standard of people dependent on benefits: their jobs still suck, are still insecure, money is still not enough, the weekend is still too short. Critical as they are, they direct their attention away from the conditions making them miserable, dedicated to piling on. The benefit – the moral benefit – they take from all this is nothing but the glee in other people being given the treatment they deserve.

With their moralistic ideals they appeal to the State, formally or informally. However, because the State’s purpose is not to realise the conflicting moralistic ideals of its subjects but rather its power and a strong capitalist economy, it tends to fail to live up to the expectations of its moralistic critics. What they imagine as decent and fair is not on its agenda.¹⁸

As inconsequential as moral outrage down at the pub is, it still claims to want something from the world, it demands some change, however wrong. Alternative resolutions of the continuous failure to realise your ambitions are to turn inwards:

First, there is cynicism: oh, the naivety of not knowing how the world works, how politicians and corporations are corrupt, it’s the way of the world. This is the standpoint of being in the know without giving a single reason for anything. A standpoint that is content in being clever. With the feeling of personal sublimity they accommodate themselves to their conditions.
Even more submissive is the resolve to ascribe meaning to everything. “Everything happens for a reason” is a way of checking off, well, everything. Not so different is to find virtue in the lack of success: “I was always honest; I did not sell out, I remained a good person, I don’t want too much”. These standpoints give up on calculations of economic benefit and harm by reference to the grand scheme of things.
Alternatively, the arrangement with what is may take a bleak form: “just get on with it”. For this standpoint, the theoretical back and forth – “capitalism good, but bad consequences, so what’s the problem, me, the others, or maybe the government lost sight of its mission” – is checked off as mere theory and fruitless for everyday practice. This standpoint at its worst merely suggests endurance, and at its best aims to “make the best of it”, i.e. resolves to mistake conditions for chances and opportunities without brooding.

So what?

To recap:

In “A necessary practical standpoint” we started by explaining that the capitalist economy forces its participants to relate to the objective conditions imposed on them as their means. All must relate to their jobs as their way of making ends meet, because – when they do – they are. Through their free and self-directed activities, the members of a capitalist economy impose these conditions on each other.
In “The spontaneous theoretical standpoint of a civil mind: #Hope” we then observed that many then take this practical necessity as the conclusion about the objects they are dealing with: a job is there to provide workers with a decent livelihood.
In “The spontaneous theoretical standpoint of a civil mind: #Cope” we then finished by explaining that the continuous frustration of this relation is dealt with as a deviation from an ideal, from a right measure, from a balance.
In “Everything in moderation, even moderation” we then described the travails of moralism, the demand on others to do better for the common good, and how it replaces engagement with the economic objects at hand.

In summary, we have discussed how false ideas about the capitalist mode of production have their material basis in the social relations between society’s participants and the really existing social authority, the State. But we have also discussed how these false ideas exist because people accept them for themselves, understand them, and integrate them into their worldview. These thoughts are not necessary, they are thoughts they make. All people are equipped with will and the ability to think. They can determine and explain their conditions. People can face up to these explanations, form a judgment on their basis and then make a decision: to confront the conditions that make and keep them poor, stressed and fatigued.

Wrong thinking matters. It matters because subjects with the proper attitude are easier to rule – private property being appreciated means it does not need to be actively imposed at all times, leaving only the exceptions to this appreciation to be dealt with. It also matters because this society relies on the self-directed attention and activity of its poor and not-so-poor masses to produce the wealth in private hands and the might of the State.

Critically, false thinking matters for our project. The wrong ideas that people have might be of somewhat secondary concern to the thought leaders of the Left, looking for followers and calling their appeals to moralistic common sense “transitional demands”, but it is a chief concern for a project aiming to make the provision for all a collective self-conscious purpose. This project requires people who know what they are doing and why.

For us, therefore, education is the currently necessary political tool. Yet, education is not an easy undertaking under these social conditions. It is difficult because our critique runs against the common sense idea of criticism: moral complaints and calls for moderation. It is difficult because the project is to tell people that what they do every day, that what they depend on, that what they have to make something out of, is not for them; that it is of little use to them, and on the contrary, that they are mere cogs, objects. We convey thoughts that do not contribute to progress in this society. This comes across as somewhat impractical and “unworldly”, it offers little to tackle the world concretely and almost no consolation; neither personally, nor for securing the next win for the Labour party.

Then the demand confronts us: we should at least paint a picture of the alternative. Because a lot of people want to know what it is worth declaring everything to be shit for. But, while some outline of what a rational plan would look like is easy to have, the right criticism of these conditions and the design of an alternative are two different things. In order to think of a reasonable alternative, that is, one that does not carry along the mistakes from this society or that is in its critical intention constructive, you have to understand the reasons for misery. The project of creating a reasonable alternative needs people who understand why something has to change and how. This critique then has implications for what an alternative looks like.

Getting support for this purpose and getting organised with others is useful and helpful. Discussing and arguing with people also helps to avoid mistakes, of falling into illusions and hopes that promote participation.

All this can be done with us or without us. We lay no claim to being special, clever, innovative, original or sophisticated. Our project is to be correct and clear, a project that can be executed as well and better by others, too. Ultimately, what is important is not where people are organised and with whom people are associated, but what they do. What matters is the ruthless critique of these social conditions where the wealth of societies is founded on the poverty of the masses, and of any ideas that misrepresent and justify these conditions – whatever the well-meaning intentions may be behind them.

“Critique that deals with this content is critique in fisticuffs, and in fisticuffs it is not a question of whether the opponent is a noble, equal, an interesting opponent, it is a question of hitting them.”¹⁹

Appendix: All the mystifications of the capitalist mode of production

Readers who are familiar with Capital by Karl Marx may recall this passage:

The wage-form thus extinguishes every trace of the division of the working day into necessary labour and surplus labour, into paid labour and unpaid labour. All labour appears as paid labour. Under the corvée system it is different. There the labour of the serf for himself, and his compulsory labour for the lord of the land, are demarcated very clearly both in space and time. In slave labour, even the part of the working day in which the slave is only replacing the value of his own means of subsistence, in which he therefore actually works for himself alone, appears as labour for his master. All his labour appears as unpaid labour. In wage-labour, on the contrary, even surplus labour, or unpaid labour, appears as paid. In the one case, the property-relation conceals the slave’s labour for himself; in the other case the money-relation conceals the uncompensated labour of the wage-labourer.

We may therefore understand the decisive importance of the transformation of the value and price of labour-power into the form of wages, or into the value and price of labour itself. All the notions of justice held by both the worker and the capitalist, all the mystifications of the capitalist mode of production, all capitalism’s illusions about freedom, all the apologetic tricks of vulgar economics, have as their basis the form of appearance discussed above, which makes the actual relation invisible, and indeed presents to the eye the precise opposite of that relation.²⁰

Marx claims that all ideologies about the capitalist economy have their basis in the wage form which represents exploitation – the extraction of surplus labour – as an exchange of equivalents: between labour and money. As outlined above our text proceeded differently.

It started by explaining that the capitalist economy forces its participants to relate the objective conditions imposed on them as their means. We must relate to our jobs as our way of making ends meet, because – when they do – they are. Through their free and self-directed activities the members of a capitalist economy impose these conditions on each other.
It then observed that many then take this practical necessity as the determination of the objects they are dealing with: a job is there to provide workers with a decent livelihood.
The argument finished by explaining that the continuous frustration of this relation is dealt with as a deviation from an ideal, from a right measure, from a balance.

Given that the account of the capitalist mode of production in this text is indebted to Capital the reader may wonder how these two accounts of ideology relate to each other. The central difference is that this text does not speak of the substance of wealth measured in money: congealed abstract human labour. As such, this text does not speak of exploitation, the extraction of surplus labour, because it does not have to for what it is trying to do. Yet, this means that the transitions between the points above are only reported rather than their inner logic given.

First transition. Where we only report that market participants mistake, say, the wage as their means, Marx explains that it, indeed, appears as such. The wage form produces the appearance that what they put in is what they get out.
Second transition. Where we only report that market participants criticise, say, the wage for failing to live up to being a source of a sufficient income by decrying a violation of a right measure, fairness or equality, Marx explains the logic: The exchange of equivalents on the market – money against commodity – constitutes the actually existing standard of fairness. The appearance of the wage relation as being just that then suggests the standpoint from which to criticise it.

While we think that the reduced version of the argument given in this text works, we do recommend the study of Capital to anyone. Indeed, we regularly offer reading groups for those who want to ground their objection to capitalism in its systematic explanation.

Bertolt Brecht. Lob des Kommunismus ↩
Karl Marx. Capital – Volume 1. p.156 ↩
See A Companion to David Harvey’s Companion to Marx’ Capital, Chapter 1 available at https://critisticuffs.org/texts/david-harvey ↩
See The Economists: Notes on CORE’s The Economy, Unit 1 available at https://critisticuffs.org/texts/core and Supply and Demand in Neoclassical Economics available at https://critisticuffs.org/talks/supply-and-demand-samuelson ↩
See Critiquing Corbyn: Capitalism Isn’t About Sharing available at https://critisticuffs.org/texts/corbyn. ↩
Karl Marx. Capital – Volume 1. Chapter 6. ↩
See What is wrong with free money? available at https://antinational.org/en/what-wrong-free-money/ ↩
Our readers may object that we are here conflating two genres: political agitation and theory. However, political agitation always contains and is informed by an understanding of the world it is about, aka theory. When Corbyn encourages his followers to demand a “fair share” by appeal to a multi-factor analysis of capitalist production, he is disseminating incorrect verdicts about the capitalist mode of production. Whatever he may think personally, he is appealing to and encouraing an understanding of the capitalist mode of production which is incorrect. ↩
Clearly, asking this question only makes sense after this critique has been accomplished. Indeed, we nicked a lot of this text from the last chapter of the book Die Misere hat System: Kapitalismus (The misery has a system: capitalism) by Groups against Capital and Nation, available at https://gegen-kapital-und-nation.org/page/die-misere-hat-system-kapitalismus/ It makes no sense to ask why a critique fails to convince when its correctness is in doubt. Once this is resolved, though, a lack of success does not translate into the search for a mistake in the theory: correctness and success do not need to correlate. Anyone who has ever tried to convince a Covid, moon landing or climate change denier knows this. ↩
Karl Marx. Capital – Volume 1. p.899. The compulsion being “silent” because it presents itself as an objective constraint instead of the subjugation of one by the other; see below. ↩
Karl Marx. Critique of the Gotha Program ↩
See Economic Crisis (from 2007 to June 2020) available at https://critisticuffs.org/talks/economic-crisis-june-2020 ↩
Karl Marx. Capital – Volume 1. p.899 ↩
Whether the State actually mobilises its might, though, then depends on the relative importance it ascribes to a particular problem. ↩
See every think piece ever invoking “human nature”. ↩
An analogy: the presence of a loud bang is not explained by the absence of soundproofing but by reference to whatever made that bang. ↩
See Housing Crisis available at https://critisticuffs.org/texts/housing-crisis ↩
Nevertheless, this sort of abstraction from their own misery is productive for ruling over the poor masses. See e.g. Benefit envy without benefit available at https://gegen-kapital-und-nation.org/en/benefit-envy-without-benefit/ ↩
Karl Marx. A Contribution to the Critique of Hegel’s Philosophy of Right. Introduction ↩
Karl Marx. Capital – Volume 1. p.680 ↩

The Dubious Benefits of a Workers' State: Universal Credit

Wed, 29 Jul 2026 20:08:22 +0000

Despite a shakey deployment beset with missed targets and allegations of poor administration, as of writing, slightly under six million households (a quarter of working-age households) are in receipt of Universal Credit (UC).

UC replaces the six main “means tested”¹ benefits for people of working age². The benefits being scrapped were introduced at various periods and were all in their time trumpeted as fundamentally necessary welfare reforms compared to what they replaced. These benefits (Income Support, income based Jobseeker’s Allowance (JSA), income related Employment and Support Allowance, Working and Child Tax Credits and Housing Benefit) are scrapped and replaced universally with this single means tested benefit. Thus, UC is available to those

in work (who might previously have received Child, Working Tax Credit and/or Housing Benefit),
who either lack work and are looking (who might have gotten Jobseeker’s Allowance with Housing Benefit and/or Child Tax Credit) or
who the State judges are unable to work (who may have received Income Support or income related Employment and Support Allowance with Housing Benefit and/or Child Tax Credit).

The official document announcing UC explained what the Government of the time (then the Coalition) hoped to achieve with this flagship reform of the social security system:

“A life on benefits is a poor substitute for a working life but too much of our current system is geared toward maintaining people on benefits rather than helping them to flourish in work; we need reform that tackles the underlying problem of welfare dependency. That is why we are embarking on the most far-reaching programme of change that the welfare system has witnessed in generations.

Universal Credit: welfare that works marks the beginning of a new contract between people who have and people who have not. At its heart, Universal Credit is very simple and will ensure that work always pays and is seen to pay.

Universal Credit will mean that people will be consistently and transparently better off for each hour they work and every pound they earn. It will cut through the complexity of the existing benefit system to make it easier for people to get the help they need, when they need it. By utilising tried and proven information technology, we will streamline the system to reduce administration costs and minimise opportunities for error or fraud.

Our reforms put work, whether full time, part time or just a few hours per week, at the centre of our welfare system. As such it extends a ladder of opportunity to those who have previously been excluded or marginalised from the world of work.” — The Rt Hon Iain Duncan Smith MP, Secretary of State for Work and Pensions, in Universal Credit: Welfare That Works

As a reform UC represents both a continuation of and a departure from what came before, i.e. the welfare system. That is, in its “most far-reaching programme of change that the welfare system has witnessed in generations” the State³, on the one hand, continues to acknowledge that many of its subjects are in fact dependent on benefits while, on the other hand, attempting to tackle “the underlying problem of welfare dependency”. In doing so, the State teaches everyone a lesson about the nature of the economy it rules over and what it wants from its subjects.

More of the same: “helping them to flourish in work”

In the introductory quote, Iain Duncan Smith, then Secretary of State for Work and Pensions, expressed on behalf of the Government that it considers a working life worth aspiring to compared to a life on benefits. Yet, despite this apparent appeal and as communicated in the same quote, the State considered the number of people in receipt of benefits too high and set out to correct this figure downwards. It did so, not primarily by tackling the world of work or by educating those on benefits of the wonders of that world, but by tackling the benefit system. This is apt.

The unemployed

UC, just as income based Jobseeker’s Allowance, which it replaces, is provided to those who are deemed able to work but cannot find a job: the unemployed. The State, in making this provision, acknowledges that there is, in fact, not enough work to provide a living for all who are dependent on it. Despite their best efforts, as judged by the State itself, those out of work cannot secure it, however hard they may try. That must mean that the decision to work or not is not one down to the jobseeker alone. Indeed, not one down to the good jobseeker at all, given the State accepts they are using their best efforts to find work but are failing to get it. The “most far-reaching programme of change” of the world of poverty and work in recent history has no intention of “tackling” this central obstacle so that “work always pays”. The State may offer subsidies to companies to employ more workers (subsidised apprenticeships etc.) but it does not interfere beyond this on that side of the employment relationship by mandating the provision of jobs. UC, like all that came before it, is designed to maintain a contradiction in the world of employment in Britain: (a) workers need work to live but this work is not provided when they need it.

The State does not take it on faith that those who purport to seek work are indeed doing so. The State sets out, within the UC rules, just as it did before with JSA, detailed provisions regulating what the unemployed must do to search for work if they wish to receive the full amount of UC (discussed further below). In doing so, the State instils in its unemployed masses the continuous aspiration to live off work when they cannot. This insistence is not merely for the benefit of disciplining and educating those masses (“work […] is seen to pay”). Rather it also keeps them in a state fit and available to work. The State arranges it so that when companies seek workers all available human resources in society are mobilised for them. If there is an idle, capable population it will seek them out, actively pursuing the work that employers offer. In making these arrangements the State acknowledges that not just workers but also companies need work, i.e. that (b) companies seek to consume work when it is beneficial to them. UC aspires to maintain not some surplus population but a useful resource for those who rule the “world of work”, i.e. employers.

Those in work

About 40% of UC claimants have jobs. In paying them some UC (and previously paying Working Tax Credit), the State puts on record that it does not think that these people do in fact “flourish in work”; “work pays” but it does not pay enough to make a living as a worker.

UC is available to those in work whether the reason their income falls below the level at which UC becomes payable is because they (1) have too few hours (the underemployed) or because (2) their rate of pay is too low (or some combination of both).

Low hours. The State takes a similar approach with the underemployed, as it does with the unemployed. Just as companies are not required to employ a worker who is unemployed, but are given the freedom to do so when they judge that beneficial, the State does not force companies to provide more or a sufficient number of hours of work. The State accepts that each hour of extra work for which a company contracts is one which the company thinks suits its interests. The State recognises and supports the freedom of companies to not only decide on whether to consume work at all (unemployed) but also how much work to consume from a worker. Knowing that this does not mean sufficient hours for all employed workers, the State tops up the wages with UC; which is there to ensure that life as a part-time worker is no more miserable than the standard set by the State.
Low pay. With UC the State aims to “make work pay” for workers on low pay not by mandating an increase in the minimum wage but by supplementing wages with benefits.⁴ It tops up the pay of workers whose income from wages it deems too low. This way, the State recognises that wages are a cost to companies; and costs are meant to be low. It recognises that (c) the livelihood of workers is an obstacle to the appetite of companies to consume the work that workers have to offer. The reason why workers go to work – their wage – is a detriment to those who employ them.

The (presently) unemployable

Finally, the State supports with UC (just as it did previously with Income Support and income related Employment and Support Allowance) those who it has decided cannot, for the time being, or perhaps ever, actually obtain work, or at least should not have to: now primarily people looking after children under three, the sufficiently sick and their carers. For these groups it removes their dependence on employment they cannot take up and provides for them. With this it recognises that the dependence of the livelihood of workers on work interferes with such elementary social functions as raising the next generation of citizens and other activities it considers socially useful.⁵

Yet, here, the State is not uncritical. At any particular time, it is concerned with whether those it has decided fit within these exempt groups really do fit: necessitating various “work capability assessments” and “work focused interviews” to check up whether individuals have really earnt their time out from using work as their means.

In addition, via its continuous programme⁶ of “welfare reform”, the State re-evaluates the boundaries of the groups which it thinks should be supported without having to look for work. For example, in 2007 and 2010, the legal test for how unwell a person has to be to be regarded as sick was significantly tightened. Similarly, the State has re-evaluated the circumstances under which it considers someone raising a child should not be required to work: at one time that was accepted to be the case where the child was under 16, before that was progressively reduced.

Thus, although the State takes on a role of supporting those who it thinks will not currently be able to make any sort of living from work, even if companies had a need for them, it is careful to continually re-evaluate this verdict. It re-evaluates both whether a person truly meets its current criteria for that group and also which groups really cannot manage with work. Here, on the one hand, the State identifies the wants of its subjects so immediately with the requirements that the economy places on them that it cannot fathom someone with caring responsibilities would want anything other than to work for somebody else’s benefit.⁷ As far as the State is concerned, passing a “fitness for work” test opens a wonderful world of opportunities to those it does it to. As far as it is concerned this “extends a ladder of opportunity to those who have previously been excluded or marginalised from the world of work”.

On the other hand, another, mundane, reason for the consistent re-evaluation of who is exempt from the imposition of work is cost.

“Life on benefits”

The costs of a working class household are a given datum – they need to pay rent, for food, clothes, education, furniture, etc. – but their income varies according to calculations made elsewhere: hourly wages × hours paid. The State sympathises with both parties in this conflicting relation. With the holy right of employers to provide work according to their calculations (which may or may not result in a livelihood for workers), and with the plight of those having to seek their livelihoods through work.

It does this, first, by defining what costs of an average working class household it recognises as valid: to be met by benefits if no other income is available. In doing so, it defines the standard level of poverty, i.e. how many tins of beans and new coats a household gets to enjoy. As currently being demonstrated with the “£20 uplift” to the standard allowance that was paid during the early part of the Covid-19 pandemic being withdrawn, it can at any point change its mind, in this case reducing the income of one in four working-age households by £86.67 a month in a single stroke.

It does this, second, by setting the maximum amount differently for different situations. The State decides which of a family’s particularities are ones which it will generally recognise as worthy of extra support and how much that support amounts to. For example, you can have childcare costs included provided your children are below a certain age and your partner also works; your disability is at a sufficient level to merit a higher maximum; your first two kids should increase the amount but not your third etc. This system of varying maximum amounts for families in different circumstances has the benefit of keeping the overall cost of labour down. There is no need for wages to be set at a level where workers are able to manage from the wage regardless of their individual circumstances (whether that be large, but not too large, families or extra costs due to disability).

Thus, in order to enable its poor citizens to live off their wages, it removes from them the condition of having to live off their wages and supports them in times of no wage or too low a wage. The State decouples the survival of the majority of its working-age population from the immediate willingness of employers to consume their work while insisting on the survival of the majority of its working-age population being dependent on the willingness of employers to consume their work.

This contradiction, a contradiction the State has produced and which it – as a capitalist state – has to produce, a contradiction which is at the heart of all welfare reforms including UC, explains how it relates to claimants:

First, as is exemplified with its “2 child policy”, which only awards an increase to the maximum amount for the first two children (and was phased in such that it will apply to any third or subsequent child born after April 2017), the State declares that it wants those whose incomes it at least partially supports via UC to face the same choices as made by those whose incomes are higher than the UC threshold: the wage does not increase as a family has extra children, and nor should UC after the second child is born. It removed its subjects’ absolute dependency on employers as a means of obtaining a livelihood, but it emulates it and in so doing teaches a valuable lesson: the calculations of employers reign supreme.⁸

Second, the State’s welfare system burdens its society with costs. Where it, on the one hand, removes the costs of a living wage from the balance sheets of employers, it, on the other hand, adds costs to their balance sheets in the form of taxation.⁹ Every penny taxed from companies is a penny that eats into their benefits, the monetary gain they hope to make when offering work in the first place, i.e. profit. Similarly, for those workers earning more than the UC threshold the tax rate they pay contributes towards making them welfare recipients. Thus, the State becomes critical of the standard of living of workers and the fact that welfare spending props up this standard, critical of these costs to itself and to employers, and tackles this challenge by correcting benefits downwards. It considers that the poverty thresholds in its society are unaffordable for itself and its society. Therefore it makes previously considered necessary expenses unaffordable for those on benefits in order to practically establish that “a life on benefits is a poor substitute for a working life”. Yet, this way it also then establishes a new lower limit not only for those five million households on UC but also for everybody else who is now competing on a job market with the members of those households.

The workers’ state

The welfare state, pre and post UC, is an indictment of the capitalist mode of production. Looked at soberly, the provisions of the welfare state express the State’s insight into the world of work: (a) workers need income from work but it is not provided when they need it, (b) work is set in motion only when it benefits employers and (c) this benefit is limited by what workers get to live on. The State recognises that the reason why workers go to work, their wages, is an obstacle to the reason for their employment. It recognises that without state intervention, the capitalist mode of production does not even provide the members of its society with a subsistence level of living.

For its part, the welfare state, that department where the capitalist state provides for its working class, where it is the workers’ state, expresses first of all that the livelihood of workers is the object of calculations made by others. The continuous re-evaluation of their living standards as a burden to the State and companies is no deviation from good governance, but the logical consequence of looking after an interest that is dependent on calculations made elsewhere. People whose interests are made dependent on working for somebody else’s wealth need this wealth in other people’s hands: they must accept that their own livelihood is an obstacle to their livelihood; that they are human resources. As such, the workers’ state caters to them.

Self-critique: “The most far-reaching programme of change that the welfare system has witnessed in generations”

To recap, in catering to its human resources the State produces a contradiction: it removes the condition of being a human resource from them, by providing an alternative life on benefits which is not immediately dependent on employers’ desires. It ensures that workers can live off their wages by paying them benefits when it judges these wages are not enough. But in doing so, it removes the need from them to live off their wages. The history of welfare state reform is a history of the State addressing this contradiction, adjusting its provisions out of frustration with the work provided by its poor masses, be it motivated by the cost of their expenses to itself and employers, in response to a crisis of those who provide employment, by changing requirements in the world of work, or a mix of all or any of these factors.

With UC, the State aimed to (1) increase incentives for poor people to seek (more) income, (2) address and enable an increased appetite of employers for precarious employment and (3) generalise its pressure to seek (more) income to encompass not just those who were un- and underemployed, but to all who are poor and could work.

The taper rate: “people will be consistently and transparently better off for each hour they work and every pound they earn”

To calculate the amount a particular claimant (or claimants if it is a couple) receives, the following process applies under the UC rules:

Assess the maximum amount to be paid for a particular claimant. These are the amounts for each individual in a claim and in some cases for housing costs, childcare costs, costs of a significant disability or unpaid caring for a person who is severely disabled.
Calculate and deduct from this maximum figure:
- 100% of unearned income, e.g. presumed interest from savings¹⁰ or other benefit income; and
- 55% of earned income, i.e. income from working.¹¹
Pay the balance as UC.

The difference in treatment of unearned and earned income is an important feature of the scheme: the fact that the Universal Credit is not reduced by the full amount of any increase in wages, but only ever by 55% of such an increase, is a key part of “making work pay”: it guarantees that claimants will receive at least 45 pence of every extra pound of wages, after tax.

With its taper rate provision, the State interjects itself into a continuously ongoing negotiation between workers and employers. As discussed above, the costs of a working class household are a given datum. For the process of employment to continue normally without state intervention, their wages must cover these costs. Roughly speaking, just like the price of any commodity must cover the costs of making it, the price of labour must cover the costs of providing it, i.e. must be enough for workers to live on. On the other hand, the income of workers who are affected by the taper rate are, as also discussed above, wages per hours × hours worked. Thus, there are two ways to earn more: earn more per hour or work more.

“Every pound they earn”. The State in recent years professed its ambition to move more people into better paid jobs, i.e. jobs offered by employers for which they are ready to pay more than the minimum wage out of their own calculations.¹² Clearly, employers are only prepared to pay more than the minimum wage when they cannot find the workers they want at minimum wage itself: it is their means to entice, say, a specialised workforce to work for them. With UC the State recognised that its previous welfare system stunted this tool in the employers’ toolbox when it came to UC recipients (see below).

Behind this is a recurring worry of the British State about the low productivity of UK industries. Here, “productivity” means how cost-efficiently something can be produced, and signifies a central weapon in international competition. Indeed, in this competition productivity is often the decisive weapon rather than simply low wages. A specialised workforce – that also costs more to keep – in a state-of-the-art factory can and routinely does outperform a cheap but unspecialised workforce. What matters is the difference between costs and return, not low absolute costs.¹³ It can thus be useful for an employer to pay higher wages if the work they consume in return leads to higher returns. The calculations in the wage brackets north of the minimum wage are no different to those at minimum wage: employment is beneficial to an employer and thus provided if the income to them enabled by that work is higher than the cost in wages, the higher the better.
“Every hour they work”. But the more immediate concern of the UC whitepaper and UC is hours worked. Since employers have an appetite for work to the extent that it is beneficial to them, i.e. profitable, their immediate interest is not to cover the costs of their employees but to consume as much (or as little) labour as they deem fit. An employer seeks to induce a worker to work extra hours through the payment of hourly wages: They implant their interest of consuming as much profitable labour as possible into their workers through this provision. While the economic reality underlying an employment relation (without State intervention) is that workers need to cover their costs of living, the hourly form of payment, the way in which they are paid, disregards this need and thus implants the interest of extracting more work from them in them.¹⁴ That is, in this way, workers, given the wage is rarely enough to cover their costs, are often prepared to work an extra hour under this arrangement: sharing their employer’s interest in them providing exactly as much work as is needed.¹⁵

Under the previous system, a worker with a low wage on means tested benefits (i.e. Housing Benefit and Tax Credits) could see as much as 94% of any increased payment for work swallowed up in reductions to benefits. The method of calculation of UC seeks to overcome this problem by ensuring the benefit system does not undermine the incentive employers offer to work extra hours: it aligns its support for workers with the effort of the employer who contracts for an hourly rate. The arithmetic of the calculation contains the promise that an extra pound of wages, after tax, will always allow the worker to increase their income by at least forty five pence. This way the “working pattern that modern employers […] need” is successfully implanted in the interest also of the “individuals” who work for them and receive UC:

“The current system incentivises many people to work no more or less than the minimum hours required to qualify for Working Tax Credit. This fails to reflect the flexible working pattern that modern employers and individuals need.” — Universal Credit: Welfare That Works

The complexity of simplicity: “cut through the complexity of the existing benefit system”

The simplicity of the taper rate – always 55% – is part of a broader push to make the benefit system easier to understand: “At its heart, Universal Credit is very simple and will ensure that work always pays and is seen to pay.” That is, this simpler system is intended to make it easier for workers to make decisions about work.¹⁶ For workers to be able to survive and thrive as workers, work needs not just to pay, but to be seen to pay so that such calculations can be made: how much will an extra hours work provide? The previous system was often much less obvious. A worker wishing to know how much money they would earn from an extra hour at a given rate would often need to understand two systems: first how the extra hour and the increased wage it produced affected Tax Credits, then how the extra hour, increased wage and the new level of Tax Credit, affected Housing Benefit. Needless to say, not many people were confident in making such calculations.

Yet, the taper rate alone cannot satisfy the appetite of “modern employers” – and consequently of the “individuals” who work for them – for “flexibility” such as zero-hour contracts. The State thus sets out to simplify its benefit provisions to make it easier to work, say, ten hours one week and one hour the next: This way it makes “it easier for people to get the help they need, when they need it”, a need produced in them in response to whether an employer needs them this week. The calculations of employers about how many hours to contract at any given time is thus completely freed from considerations about the costs of living of those providing the work.

Under the previous system, (temporary) changes in income produced the need to interface with several departments to get Housing Benefits, Jobseeker’s Allowance, Tax Credits adjusted or reclaimed. For example taking up 16 hours work or earning more than £5 above Jobseeker’s Allowance rate would cause Jobseeker’s Allowance to end. That could then cause the Local Authority to query what a person’s income was for calculating Housing Benefit: if the query went unanswered Housing Benefit could end. Possibly a claim for Tax Credits would be needed. The worker who took up the opportunity to work under that system was taking on hours of unpaid administrative work in dealing with these bureaucracies. If the work ended a week or so later, it all had to be done again. Even if the worker could navigate that minefield, in many cases benefits would be paused whilst the bureaucracies considered the issue: leaving the worker suddenly without enough income to even get the bus to the work they had earlier been so happy to find. Under UC this process is streamlined, to the point of requiring no intervention from the claimant.

A second benefit of simplicity is “to reduce administration costs”. The complex system of rules the State has established in order to square the circle of maintaining workers as workers by removing the need to be workers from them, also makes this system costly to administer. Special provisions need to be checked, edge cases accounted for. Yet, despite high hopes, the administrative simplicity of a single calculation and a single department does not abolish the need for detailed rules. The State must still sort claimants into conditionality groups and provide for a detailed assessment of income in calculating how much support is owed. None of the existing reasons for bureaucratic rules to come into existence are abolished and therefore few of the rules are: the system for assessing whether someone is too sick to expect them to work are carried over unchanged as are many of the rules for calculating income and savings.

This is not to say they did not simplify at all. For example, previously the rules for tax credits disregarded income from maternity allowance in the means assessment for tax credit. Maternity allowance is a benefit paid to pregnant women and new mothers who have some work history but not enough to qualify for statutory maternity pay (perhaps because they had been self employed rather than employees or had worked for too short a time or did not earn enough). However, UC treats maternity allowance, as unearned income – meaning it is taken into account in full, causing an equal reduction in UC. The reason given is that this is not a benefit paid by employers (whereas statutory maternity pay, which is paid by employers and then recompensed by the State, counts as earned income and therefore attracts the UC taper). It is said to be simpler to treat only income paid by employers directly as earned income.¹⁷ Making rules simpler generally involves changes of this sort: they are simpler because they provide less room for the specific circumstances of a person’s situation to be considered. The brutality of simplification, where it can take place, thus is that quite often such programmes simply abstract away actual differences between people in order to treat them all equally.

Conditionality: “a new contract between people who have and people who have not”

“The clear financial incentive provided by Universal Credit will be backed up by a strong system of conditionality; unemployed people who can work will be required to take all reasonable steps to find and move into employment. Conditionality will be responsive to an individual’s circumstances – reflecting, for example, that whilst the majority should move into full-time work, for some people there may be temporary periods when part-time work is appropriate (for example, for some lone parents).

Strengthened conditionality will in turn be supported by a new system of financial sanctions. The new sanctions will provide greater incentives for people to meet their responsibilities.” — Universal Credit: Welfare That Works

The designers of Universal Credit announce with this statement that they doubt whether their efforts to make work pay will be sufficiently successful: they fear there are those for whom keeping 45% of any increase in wages is insufficient temptation, no matter how simple they make it, to produce the desired result.

A central innovation of UC is that the “conditionality” regime will apply to almost all claimants. “Conditionality” refers to the activities a claimant must perform to get the full amount of their benefits. It can include the requirement to look for work, or to attend a employment course, improve your basic maths skills, update your CV and so on.

Important differences from the previous regime are:

Those already working over 16 hours a week (or 24 for couples) also can be required to perform conditionality activities. Those in part time, low waged jobs may therefore be required to spend the time out of work looking for more or better paid work.
Each member of a couple has conditionality imposed on them. Under the previous system, generally only one member of a couple needed to meet conditionality.

The conditionality regime under UC works firstly by dividing claimants into groups. There is a small group of those not required to do anything: lone parents with kids under one, the most disabled, full time unpaid carers and the old. Next there is a group who are not compelled to work, but are compelled to spend time making themselves work ready: parents with kids under three and those judged too sick to work, at present, but who are not regarded as so unwell they should have to do nothing to obtain full benefits. Finally there are those who can only obtain the full benefit if they are making every effort to obtain work.

Failure to live up to the standards imposed can result in a sanction which can reduce UC by the whole of the amount a person is given for meeting their basic living needs.

If ever fully rolled out (see below) the system allows for the State to determine the number of hours a claimant must spend in work search each week which is based loosely on the number of hours a person should, in its view, be working. The baseline is 35 hours a week. That baseline is then reduced dependent on how many hours the claimant already works and the level of childcare responsibilities or volunteering activity a claimant has. Conditionality can be escaped for those claimants who earn an amount equal to the number of hours they are required to be available for work multiplied by the minimum wage. So, for example, a person earning £50 per hour for 8 hours would not need to do anything extra but a person earning minimum wage for 20 hours might still have to perform job searches for 15 hours. In contrast, under the old system, conditionality was only attached to the JSA. Someone working 20 hours a week on minimum wage would not have been entitled to JSA and thus could have received Child Tax Credits and Housing Benefits without the need to look for more work. Another way of saying this is that conditionality – and thus the need to find (more) work – was previously attached to Jobseeker’s Allowance but is now designed to be attached to all benefits combined under UC and comes with the threat of no payment at all.

In circumstances where a person has managed to do less than the required number of hours of work search, but have used their best efforts to obtain work, that will be considered sufficient. Given that how much work is available is not a question of how many people are looking for work, but rather of the need that businesses have to use workers, requiring a claimant to do all that they can reasonably do to find work is adequate. After all, once that is done, a person has done as much as they can in the competition for jobs. Whether or not they are successful within that competition, and how many people will succeed overall, is nothing to do with the need of workers for work. What is accomplished this way is that all idle human resources in society are mobilised to fill any open positions that employers seek to fill.

The mechanism for determining what activities and how much of them a person must perform to get work, or more work, or better work and thus avoid a sanction, is devised in such a way as to better mirror the experiences (of spending your time focused on work) the State thinks a claimant should be having on the labour market. By aligning experiences on benefits with those on work and setting work-search requirements in this way then the differences between being poor in full time work and being equally, or slightly more, poor out of work or in part time work are eliminated. At that point perhaps the promise of 45p retained for every pound of extra wages earned becomes more attractive: Spend 35 hours a week either working or looking for work or spend 35 hours a week working and increase your income.

As of writing, these rules are not fully in effect. At present the system operates such that if a person earns more than £5 above the amount of UC that is normally paid to meet basic living needs (the base rate excluding e.g. housing or childcare costs) then no conditionality can be imposed. This mirrors and reproduces the old system of attaching conditionality to JSA only. Indeed, research conducted on behalf of the State suggests rolling out the full set of rules described above may not in fact much increase the amount people earn from work.¹⁸

If ever fully implemented, with those changes UC would extend conditionality requirements to millions of additional people. Where the previous regime had the standpoint of imposing conditionality on those the State deemed to have not worked enough hours (16 hours under JSA rules), the UC standpoint is that conditionality now applies to almost everyone who is poor and deserving enough to qualify for UC (one would potentially have to work a full 35 hours at minimum wage to avoid conditionality). The State radicalises its demand against its poor citizens: faced with the inability to secure a sufficient income from work, hustle to secure sufficient income from work.

“Our reforms put work, whether full time, part time or just a few hours per week, at the centre of our welfare system.”

On the one hand, we have to disagree with The Rt Hon Iain Duncan Smith MP, former Secretary of State for Work and Pensions, here. Work was always at the centre of the welfare system. It always dealt with the fact that the livelihood of workers depends on employment, but that this employment is not provided with the purpose of giving them a livelihood, and is instead due to profit calculations made elsewhere. These calculations rely on the continuous provision of affordable labour, but do not provide for its continued provision. Companies consume as much and as little labour as is beneficial to them, producing unemployed and underemployed workers as well as citizens who struggle to produce the next generation of citizens. The welfare state, since its inception, dealt with this contradiction by introducing a new one: it removes the absolute dependence on the wage from a workers’ existence in order to provide for the continued possibility of living from a wage.

On the other hand, The Rt Hon Iain Duncan Smith MP is absolutely right in his characterisation of his flagship reform. UC was designed to readjust the parameters of the welfare state to heighten the dependence of claimants on the calculations of employers: it makes their offer to extract more labour – when they deem fit – more striking (taper rate), it accommodates their appetite for employment contracts independent of costs of living of their employees (simplicity) and it makes their offers impossible to refuse when everything else does not help (conditionality).

This is the way in which UC upgrades the British workers’ state for the current period of capitalist accumulation. With UC the welfare state caters to the needs of those “modern individuals” who rely on work as an income, needs imposed on them by employers. In other words, the welfare state, also in its UC incarnation, is not a service to employers but one to their (potential) workers. It looks after them as workers, and it is them who then spend most of their existence in service to their employers – or trying to. The workers’ state ought to be criticised not because it does not service workers but because it does, for “to be a productive worker is not a piece of luck, but a misfortune.”¹⁹

Appendix: Autumn Budget 2021

In the Autumn 2021 budget the Chancellor Rishi Sunak announced that (a) the taper rate would be reduced to 55% from 63% and that (b) the untapered amount, the Work Allowance which is available to those in work who have children or health problems, would be increased by roughly £40 per month. With this move the Government responded to criticisms, including from their own party, for removing the £20 a week uplift introduced as a temporary Covid measure. In doing so, the Government kept with its recent approach to “soften” benefit cuts with tweaks to the taper rate that leave those out of work on benefits worse off and those in work relatively better. In other words, the Government kept with its ambition to “make work pay” by relatively impoverishing those who cannot.

Changelog

2022/02/09: Our previous example on simplification in UC was wrong. We thus replaced it with a correct example.

“Means tested” benefits are based on the income of a recipient: in order to obtain them typically a claimant must meet a set of conditions (for example, for housing benefit then a claimant must have to pay rent for the home in which they live) and also a particular condition relating to their means – i.e. income – which must be sufficiently low as compared to some threshold figure for entitlement to exist. ↩
“Working age” is shorthand for adults below the age at which a person becomes eligible for benefits as a retired person and above school age – that period of a person’s life during which the State declares they should be working to support themselves unless it judges they are unable to. ↩
The reader might stumble over our use of “the State” here and might prefer “the Tories”, “the Tory government” or “the government at the time”. However, the basic principles of UC are broadly agreed across the political spectrum. Labour abstained from the vote rather than to oppose its introduction. While the 2019 Manifesto promised to “scrap” UC, it only contained provisions to amend it and delay the roll out, alongside a vague promise to design a system which guaranteed a minimum income; something UC already does. ↩
The same government also increased the minimum wage. Yet, despite referring to that minimum as “the living wage”, the State spends billions on UC for those in work which indicates it regards the rebranding as less than accurate. ↩
“Carers provide an invaluable service to some of the most vulnerable people in our communities and the Government wants to make sure they get the support they need.” It is worth noting that the Government knows how to put a price on this “invaluable service”: £163.73 per month. ↩
As evidenced by the Welfare Reform Acts of 2007, 2009 and 2012 and before that the Jobseekers Act 1995, State Pension Credit Act 2002, Tax Credit Act 2002 etc. ↩
“For too long, the current system of carer benefits has failed to meet the different needs of carers and has trapped some people on benefits. […] Most carers of working age want to retain a foothold in the labour market, not just for their financial well-being (i.e. out of the State imposed poverty levels, CC), but also to enhance their own lives (i.e. out of the State imposed poverty levels, CC) and the lives of those for whom they care (i.e. out of the State imposed poverty levels, CC). We intend as part of these reforms to provide support for carers and improve their opportunities to maintain links with the world of work.” ↩
“The current benefits structure, adjusting automatically to family size, removes the need for families supported by benefits to consider whether they can afford to support additional children. This is not fair to families who are not eligible for state support or to the taxpayer.” — Treasury/DWP Impact Assessment for the Welfare Reform and Work Bill 2015 which as the Welfare Reform and Work Act 2016 introduced the “two child rule” . ↩
The British state, like other capitalist states, finances itelf also through ever increasing borrowing. However, the foundation for this borrowing is its tax authority and the strength of its national economy. We thus do not discuss it further here. See Sovereign debt and the crisis in the Eurozone. ↩
A claimant or couple having savings over £16,000 will not be entitled to Universal Credit. ↩
In the case of people with kids and the sick then some earned income is not subject to this “taper rate”. ↩
“The Department for Work and Pensions set up the In-Work Progression Commission in March 2020 to look at the barriers to progression for those in low pay roles, particularly for those with whom the Department comes into contact through its Jobcentres.” — DWP. Supporting progression out of low pay: a call to action ↩
See Do employers always aim to suppress wages. ↩
“From the law stated above, namely that the price of labour being given, the daily or weekly wage depends on the quantity of labour expended, it follows, first of all, that the lower the price of labour, the greater must be the quantity of labour, or the longer must be the working day, for the worker to secure even a miserable average wage. The low level of the price of labour acts here as a stimulus to the extension of the labour-time.” (p.688) “Given the system of piece-wages, it is naturally in the personal interest of the worker that he should strain his labour-power as intensely as possible; this in turn enables the capitalist to raise the normal degree of intensity of labour more easily. Moreover, the lengthening of the working day is now in the personal interest of the worker, since with it his daily or weekly wages rise. This gradually brings on a reaction like that already described in time-wages, quite apart from the fact that the prolongation of the working day, even if the piece-wage remains constant, includes of necessity a fall in the price of the labour.” (p.696) — Karl Marx. Capital. Volume 1. ↩
This interest of workers in working more is so strong that many states prohibit them and their employers from contracting more hours in a day or week than some legal limit. A legal working week exists in the EU (the Working Time Directive 2003/88), but the UK opted out of this provision already when it was a member state: an opt out it exercised by letting workers choose to opt out of the 48 hour working week. Historically, the UK did have legal limits to the working day. ↩
That it fails adequately to achieve this has been one of the critiques and a source of legal challenge: for example in SSWP v Johnson [2020] EWCA Civ 778 workers who were paid on different dates in some months where normal payday would have fallen on a weekend challenged successfully the rule which attributed two salaries to them in those months and none in another. The system had not made it easy for them to calculate their wages. ↩
See Moore v SSWP ↩
The randomised trial found very modest increases to work for those subject to more interventions. ↩
Karl Marx. Capital. Volume 1, p.644. A book we highly recommend to anyone. ↩

Stop conflating Ukraine and its inhabitants

Wed, 29 Jul 2026 20:08:22 +0000

Ukrainians and other people living on the territory of Ukraine are means used and sacrificed for the strategic ends of others: Russia, EU/NATO and Ukraine.

“Putin”. The Russian state is shelling Ukrainian cities, killing many people in the process. It is killing many others through other means of producing “collateral damage”. Furthermore, it is wreaking havoc on the local infrastructure, cutting many off from essential utilities and supplies even if they are lucky enough not to be directly attacked by the Russian military. The Russian state does not have the programme of killing Ukrainians per se, but it kills them as the resources of the Ukrainian state (and of the EU/NATO) that they are: it kills them because Russia wants to make a point to NATO about its “red lines” when it comes to the peace order in Europe and the security guarantees demanded for the Russian state.

“The West”. The EU opened its borders to Ukrainian citizens fleeing the conflict. In accompanying declarations the bloc makes clear who the real addressee of this gesture is: Russia. The EU celebrates its somewhat open borders as a show of its strength and unity.¹ In carefully separating the riff raff at its borders into Ukrainian citizens and permanent residents (welcome for at least one year), other people coming from Ukraine (temporarily sheltered) and everybody else (denied), the bloc also clarifies that humanitarian catastrophes require a worthy foe to qualify as such.² In accepting refugees (in these numbers) the EU declares itself responsible for Ukraine. The temporal nature of the shelter provided – which leaves those who escaped in limbo – further emphasises that the EU intends to resolve the situation in Ukraine: those sheltered should resettle to Ukraine once a peace according to the EU’s preferences is established there. The EU uses refugees to underpin its claim to a “seat at the table”. Ukrainian and other refugees are shifted around by the EU according to its strategic calculations about the Ukrainian state (and others). Meanwhile, the same states and their big NATO ally encourage, praise and materially enable Ukraine’s bravery to give everything – including their lives – in the war for the free world against Russia, while their think tanks weigh the cost of loss of Ukrainian life … to NATO.³

Ukraine. Ukraine’s leader, President Zelenskyy, wins international plaudits for his refusal of offers of sanctuary elsewhere and his gungho demands for ammunition not evacuation. But it is notable that is not a choice his government is prepared to offer the people of Ukraine. Martial Law has been declared and one of its first orders is that men aged 18 to 60 are not allowed to leave Ukraine. These men of fighting age are required to stay so that they can be on hand to serve in the defence of the country.⁴ Their lives must be risked for the Ukrainian state, whatever they think of that state, its war and whether that is something they want to kill or get killed over. Millions of Ukrainian men are thereby required to remain in a war zone. Whilst the Ukrainian resistance is celebrated as a triumph of the fighting spirit of a freedom loving people, the obvious fact that the Ukrainian state makes use of its population by force, as its resource to defeat the adversary threatening its existence, passes by almost without comment.

Yet, Ukraine and its leader do not need to rely on brute force alone to make their human resources pick up the fight. Volunteers are so big in numbers, recruitment offices have to turn them away. Furthermore, encouraged by a call to arms from their charismatic president (and Western politicians) already as of 5 March 2022 reportedly 80,000 people (mostly men) entered the country from the West.

On the part of many of those who come, or stay, to fight the invaders, this move is motivated by a brutal sleight of hand: the identification of a state and its people.⁵ To patriots across the world it requires no argument that if their country is invaded, they rise up in arms to defend it. An attack on their state is an attack on them, its security is what makes them secure.

But the opposite is true. What is happening is that the security of the Ukrainian state is (meant to be) achieved at the expense of the lives of Ukrainians. Ukrainians are sacrificed for the sovereignty and territorial integrity of the Ukrainian state under the slogans “Glory to Ukraine” and “Glory to the Heroes”.

In peacetime, the love that modern citizens have for their state references a social order where it is the state that lays the foundation for the pursuit of individual interests (with the well-known outcome of poverty for most). However, the readiness to sacrifice themselves for the state in times of war leaves even this calculating motive behind.

Ukraine has no bright future to offer to its patriots. In his well-received speeches the Ukrainian president executes the Ukrainian defence strategy. This strategy is prepared to sacrifice everything and everyone in Ukraine for Ukraine.⁶ Assuming that it cannot win a war against Russia, the Ukrainian military strategy is to mobilise its entire society in multiple defence “waves” until the “international community” ends the conflict “on favourable terms for Ukraine” (hence the insistence on no-fly zones to draw NATO into a direct confrontation with Russia). The president’s pitch essentially is: “die for the fatherland until NATO intervenes.” Yet, NATO keeps declaring that it will not intervene directly in the war, but prepares to support a drawn out guerrilla war.

It is thus grotesque when Western and Ukrainian anarchists and other leftists promote the conflation of a state and its subjects, encourage their comrades to sacrifice themselves – practically for the Ukrainian state, in their mind for liberty – and collect money for the war effort.

Moral creatures that they are, they both collect money to help refugees fleeing the war and collect money for the war. They cannot see the difference between the party in this war, the Ukrainian state, and the victims of this war, its inhabitants.

Appendix: On the Strategy of Military Security of Ukraine (Excerpt)

Source: https://web.archive.org/web/20220103220245/https://www.president.gov.ua/documents/1212021-37661

Перспективна модель організації оборони України, Збройних Сил України та інших складових сил оборони в частині визначених завдань з оборони України, стратегія та критерії досягнення спільних оборонних спроможностей

Підготовка та ведення всеохоплюючої оборони України потребують нової моделі організації оборони України, Збройних Сил України та інших складових сил оборони, яка повинна забезпечити:

завчасне планування та підготовку до виконання завдань оборони України органів державної влади, усіх складових сил оборони, органів управління національної економіки та органів місцевого самоврядування, підтримання готовності населення та території держави до всеохоплюючої оборони України, проведення превентивних заходів щодо недопущення ескалації воєнного конфлікту;

швидке розгортання сил і засобів територіальної оборони для своєчасного реагування на загрози воєнній безпеці, вжиття заходів щодо нейтралізації загроз територіальній цілісності України та залучення населення до всеохоплюючої оборони держави;

застосування в першій хвилі відсічі і стримування збройної агресії проти України сил оборони з проведенням усіх видів спеціальних операцій, зокрема на території противника, для недопущення його просування вглиб території України та стримування подальшої ескалації воєнного конфлікту;

використання у другій хвилі відсічі і стримування збройної агресії проти України військового резерву для посилення сил оборони та забезпечення проведення мобілізації в державі, розгортання руху опору в разі тимчасової окупації окремих територій держави;

застосування у третій хвилі відсічі і стримування збройної агресії проти України додаткових військових частин, сформованих за рахунок мобілізаційних ресурсів та мобілізаційних резервів, припинення за сприяння міжнародної спільноти збройної агресії на вигідних для України умовах;

постконфліктне врегулювання, проведення демобілізації, відновлення контролю за дотриманням режиму державного кордону України та реінтеграцію тимчасово окупованих територій у відбудовний період після закінчення воєнних дій.

Translation

Perspective model of the organisation of defense of Ukraine, the Armed Forces of Ukraine and other components of the defense forces in terms of certain tasks for the defense of Ukraine, strategy and criteria for achieving joint defense capabilities.

The preparation and conduct of comprehensive defense of Ukraine requires a new model of organisation of defense of Ukraine, the Armed Forces of Ukraine and other components of the defense force, which should provide:

early planning and preparation for the implementation of Ukraine’s defense tasks of public authorities, all components of the defense forces, national economy and local governments, maintaining the readiness of the population and territory for comprehensive defense of Ukraine, preventive measures to prevent escalation of military conflict;

rapid deployment of territorial defense forces and means for timely response to threats to military security, taking measures to neutralise threats to the territorial integrity of Ukraine and involving the population in the comprehensive defense of the state;

use in the first wave of repulse and deterrence of armed aggression against Ukraine by defense forces with all kinds of special operations, in particular on enemy territory, to prevent its advance into the territory of Ukraine and deter further escalation of the military conflict;

use in the second wave of repulse and deterrence of armed aggression against Ukraine military reserve to strengthen defense forces and ensure mobilisation in the state, the deployment of resistance in the event of temporary occupation of certain territories of the state;

application in the third wave of repulse and deterrence of armed aggression against Ukraine of additional military units formed at the expense of mobilisation resources and mobilisation reserves, cessation with the assistance of the international community of armed aggression on favorable terms for Ukraine;

post-conflict settlement, demobilisation, restoration of control over compliance with the state border regime of Ukraine and reintegration of the temporarily occupied territories in the reconstruction period after the end of hostilities.

“A major reason for the swift action on Thursday was a desire to have tangible results that showed unity with Ukraine, Czech Interior Minister Vít Rakušan told POLITICO during a break in the discussion. ‘It would be better for all of us to have some particular result of our discussion today,’ he said. ‘It’s really necessary to show that the EU in these days is really united.’” (Politico: EU hails ‘historic’ deal to protect Ukrainian refugees); “Local volunteers and authorities helping Ukrainians arriving in Romania were ‘showing solidarity in practice, showing that we are based on other values than (Russian President Vladimir) Putin and we are practising these values,’ [EU Home Affairs Commissioner Ylva] Johansson said.” (EU plans to grant Ukrainians right to stay for up to 3 years) ↩
For the last two decades or so, the EU was interested in integrating Ukraine into itself as part of its ambitious project to rival the US (and now also China) as a superpower, promising an existence for the Ukrainian masses as wage workers at the levels seen in other Eastern EU states. When this approach was forcefully stopped by Russia in 2014, the US took over the initiative and Ukraine has since enjoyed the status of a front state useful enough for wearing down the Russian rival but not important enough to fully prop up. Military aid and IMF credits maintained the state and its society at the brink of collapse. The misery produced by its adventures in East expansion did not prompt the EU to any shows of “solidarity”. ↩
“The costs of an insurgency will be tremendous—NATO members are well aware of the bloody toll a conflict takes, after decades of involvement in Afghanistan and Iraq. The human suffering will be extended, as the median length of an insurgency is an estimated 10 years. Refugee flows will move into Europe over time; refugees will have less and less of their own resources to draw upon when they arrive as the war drags on. […] Despite the costs, NATO members should support any Ukrainian attempt to wrest control of the country back from Moscow’s grasp. The Ukrainian government and army have sent every signal that they intend to fight, and fight hard, to keep their country. Whether or not NATO supports this fight, Washington is likely to suffer a backlash, as Moscow will see the United States’ hand at play. In this case, it is better to enjoy the benefits of support if one must already suffer the backlash.” (CSIS Scenario Analysis on a Ukrainian Insurgency) ↩
As of writing, those forced to stay are not (yet) forced to pick up arms. This is (at least) partly due to a lack of equipment, their lack of combat experience and logistical challenges. There is no guarantee, of course, that this will remain the case. Indeed, the Ukrainian interior minister is quoted writing: “Today is the moment when every Ukrainian who can protect his home must take up arms. Not just to help our soldiers, but to cleanse Ukraine of the enemy, once and for all.” ↩
International news reports, such as those cited in the main text, attribute patriotism as the guiding motive to Ukrainians and some mix of commitment to freedom, democracy, civil liberties, anti-fascism or “the West” to non-Ukrainian volunteers. This distinction is also put forward by the Ukrainian state: “More than 140 thousand Ukrainians, mostly men, returned from Europe. Tens of thousands fell into the hands of the Territorial Defense Forces. Of course, there are those who run away. But the whole world sees how the Ukrainian people fight for their country. Over 20k already. appeals from foreigners who are ready to come to Ukraine and protect the world from Russian Nazis on the Ukrainian front. So that the Kremlin evil does not spread.” (Ukrainian Defence Minister Reznikov Oleksii) While the commitment of some of those volunteers to the values ascribed to them is questionable, here we focus on Ukrainian patriots. In any event, whatever their personal motives – from the defeat of fascism to the defence of the “white race” – they all practically volunteer to be means for the self-defence of the Ukrainian state. ↩
On the Strategy of Military Security of Ukraine. We give an excerpt and our machine translation below in an appendix. ↩

For Russia and the US, in Ukraine their highest properties are at stake

Wed, 29 Jul 2026 20:08:22 +0000

Everyone is of course against war, not least political leaders and pundits, whether of the right, centre or left, whose commitment to peace is beyond question. This wholehearted antipathy for bloodshed typically stands firm, right up until it does not. The Stop the War Coalition, however, did not transform its coalition to stop wars into a coalition to stop a Russian victory in the current war. When putting forward their position, they made a connection between NATO’s expansion toward Russia’s borders (cf. Appendix) and Russia’s invasion of Ukraine:

“NATO should call a halt to its eastward expansion and commit to a new security deal for Europe which meets the needs of all states and peoples.” — Stop the War Statement on the Crisis Over Ukraine. 18 Feb 2022

The Labour Party generally disagreed with that line of reasoning and its leader declared:

“Russian tanks sit, engines revving, on the verge of annexing Ukraine, but protest placards waved here by the usual suspects condemn Nato, not Moscow. Any equating of the right of a sovereign nation to determine its own future, even to exist, and the vicious aggression of a neighbour is an intellectual sham. To do so is not merely misguided: it is morally wrong.” — Sir Keir Starmer. Under my leadership, Labour’s commitment to Nato is unshakable. 10 Feb 2022

Paul Mason took it upon himself to argue this point:

“Progressives should abandon the delusion that this crisis has been triggered by Nato’s ‘encirclement’ of Russia.” — Paul Mason. The left must stand with Ukraine against Putin’s aggression. 22 Feb 2022

The anarchists at Freedom News agree:

“Or, the worst: [the Westerners] want to explain to me how this is a NATO created conflict, or, if they happen to feel more generous, they come up with some kind of ‘both sides to blame’ rhetoric.” — Zosia Brom. Fuck leftist westplaining. 4 Mar 2022

What is remarkable about these rebuttals is that they do not disagree in substance with the claim that this is not “merely” a war between Russia and Ukraine, but a conflict between NATO and Russia:¹

Sir Keir Starmer: “But to condemn Nato is to condemn the guarantee of democracy and security it brings, and which our allies in eastern and central Europe are relying on, as the sabre-rattling from Moscow grows ever louder.”

Paul Mason: “But this crisis goes far beyond Ukraine: Putin’s goal is to destabilise the West. He’s made great strides towards that goal already. His subversion efforts in the US are echoed nightly on Fox News; Joe Biden’s presidency looks increasingly weak; the European Union is divided; and Nato itself is uncertain over what to do next.”

Zosia Brom: “But when you say ‘Fuck NATO’ or ‘End NATO expansion’, what I hear is that you do not care about the safety and wellbeing of my Eastern European friends, family and comrades.”

That is, NATO must protect at least its eastern members against Russia (Brom), NATO is protecting democracy and security across eastern and central Europe against Russia (Starmer) or Russia is destabilising the entire West including, somehow, the US presidency (Mason).

These defenders of Ukrainian sovereignty identify correctly that much more than Ukraine is at stake for the involved war parties. It is a war about the European peace order, fought between the mightiest war alliance² in human history³ on the one side and the only military power in the world capable of confronting it in an all-out war on the other side. What upsets these patriots about the hippies and Leninists in the Stop the War coalition is their treacherous lack of support for the troops, a crime against war morality:

“That’s why the likes of the Stop the War coalition are not benign voices for peace. At best they are naive; at worst they actively give succour to authoritarian leaders who directly threaten democracies. There is nothing progressive in showing solidarity with the aggressor when our allies need our solidarity and – crucially – our practical assistance, now more than ever.” — Sir Keir Starmer. Under my leadership, Labour’s commitment to Nato is unshakable. 10 Feb 2022

What Starmer and his fellow travellers want is for their audience to cross their fingers for the right side in this slaughter. In a sense, this is absurd: waving protest placards in the UK condemning Moscow would do little to sway Putin. Indeed, as has been documented in e.g. 2003, not even the British state feels particularly impressed by anti-war protest placards being waved by the usual suspects. Yet, as much as Starmer’s, Mason’s and Brom’s interventions may be driven by a genuine moral conviction that does not depend on the utility of their demand, at least for Starmer the whole endeavour is not useless. What Starmer is after, as the Prime Minister hopeful that he is, is a population willing to accept cutbacks and hardships in support of the war effort.⁴ When “our allies [need] our practical assistance now more than ever”, the population should accept its cost as a dividend of war morality. For the Stop the War coalition the matter is an equally moralistic one. In identifying NATO’s role before the Russian invasion, they wish to break the enthusiasm for this war. This earns them the scorn of the informal coalition of the willing quoted above.

However, identifying the role NATO and especially its leader, the US, plays in this conflict does more than merely answering which side to support in the slaughter. It also teaches you why, for both Russia and the US, nothing less than their respective status in the world is at stake. The people of Ukraine find themselves at the sharp end of this battle for status, a status for which the US and Russia are willing to displace, maim and kill Ukrainians, and a status for which they are willing to risk nuclear war. Given this, we recommend abandoning the business of crossing fingers for states and their wars.

Russia’s Status Quo and Ambition

The perspective of the Russian state on the role of NATO in this war is clear. In his televised address declaring the invasion of Ukraine, Vladimir Putin explained that he sees NATO’s eastward expansion as nothing less than a matter of life and death for the Russian state:

“Any further expansion of the North Atlantic alliance’s infrastructure or the ongoing efforts to gain a military foothold of the Ukrainian territory are unacceptable for us. Of course, the question is not about NATO itself. It merely serves as a tool of US foreign policy. The problem is that in territories adjacent to Russia, which I have to note is our historical land, a hostile ‘anti-Russia’ is taking shape. Fully controlled from the outside, it is doing everything to attract NATO armed forces and obtain cutting-edge weapons.

For the United States and its allies, it is a policy of containing Russia, with obvious geopolitical dividends. For our country, it is a matter of life and death, a matter of our historical future as a nation. This is not an exaggeration; this is a fact. It is not only a very real threat to our interests but to the very existence of our state and to its sovereignty. It is the red line which we have spoken about on numerous occasions. They have crossed it.” — Vladimir Putin. Televised Address on Ukraine. 24 Feb 2022

For the avoidance of doubt, the situation he is describing here is not disputed by Russia’s foes.

The centrality of Ukraine’s NATO membership (or Ukraine as a NATO deployment zone) to this war is echoed by Ukrainian president Zelensky:

“‘Security guarantees and neutrality, the non-nuclear status of our state — we’re ready to do that. That’s the most important point … they started the war because of it’, Zelensky said.” — Max Seddon, Andres Schipani and Polina Ivanova. Volodymyr Zelensky says Ukraine ready to discuss neutrality in peace talks with Russia. 28 Mar 2022
The strategic importance of Ukraine to Russia’s security interests has been expressed numerous times by Western strategists, e.g.:⁵

“It cannot be stressed strongly enough that without Ukraine, Russia ceases to be an empire, but with Ukraine suborned and then subordinated, Russia automatically becomes an empire. American policymakers must face the fact that Ukraine is on the brink of disaster: the economy is in a free-fall, while Crimea is on the verge of a Russia-abetted ethnic explosion. Either crisis might be exploited to promote the breakup or the reintegration of Ukraine in a larger Moscow-dominated framework. It is urgent and essential that the United States convince the Ukranian government, through the promise of substantial economic assistance, to adopt long-delayed and badly needed economic reforms. At the same time, American political assurances for Ukraine’s independence and territorial integrity should be forthcoming.” — Zbigniew Brzezinski (US National Security Advisor 1977 to 1981). The Premature Partnership in Foreign Affairs. Mar 1994.

“Ukrainian entry into NATO is the brightest of all redlines for the Russian elite (not just Putin). In more than two and a half years of conversations with key Russian players, from knuckle-draggers in the dark recesses of the Kremlin to Putin’s sharpest liberal critics, I have yet to find anyone who views Ukraine in NATO as anything other than a direct challenge to Russian interests.” — William Burns, now CIA director. Quote from 2008 cited in The Making of Vladimir Putin in New York Times. Mar 2022.
The increased integration of the Ukrainian military into NATO is well documented, e.g.:

“Despite remaining a nonmember, Ukraine grew its ties with NATO in the years leading up to the 2022 invasion. Ukraine held annual military exercises with the alliance and, in 2020, became one of just six enhanced opportunity partners, a special status for the bloc’s closest nonmember allies.” — Jonathan Masters. Ukraine: Conflict at the Crossroads of Europe and Russia. Apr 2022.

“At their meeting in Warsaw on 9 July 2016, the Heads of State and Government of the NATO-Ukraine Commission endorsed a Comprehensive Assistance Package (CAP) for Ukraine. The CAP supports Ukraine so that it can better provide for its own security, and carry out essential reforms in the security and defence sector. This includes objectives set out in the 2016 Strategic Defence Bulletin (SDB) towards adopting NATO standards and achieving interoperability with NATO forces by 2020.” — NATO’s Support to Ukraine. Nov 2018

Moreover, before the Russian invasion, the US and NATO had made clear what retaliation they were planning in response. Namely: unprecedented economic sanctions against Russia aimed at crippling its economy, and thus society, as well as material – but for now not uniform-clad – support for the Ukrainian war effort. In other words, when invading, Russia was aware it would engage in a proxy war with NATO and the US that risks the transition to an all-out war. When Putin emphasises the Russian claim to Ukraine by declaring it “our historical land”, i.e. in the way patriots make moral claims, and when he speaks of a “matter of life and death, a matter of our historical future”, he means it.

Yet, his idea of “life and death” is not the literal survival of Russia as a sovereign nation. There are many countries in the world that exist outside of NATO without being threatened in their existence. What is at stake for Russia is its place as a great power in the world, capable of demanding respect for its interests from the US. This is what Putin means by “our historical future as a nation”. To him and other patriots, the distinction between the survival of a nation and its rightful place in the world is rather academic. His great nation deserves respect and success.

In some naive sense, an end to the conflict is easy to achieve. All Russia needs to do is not even to completely demilitarise but merely to abandon its status, ambition and means of being a nuclear power capable of confronting the US. If it were to accept a place as a “regional power” it could be welcome within a US-led world order.

Alas, it is, however, correct when peace activists like Noam Chomsky emphasise that:

“No Russian leader, no matter who it is, could tolerate Ukraine, right at the geostrategic center of Russian concerns, joining a hostile military alliance.” — Noam Chomsky. After Dangerous Proxy War, Keeping Ukraine Neutral Offers Path to Peace with Russia. Mar 2015.

But as much as Chomsky can find reason in Putin’s actions, it should not be forgotten that what we are talking about here are the calculations of patriots who are willing to kill thousands if not millions of citizens and foreigners so that their nation receives the appropriate respect in the world, to further its interests, and the success that comes with it. The peace movement’s well-meaning attempts to clear up the silly notion that Putin is a “madman”, by explaining the “legitimate security interests” or “geostrategic concerns” of the Russian state, fail to account for the madness of patriotism: an ideology prepared to commit mass murder for the glory, strength and success of the fatherland. This holds true for Russia, but it also holds true for the US and its junior NATO partners like the UK.

The US’ Status Quo and Ambition

One thing you can rely on with former US President Trump is that he speaks plainly:

“We recognize that weakness is the surest path to conflict, and unrivaled power is the most certain means of defense.” — Donald Trump. Speech outlining the US National Security Strategy. Dec 2018

Unrivalled Power

Lest he be accused of going off script, the strategy he was introducing speaks the same language:

“The Department of Defense’s enduring mission is to provide combat-credible military forces needed to deter war and protect the security of our nation. Should deterrence fail, the Joint Force is prepared to win. Reinforcing America’s traditional tools of diplomacy, the Department provides military options to ensure the President and our diplomats negotiate from a position of strength.

[…]

The costs of not implementing this strategy are clear. Failure to meet our defense objectives will result in decreasing U.S. global influence, eroding cohesion among allies and partners, and reduced access to markets that will contribute to a decline in our prosperity and standard of living.” – Jim Mattis, US Secretary of Defense, et al. Summary of the 2018 National Defense Strategy of The United States of America (NDS’18). 2018.⁶

In its opening statement (the summary of) the US National Defense Strategy does away with the fantasy that contrasts military conflicts with diplomacy. Diplomacy relies on military might, which – in turn – exists to enable diplomacy to succeed. Somehow, the lingering threat of superior violence provides the conditions for successful negotiations. On this basis then, international treaties about anything from commerce to culture can be agreed upon. This is how influence, cohesion, access to markets and prosperity are accomplished and how other nations’ economic, diplomatic, and security decisions can be decisively influenced.⁷

In this arena, the US has attained a might that is almost unrivalled in the world. Its military is currently capable of waging and winning a war, nuclear or conventional, against any other power in the world bar one:⁸

“The central challenge to U.S. prosperity and security is the reemergence of long-term, strategic competition by what the National Security Strategy classifies as revisionist powers. It is increasingly clear that China and Russia want to shape a world consistent with their authoritarian model—gaining veto authority over other nations’ economic, diplomatic, and security decisions.

[…]

Concurrently, Russia seeks veto authority over nations on its periphery in terms of their governmental, economic, and diplomatic decisions, to shatter the North Atlantic Treaty Organization and change European and Middle East security and economic structures to its favor. The use of emerging technologies to discredit and subvert democratic processes in Georgia, Crimea, and eastern Ukraine is concern enough, but when coupled with its expanding and modernizing nuclear arsenal the challenge is clear.” – NDS’18

The authors identify the central challenge to everything important to them, i.e. the strength of the US economy and US national security. This challenge is posed by powers whose transgression is wanting to revise the status of the US as the unquestionable victor of history. The concern of these powers for their “prosperity and security” and their strategies in the world to secure them are not worth discussing or even acknowledging. Rather, in designating their programme in the world as to “shape a world consistent with their authoritarian model” their interests are declared as motiveless: power for the sake of power. What remains of their actions in the world is purely negative: aggression without cause.

In this respect, the US Secretary of Defense and his coauthors do not diverge from the Sir Keir Starmers, Paul Masons and Zosia Broms of this world. The National Defense Strategy allows itself enough ideological flourish to brush aside and declare illegitimate the security interests of its foes. However, since the US military does not only want to rally support for a war against Russia but aims to win it, it has more to say on what allows Russia to defy US pressures and thus why Russia presents a key challenge to the US, i.e. Russia’s nuclear arsenal:

“The ICBM force [the US intercontinental ballistic missiles carrying nuclear warheads, CC] is highly survivable against any but a large-scale nuclear attack. To destroy U.S. ICBMs on the ground, an adversary would need to launch a precisely coordinated attack with hundreds of high-yield and accurate warheads. This is an insurmountable challenge for any potential adversary today, with the exception of Russia.” — Office of the (US) Secretary Of Defense. Nuclear Posture Review (NPR’18). Feb 2018⁹

Escalation Dominance

The US military has identified that no adversary can pose a challenge to its weapons of mass destruction except Russia. While somehow popular discourse has it that these weapons exist to preserve the peace, the US military helpfully clears up this misconception, too: The point of the US nuclear arsenal is not to prevent war, but to wage it; anywhere and against anyone:

“The nuclear deterrent underwrites every U.S. military operation on the globe—it is the backstop and foundation of our national defense and the defense of our allies.” — US Department of Defense. Nuclear Modernization: Ensuring a Safe, Secure, Reliable, and Credible U.S. Nuclear Deterrent. Apr 2019.

This is not only meant as some general insurance against some far-off doomsday but also rather immediately. What the US is aiming for here is to dominate the escalation of any conflict, anywhere. They aim for an absolute, consistent escalation dominance, the ability to never be pressured by an adversary to react but to be in a position to dictate the terms of a conflict. The aim is that there is no level of escalation through which adversaries of the US can achieve some victory, as explained by a coauthor of the National Defense Strategy:

“The United States consequently needs a new warfighting approach adapted to this threat. This new warfighting approach involves U.S. forces resisting Chinese or Russian attacks from the very beginning of hostilities, fighting in and through enduringly contested operational environments to first blunt Beijing or Moscow’s assault and then defeat it – without ever gaining the kind of all-domain dominance that the United States could establish against Iraq or Serbia. With its invasion blunted or readily reversed, neither China nor Russia would have a way to end the war favorably; rather, Beijing or Moscow would face the awful choice of expanding the war in ways that play to U.S. advantages or swallowing the bitter but tolerable pill of settling on terms the United States can accept.” — Elbridge A. Colby. Testimony Before The Senate Armed Services Committee. Hearing on Implementation of the National Defense Strategy. Jan 2019.

To understand this, it is useful to recap the classifications of war by military strategists:¹⁰

Conventional war: refers to a war where the war parties confront each other with soldiers, tanks, ships and aircraft, but they do not use weapons of mass destruction such as nuclear, biological or chemical weapons. The US military is unrivalled in this category.
War with tactical weapons of mass destruction: such as tactical or sub-strategic nuclear weapons. Here weapons of mass destruction are used to defeat the enemy in the theatre of war. In this category, Russia can compete with the US.
War with strategic weapons of mass destruction: such as strategic nuclear weapons. Here weapons of mass destruction are used to harm the enemy in their home country, cities and regions are devastated and destroyed. Sufficiently many strikes wipe out an entire country. In this category, Russia can compete with the US.

The boundaries between these categories are fluid. For example, cluster bombs, thermobaric weapons and depleted uranium ammunition represent a transition towards tactical weapons of mass destruction used in conventional war. This fluidity can be used to escalate a conflict gradually or, in response, as a justification for a steeper escalation.

Wherever in the world a conflict with Russia or China arises, the US wants to be able to confront and hold off their respective military. While the US military cannot dominate these armies as it could in Serbia or Iraq, US war planners are somewhat confident in their strength on that level. What worries them about Russia (and China) is that it might have the option to escalate either to tactical nuclear strikes on the battlefield or to an all-out strategic exchange of nuclear warheads. Or, the US cannot threaten this escalation against Russia without having to fear a matching response. The challenge with Russia is that the US lacks unrivalled power on two levels: the US is not able to wage a “strategic” or a “sub-strategic” nuclear war “in ways that play to U.S. advantages”. It cannot always produce a situation where the only choice for Russia is to escalate without much hope of success or to concede to the US’ demands. As a consequence, the US has to consider Russia’s interest in every one of its military operations, wherever they are: Does this represent a red line for Russia? Is this a key ally?

For example, when Russia intervened in the Syrian civil war in support of the government, this represented a real limitation to what the US military and its allies could do in this conflict. More generally, this represents a limitation in the strategic freedom to wage those wars deemed necessary to protect US global influence, cohesion among allies, access to markets, prosperity and standard of living.

This is what they mean by “deterrence”: Ideally their own forces of destruction are so vast at the next level up that war at the current level can be won successfully. Superior strategic nuclear weapons ought to underwrite that a tactical nuclear war abroad can be won without significant harm to the homeland, superior tactical nuclear weapons ought to underwrite that a conventional war can be won without having to accept significant counterstrikes. In this category of conventional weapons the US military is vastly superior to its foes and thus is confident in its ability to win any such war.

Taking Stock: Strategic Nuclear War

At its height in the 70s and 80s, the peace movement had a slogan: “You cannot win a nuclear war”. The US agreed and agrees that it indeed could not win a war against then the Soviet Union, and now Russia, and has been working on remedying this regrettable situation. On this strategic front, the US military is currently not overly ambitious. It does not aim to make the US immune to attacks from Russia but merely to ensure that its nuclear and conventional weapons can devastate Russia before it can take out the US nuclear arsenal:

“The United States must have an NC3 [Nuclear Command, Control, and Communications, CC] system that ensures command and control of U.S. nuclear forces at all times, even under the enormous stress of a nuclear attack. NC3 capabilities must assure the integrity of transmitted information and possess the resiliency and survivability necessary to reliably overcome the effects of adversary nuclear attack.” — NPR’18

On the one hand, they plan on “reliably overcom[ing] the effects of adversary nuclear attack”. That is, in the logic of these military strategists whatever death and destruction the other side is capable of inflicting, the key challenge is to be able to wipe them out regardless. The dream for these strategists is, of course, to be able to destroy the Russian nuclear arsenal before it hits the US. On the other hand, for the time being, US strategists have to concede that they are still too vulnerable to the Russian nuclear arsenal:

“The problem with this approach [to ‘develop forces of all kinds able to hobble Russia’s or China’s nuclear arsenal’, CC] is that it is simply too difficult to pull off and is therefore an obvious bluff.” — Elbridge A. Colby, coauthor of the National Defense Strategy. If You Want Peace, Prepare for Nuclear War. Nov 2018.

Taking Stock: Tactical Nuclear War

As explained above, the scenario envisioned by these war planners is that confronted with a lack of victory using conventional weapons, Russia (or China) might resort to tactical nuclear strikes on a battlefield outside of US territory rather than accept defeat.

“Moscow threatens and exercises limited nuclear first use, suggesting a mistaken expectation that coercive nuclear threats or limited first use could paralyze the United States and NATO and thereby end a conflict on terms favorable to Russia. Some in the United States refer to this as Russia’s ‘escalate to de-escalate’ doctrine. ‘De-escalation’ in this sense follows from Moscow’s mistaken assumption of Western capitulation on terms favorable to Moscow.” — NPR’18

To thwart this threat of a Russian nuclear escalation on a battlefield abroad, the US could try to rely on the threat of its strategic nuclear weapons aimed at Russia (an approach favoured by some strategists in Washington). However, as mentioned above, Russia might call this “bluff” given that its own strategic arsenal is capable of inflicting mass destruction in the US.

Thus, dissatisfied with progress in establishing the superiority needed to make a civilisation-ending war mostly one-sided, enhanced tactical nuclear weapons in the hands of the US military ought to ensure that no escalation can benefit Russia. That is, the answer of US strategists, of course, is to attain superiority in this category of weapons as well. The US was lagging behind here, something the Nuclear Posture Review 2018 set out to fix:

“To address these types of challenges and preserve deterrence stability, the United States will enhance the flexibility and range of its tailored deterrence options. U.S. strategy does not require non-strategic nuclear capabilities that quantitatively match or mimic Russia’s more expansive arsenal. Rather, the United States will maintain a spectrum of capabilities sized and postured to meet U.S. needs, and particularly to ensure that no adversary under any circumstances can perceive an advantage through limited nuclear escalation or other strategic attack.” — NPR’18

At the same time, the US reserves the right to tilt the balance in its own favour on any battlefield by use of nuclear weapons:

“To help preserve deterrence and the assurance of allies and partners, the United States has never adopted a ‘no first use’ policy and, given the contemporary threat environment, such a policy is not justified today. It remains the policy of the United States to retain some ambiguity regarding the precise circumstances that might lead to a U.S. nuclear response.” — NPR’18

A researcher for the German Stiftung Wissenschaft und Politik (SWP, no relation)¹¹ analyses this as follows:

“Credible extended deterrence to protect allies and partners should deter potential adversaries from strategic (conventional and nuclear) attacks (pre-war deterrence). If this fails, the effectiveness of deterrence is to be restored through selective nuclear strikes (intra-war deterrence). To this end, the USA reserves the right to be the first to use nuclear weapons to force an end to the war on acceptable terms. The essential prerequisite for this is the escalation dominance of the USA.

[…]

Thus, NPR 18 suggests that a use of nuclear weapons to protect allies below the threshold of strategic destruction risk is possible and controllable. This would make it possible to end a war on tolerable terms.” — Wolfgang Richter. Erneuerung der nuklearen Abschreckung in SWP-Aktuell 15. Mar 2018. our translation.¹²

Indeed, reporting on the challenge of Russia’s and China’s apparent readiness to deploy tactical nuclear weapons, the already cited coauthor of the National Defense Strategy gets all envious:

“The risks of nuclear brink-manship may be enormous, but so is the payoff from gaining a nuclear advantage over an opponent. Nuclear weapons are, after all, the ultimate trump card: if you can convince your enemy that you have a way to play the card and are actually prepared to go through with it, nothing is more powerful. And the best way to do that is to have palatable options for the limited and effective use of nuclear weapons. Americans should know: they perfected this approach against the Soviet Union during the Cold War.

[…]

The Pentagon’s 2018 Nuclear Posture Review recognized this gap [the lack of tactical nuclear weapons for a war against Russia or China and thus for US nuclear brinkmanship, CC]. It committed to modernizing its air-delivered tactical bombs and developing low-yield nuclear warheads for submarine-launched ballistic missiles.” — Elbridge A. Colby. If You Want Peace, Prepare for Nuclear War. Nov 2018.

Those are quite some strategic freedoms to dream of, while, of course, “it would only be a rhetorical question of how many ‘sub-strategic’ nuclear weapon strikes a ‘frontline state’ can survive” (Wolfgang Richter. Erneuerung der nuklearen Abschreckung in SWP-Aktuell 15. Mar 2018. our translation).¹³

NATO’s Eastward Expansion

It remains the US military’s dream to be able to destroy Russian strategic nuclear warheads on the ground, by launching a precisely coordinated attack with hundreds of high-yield and accurate warheads. The quicker these warheads hit their targets – Russian cities and military installations – the more likely they destroy Russia’s capabilities to do the same.

This can be achieved either by having faster rockets or by stationing them closer to Russia. Here, the US has a strategic advantage over Russia. While Russian missiles need to cross an ocean to hit the US and can otherwise only threaten the US’s allies, in stationing nuclear and other weapons in Europe, the Russian territory is within quicker reach of US weapons:

“The United States will make available its strategic nuclear forces, and commit nuclear weapons forward-deployed to Europe, to the defense of NATO. These forces provide an essential political and military link between Europe and North America and are the supreme guarantee of Alliance security. Combined with the independent strategic nuclear forces of the United Kingdom and France, as well as Allied burden sharing arrangements, NATO’s overall nuclear deterrence forces are essential to the Alliance’s deterrence and defense posture now and in the future.” — NPR’18

For example, NATO aircraft are stationed in Tallin, 350 kilometres from Saint Petersburg.¹⁴ Also, US MK-41 missile launchers, which are (reportedly) capable of launching both interceptor missiles and nuclear warheads, are stationed in Romania and (soon) Poland; the interceptor missiles provide the shield needed to launch a US attack. Officially, these were meant to defend against Iran but, for example, the previously cited SWP researcher Wolfgang Richter does not seem to quite buy the Pentagon’s line:¹⁵

“Moscow rejects the accusation of a breach of the [Intermediate-Range Nuclear Forces (INF), CC] treaty and accuses the USA of having violated the INF Treaty. For example, they used medium-range ballistic missiles to test the missile defence system. In addition, they used the navy’s Mk 41 SLCM [sea-launched cruise missiles, CC] launchers on land, namely in missile defence sites in Romania and soon also in Poland (Aegis ashore). From there, future GLCMs [ground-launched cruise missile, CC] could be launched against targets in Russia. This option is explicitly mentioned in NPR 18. Washington, on the other hand, insists that the Aegis-ashore systems are only suitable and intended for launching defensive missiles. In order to dispel the mutual accusations, mutual information and inspections would be necessary. To this end, the INF inspection regime, which ended in 2001, would have to be reactivated and modified.” — Wolfgang Richter. Erneuerung der nuklearen Abschreckung in SWP-Aktuell 15, our translation¹⁶

Such missiles (in Ukraine) are a concern raised by Russia in its treaty proposal with NATO before the invasion.¹⁷ On the one hand, unnamed US officials signalled their openness to discuss a restriction on the number of such missiles.¹⁸ On the other hand, Biden’s official line is to deny any plans of deploying offensive missiles. Finally, as mentioned in the quote above, these launchers are land-based versions of standard sea-based cruise missile launchers that regularly patrol the Black Sea aboard NATO ships.¹⁹

Of course, all of these forward-deployed weapons provide options not only against the Russian heartland but also sub-strategic options against Russian (and other) targets in the broader region, as demonstrated with conventional warheads by both sides:

“The capabilities of conventional SLCM (sea-launched cruise missiles, CC) were demonstrated by two American Aegis warships on 7 April 2017, when they attacked the Syrian airbase of Sayrat from the Mediterranean Sea.

[…]

On the other hand, Russia has compensated for this geostrategic disadvantage by equipping the flotilla in the Caspian Sea with SLCMs. When Russia intervened militarily in the Syrian war in September 2015, it launched conventional SLCMs from there and demonstrated their effectiveness on the southern periphery.” —Wolfgang Richter. Erneuerung der nuklearen Abschreckung in SWP-Aktuell 15, our translation²⁰

Peace in our Time

Again, in some naive sense, an end to the hostilities is easy to achieve. All the US has to do is to abandon its ambition of “unrivalled power”, to let go of the aim of attaining a situation where no other country in the world could sustain an all-out war against it, to let go of the demand that no other country can negotiate from a similar “position of strength”.

Yet, riffing off Noam Chomsky, we can say that no American leader, no matter who it is, could tolerate this.²¹ Such are patriots everywhere that they weigh the cost of millions of lives against their standing and success in the world. To them, the prize – Russia ceasing to be a challenge to US power – is so great, that it is worth risking the lives of many. Before Russia’s invasion, the US’s commitment to Ukrainian territorial integrity was not particularly strong.²² However, Russia’s only moderate military success in Ukraine convinced (at least some in) the West that further steps in the long-term project of neutralising Russia as a formidable foe are possible:

“We want to see Ukraine remain a sovereign country, a democratic country able to protect its sovereign territory. We want to see Russia weakened to the point where it can’t do things like invade Ukraine” — Lloyd Austin (US defence secretary), cited in US pledges extra $713m for Ukraine war effort and to weaken Russia. 25 Apr 2022

“According [to] Ukrainska Pravda sources close to Zelenskyy, the Prime Minister of the United Kingdom Boris Johnson, who appeared in the capital almost without warning, brought two simple messages.

The first is that Putin is a war criminal, he should be pressured, not negotiated with.

And the second is that even if Ukraine is ready to sign some agreements on guarantees with Putin, they are not.

Johnson’s position was that the collective West, which back in February had suggested Zelenskyy should surrender and flee, now felt that Putin was not really as powerful as they had previously imagined, and that here was a chance to ‘press him.’” — Roman Romaniuk. Possibility of talks between Zelenskyy and Putin came to a halt after Johnson’s visit - UP sources. 5 May 2022

For Russia and the US, what they are and claim to be as nations is at stake: for the one, its “historical future as a nation”, its status as a great power and respected subject in the world of states; for the other, its “unrivalled power”, its unrestricted world domination. Their positions are irreconcilable. They do not tolerate any relativisation, because that would be tantamount to abandoning their posited standpoint.

For both sides, the assertion of their own position, therefore, has the quality of an existential question that must be brought to a decision, a “matter of life and death” and or a matter of the highest principles – “prosperity and security” – respectively.

And so they go at each other. They both use deterrence and threats to impress the other side into accepting their demands and escalate the use of their means of destruction when this fails. They know full well what destruction the other side can bring to the battlefield, and how widely it can define this battlefield. They both insist on their dominance of escalation, their ability to up the ante in response to an escalation of the other side. For now, Russia made the transition to an all out war against Ukraine and kills people in that country to preserve its status as a great power. The superior American side, for now, does not want to get directly involved with its military – indeed it seems increasingly frustrated that it has to take attention away from its rising (economic and thus future military) rival China. For now, America is content with letting Ukrainians fight and die – for their fatherland²³ and the rule-based order that the US implemented after the Second World War. But America’s restraint is nothing but the decision to postpone an escalation to the point when it feels its status as the one superpower in the world is sufficiently threatened.

Only an idiot would support either of these programmes.

Appendix: NATO’s Eastward Expansion

Footnotes

² The Parties to the NATO Treaty “are resolved to unite their efforts for collective defence and for the preservation of peace and security.” (The North Atlantic Treaty)

³ “Nato has proved such a powerful security alliance because it pools military capacity, capability and cash, with an annual budget of more than $1 trillion to protect one billion people.” (John Healey, Labour Shadow Defence Secretary. Britain’s leadership in Nato is under threat. 25 Apr 2022)

⁴ “We will face economic pain, as we free Europe from dependence on Russian gas and oil. And clean our institutions from money stolen from the Russian people. But the British public have always been willing to make sacrifice to defend democracy on our continent, and we will again.” (Sir Keir Starmer. Keir Starmer’s statement to Parliament on Russia’s invasion of Ukraine. 24 Feb 2022)

⁵ It would be a mistake, though, to accuse the prosecution of hypocrisies just because US military strategists warned about Russia’s red lines concerning Ukraine, something Stop the War stresses now. As Sir Keir Starmer made clear, his objection is to a moral failure to support the own side in this war, something US strategists can hardly be accused of.

⁶ Note that a 2022 version was submitted to the US Congress, but an unclassified version is not yet available.

⁷ See also What is Imperialism?

⁸ The other big rival identified in the NDS is China, but here we focus on Russia, for obvious reasons. We wrote bar one because the challenge of China’s military might is projected somewhat into the future: “As China continues its economic and military ascendance, asserting power through an all-of-nation long-term strategy, it will continue to pursue a military modernization program that seeks Indo-Pacific regional hegemony in the near-term and displacement of the United States to achieve global preeminence in the future. The most far-reaching objective of this defense strategy is to set the military relationship between our two countries on a path of transparency and non-aggression.” The US Nuclear Posture Review (cited below), too, is explicit about there being only one power challenging the US’ nuclear arsenal.

⁹ A 2022 version was submitted to the US Congress, but no unclassified version is available yet.

¹⁰ We are neither nuclear nor conventional war experts and hope we never will be. Thus, we mostly rely on the work done by others here. In particular, our discussion of the American military strategy is mostly based on Die amerikanische Weltmacht treibt die Entmachtung ihres russischen Rivalen voran by GegenStandpunkt published in Autumn 2019 and the sources cited therein.

¹¹ “The German Institute for International and Security Affairs (German: Stiftung Wissenschaft und Politik; SWP) is a German think tank in international relations and security studies. A semi-official organization with close links to the federal government” (Wikipedia)

¹² “Eine glaubwürdige erweiterte Abschreckung zum Schutz von Alliierten und Partnern soll potentielle Gegner von strategischen (konventionellen und nuklearen) Angriffen abhalten (pre-war deterrence). Falls dies nicht gelingt, soll die Wirksamkeit der Abschreckung durch selektive Atomschläge wiederhergestellt werden (intra-war deterrence). Dazu behalten sich die USA vor, als erste Kernwaffen einzusetzen, um ein Ende des Kriegs zu akzeptablen Bedingungen zu erzwingen. Die wesentliche Voraussetzung dafür ist die Eskalationsdominanz der USA. (…) So suggeriert die NPR 18, ein Kernwaffeneinsatz zum Schutz von Alliierten unterhalb der Schwelle des strategischen Vernichtungsrisikos sei möglich und kontrollierbar. Dies erlaube es, einen Krieg zu erträglichen Konditionen zu beenden”.

¹³ “Dann wäre es nur noch eine rhetorische Frage, wie viele ‘substrategische’ Kernwaffenschläge ein ‘Frontstaat’ überleben kann”

¹⁴ “Consequently, the United States will maintain, and enhance as necessary, the capability to forward deploy nuclear bombers and DCA (dual-capacity aircraft, i.e. bombers that can carry conventional and nuclear weapons, CC) around the world. We are committed to upgrading DCA with the nuclear-capable F-35 aircraft. We will work with NATO to best ensure—and improve where needed —the readiness, survivability, and operational effectiveness of DCA based in Europe.” (NPR’18)

¹⁵ Declaring “MK-41 missile launches” as offensive weapons was considered “fake news”, i.e. enemy propaganda, at least as long as the INF treaty was in effect. While this will likely make little difference to some, here we avoid relying on Russian or Western “anti-imperialist” media. A “trick” we recommend to our readers and that we deploy here, though, is to not only consider the media/statements of the two main opponents, i.e. Russia and the US, but also of their allies. In particular, the German government and its advisors have a somewhat different take on the strategic freedom sub-strategic nuclear weapons afford the US.

¹⁶ “Moskau weist den Vorwurf des Vertragsbruchs zurück und bezichtigt seinerseits die USA, den INF-Vertrag verletzt zu haben. So hätten sie ballistische Mittelstreckenraketen eingesetzt, um die Raketenabwehr zu testen. Zudem verwendeten sie die SLCM-Abschussgeräte Mk 41 der Marine auch an Land, nämlich in Raketenabwehrstellungen in Rumänien und bald auch in Polen (Aegis ashore). Von dort aus könnten künftige GLCM gegen Ziele in Russland gestartet werden. Auf diese Option wird in der NPR 18 ausdrücklich hingewiesen. Dagegen betont Washington, die Aegis-ashore-Systeme seien nur für den Abschuss von Abwehrraketen geeignet und vorgesehen. Um die gegenseitigen Vorwürfe auszuräumen, wären wechselseitige Informationen und Inspektionen notwendig. Dazu müsste das 2001 beendete INF-Inspektionsregime reaktiviert und modifiziert werden.”

¹⁷ “Article 6: The Parties shall undertake not to deploy ground-launched intermediate-range and shorter-range missiles outside their national territories, as well as in the areas of their national territories, from which such weapons can attack targets in the national territory of the other Party. Article 7: The Parties shall refrain from deploying nuclear weapons outside their national territories and return such weapons already deployed outside their national territories at the time of the entry into force of the Treaty to their national territories. The Parties shall eliminate all existing infrastructure for deployment of nuclear weapons outside their national territories. The Parties shall not train military and civilian personnel from non-nuclear countries to use nuclear weapons. The Parties shall not conduct exercises or training for general-purpose forces, that include scenarios involving the use of nuclear weapons.” ((Draft) Treaty between the United States of America and the Russian Federation on Security Guarantees. Dec 2021).

¹⁸ “The officials said the administration would be open to discussions with Russia on curtailing possible future deployments of offensive missiles in Ukraine and putting limits on U.S. and NATO military exercises in Eastern Europe.” (US News, US Hones Warnings, Offers to Russia Over Ukraine. Jan 2022)

¹⁹ “Additionally, in the near-term, the United States will modify a small number of existing SLBM (submarine-launched ballistic missile, CC) warheads to provide a low-yield option, and in the longer term, pursue a modern nuclear-armed sea-launched cruise missile (SLCM). Unlike DCA, a low-yield SLBM warhead and SLCM will not require or rely on host nation support to provide deterrent effect.” (NPR’18)

²⁰ „Die Fähigkeiten konventioneller SLCM demonstrierten zwei amerikanische Aegis- Kriegsschiffe am 7. April 2017, als sie vom Mittelmeer aus den syrischen Luftwaffen- stützpunkt Sayrat zerstörten. (…) Andererseits hat Russland diesen geostrategischen Nachteil kompensiert, indem es die Flottille im Kaspischen Meer mit SLCM ausrüstete. Als Russland im Septem- ber 2015 militärisch in den Syrienkrieg eingriff, hat es von dort aus konventionelle SLCM gestartet und ihre Wirksamkeit an der südlichen Peripherie demonstriert.“

²¹ In the UK, a country whose nuclear arsenal is nowhere near that of the US, Sir Keir Starmer’s predecessor as the leader of Her Majesty’s Most Loyal Opposition, Jeremy Corbyn, indicated his unwillingness to entertain this calculus: killing millions in retaliation for an attack on the UK. This (among other things) made him unelectable and earned him a threat of a coup d’état.

²² “Administration officials have suggested that the U.S. will press Ukraine to formally cede a measure of autonomy within its eastern Donbas region, which is now under de facto control by Russia-backed separatists who rose up against Kyiv in 2014.” (Ellen Knickmeyer, Matthew Lee and Nomaan Merchant. Biden assures Ukraine’s leader of US support to deter Russia. Dec 2021)

²³ See Stop conflating Ukraine and its inhabitants.

There is no Wage-Price Spiral

Wed, 29 Jul 2026 20:08:22 +0000

Discussions under the heading of a “cost of living crisis” deal with the plight of workers whose wages or benefits do not scale with inflation. Now, one could be forgiven for thinking that the concern must be that workers’ livelihoods are being left behind as inflation soars. Yet, the opposite is true with commentators warning of a wage-price spiral where higher wages trigger further inflation, and thus are best avoided:

“Boris Johnson warns of ‘wage-price spiral’ if workers demand higher pay” (The Guardian, 9 June 2022);
“Bank of England needs to guard against a wage price spiral” (Evening Standard, 30 June 2022);
“Can the UK avoid a wage-price spiral?” (The Financial Times, 1 February 2022).

The BoE explains inflation I: wages

Directly from the mouth of those tasked with controlling inflation, the Bank of England (BoE):

“Governor Andrew Bailey said rising wage pressure threatened the BoE’s ability to keep a grip on inflation, even as households faced the biggest calendar year squeeze on their incomes since at least 1990. ‘I’m not saying nobody gets a pay rise, don’t get me wrong, but I think, what I am saying, is we do need to see restraint in pay bargaining otherwise it will get out of control,’ Bailey told BBC radio in an interview broadcast on Friday.” — William Schomberg and Alistair Smout. Bank of England calls for wage restraint to keep grip on inflation in Reuters. 4 February 2022

The claimed relationship between wages and prices is false. It is perhaps easiest to start with an example. Say, Alice hires Bob to make widgets for her. She pays him £10 per widget, each widget requires £10 worth of raw materials and tools and Alice manages to sell those widgets for £30. After paying Bob and for raw materials, Alice is left with £10 to turn into cigars for her personal consumption. Now, assume Bob manages to convince Alice to pay him £15. Unless something else changes, Bob now goes home with £15 per widget and Alice with £5. The cigars previously enjoyed by Alice may now partially be enjoyed by Bob. We have no inflation and no increased purchasing power, but we witness a redistribution of wealth.¹

Of course, Alice may try to increase the price of her widgets to £35 to recover her previous profits of £10 per widget. Yet, if Alice has the freedom to set the price of her widgets according to her personal profit appetite why did she not set it to £50, £100 or £200 to begin with? If employers could simply come up with the prices that match their profit preferences they would not have to keep wages (and other costs) down. Put differently, employers are not currently enduring strike action because they heed the BoE’s warning that increased wages might lead to inflation, but to protect their bottom line. So, if Alice manages to increase the price per widget without shrinking the volume of widgets she sells then the explanation for this cannot be found simply in Bob’s wage of £15.

But perhaps the economics work differently when we consider (essentially) all workers in society receiving a pay rise, arguably the scenario that the Bank of England is concerned about?

If, on the one hand, “widget” in the example above stands for commodities that are purchased by both workers and employers (either as employers or as private persons enjoying the spoils of their business) then the Alices of this world are confronted with a market situation where part of their clientele has more money (workers) and another part has less (other employers). Remember that Alice’s attempted price increase is her reaction to reduced profits and here we assume that this is a situation faced by essentially all employers because it affects essentially all workers. Alice and her competitors can sell more to workers but have to sell less to fellow employers; ability-to-pay in total did not increase by the same argument as above: an increase in wages is a reduction in profits and vice versa.

If, on the other hand, “widget” in the example above stands for commodities that are only purchased by workers, then Alice’s customers indeed have more money to spend. Thus, Alice could be successful in her endeavour to increase prices. Yet, the flip side still is that other employers have reduced spending power. The market for, say, tinned beans improves whereas the market for cigars and sports cars is in trouble. Alice, who per our assumption in this paragraph is in the business of making tinned beans, makes a tidy profit, but her fellow employers producing cigars do not. By the same logic as applied to inflation, prices for cigars would drop.

Therefore, it would not even imply inflation if Alice and her competitors were successful in establishing higher prices for widgets. Just because some commodity becomes more expensive does not mean money becomes less valuable. If the price of widgets increases that means, unless something else changes, there is less spending power available to purchase other commodities. If society has £100k to spend and now spends £35k instead of £30k on widgets, it only has £65k instead of £70k left over.

Finally, if the market of cigars is in trouble, other employers will switch their production to tinned beans instead of cigars, which pushes down the price of tinned beans. Spending in society is redistributed, but not increased.

It all comes back to this: Sellers cannot simply pick the prices that satisfy their profit appetite. For them to be able to realise increased prices others will need to have acquired increased ability to pay. Wage increases do not increase ability to pay in society, they simply redistribute it.²

The BoE explains inflation II: credit-financed business

Indeed, the Bank of England in its policy approach practically admits that it too does not buy its wage-price spiral explanation. In adjusting the “money supply”, i.e. the interest rate of the BoE, the Bank acknowledges that it knows that inflation is a phenomenon related to the money it issues. That is, the Bank has one set of answers to the question “where does inflation come from” that it gives in its Governor’s letters to the Chancellor. Here the “wage-price spiral” features next to a “strong demand” and “energy prices”. A different answer is given in its monetary policy. In this case, the Bank of England’s practical answer to the question of inflation is “supply and demand” for money:

“The Bank of England has the job of setting monetary policy – the set of tools used to keep inflation low and stable. The main way we do that is through interest rates. An interest rate is the amount of money people get on any savings they have. It’s also the charge they need to pay on their loans and mortgages. So what’s the link between the interest rates and inflation? Higher interest rates make it more expensive for people to borrow money and encourage them to save. That means that overall, they will tend to spend less. If people on the whole spend less on goods and services, prices will tend to rise more slowly. That lowers the rate of inflation.” — Bank of England. What is inflation? 3 February 2022

“to borrow money” – Let us consider the existence of these “people”. The spending power available to most people does not derive from cheap credit, but from them selling something, typically their time to an employer. They must sell their ability to work to a business because they have necessities to pay for: rent, groceries, data plans, etc.

“encourage them to save” – A “cost of living crisis” is in public discourse because these necessities are, well, rather necessary. The question of saving more or less is not on people’s minds but rather how to make ends meet. Faced with these problems it is rather fanciful to suggest that their choice to cash in on higher interest rates – a decision made by people dependent on wages and advised by the BoE to swallow a restriction in their living standards – is what brings down prices. The Bank of England can buddy up all it wants, what it describes here is not “people”.

Instead, the Bank means businesses. But then the explanation needs to account for the fact that, apparently, the ability to pay of businesses comes about differently than that of most people. Businesses are not constrained in spending what they have earned but spend, routinely and on a large scale, with borrowed money. But the Bank does not even deal with businesses directly but with banks.

“The main way we do that is through interest rates. An interest rate is the amount of money people get on any savings they have.” The Bank does not actually set the interest rates that people or businesses are charged or paid.³ These are set by financial institutions according to their own private calculations (based on general market conditions and in competition with each other). The Bank sets the interest rates that financial institutions pay when borrowing from (and receive when lending to) the Bank of England. This usually does affect the interest rates charged by private banks but to the BoE’s frustration since 2013 this relation is anything but direct.⁴

In summary, this means that somehow – according to the Bank of England – the interest rate it charges and pays to private banks and the private credit operations of these banks with businesses affect the stability and value of the money that the Bank of England issues. Indeed, when businesses take their loans and invest, they produce commodities, i.e. the things they and their workers buy with money. Here, both sides come together: ability-to-pay not backed by previously earned income but backed instead by credit and also additional commodities being produced. Somehow this process is presently proceeding in a way that undermines the very thing that measures its success, i.e. measures profit: money. It does this to an extent that worries the Bank of England.⁵

On the one hand, this means that a discussion of inflation will need to have to start with central-bank-backed and credit-financed profit-making, not with wages.

On the other hand, this gives a hint as to why the Bank of England is so worried about wages. It knows of the relationship between wages and profits we based our argument on in the first part of this piece: higher wages reduce profits. It also knows that the profitability of businesses, their ability to turn (credit-backed) advances into surpluses, is what everything from the value of the money the Bank of England issues to the livelihood of everybody in society depends on.

The Bank of England does not warn of a “price-price spiral” nor does it warn businesses against increasing their prices. Those warnings are not given because the Bank understands the need for profit. This, in turn, is because the reproduction of society is made dependent on it. The advice to workers that they should restrict their own standard for these profit interests is telling about the place that these workers occupy in this economy; their standard of living is an obstacle rather than an aim.⁶

Footnotes

¹ You might object that Alice saves part of her profits or reinvests them and that the effect of Bob’s wage increase on that might drive inflation. Even assuming this were true, you would then have to talk about the lack-of-savings-price spiral or lack-of-investment-price spiral if saving or investment rates are the key datum that informs inflation.

² We keep writing “ability to pay” rather than “money” to emphasise that it matters greatly who has money (when) and can thus spend it and not simply its total amount. This is in contrast to a common way of talking about inflation where some total aggregate of money is confronted with a total aggregate of commodities. However, the circulation of money and commodities is inherently intertwined and not a confrontation of two aggregates. For example, one £10 note can be used in 100 transactions in a day or in none.

³ The Bank explains this in e.g. Michael McLeay, Amar Radia and Ryland Thomas. Bulletin 2014 Q1: Money creation in the modern economy. 2014

⁴ See “Central Bank Policy since 2013” in Economic Crisis (from 2007 to June 2020).

⁵ The Bank targets an inflation rate of 2%.

⁶ Beyond that observation, the question remains: how do businesses in credit-financed pursuit of profit produce inflation? This is the topic of another piece we hope to have out shortly.

Inflation

Wed, 29 Jul 2026 20:08:22 +0000

This piece was jointly written with a working group on inflation of Groups against Capital and Nation.

Version: 2023-02-05

In this piece, we aim to explain what inflation is. To do that, we need to explain credit, credit money and sovereign debt. As a consequence, this piece has gotten rather long. We start by criticising popular explanations of inflation as given by central bankers and financial journalists. This section concludes by formulating the question that we aim to answer in the remainder of this piece: how is it that the participants of a capitalist economy devalue the very thing around which their activities revolve: money? The answer has two parts. In Section 2 we explain how inflation of, say, 2%, 5%, 10% is a by-product of successful capitalist accumulation. In Section 3 we explain how runaway or hyperinflation is a product of the State’s reaction to an economic crisis. That is, the different quantitative rates of inflation correspond to qualitatively different causes.

The Question

The financial press and (monetary) policymakers offer up a variety of causes for inflation: from labour shortages and supply chain disruptions to a “persistence of demand for goods”, “higher global prices for goods”, energy prices and war, see “Press”. These are rather questionable explanations.

No subjects, anywhere.

The starting point of debates about high inflation in the financial press or by monetary policymakers is that “we” are all affected by inflation. Inflation is not something some subjects in the economy produce through their actions but something that happens to everyone. Inflation is something that happens to which we (mostly the Central Bank) then react. Yet, like anything else in the economy, this result is not produced by anyone but the market participants. What appears to these commentators like a mysterious natural law affecting our economies is the joint product of those who experience it.¹

The refusal to grasp inflation as the product of economic actors goes as far as ignoring those who increase prices. “Strong demand for most goods and services” (FT 18 Jan 2022) only adds inflationary pressure if the sellers increase prices and profit from this increased demand. At the very least such an “explanation” of inflation would need to address that someone’s bottom-line calculation makes them exploit the increased effective demand for their commodities; (even leaving aside the pressing question, for now, where the purchasing power of this increased effective demand comes from).

Victims, everywhere.

There is a second way in which – according to commentators in the press – we are all affected by inflation. The consensus is that inflation (above 2%) is bad for an economy and its participants.² Yet, for those starting the process by increasing prices and profits in response to strong demand, i.e. those who are not yet confronted with increased prices by their suppliers, for those inflation at least initially pays off. Also, for those who can turn their increased costs into increased prices, where is the problem?³ Their profit rate is unaffected. When inflation started rising in 2021 this happened in a period of strong economic growth (FT 30 Jul 21, 12 Aug 21), cf. plot. This was not a situation where fewer commodities were bought and sold because their prices increased – higher prices were paid without a collapse in the volume of sales.

Of course, many people do not have the freedom to adjust the price of what they are selling if their costs increase. The plight of workers, whose wages or benefits do not scale with inflation, is discussed under the heading of the “cost of living crisis”. Now, one could be forgiven for thinking that the Bank of England’s worry must be that workers’ livelihoods are left behind as inflation soars. Yet, the opposite is true and the BoE keeps warning of a wage-price spiral where – ostensibly, see below – higher wages trigger further inflation and thus are best avoided (FT 5 Aug 21, 1 Feb 22). We would have to ask why that would be so bad. If everyone had more money then increased prices would not hurt anyone, people would still be selling, say, 8 hours a day to be able to rent, pay bills and groceries regardless of whether 8 hours of their labour time are represented by £80 or £800. The BoE’s worry must come from elsewhere.

Higher wages do not produce inflation.

Also, the claimed relationship between wages and prices is false. Say, Alice hires Bob to make widgets for her. She pays him £10 per widget, each widget also requires £10 worth of raw materials and tools and Alice manages to sell those widgets for £30. After paying Bob and for raw materials, Alice is left with £10 to turn into cigars for her personal consumption. Now, assume Bob manages to convince Alice to pay him £15. Unless something else changes, Bob now goes home with £15 per widget and Alice with only £5. The key point here is that whatever purchasing power Bob gains, Alice loses and vice versa. We witness a redistribution of wealth, Bob can now afford some of the commodities previously enjoyed by Alice, who is now priced out of these commodities. So, for example, the cigars previously enjoyed by Alice may now partially be enjoyed by Bob.

Of course, Alice may try to increase the price of her widgets to £35 to recover her previous profits of £10 per widget. Yet, if Alice has the freedom to set the price of her widgets according to her personal profit appetite why did she not set it to £50, £100 or £200 to begin with? If employers could simply come up with prices that match their profit preferences they would not have to keep wages (and other costs) down. Put differently, employers in 2022 were not enduring a hot summer of strike action because they heed the BoE’s warning that increased wages might lead to inflation, but to protect their bottom line. That is to say if Alice manages to increase the price per widget without shrinking the volume of widgets she sells (this shrinkage would harm Alice’s aim of recovering her previous profits) then additional ability to pay must confront her.

Thus, we must consider not only Alice and Bob but the case where (essentially) all workers in society receive a pay rise.

Then, if, on the one hand, “widget” in the example above stands for commodities that are purchased by both workers and employers (either as employers or as private persons enjoying the spoils of their business) then the Alices of this world – i.e. the employers – are confronted with a market situation where part of their clientele has more money (workers) and another part has less (other employers). Now, remember that Alice’s attempted price increase is her reaction to reduced profits and here we assume that is a situation faced by essentially all employers because it affects essentially all workers. Alice and her competitors can sell more to workers but sell less to fellow employers; ability-to-pay in total did not increase by the same argument as above: an increase in wages is a reduction in profits and vice versa.

If, on the other hand, “widget” in the example above stands for commodities that are only purchased by workers then Alice’s customers indeed have more money to spend. Thus, Alice could indeed be successful in her endeavour to increase prices. Yet, the flip side still is that other employers have less. Thus, the market for, say, tinned beans improves whereas the market for cigars and sports cars is in trouble. Alice, who per our assumption in this paragraph is in the business of making tinned beans, makes a tidy profit, but her fellow employers producing cigars do not. By the same logic as applied to inflation, prices for cigars would drop. In response, other employers will switch their production to tinned beans instead of cigars which pushes down the price of tinned beans.

Single commodities becoming more expensive does not produce inflation.

That is, it would not even imply inflation if Alice and her competitors were successful in establishing a higher price for widgets. If the price of widgets increases that means, all else being equal, less spending power on other commodities. If people have £100 to spend and now spend £35 instead of £30 on widgets, they only have £65 instead of £70 left over.

All commodities becoming more expensive is not inflation as we know it.

Now, say the price of energy rises, a commodity that goes into the production of (pretty much) every other commodity, which makes (pretty much) all commodities more expensive. Yet, if this is not matched by an increase in purchasing power this simply means fewer commodities are sold. But, as mentioned above, this is not the phenomenon that (fully) corresponds to the current inflation. When inflation got going in Spring 2021 economies were reopening, COVID-19 restrictions were lifted and economies were growing, cf. plot.⁴ This again provokes the question of where the additional purchasing power came and comes from to realise these increased commodity prices in the same if not increased volume.

A description is not an explanation.

What many of these “causes” have in common is that they, in actuality, do not attempt to explain inflation but merely to describe it. When they come in the form of an explanation they offer a mere tautology. This is most explicitly expressed by the cause “higher global prices for goods” (FT 1 Feb 22) which tautologically explains price increases with price increases. The reason why the editors of financial journalists do not instruct them to revise and resubmit when confronted with such a logical fallacy is that to them inflation is simply what it is measured as. In e.g. the Consumer Price Index (CPI), inflation is measured in a basket of goods, how many Pound Sterling are required to purchase a defined collection of commodities. If that number goes up, we have inflation. Now, to explain why this number goes up they can point to energy, “clothing and footwear” (FT 16 Feb 22) or the prices of all goods. They are simply saying “the weighted sum of these prices went up because this part of the sum went up”. In other words, they are describing their sums but they are not explaining inflation, i.e. they are not explaining the economic phenomenon that makes prices in society rise.

Inflation is money losing value compared with itself.

The price of a commodity is an expression of its value in money. It is a ratio of the value of the commodity to the value of money. This ratio can go up – prices increase – (a) when the value of commodities increases or (b) when the value of money goes down.

The case (a), commodities becoming more valuable, boils down to explaining how prices of commodities are formed, which means explaining the substance of what is expressed in a price – value – and how prices are established on the market through supply and demand. Marx gives the fundamentals of the laws covering the values of commodities in Chapters 1 and 3 of Capital, Vol. 1. He discusses the necessary persistent divergence of prices from values in Chapter 9 and supply and demand in Chapter 10 of Capital, Vol. 3. However, as mentioned above, a theory of inflation would need to explain not only the shifts in value but also where the additional purchasing power is coming from as prices rise; commodities “simply” becoming more valuable does not.
The case (b) is money losing value compared with itself. Here, what appears in the prices of commodities is caused by a change in the value of money. As an analogy consider the weight of cats. A kitty, Fluffy, may gain or lose weight and the reasons for this are fairly well understood. It is an entirely different thing and a much more challenging riddle if “1 kilogram” changes its meaning, i.e. if kilogram per Fluffy changes because “the kilogram” changes. So, here, somehow in their economic activities, the subjects of a market economy devalue the very thing around which their activities revolve: money. How that works is the open question under the heading “inflation”. As we shall see below, explaining how money loses value compared with itself also delivers an explanation for the presence of additional ability to pay realising the increased commodity prices.

In other words, money losing value is – we claim – what inflation is in a strict sense. An indication that this is the case can be found in that the institutions tasked with managing and controlling inflation – the Bank of England and other central banks – are the institutions in charge of society’s money. They do not attempt to tweak prices (say, by building more nuclear power plants to reduce the impact of the price of oil on other commodities) but rather adjust the interest rate to control inflation.

PS: Inflation ≠ currency exchange rates.

Before we dive in, a word of caution. Inflation is a phenomenon separate from currency exchange rates. If the Pound loses against the Euro then this is not the same as the Pound losing value compared to its past self. If both the Euro and the Pound face 2% inflation, this can leave their exchange rate unchanged, or it may change for other reasons. Vice versa the exchange rate can remain constant even under different rates of inflation.

Inflation I: A Side-effect of Capitalist Accumulation

The question we arrived at in the last section was: How is it that the economic activities of the participants in a capitalist economy undermine the value of the money they do business in?

The Bank of England’s practical answer to this question is “supply and demand” for money:⁵

“The Bank of England has the job of setting monetary policy – the set of tools used to keep inflation low and stable. The main way we do that is through interest rates. An interest rate is the amount of money people get on any savings they have. It’s also the charge they need to pay on their loans and mortgages. So what’s the link between the interest rates and inflation? Higher interest rates make it more expensive for people to borrow money and encourage them to save. That means that overall, they will tend to spend less. If people on the whole spend less on goods and services, prices will tend to rise more slowly. That lowers the rate of inflation.” — Bank of England. What is inflation? 3 Feb 2022

“to borrow money”

Let us consider the existence of these “people”. The spending power available to most people does not derive from cheap credit, but from them selling something, typically their time to an employer. They must sell their ability to work to a business because they have necessities to pay for: rent, groceries, data plans, etc. For them to be a buyer requires them to have been a seller before.⁶

“encourage them to save”

A “cost of living crisis” is in public discourse because these necessities are, well, rather necessary. The question whether to save more or less is not on people’s minds but how to make ends meet. Faced with these problems it is rather fanciful to suggest that their choice to cash in on higher interest rates – a decision made by people dependent on wages and advised by the BoE to swallow a restriction in their living standards – is what brings down prices.⁷ The Bank of England can buddy up all it wants, what it describes here is not “people”.

Instead, the Bank means businesses.⁸ But then the explanation needs to account for the fact that, apparently, the ability to pay of businesses comes about differently than that of most people. Businesses are not constrained in spending what they have earned but spend, routinely and on a large scale, with borrowed money. Yet, the Bank does not even deal with businesses directly but with private banks.

“The main way we do that is through interest rates. An interest rate is the amount of money people get on any savings they have.”

The word “an” does a lot of work here. That is, a problem with this intuitive explanation is that the Bank does not set the interest rates that people are charged or paid.⁹ These are set by financial institutions according to their private calculations based on their mutual competition and the general development of business. The Bank of England sets the interest rates that financial institutions pay when borrowing from (and receive when lending to) the Bank of England. This usually does affect the interest rates charged by private banks but to the BoE’s frustration since 2013 this relationship is anything but direct.¹⁰ So an explanation would also have to account for how a capitalist economy relies on continuous credit from the Central Bank to private banks.

This means that somehow – according to the Bank of England – the interest rate it charges and pays to private banks and the private credit operations of these banks with businesses affect the stability and value of the money that the Bank of England issues. Note that when businesses take their loans and invest, they produce commodities, i.e. the things they and their workers buy with money. So, here, both sides come together: the ability to pay that is not backed by previously earned income but backed instead by credit and also additional commodities being produced. Somehow, this process is presently proceeding in a way that undermines – to an extent that worries the Bank of England – the very thing that measures its success, i.e. measures profit. So let us start there then: profit making.¹¹

Credit creates growth

Prices are what businesses calculate with.

Capitalist enterprises invest money to make a return. They buy raw materials and machines and hire workers, put these to work and (aim to) sell the result for money.

For this to work out, companies need to find on the market sellers of the “inputs” they need – for the right price – and purchasers of the “outputs” they produce – for the right price.¹²

This means, first, that to earn money in a sale, some other party must have acquired money beforehand to now be able to pay. The success of other businesses is the premise for the success of individual businesses. This is analogous to the everyday experience described above.

This means, second, that in the acts of exchange, sales and purchases, the prices of goods and thus the values of money and commodities are presupposed. For example, the price of timber enters the calculation for a company deciding if they should buy it to put it to profitable use.

Money is the standard of success.

Third, through the prices on the market, businesses find out if they are successful, i.e. the sum of prices of raw materials, machines and labour time on the one hand and the prices their product fetches on the market on the other hand.

Capitalist success is measured by the difference between (the sum of prices of the) investment and (the sum of prices that make up the) return: profit. To decide whether a company did well or poorly in the last quarter, the standard is the surplus, counted in money. That is, the standard by which capitalist enterprises judge their own performance presupposes a value of money. Their calculations start and end with money, the unit with which they calculate and do not question.¹³

Money is the ultimate means of success.

Now, to produce this success they measure in money, the necessary and – on average – sufficient condition for success is having money in sufficient quantity. All means of competition can be purchased, for a price. Workers can be hired, as can managers to squeeze them, raw materials, better machines, transport deals and advertising. Of course, investments still can and do go bad, but everything that is needed to succeed is available for a price.

Credit is premised on capitalist growth.

Under these conditions, where a sum of money promises to turn into more wealth over time because money is the only thing needed to make this happen, money itself receives a price: “interest”. This is the price for the utility of money to be turned into more, the price for the useful quality of money to make profits.¹⁴

There is a fundamental difference between credit taken by businesses to run and expand their business and the sort of credit payday lenders offer. The former interest charge partakes in the success of capitalist enterprises, the latter squeezes the already insufficient income of the borrower. The former allows the debtor to grow their income which allows them to repay the loan with interest, the latter takes from the limited income of the debtor. The former partakes in the enrichment of the debtor, the latter impoverishes them.¹⁵

This partaking in the enrichment of the debtor is the basis of the modern banking system which collects all money in society that is lying idle at the moment – i.e. they borrow it and promise interest as a lure – and makes that the foundation for its lending business against higher interest rates.

Credit is the foundation of capitalist growth.

This allows businesses to turn their growth and their competitive behaviour upside down. They no longer simply advance their own money, reap the profits and turn those into bigger advances for even bigger profits. Rather, they borrow money against interest, expand their business with this loan, pay the interest with a part of the profit then made and pocket the other part themselves.

Capital growth is not constrained by the profits already made, but only by the business outlook, how promising they are as debtors to those willing and able to extend credit. This alters the calculation for businesses in that profits are no longer the basis for growth. Rather, debt is the basis for this growth and profits must justify the creditworthiness to acquire debt.

In a developed capitalist society, this is not a one-off process, along the lines of: a company takes out a loan, makes an extension that works and then the loan is repaid with interest. Afterwards, the company has grown and returns to operating using only its profits. Rather, credit remains a permanent instrument of capitalist growth for businesses (and indeed the central means to start businesses, too). If the cycle – debt, business, debt has been justified – works then this is the best argument for both lenders and borrowers to continue the same on a larger scale. Growth anticipation attracts credit.

Growth anticipation creates credit

Above we wrote “the modern banking system […] collects all money in society and makes that the foundation for its lending business against higher interest rates”. The word “foundation” carries a lot of meaning here, which we unpack next. In summary, banks do not simply redistribute money in society and charge a fee for this service but they create ability to pay through their credit operations.¹⁶

Credit replaces money until it is paid off.

The simplest, spontaneous, form of credit is commercial credit, a form of credit that does not even involve financial institutions. Here, traders grant each other late payments of the form: “We have a regular business arrangement, I will take hold of the stock you delivered to me and will pay you in a week when my payments came in.” Here, the promise of future payment by a solid business temporarily replaces the payment in actual money (until the debt is settled). The promise of future payment generates the ability to pay that temporarily displaces money.¹⁷

Promises to pay become means of payment.

The next logical step is that debts circulate. Alice wrote a promissory note, “note payable” or “bill of exchange” to Bob: I will pay you £10 in one week.¹⁸ Now, Bob has to pay Charley. If Charley accepts the promise to pay by Alice then Bob can pay Charley with the promissory note issued by Alice. Bob hands over the note to Charley. Alice now owes the latter rather than Bob. Bob settled his sale to Alice and his purchase from Charley without involving actual money.¹⁹ The displacement of money by bills of exchange now goes beyond Alice and Bob but in the end Alice has to settle the debt in money.

Promises to pay replace and not just displace payment in money.

Next, debts are settled with debts. Say, Charley also needs to pay Alice, i.e. we have a circle: Alice needs to pay Bob, Bob needs to pay Charley, Charley needs to pay Alice. Then Charley can just use the promissory note from Alice to cancel out the payments, along the lines of “you owe me £5, I owe you £10, so I will pay you £5 and the matter is settled”. Of course, such a neat cycle is unlikely but in clearing houses a large number of such notes can be and were looked at together to cancel out debts where possible and to settle the difference.²⁰

Here, promises to pay replace and do not simply anticipate or displace actual payments in money. The ability to pay, effective demand, is created without ever involving money. Promissory notes circulate in one direction but no money (to settle the debt) circulates back (later). This means that promises of payment create ability to pay separate from actual money, an ability that might not otherwise exist.

However, in the example above, if Charley does not cough up £5 to give to Alice then the foundation of the entire cycle is threatened. The foundation being to equate promises of future payment in £10 with the ability to pay or with “as good as paid”. If that equation is invalidated then the whole construction of using promissory notes in place of money may collapse. So here promises to pay replace money except that the differences to be settled have to be settled in hard cash, otherwise the whole system may come crashing down.

Banks organise commercial credit for their loan business.

All of this depends on Charley’s verdict about Alice’s ability to pay when payment from Bob is demanded. Charley will only accept a promissory note by Alice if he believes in the validity of this promise. In the olden times (until roughly 1900), banknotes were a way for banks to inject themselves into this relationship. Their offer was: bring your promissory notes to me and I will replace them with my promissory notes – “banknotes” – that are, however, at any point redeemable into real cash.²¹ You can then circulate these banknotes instead of real cash to go about your business. When this works then these banknotes increase the ability to pay in society purely on the basis that society believes these banks can live up to their promise to exchange them for real money; back then that was gold.

An approximate modern analogy is a bank account and bank transfers. The former is essentially a promise of payment on demand from the bank and the latter transfers such promises. When Alice brings £100 to her bank Barclays, the bank credits £100 to Alice’s bank account. When Alice now needs to pay, say, £10 to Charley, who happens to also bank with Barclays, then she can simply instruct Barclays to subtract “10” from her account and add “10” to Charley’s. No real money needs to be moved for this transaction. When Charley banks with Deutsche Bank then Barclays and Deutsche Bank engage in a similar process as described above: In total, today £1000 was paid from your customers to mine and £900 from my customers to yours, so you pay me £100 in real money and that’s that. In this example, £100 in money sufficed for exchanges totalling £1900.

Where this bank account analogy breaks down is that while the economic activity affected by this money is significantly greater in monetary value than the sum of money involved, in the examples so far no new purchasing power was created. When Alice deposited £100 into her bank account the bank took possession of her £100 in real money. The bank owes £100 to Alice and holds on to £100 in cash. The example so far is as if a bank account was simply a reference to a hoard of money in the bank’s vault.

A more complete modern analogy is getting a loan from a bank. When Eve gets a loan from Barclays the bank credits, say, £100 to her account. In return, Eve owes the bank £100 plus interest at some later point. She may have had to deposit a title to her house, some promise to pay by some business or some other security to secure the loan. Now, Eve can dispose over the £100 in her bank account in the same way as Alice could before. Movements within Barclays are just updates to the ledgers there, money movements between banks are settled by transferring only the difference (at the end of the day).

Liquidity management.

It is here where Barclays needs to be careful. If Eve pays £100 to Charley at Deutsche Bank and no Deutsche Bank customer sent money the other way then Barclays better have those £100 lying around in hard cash to pay out Deutsche Bank. If £90 are coming in from Deutsche Bank then £10 in hard cash are sufficient to settle the difference.

Anticipating these required amounts of hard cash and having them on hand when needed is called “liquidity management” by financial capitalists. Different strategies exist for managing it. Having cash at hand is one. Holding on to well-trusted promissory notes (say, issued by a well-known company or by the State, see below) that can be sold quickly if needed is another. Borrowing the money that is needed to pay off Deutsche Bank is another valid strategy for liquidity management by Barclays, too. Banks deploy a mix of these strategies.

The key point here is that Barclays does not need to have £100 in its vaults when it grants Eve an entitlement to £100. However, Barclays must be able to get its hands on £100 when payment in actual money is demanded, i.e. when satisfying payment demands with promises to pay does not suffice. Barclays’ ability to grant credits and collect interest on them is premised on its success in managing its income streams and financial assets.

That is, banks do not simply take possession of cash and then hand it out for a fee, but they create ability to pay. A bank cannot create ability to pay “out of thin air” but it creates it out of its and other financial institutions’ power and success in turning credit advances into financial assets and out of the thus produced creditworthiness.

The central bank asserts that credit is money.

If, at any point, Barclays can live up to the demands in hard cash against itself, i.e. if it can always pay out in money what it owes, then this works out for them. When they fail to live up to this promise this is the transition to their collapse in the form of a “bank run”: get your money out before the bank is insolvent which contributes to making the bank insolvent. Now, since banks borrow and lend to each other this, in turn, affects the ability to fulfil cash demands of other banks, triggering perhaps a bank run on them, too, etc.

Imagine the silliness of a system that builds layer after layer of credit to make the capitalist mode of production independent of something as mundane as a yellow metal and that then comes crumbling down because of a lack of this yellow metal in the right hands at the right time. Indeed, this is no longer the world we live in.

Schooled by financial crises, states placed central banks at the foundation of the systems of credit. From around 1900 most states prohibited private banks from issuing their own banknotes. Issuing banknotes, instead, became the exclusive right of the national or central bank, which sometimes formally is a private bank (but effectively under state control). In the UK, it is the Bank of England which issues the British Pound Sterling (GPB). The pieces of paper it issues, its banknotes are valid money, they are not promises of payment in money.

All private banks operating in the UK must have a bank account with the Bank of England where they must hold a fair share of their money and there were or are restrictions in place on how much credit a bank is allowed to give relative to the assets (money and “good debts” such as UK gilts) held (in the Bank of England bank account). This is a restriction of the credit operations of private banks.

On the other hand, the Bank of England creates credit without any reference to gold or any other commodity money.²² It simply decides how much money it wants to lend out according to its monetary policy. It creates this money in a similar way as private banks create money of account. They lend it out – HSBC wants a loan for £1000, the Bank of England adds £1000 to HSBC’s central bank account. The difference to private banks is that the “vault” of the Bank of England is never empty, it always has those £1000 lying around, should HSBC wish to withdraw them. They can print it and thus the BoE is always solvent. This adds a new inexhaustible and broadly-available source of credit to the liquidity management playbook of commercial banks. Therewith the banks are unfettered, their credit business is no longer based on the narrow basis of gold money or some other precious commodity but based on the credit that the Bank of England gives, i.e. fundamentally the credit that the State gives; for its macroeconomic reasons rather than the more narrow profit motives of other private banks.

So, the “resolution” to the “silliness” of building layer upon layer of credit to free the capitalist mode of production from the shackles of gold to fall back to it in every crisis is to essentially add another layer of credit, i.e. credit that is simply created by the State. How that plays out in the event of a sufficiently big crisis is a question for another text,²³ here we focus on how it liberates credit from the narrow basis of precious metals or other valuable commodities.

Credit creates growth and growth anticipation creates credit

Putting these findings together, we arrive at (a) that credit creates the conditions for capitalist success and at (b) that growth anticipation creates credit. This both explains (1) the abstract possibility of inflation and that (2) the rate of inflation is a matter decided in the competition of capitals:

Inflation.

First, as explained above, in modern capitalism the purchasing power confronting the market is not limited by previously earned profits or incomes, but merely by the anticipation of future returns, by the boldness of financial capitalists in their predictions about how lucrative investments will be.

It is worth repeating: the key point here is that banks do not simply collect money from society in the form of deposits and hand out this money in the form of credit, as some sort of intermediary. Rather, banks create the ability to pay, book money, which is a promise of payment itself, and use this to grant credit. They do this to the extent that (a) they believe their debtors will pay back the loans plus interest later, (b) they anticipate they can manage their liquidity to satisfy required outgoing payments and (c) whatever constraints the law puts on them.

The limit of this sort of credit creation is not how much money in total was already earned in society (and deposited in the banks). Rather, credit is created for promising business and has its measure in anticipated success, in the boldness of capitals. The volumes of ability to pay seeking investment do not have their limit in realised sales but merely in the expected return of the business yet to be pushed into existence.

This emancipation from already realised wealth is the collective act of private banks. The volume at which they can accomplish this feat is premised on the central bank’s certification that their promises to pay are as good as its money. This equation lifts the volumes of credit that private banks can and will handle to new heights.

For the avoidance of doubt, the claim here is not that central banks cause inflation (type I) when “printing money”, i.e. lending to private banks. Rather, this inflation is a phenomenon produced by the credit operations of private banks when they create credit because they see lucrative business, i.e. in a boom. Central banks support these endeavours by providing the ultimate means of liquidity management as “lenders of last resort”. What happens when the ability of credit to start and facilitate successful business is in doubt, is another question (see below).

Rate of inflation.

Second, the relationship between credit and wealth is not simply one-sided in the sense that this speculation was right or wrong, a business succeeds or it does not. Rather, credit creates the conditions for this success, for an individual business and in the economy as a whole.

With credit, businesses can hire workers, buy materials and machines and produce more wealth, increasing the heap of commodities awaiting sale. The sale of these commodities then puts spending power of earned money into their hands to purchase from other producers who also produced on credit.

Thus, an increase in credit volumes does not directly translate to a proportional devaluation of money, in the sense of a simple quantity mismatch: more money confronting the same heap of commodities, but this increased credit volume may be the fundamental reason for an increased heap of commodities. The rate of inflation is thus explained by the motley competition of capitals for solvent demand and credit and how quickly they turn this credit into additional commodities.²⁴

Finally, note that for credit-financed accumulation to produce a steady rate of inflation it itself needs to be steady. While a hypothetical one-off credit that is paid off, say, a year later momentarily creates additional ability to pay, this additional purchasing power is removed again when the debt is paid off. However, as mentioned above, a successful cycle – debt, business, debt has been justified – is the best reason to repeat it on a larger scale.

PS: Failed business does not explain inflation.

Some Marxist accounts of inflation, including our previous texts and seminars, conclude from the above that thus failed businesses produce inflation along the lines of: credit and thus ability to pay is created for a business but the business fails to produce more wealth, thus inflation. This is not correct. If a debtor goes bust, they are bankrupt and perhaps their creditor, too. This does not affect the money which they failed to earn.

An example. Bank Alice holds £20k worth of promissory notes. It grants capitalist Bob a loan of £10k. It adds £10k to Bob’s bank account and a demand worth £10k against Bob to its assets. It backs up this loan using its promissory notes, i.e. should Bob demand payment, the bank sells some of these notes to acquire cash to pay out Bob.

Now, Bob pays £10k to some capitalist Charley, via wire transfer between the banks Alice and Dora (Charley banks with Dora). Bank Dora now has a claim of £10k against bank Alice. Status: Bank Alice has £20k in promissory notes, a claim against Bob of £10k and there is a claim of £10k against bank Alice from bank Dora.

Finally, Bob’s business fails and he goes bankrupt. Bob cannot pay back bank Alice, so the claim of £10k against him is void. The claim of bank Dora against bank Alice remains, however. Bank Alice must sell £10k worth of promissory notes to pay out bank Dora. In summary, the end effect is that a transfer of wealth of £10k from bank Alice to bank Dora and capitalist Charley has taken place.

The initial credit produced additional ability to pay. It was produced by the anticipated success of Bob’s business not by its eventual failure. This additional ability to pay is destroyed in the end when Bob cannot pay. On the one hand, as discussed above, the additional ability to pay would also be destroyed when a debt is successfully settled without contracting new debt. However, the latter – successful – case is an encouragement to repeat the cycle whereas the former – unsuccessful – is not. Inflation requires the increased volume of ability to pay to persist and this is premised on continuous credit.

Sovereign Debt and Inflation II (A Sign of Economic Crisis)

In the last section, we discussed how financial institutions, with the support of the Central Bank and when business is good, create ability to pay that is independent of the wealth already produced and earned in society. Therewith, they unlink effective demand from produced and realised wealth. We also discussed how this ability to pay is the continuous condition for the creation of wealth in capitalist economies. They compete in this endeavour of credit creation with the capitalist state, which creates credit also and especially when business is not good.

The State maintains itself

Taxes.

The capitalist state does not earn money, it takes it – taxes are not an exchange but appropriation.²⁵ From the taxes it levies the State organises its activities. On the one hand, it imposes its money on society when collecting taxes in it. On the other hand, it respects private interests in money when it pays its subjects for their services to itself: civil servants, suppliers and contractors.

Spending.

State spending is unproductive. While commentators and politicians like to distinguish between the “burden” of, say, benefit payments and “investments” such as HS2, except for negligible outliers state spending does not produce an increase of wealth in society (counted in money) let alone produce a return for the State. Rather, it creates conditions that allow others to invest with the prospect of a return. HS2 may be the foundation for increased business but it is not in itself increased business.²⁶

Borrowing.

The State learned a trick or two from the capitalists it watches over. As discussed above, the rule in the capitalist economy is not to wait until profits finance an expansion but to expand on credit and to use the (anticipated) increased profits to justify the loan. The State does a similar thing: it does not wait for citizens to earn more money to receive more tax revenue which then is used for extended state activity.

Rather, the State issues bonds, in the UK these are called Gilts. More on bonds/Gilts below, for now it suffices to realise that the State borrows to finance its activity. The debts of the British State amounted to approximately £2.1 trillion in 2021.²⁷

Economic growth can thus be promoted independently of the already existing tax income and the growing tax revenues are then used to justify the debts. On the one hand, since, as discussed above, all state spending is consumptive, state borrowing economically is like a consumer loan: the creditors do not partake in the increasing profits brought about by their credit but principal and interest are paid from income generated otherwise; here taxation (or further state borrowing, see below).

On the other hand, the State has power over society to expropriate money in the form of taxes. In this sense the State is the most solid debtor in society: it has, in principle, all of society’s wealth at its disposal. Expressed less in terms of extremes, the calculation is that with its unproductive spending the State may create the conditions for successful accumulation on its territory which in turn increases the wealth over which the State can dispose.

For businesses, borrowing is not a one-off affair, in the sense of: Borrow, spend, make money and pay back the debt. Rather, success is the best argument to pay off the old loan with new credit and then, preferably, to borrow an even higher amount. It is similar with the State: if the economy is growing this is the best argument to contract more debt to improve conditions further. Thus, sovereign debt is not of a constant size but keeps on growing. Old loans are paid off with new loans. In addition, typically more debt will be contracted (this is called “new net debt”).

Bonds.

The State borrows, as mentioned above, by issuing bonds. These are essentially like the promissory notes mentioned above. The State sells a piece of paper stating: I will pay you £50 each year for 10 years and then I will pay you £1000. This note is sold for £1000 and promises a 5% return per year for 10 years, after which the principal is paid back.

These notes – bonds – can be and are bought and sold on the “secondary market”, i.e. financial institutions trade them, for whatever price they consider profitable. If they want to get rid of their bonds from a State on whose fixed regular payments they have become less keen, they may have to sell it for less than £1000, e.g. for £833.²⁸ To the buyer, the payment of £50 per year represents a return of 6% per year.²⁹ This percentage is called a “yield” and thus, if the yield goes up this means bonds are bought and sold at a lower price.

The effective yield on the secondary market in turn informs what yield the State must offer when issuing new bonds. So if its previously issued “I pay you £50 per year” bonds trade at a price producing a yield of 6%, then new £1000 bonds issued and sold by the State must promise £60 to find purchasers.

Given that these bonds are issued by the most reliable debtor in society, they are considered rather safe investments. In addition, the volume of these bonds is massive and so is the trade in them. This means they can be turned into hard cash on the secondary market on relatively short notice and at relatively predictable prices. Thus, as alluded to above, instead of hoarding cash for liquidity management, banks may and do hoard these bonds, they are essentially as safe as cash but also earn interest. So the debt issued by the State is treated almost like cash itself. In this way, the sovereign debt issued by capitalist states is itself a fundamental contribution to the foundation of the credit business of private banks.

Sovereign debt and inflation I.

Despite its different economic determinations, when business is good, the State’s debt functions not that differently from that of private businesses. The State borrows money and uses this to purchase commodities, either directly or by paying wages which are then turned into groceries and so on. Additional credit-backed purchasing power thus confronts the world of commodities. Now, while all state spending is unproductive, its activities may still create, maintain and promote the foundation for successful private business, which in turn produces additional wealth. Thus, here too a simple formula – this much additional sovereign debt leads to that much inflation – cannot be obtained, it depends on what private businesses do with the conditions produced by the State.

Logic.

However, the State’s credit operations differ not only in volume from those of private banks but also in rationale. When business is down the State takes on credit and spends this borrowed money. In a recession, tax revenue is reduced as fewer commodities are sold, lower or fewer profits are realised and fewer people are in jobs. At the same time, the need for state activity increases to maintain society, e.g. those unemployed people or key branches of industry. All of this is financed by credit.

Furthermore, through “counter-cyclical fiscal policy” the State may go beyond maintaining its society and may try to stimulate the economy to get out of the current slump. If this works is out of scope for this piece. Here, we only remark that this, too, is financed by credit.

Where private banks dry up the credit supply and demand when the business of their debtors does not look too good, the State increases the volumes of debt contracted in a downturn. Of course, private banks, too, have to decide on whether to follow one credit with another to get a debtor through a slump. But this then puts a strain on their liquidity management and if the slump persists they will pull the plug. The bank writes off the loan or, if it has misjudged its liquidity management, goes bankrupt itself. Either way, it does not indefinitely continue to borrow money to credit its debtors. The State, in contrast, successfully continues to borrow to maintain itself and its society.

The State can do this, i.e. its credit remains in demand, because of the tight identification of sovereign debt and money. Both on the secondary market and with the Central Bank, sovereign bonds can be exchanged for actual money or used as collateral when borrowing money.³⁰ Holding on to the sovereign debt issued by the State is like holding on to the money of its Central Bank.

Second, the State cannot go bankrupt, for its debt to be written off.³¹ Its attempts at reviving the economy may be unsuccessful and growth may not follow, but this does not invalidate the outstanding claims against it. Sure, their price on the secondary market may suffer, but the State does not become insolvent. Its credit remains and is not wiped out.

The State’s credit operations in times of a downturn – to replace and to stimulate economic activities – are the transition to a second form of inflation.

Crisis intervention by the State

In a crisis, financial institutions cancel themselves by cancelling their mutual trust in their assets. Having lived off the assertion that debt is an asset, almost as good as payment, their mutual construction comes crashing down when they doubt this assertion. In such a crisis, the economy grinds to a halt, investments are not worthwhile, purchases do not take place and thus no sales, either.

The result of this crash is not inflation, but a nationwide collapse of business combined with the danger of a collapse of the social circulation of money. Little is bought or sold. The national business perishes as a result, not the national money. If anything, investors try to offload their wobbly debt instruments to get their hands on cash, i.e. central bank money.

In this situation, the State considers it necessary not only to return to growth but to somehow avoid the outright collapse of already booked growth, debt counted as wealth, and thus to prevent losses for and collapses of financial capitals and ultimately its entire national economy.³²

Central Bank.

(1) The Central Bank reduces “the price of money”, i.e. the interest rate it charges financial institutions to borrow from the Central Bank. This is meant to prevent panic sell-offs to gather cash to pay off liabilities.

(2) The Central Bank continues to accept debt obligations that are now foul as collateral when borrowing cash from it or outright buys these papers, an operation known as “quantitative easing”. This prevents the collapse of these debt instruments and thus their (now former) holders. It may even reconstitute trust in these promises to pay so that they function again as assets. Indeed, this might lead to investment in these assets again.

These two measures – and these involve massive sums – do not have an inflationary effect during a crisis. The money the Central Bank mobilises for these operations does not immediately end up in the hands of capitalists to purchase commodities. As such, this does not immediately contribute to inflation. This could be empirically observed since 2013 when central banks mobilised vast sums for their quantitative easing programmes without this producing a significant inflationary effect.

However, these operations keep promises to pay in value which do not correspond to successful accumulation. Thus, in contrast to the example of a failed business mentioned above the increased ability to pay is not wiped out. As such, when business prospects improve after the crisis this may encourage bolder credit-granting decisions, i.e. when these assets back credit to businesses who then invest, but it does not do so during the crisis.

State.

(3) The other big crisis measure of the State are stimulus programmes or, in the extreme, keeping itself afloat. The State issues bonds – debt that is essentially equivalent to the money the Central Bank prints, an equation the Central Bank actively supports when it buys bonds issued by its own State – to finance its activities and to stimulate the economy. The State pays wages and buys goods and services. The key point here is that the State effectively prints money and spends it.

Faced with the failure to realise its ambition to maintain itself through the money it issues, the State insists on it against the economic reality. It insists on the validity and power of its money by pushing more into society. Money does not command social wealth, little can be bought for it, so the State mobilises more money to overcome this lack of purchasing power. This money, however, does not meet a capitalist economy where this money is the central means of enrichment, but an economy in crisis. Thus, the Bank of England has it the wrong way around when it writes:

“In extreme cases, high and volatile inflation can cause an economy to collapse. Zimbabwe is a good example. It experienced this in 2007-2009 when the price level increased by around 80 billion per cent in a single month. As a result, people simply refused to use Zimbabwean banknotes and the economy ground to a halt.” (Bank of England. What is inflation? 3 Feb 2022.)

The State’s excessive printing of money is a response to its economy collapsing not its cause. Runaway inflation is a phenomenon of a crashed economy and a State that insists its money still functions in commanding social wealth.

Summary

In summary, “inflation” refers to quite disparate economic phenomena: 5% or so corresponds to an economic boom and does not threaten the capitalist economy at all, it is rather a phenomenon of its success. In contrast, 200% or so of “hyperinflation” where money rapidly loses its value in days corresponds to a collapsing economy. These are qualitatively different situations, not just different quantities. The former is produced by financial institutions with the support of the Central Bank, the latter is produced by the State refusing to concede that its central means of rule – its money – fails to command a society where the economy is down.

Press

“Labour shortages”

“But the MPC [Monetary Policy Committee] warned that if labour shortages proved bigger and more persistent than expected — if workers were in the wrong place, or had the wrong skills, for the jobs available, or if young people who had left the labour market to study stayed in education for some years — that was likely to make wages rise, inflation more persistent and the BoE raise interest rates.

When it does become time to tighten monetary policy, the BoE also changed its guidance on Thursday on how it will make borrowing more expensive for households, businesses and government.” – Chris Giles and Delphine Strauss. BoE sees tight labour market as trigger for higher rates in Financial Times. 5 August 2021

Growth

“Britain’s economy surged forward in the second quarter, growing 4.8 per cent as consumers eagerly spent money following the easing of coronavirus restrictions and the progress of the country’s vaccination programme.

The rapid quarter-on-quarter growth rate allowed the economy to recover much of the ground lost over the past two years. Still, it produced 4.4 per cent fewer goods and services between April and June than in the final quarter of 2019.

The growth rate was in line with market expectations, although a touch slower than the Bank of England’s forecast of 5 per cent expansion.

With the US having recovered all of its lost ground in the second quarter and eurozone output 3 per cent below the pre-pandemic peak in the same period, the figures showed the UK’s economic performance was still lagging behind other advanced economies.” – Chris Giles. UK economy grows 4.8% in second quarter in Financial Times. 12 August 2021

“The eurozone economy has bounced back from its historic pandemic-driven downturn, logging faster than expected growth of 2 per cent in the three months to June, according to data released on Friday.

The quarter-on-quarter rise in eurozone gross domestic product was higher than the 1.5 per cent expected by economists polled by Reuters and is the first time the bloc has outpaced growth in the US and China since the pandemic started last year. It also marked a strong rebound from the bloc’s 0.3 per cent contraction in the first quarter.” – Martin Arnold. Growth returns to eurozone with healthy rebound in second quarter in Financial Times. 30 July 2021

“Persistence of demand for goods”

“The inflationary surge has taken many economists by surprise. In some countries — such as the US, Canada, the eurozone, Brazil and Peru — inflation forecasts for this year have doubled in only a few months, according to Consensus Economics, a company that tracks leading forecasters.

‘Economists have been caught out by a few things — energy prices, which are famously hard to forecast, and the persistence of demand for goods even as economies have reopened,’ said James Pomeroy, global economist at HSBC.” – Valentina Romei. The unexpected surge in inflation, in charts in Financial Times. 21 November 2021

“Strong demand for most goods and services”

“Economists polled by Reuters forecast inflation to hit 5.2 per cent, the joint highest since the early 1990s and up from a decade-high of 5.1 per cent in November. They attribute the upward price pressure to higher energy costs, strong demand for most goods and services, and continued supply chain disruption.” – Valentina Romei. UK inflation set to hit 30-year high as rate rise expectations mount in Financial Times. 18 January 2022

“Wage-price spiral”

“It is being closely watched by policymakers at the Bank of England, who are acutely worried that a surge in inflation — initially caused by higher global prices for goods and energy — could become a lasting phenomenon if it gets baked into domestic wage settlements.

Most forecasters expect the monetary policy committee to raise interest rates when it meets on Thursday, to avert the risk of a so-called wage-price spiral developing, when workers demand pay rises to match higher living costs and companies raise prices to protect their margins in a repeating, self-fulfilling process.” – Delphine Strauss. Can the UK avoid a wage-price spiral? in Financial Times. 1 February 2022

“Clothing and footwear”

“Grant Fitzner, ONS chief economist, said that ‘clothing and footwear pushed inflation up this month’ together with the rising costs of some household goods.” – Valentina Romei. UK inflation climbs to 30-year high of 5.5% in Financial Times. 16 February 2022

“Ukraine conflict”

“Inflation has hit its highest level in decades for many countries, with the Ukraine conflict adding upward pressure on energy prices and squeezing households’ real incomes.

Russia’s invasion of its neighbour has pushed up energy and food prices at a time when many countries were already registering near-record rates of consumer price growth, leading some economists to fear a general return to the chronic inflation of the 1970s. High inflation is geographically broad-based even if East Asia has largely been an exception to the worldwide pattern.” – Valentina Romei and Alan Smith. Inflation tracker: latest figures as countries grapple with rising prices in Financial Times. 18 March 2022

Footnotes

¹ It is the fetishism of commodities par excellence: “The mysterious character of the commodity-form consists therefore simply in the fact that the commodity reflects the social characteristics of men’s own labour as objective characteristics of the products of labour themselves, as the socio-natural properties of these things. Hence it also reflects the social relation of the producers to the sum total of labour as a social relation between objects, a relation which exists apart from and outside the producers.” (Karl Marx. Capital, Vol. 1. p.164)

² “Is high inflation a problem? A healthy economy needs to have a low and stable rate of inflation. The Government sets a target for how much prices overall should go up each year in the UK. That target is 2%. It’s the Bank of England job to keep inflation at that target. A little bit of inflation is helpful. But high and unstable rates of inflation can be harmful. If prices are unpredictable, it is difficult for people to plan how much they can spend, save or invest.” (Bank of England. What is inflation? 3 Feb 2022.)

³ A refreshingly honest take is given in the biggest conservative German newspaper: “Companies make a big mistake when they raise their prices too late in inflation. Some suppliers delay price increases because they hope to gain market share. But that goes wrong. My advice to companies is therefore: raise prices faster! Price increases should not be below the inflation rate, but rather slightly above it. That also works easier in an inflation.” (Hermann Simon in „Erhöht die Preise schneller!“ in Frankfurter Allgmemeine Zeitung. 26 Mar 2022)

⁴ “Even before Russia’s invasion of Ukraine, consumer prices were pushed upwards by global factors, particularly the economic recovery from the worst of the pandemic and supply constraints in certain sectors.” (Andrew Bailey, Governor of the Bank of England. Letter from the Governor to the Chancellor. 17 Mar 2022)

⁵ The Bank has one set of answers to the question “where does inflation come from” that it gives in its Governor’s letters to the Chancellor. We discussed those above. In its monetary policy, the Bank presumes a different explanation, which we discuss here.

⁶ “Only because the farmer has sold his wheat is the weaver able to sell his linen, only because the weaver has sold his linen is our rash and intemperate friend able to sell his Bible, and only because the latter already has the water of everlasting life is the distiller able to sell his eau-de-vie. And so it goes on.” (Karl Marx. Capital, Vol. 1. p.207)

⁷ If anything, in response to inflation many people borrow to bridge the gap between their wages and their costs, often at interest rates significantly higher than what the BoE sets due to the risky nature of these consumer loans. See e.g. Leke Oso Alabi and Siddharth Venkataramakrishnan. Pawnbroking surges in UK amid cost of living squeeze in Financial Times. 29 Jul 2022 or Oliver Ralph. UK consumer borrowing doubles amid rise in cost of living in Financial Times. 29 Jul 2022. See also a footnote below.

⁸ It should also talk about the State, see below, but seemingly it does not.

⁹ The Bank explains this in e.g. Michael McLeay, Amar Radia and Ryland Thomas. Bulletin 2014 Q1: Money creation in the modern economy. 2014

¹⁰ See “Central Bank Policy since 2013” in Economic Crisis (from 2007 to June 2020).

¹¹ The discussion so far also gives a hint as to why the Bank of England is so worried about wages. It knows of the relationship between wages and profits we based our argument on above: higher wages reduce profits. It also knows that the profitability of businesses, their ability to turn (credit-backed) advances into surpluses, is what everything from the value of the money the Bank of England issues to the livelihood of everybody in society depends on.

¹² “This part of the value of the commodity, which replaces the price of the means of production consumed and the labour-power employed, simply replaces what the commodity cost the capitalist himself and is therefore the cost price of the commodity, as far as he is concerned. (…) On the other hand, however, the cost price of the commodity is by no means simply a category that exists only in capitalist book-keeping. The independence that this portion of value acquires makes itself constantly felt in practice in the actual production of the commodity, as it must constantly be transformed back again into the form of productive capital by way of the circulation process, i.e. the cost price of the commodity must continuously buy back the elements of production consumed in its production.” (Karl Marx. Capital, Vol. 3, p.118)

¹³ Inflation-adjusted earnings are a thing. This means, on the one hand, that capitalists know that their unit is not a unit, that what they presuppose as fixed is not fixed. This also means, on the other hand, that they seek a fixed standard, a unit, by which to judge their success. Their business is premised on it.

¹⁴ “On the basis of capitalist production, money – taken here as the independent expression of a sum of value, whether this actually exists in money or in commodities – can be transformed into capital, and through this transformation it is turned from a given, fixed value into a self-valorizing value capable of increasing itself. It produces profit, i.e. it enables the capitalist to extract and appropriate for himself a certain quantity of unpaid labour, surplus product and surplus-value. In this way the money receives, besides the use-value which it possesses as money, an additional use-value, namely the ability to function as capital. Its use-value here consists precisely in the profit that it produces when transformed into capital. In this capacity of potential capital, as a means to the production of profit, it becomes a commodity, but a commodity of a special kind. Or what comes to the same thing, capital becomes a commodity.” (Karl Marx. Capital, Vol. 3, p.459)

¹⁵ This qualitative difference in the economic substance of the debt relation finds expression in the quantitative difference of interest rates. Payday lenders charge about 1,250% annual percentage rate (APR), credit cards about 20%, personal loans about 8%. The BoE interest rate in August 2022 was 1.75% per year.

¹⁶ The SPGB and others would object to this statement. For example, they write: “Basically, they (banks) are financial intermediaries, accepting money originally generated in production from business and individuals who don’t want to spend it immediately (but to ‘save’ and spend later) and lending most of this to fund some business project or purchase.” (The Magic Money Myth)

¹⁷ “In the direct form of commodity circulation hitherto considered, we found a given value always presented to us in a double shape, as a commodity at one pole, and money at the opposite pole. The owners of commodities therefore came into contact as the representatives of equivalents which were already available to each of them. But with the development of circulation, conditions arise under which the alienation of the commodity becomes separated by an interval of time from the realization of its price. (…) The seller sells an existing commodity, the buyer buys as the mere representative of money, or rather as the representative of future money. The seller becomes a creditor, the buyer becomes a debtor.” (Karl Marx. Capital, Vol. 1, p.232) “I have already shown (in Volume 1, Chapter 3, 3, b) how the function of money as means of payment develops out of simple commodity circulation, so that a relationship of creditor and debtor is formed. With the development of trade and the capitalist mode of production, which produces only for circulation, this spontaneous basis for the credit system is expanded, generalized and elaborated. By and large, money now functions only as means of payment, i.e. commodities are not sold for money, but for a written promise to pay at a certain date. For the sake of brevity, we can refer to all these promises to pay as bills of exchange.” (Karl Marx. Capital, Vol. 3, p.525)

¹⁸ Promissory notes have now largely been replaced by services of banks and thus are not common anymore. The historical example here is meant to help to explain the logical development step by step.

¹⁹ “Credit-money springs directly out of the function of money as a means of payment, in that certificates of debts owing for already purchased commodities themselves circulate for the purpose of transferring those debts to others.” (Karl Marx. Capital, Vol. 1, p.238) “Until they expire and are due for payment, these bills themselves circulate as means of payment; and they form the actual commercial money.” (Karl Marx. Capital, Vol. 3, p.525)

²⁰ “With the concentration of payments in one place, special institutions and methods of liquidation develop spontaneously. For instance, the virements in medieval Lyons. The debts due to A from B, to B from C, to C from A, and so on, have only to be brought face to face in order to cancel each other out, to a certain extent, as positive and negative amounts. There remains only a single debit balance to be settled. The greater the concentration of the payments, the less is this balance in relation to the total amount, hence the less is the mass of the means of payment in circulation” (Karl Marx. Capital, Vol. 1, p.235) “To the extent that they ultimately cancel each other out, by the balancing of debts and claims, they function absolutely as money, even though there is no final transformation into money proper.” (Karl Marx. Capital, Vol. 3, p.525)

²¹ “As these mutual advances by producers and merchants form the real basis of credit, so their instrument of circulation, the bill of exchange, forms the basis of credit money proper, banknotes, etc. These are not based on monetary circulation, that of metallic or government paper money, but rather on the circulation of bills of exchange.” (Karl Marx. Capital, Vol. 3, p.525) Here, “government paper money” refers to money that is, at least notionally, tied to a money commodity. It does not exist any longer.

²² “Since the Bank of England’s (the ‘Bank’) foundation in 1694 the Bank has issued notes promising to pay the bearer a sum of money. For much of its history the promise could be made good by the Bank paying out gold in exchange for its notes. (…) The link with gold was finally broken in 1931 and since that time there has been no other asset into which holders have the right to convert Bank of England notes. They can only be exchanged for other Bank of England notes.” (Bank of England, What is the value of the sterling currency? 25 Feb 2016)

²³ See “The Global Economy in Early 2020 – A Conclusion” in Economic Crisis (from 2007 to June 2020) for some discussion on this.

²⁴ It also depends on whether this credit is used by the debtors to buy commodities or, say, financial assets like shares or bonds.

²⁵ See “I pay my taxes” – so what?!

²⁶ Of course, for the contractors working on HS2, this is a profitable business. But just like your spending on cornflakes is consumptive and not productive despite being a profit-laden business for the seller, this does not alter the fact that the State’s spending is consumptive.

²⁷ For comparison, all “non-financial corporations, households and non-profit institutions serving households” combined held £3.5 trillion on debt in 2019.

²⁸ Since dividends paid on bonds are fixed, example reasons to become less keen on those are that other investments promise higher returns or that inflation eats too much into the gains.

²⁹ This is a simplification. The maths does not quite work out neatly to 50/833 = 6% because the bond purchased on the secondary market for £833 promises £50 per year and the eventual payment of £1000, which represents an additional profit of £1000-833 = £167. This is taken into account.

³⁰ “The central bank’s share of UK bonds pushed above 30 per cent at the most recent reading by the DMO, released at the end of last month and covering up to the end of September 2020.” (Joshua Oliver. Bank of England tops private investors as biggest holder of gilts in Financial Times. 12 April 2021)

³¹ Sovereign default exists internationally, i.e. in foreign money, but not internally. The State is always solvent in its own money, but this money can collapse. This is what we are discussing here.

³² The State also supports its wider economy by reducing wages and non-wage costs, either directly or indirectly by reducing benefits – which represent a de facto floor for wages, cf. The Dubious Benefits of a Workers’ State: Universal Credit. Suppressing wages does not add inflationary pressure, but we mention it here for completeness.

Historical Materialism: A fetter on productive politics

Wed, 29 Jul 2026 20:08:22 +0000

Part 1: The orthodox idea of historical materialism

Historical materialism (HM) is a theory of history and historical change. It has been a central idea for most Marxists since the 1890s. Its flaws have led to a number of mistakes in both theory and practice. It’s therefore something worth investigating and evaluating.

One difficulty in talking about historical materialism is that the term is used in a number of different ways. For some people it is a deterministic theory that explains how societies transition on an inevitable path towards communism, while for others, they simply mean a ‘materialist conception of history’ (i.e. there was more going on than rulers making decisions). This article will outline the orthodox core of HM. It reflects a widespread understanding among both Marxists and non-Marxists, which may be more or less nuanced, but share the same basic theoretical structure.

Origins

Marx did not write the equivalent of Capital for history. He did not even use the term ‘historical materialism’. After his death people sought to divine and define a Marxist system that would explain pretty much everything, and one result of this was historical materialism. Along with its philosophical cousin dialectical materialism, it was taken up by Marxist-Leninists as part of their worldview, but it has been a pervasive idea among socialists before and since the era of official communist parties¹

The most famous passage from Marx that people turn to, and the one generally placed at the core of HM, is from the preface to A Contribution to the Critique of Political Economy (1859), a kind of first go at writing what became Capital (all emphases are ours):

In the social production of their life, men enter into definite relations that are indispensable and independent of their will, relations of production which correspond to a definite stage of development of their material productive forces. The sum total of these relations of production constitutes the economic structure of society, the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness.

The mode of production of material life conditions the social, political and intellectual life process in general. It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.

At a certain stage of their development, the material productive forces of society come in conflict with the existing relations of production, or – what is but a legal expression for the same thing – with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters.

Then begins an epoch of social revolution. With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed.

This gives us the key concepts that make up the core of HM, and that we will examine in more detail, through their use by historical materialists:

Forces of production
Relations of production
Economic foundation - usually referred to as the base
Superstructure

Forces and relations of production

Forces of production are the technical aspects of production - those things that directly enable the production process and/or increase productivity:

“This includes the “means of production” (sometimes called “productive capital”) – land, tools, machines, computers, factories, and offices, usually expanded to include distribution and exchange – transport, shops and infrastructure.² The forces of production include human labour power. And they include the knowledge, skills and technologies that underpin its application.”³

Relations of production are the social relations under which production takes place, “the relations of effective ownership and control over the production process”.⁴ In the above quote, Marx refers to this as ‘property relations’. This might be slave/slave owner as a primary production relationship in ancient Greece, serf and lord in classic feudalism, etc.

Fetters on the productive forces

The forces and relations of production are said to be in tension. For a time, under a specific mode of production, they complement each other, but division arises because the productive forces are subject to continuous development. There are better machines, scientific processes such as artificial fertiliser, new techniques such as crop rotation and so on. Even raw materials are subject to this -- foreign trade, conquest and colonialism makes new stuff available (or enough of what was formerly rare to make better use of it), and oil was some weird sticky stuff that bubbled out of the ground until its utility as an energy source could be realised.

Eventually, the relations of production become a ‘fetter’ on this development, and this tension leads to a rupture, and a new mode of production emerges. New relations of production arise alongside the developed productive forces (below we will see why the claim is that this also restructures wider society).

The Socialist Party of England and Wales offers a typical account of the transition from feudalism to capitalism:

Like with the era of slavery before it, the mode of production under feudalism eventually became a fetter on further progress. In England the feudal system had begun to reach the limits of its development over 200 years before the English civil wars of 1642-1651, which replaced the feudal ruling class with a capitalist ruling class.

Improvements in agricultural methods and the clearing of forests and other areas to provide more land for cultivation had enormously increased agricultural productivity, but could go little further under the feudal system of small peasant plots exploited by feudal lords.⁵

Many HM advocates would say this tension between the forces and relations intensifies class struggle, which needs to be successful to bring about the change that will place forces and relations in harmony with each other again. For some however, this underlying process would just be inevitable. The elastic binding the forces and relations of production together gets stretched and stretched until -- at some point -- it must snap.

The fullest expression of this technological determinism (e.g. Cohen⁶) takes Marx’s line from The Poverty of Philosophy seriously: “the hand-mill gives you society with the feudal lord, the steam-mill society with the industrial capitalist”.

This line of thinking led to perhaps the most notorious offspring of HM, often put forward by Marxist-Leninists but dating back to the second International: that there are inevitable stages of history, a chain of modes of production that will lead to communism. Seeking scriptural backing for this position they referred again to the Contribution preface, where Marx says “In broad outline, the Asiatic, ancient, feudal and modern bourgeois modes of production may be designated as epochs marking progress in the economic development of society.”

Few historical materialists would be quite so teleological nowadays, but the belief that modes of production rise to suit productive forces and then decline when they cannot keep up with them persists. The plainest outline of this is decadence theory, which describes modes of production as having an ascendant/progressive phase, developing the forces of production, and a decadent/declining phase, where it instead stands in their way.⁷

Base and superstructure

This is HM’s key metaphor. How production is organised in a society forms its economic ‘base’ - “the economic structure of society, the real foundation, on which rises a legal and political superstructure”. The base is usually understood as being made up of the forces and relations of production.⁸

This base determines the ‘superstructure’ of society - the sociopolitical realm as separate to and determined by the economic realm. The superstructure is generally understood to encompass the state, politics, religion, ideology, law, education, science, the family -- the social structures that fall outside the economy.

For some historical materialists it’s mainly a one way street -- base leads to superstructure. More commonly they will say that each conditions the other, with the base ultimately being the dominant factor. This is often expressed as the base shaping the superstructure, and the superstructure maintaining the base. For example:

Science and education can be driven by economic need, but can also change production through inventions, a more skilled workforce and so on.
Laws can be passed that restrict child labour, the length of the working day, safety practices, pollution etc., or religion and custom may affect what days serfs work, or who can work in craft trades. In neither case is the economic basis of capitalism or feudalism fundamentally changed, but it is affected.

When there is a change in the base, this filters through to the superstructure. For example, for a nascent capitalist economy, “The old feudal restrictions were now unbearable impositions, intolerable barriers to progress”⁹ leading to the rise of the modern democratic state. This can be through class struggle playing out in the superstructure as well as the base -- e.g. in this case through bourgeois revolutions. It can also be institutions such as the family, or education changing due to economic demands. For example, the slow erosion of extended family ties into nuclear families under capitalism.

Part 2: Critique of the orthodox concepts

Why should forces of production have a determining role?

Tools, machines, techniques etc are means to produce stuff. They are things that increase productivity or enable new stuff to be made. Why should this, in itself, determine the historical course of the people that use them? It is a person who makes use of a tool, or machine, or technique. A wrench cannot dictate to her to what ends she uses it, nor the social relations under which she does so. It is the social conditions in which they exist that push the application of the forces of production in certain directions.

There are new possibilities that arise from new technology -- but these are possibilities. Automation could be used to reduce drudgery or dangerous work, and help produce for need. The potential is there. But at the same time, it can be used to cut jobs, creating poverty at the same time as producing more stuff.¹⁰ What matters is how people act on these possibilities, and the social conditions they find themselves under.

Development of the productive forces

“The forces of production have an underlying dynamic of change, which is the drive to reduce the amount of labour necessary to produce what is needed and wanted.”¹¹

The development of knowledge over history is generally cumulative (there’s a body of knowledge that gets added to with every new discovery, invention, or experiment), but that does not mean that there is a necessity that it serves production. It is not clear for example that the Greco-Roman way of organising the economy and society was replaced by something more productive.

In popular imagination, the industrial revolution -- mechanised production -- was also the birth of capitalism, but capitalist social relations (e.g. waged labour, production for and determined by the market) were in place well before that, in agriculture, in cottage industries, and then manufacturing (factories existing before industrial production).¹²

In Capital volume 1, Marx describes how capital took the conditions of production it found (handicrafts and a growing number of people free from the means to sustain themselves and free to sell their ability to work) and transformed them -- changing the organisation of labour and ultimately subordinating workers to machinery. It shaped the productive forces to meet its needs, rather than being produced by the forces of production.

The idea of a push for development of productive forces applies to capitalism – there is a clear mechanism pushing to increase productivity¹³ -- but that does not make it a universal law of history. Where was the drive, the ‘underlying dynamic of change’ under feudalism?

In any case, the mechanism behind this in capitalism is not internal to the forces of production, it is imposed on them, abstractly because of the logic of M-C-M’¹⁴, concretely from within the relations of production. Each capitalist seeks to increase productivity in pursuit of maximum profit, an inherent aim that they further impose on other capitalists through their competition with each other. If you invent a machine to produce 20 widgets a day when your competitors can only manage 10, you can potentially make twice as much money. In reality, you would use this advantage to undercut them and still make a packet. This happy circumstance lasts until they adopt similar technology, and compete the price down until a day’s production sells for the old amount, divided across more commodities.

This process under capitalism, where the development of new technology drives how things are produced, gives the appearance of an invention determining its use, of technology as the motor force for change. The mistake of the historical materialists is to ignore the specific historical conditions of capitalism -- the technology is developed within a system that demands a continual increase in productivity in service of profit. They take this appearance, misinterpret it, and generalise it into a theory tasked with explaining historical change in general.

Under capitalism, the organisation of production, and the techniques and technologies engaged therein, are determined by their success in the production of profit. A social form is determining technology, not the other way round - the tail is not wagging the dog.

Tensions, contradictions and fetters

The error that historical materialists make above -- of looking for a universal explanation for history at the expense of understanding the particular example in front of them is nothing new. It can be seen in the Communist Manifesto. Having asserted that feudalism fell due to contradictions between the forces and relations of production they declare that ‘A similar movement is going on before our own eyes’:

“For many a decade past the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property.”¹⁵

Marx and Engels identify a real phenomenon - that a crisis in the capitalist economy is characterised by abundance, not scarcity. Lots of useful stuff has been produced, and is sitting idle in warehouses -- the problem is that it cannot be sold. Unfortunately, they then ascribe this outcome to a transhistorical law rather than dig into why this is a result produced under capitalism. Once Marx had done the necessary digging, he could provide an account of what drove an increase in the productive forces¹⁶, and, in Capital volume 3, why such crises were less the inevitable hallmarks of a mode of production in decline than the conditions for a new cycle of accumulation, with more industry and more commerce.

Returning to the Communist Manifesto’s observation that capitalism is prone to regular crises, with the benefit of hindsight we can see that the contradictions behind these downturns have not ended the existence of bourgeois property.

States have intervened to prevent a collapse. In part they succeed in doing so, insofar as an economic crisis does not immediately develop into a collapse. Sometimes they do not succeed, as for example in the Great Depression at the end of the 1920s. Then a great deal of capital -- not to mention livelihoods -- is destroyed. In the end, capital accumulation starts all over again.

What perhaps should be a bit surprising and worth inquiring about¹⁷, is that many people have accommodated themselves to the ups and downs of the business cycle, as they do to the seasons or the latest weather report.

Base ideas on base and superstructure

Historical materialism can be a recognition that a mode of production fundamentally shapes the society that produces this way. Yes, it does make a difference for other social relations whether surplus product is extracted by sheer force or by voluntary contracts. Often though this (somewhat banal) insight is treated as a dogma, base determines superstructure, without taking its object of enquiry seriously.

For example, many historical materialists conceive of the capitalist state as a more or less sophisticated version of it being the ‘executive committee of the bourgeoisie’. In their Introduction to Historical Materialism,¹⁸ the International Marxist Tendency describe the different forms of the state that accompanied specific modes of production. They cite the feudal state incorporating and supporting landowners - the nobility and clergy, and the rise of the nation-state as a growing capitalist class disrupted the old order. Quoting Lenin, they highlight the commonality of these forms of the state, rather than their particularity:

“In all class societies the state came into existence as ‘an organ of class rule, an organ for the oppression of one class by another’.”

This is not a terrible generalisation, but it’s inadequate for understanding the class society we are immediately concerned with, capitalism. Individual capitalists’ immediate interests are based in the drive to accumulate capital, and the thus produced need to survive against competitors, and therefore these interests are particular and often in conflict. As a class however, they do have shared interests -- the ongoing conditions for capital accumulation such as the protection of private property and the regulation of contracts between the people that own it, infrastructure, a favourable national economy, and a working class sufficiently alive and capable of work.

This requires an independent institution, powerful enough to enforce these conditions, and able to recognise and take decisions that might negatively affect individual capitals in the interests of capital itself. This might be industrial policy, choosing to support or abandon industries considered to be future prospects or remnants from the past, or in the case of the recent pandemic going so far as to in effect hit capital’s off switch -- pausing capitalist accumulation in the interests of its longer term survival.¹⁹

Given how capital relies on the working class, the state must also make itself a workers’ state -- regulating working hours and workplace safety, taking money from the economy to provide healthcare and education, setting a minimum wage and providing in and out of work benefits.²⁰

The working class enter the stage, on a historic mission

In response to accusations of determinism, historical materialists will point to the role they give to class and class struggle. In the hands of Marxist-Leninists in particular, the role of class has been to act as a lever on underlying economic contradictions, often not so much avoiding determinism as shifting it to a different arena. Under capitalism they ascribed to the working class a “great historical mission – to emancipate itself and the whole of the [...] people from political and economic slavery”.²¹

Giving the working class a mission is somewhat different from noting its condition -- a separation from those things it needs to reproduce itself -- and what might happen should people in that position conclude that things should be otherwise. They were placing a demand on it, viewing the people in the class as an object rather than a subject, and of course were obligated to try to lead them into fulfilling this historic role.

Part 3: What are we left with?

The specific economic form in which unpaid surplus-labour is pumped out of the direct producers determines the relationship of domination and servitude, as this grows directly out of production itself and reacts back on it in turn as a determinant. On this is based the entire configuration of the economic community which grows up out of the actual relations of production, and hence also its specific political form. It is in each case the direct relationship of the owners of the conditions of production to the immediate producers – a relationship whose particular form naturally corresponds always to a certain level of development of the type and manner of labour and hence to its social productive power – in which we find the innermost secret, the hidden basis of the entire social edifice and hence also the political form of the relationship of sovereignty and dependence, in short, the specific form state in each case.²²

A materialist conception of history?

There is a fundamental need for people to interact with nature in order to produce the things we need in order to survive. Every society needs to be able to produce and reproduce the means of its own existence as a precondition for that existence. How it does that will influence the institutions and social relations within that society.

To put it another way, any form of society must produce a surplus if it is to continue to exist. What happens to that surplus is an important question, and historically this is more specifically put as ‘who appropriates it and how?’. The particularity of the answer is an essential basis for understanding that society.

The productive power that enables there to be a surplus does not just rest on technology. It relies on the social relations that give the technology purpose. It relies on a form of governance that to a greater or lesser degree ensures the conditions for that economic activity.

Social and economic forces can condition the actions of individuals, but they do not determine them. A society might be violently coercive, or rely on a mixture of ideology, coercion and the silent compulsion of economic relations, but this does not stop people from assessing a situation and acting based on their conclusions.

Any work on Marx and history is obliged to cite the following quote, from The 18th Brumaire of Louis Napoleon, but there is no reason to imbue it with the idea that the circumstances referred to are the transhistorical factors of the forces and relations of production:

Men make their own history but they do not make it just as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered and inherited from the past.

For example, a group of peasants decided that coming together to work and live communally was a good idea in 1649.²³ This idea was based on their current situation, needs, and interests. The question of whether that was feasible needs to be looked at in its context - the specific circumstances (material, social and political) they inherited and encountered, not dismissed because we did not yet have the steam engine.

Forces and relations of production

How a society produces is clearly important. These categories can be useful, depending on the object of concern, but the idea of productive forces as a transhistorical motor of history is just wrong. It is a mistake to look more to tools than to the social relations of those who use them.

Historical Materialists posit a transhistorical drive for the development of productive forces while at the same time neglecting what it is that drives this development within capitalism. They have taken a particular phenomenon and generalised it, at once failing to explain this generality (what does drive development across history?²⁴) and losing an explanation for its specific form under capitalism (now it is a historical drive rather than something that unfolds from the logic of capital accumulation).

The base/superstructure metaphor

This is an attempt to account for the non-economic institutions, structures and ideas within a society -- and it is not an absurd one. The conditions that determine production affect the rest of society. Class society does not end at the factory or office door. States do not practice imperialism for the fun of it.

However, this is an abstract account of an explanation, which is not a substitute for an actual explanation of an object. The truth of this generalisation should emerge from investigation -- in itself, as we have seen it offers little help in understanding the state for example.

Another error that can arise is to see the relationship between base and superstructure as a functional one (Cohen goes so far as to explicitly base his understanding of HM in functionalism). This means explaining e.g. education by stating that it has the function of providing adequately educated workers for the base.²⁵

The problem with the base and superstructure metaphor is not the recognition of the importance of the economic relations within a society, but how it is employed. Treated as a dogma it stands in the way of enquiry -- its truth in relation to a particular object will emerge from analysis. If your project is to understand this world in order to change it, this is not served by making reality fit a preconceived model.

A materialist history of historical materialism

Ultimately, the problem with historical materialism is itself a matter of history. A belief in an inevitable final victory has lain behind mass political organisations as they moved from gradualists to reformists.²⁶ Leninist and Trotskyist parties have viewed the working class as a flock to be patiently shepherded to their rightful destination, even if it means treating them like idiots.²⁷ Historical materialism can even be employed to reassure those querying the socialist nature of a capitalist economy under the control of an authoritarian state.²⁸ Time and time again the idea that there is one simple trick to understand history and where it is going has led to egregious mistakes and absurdities.

A particular cruel punchline of history is that “historical materialism” is the hallmark of radicals and revolutionaries. A theory that predicts the collapse of the rejected system is a theory peddled by those busying themselves to bring it to its knees. For social democrats, who have completed their journey to responsible co-managers of the capitalist mode of production, historical materialism has fulfilled its historic mission in justifying their journey.

See for example, Stalin’s Dialectical and Historical Materialism (1938). ↩
This is wrong, on two counts. Capital is only a meaningful category within capitalism. “Productive capital” is - for Marx at least - not the means of production but the form capital takes in the sphere of production, i.e. means of production and labour power when active. See Capital volume 2. ↩
What are the ‘forces’, ‘relations’ anid ‘modes’ of production? Marx Memorial Library ↩
Rob Hoveman, “Marx and historical materialism”, 2018. https://www.rs21.org.uk/2018/01/21/Marx-and-historical-materialism/ ↩
Socialism Today, “The Marxist view of history”, 2022. https://socialismtoday.org/the-marxist-view-of-history ↩
Probably the best known book on HM is Karl Marx’s Theory of History: A Defence by GA Cohen, published in 1978. ↩
Decadence theory is mostly associated with left communists - see for example the ICC’s pamphlet The Decadence of Capitalism. ↩
For example, an article on Base and Superstructure in Socialist Worker: “The base has two parts – the forces of production and the relations of production”. ↩
An introduction to historical materialism -- part four, Socialist Appeal ↩
See “What is wrong with free money?” available at https://antinational.org/en/what-wrong-free-money/ ↩
“Marx and historical materialism” by Rob Hoveman, 2018 available at https://www.rs21.org.uk/2018/01/21/Marx-and-historical-materialism/ ↩
See for example Meiksins Wood, E, The Origin of Capitalism, London, Verso, 2002 ↩
See Marx, K. Capital: A Critique of Political Economy. London, Penguin Books, 1976 – in particular, Part IV: Production of Relative Surplus Value. ↩
This is just a shorthand for the ability of money to make more money when it is advanced in production: hiring workers, putting them to work, selling the product for a profit. ↩
[Manifesto of the Communist Party, chapter 1]{.underline} ↩
See Capital volume 1: Part IV: Production of Relative Surplus Value ↩
For more on the everyday common sense that allows people to make such accommodations, see Fantastic Thoughts and Where to Find Them. ↩
. https://www.marxist.com/what-is-marxism-economics-materialism.htm#historicalmaterialism ↩
[https://critisticuffs.org/texts/covid-19-and-crisis-20]{.underline} ↩
[https://critisticuffs.org/texts/the-dubious-benefits-of-a-workers-state-universal-credit]{.underline} ↩
[Lenin, The Urgent Tasks of Our Movement, Lenin Collected Works, 1964, Volume 4, pp. 366-371]{.underline} ↩
Marx, K, Capital Volume 3, London, Penguin Books, 1981, p. 927 ↩
The Diggers. From their manifesto: “This Declares likewise to all Laborers, or such as are called Poor people, that they shall not dare to work for Hire, for any Landlord, or for any that is lifted up above others; for by their labours, they have lifted up Tyrants and Tyranny; and by denying to labor for Hire, they shall pull them down again. He that works for another, either for Wages, or to pay him Rent, works unrighteously, and still lifts up the Curse [‘the Curse’ is private property]; but they that are resolved to work and eat together, making the Earth a Common Treasury, doth joyn hands with Christ, to lift up the Creation from Bondage, and restores all things from the Curse.” ↩
Explaining the existence of something by stating that there is a drive that produces it is an empty explanation. ↩
Functionalism explains something by its effect: ‘education has the effect of providing capitalist employers with a flow of workers with knowledge adequate to their needs’.

It posits ‘needs’ that are being met. This does not explain the thing meeting that need. ‘x exists because it does y for z’ is not an explanation either of how x came to be there, or of what it is, other than that ‘it does y for z’. It’s as if the need for an effect was somehow generating its cause.

This is a common way of explaining things - e.g. ‘racism in a capitalist society has the function of dividing and thus weakening the power of the working class’. The noted effect may be true, but this is not an adequate account of the object itself.

Note that function is not the same as purpose. It is quite different to say that education has the purpose of providing adequately educated workers for the base. A purpose is given to something – it has a cause, one that could arise out of human intent, or even the inner logic of a social object such as capital. The purpose can then be explained. To describe something as having a function offers nothing more than an observation. ↩
“Democracy cannot do away with the class antagonisms of capitalist society. Neither can it avoid the final outcome of these antagonisms – the overthrow of present society. One thing it can do. It cannot abolish the revolution, but it can avert many premature, hopeless revolutionary attempts, and render superfluous many revolutionary uprisings. It creates clearness regarding the relative strength of the different parties and classes. It does not abolish their antagonisms, nor postpone their ultimate object, but it does operate to hinder the rising class from sometimes attempting the accomplishment of tasks of which it is not yet capable, and to keep the governing class from refusing concessions that it no longer possesses the strength to maintain. The direction of development is not thereby changed, but its course becomes steadier and more peaceful.” Karl Kautsky, The Road to Power (1909) ↩
E.g. ‘transitional demands’ and the front page of any Trot newspaper at a demo. ↩
“There are people who believe that communism is an unattainable hope, or even that it is beyond hoping for – that communism is an illusion. This touches upon whether historical materialism or historical idealism is the proper frame through which to view world affairs. The fundamental reason why some of our comrades have weak ideals and faltering beliefs is that their views lack a firm grounding in historical materialism. We should educate and guide cadres and the broader mass of Party members so that we can unite our the common ideal of practicing socialism with Chinese characteristics together with our lofty ideal of securing Communism.” Xi Jinping speech to the Central Committee of the Communist Party of China, 2013 ↩

The Conflict between the US and China

Wed, 29 Jul 2026 20:08:22 +0000

Taiwan is the current flashpoint in the ongoing conflict between the United States and China, so we start here.

In 1949, the Republic of China’s government fled to Taiwan from the communist revolution on the mainland. Since then, both countries have had a policy of reunification, with each side aiming to overthrow the other and establish their own leadership. In 1996, Taiwan effectively gave up this claim when it held its first democratic elections, establishing itself as a sovereign country rather than a territory waiting for reunification. China, on the other hand, still adheres to a “one-China” policy and continues to aim for reunification with Taiwan, i.e. the reintegration of Taiwan. Indeed, according to recent CIA reports, China is planning to be ready by 2027 to invade Taiwan. China summarises its ambition as follows:

“Resolving the Taiwan question and realizing China’s complete reunification is a shared aspiration of all the sons and daughters of the Chinese nation. It is indispensable for the realization of China’s rejuvenation. It is also a historic mission of the Communist Party of China (CPC). The CPC, the Chinese government, and the Chinese people have striven for decades to achieve this goal.

The 18th National Congress of the CPC in 2012 heralded a new era in building socialism with Chinese characteristics. Under the strong leadership of the CPC Central Committee with Xi Jinping at the core, the CPC and the Chinese government have adopted new and innovative measures in relation to Taiwan. They have continued to chart the course of cross-Straits relations, safeguard peace and stability across the Taiwan Straits, and promote progress towards national reunification. However, in recent years the Taiwan authorities, led by the Democratic Progressive Party (DPP), have redoubled their efforts to divide the country, and some external forces have tried to exploit Taiwan to contain China, prevent the Chinese nation from achieving complete reunification, and halt the process of national rejuvenation.

The CPC has united the Chinese people and led them in fulfilling the First Centenary Goal of building a moderately prosperous society in all respects as scheduled, and in embarking on a new journey towards the Second Centenary Goal of building China into a modern socialist country.

The Chinese nation has achieved a historic transformation from standing upright to becoming prosperous and growing in strength, and national rejuvenation is driven by an unstoppable force. This marks a new starting point for reunification.” — The Taiwan Affairs Office of the State Council and the State Council Information Office of the People’s Republic of China. The Taiwan Question and China’s Reunification in the New Era. 2022.

China’s first assertion is a principled one: Taiwan is Chinese, part of its territory over which it can decide sovereignly. This is not the end of this matter, though. For China, the stakes are high in Taiwan. The Chinese government is putting on record that it considers reunification with Taiwan “indispensable for the realization of China’s rejuvenation”. The expression “China’s rejuvenation” is a key phrase of the leadership under Xi Jinping to express China’s ambition to be a unified nation and a world power, continuing along the trajectory of “becoming prosperous and growing in strength”. In other words, the future of China is at stake in Taiwan, as far as China is concerned. On the other hand, the consolidation and rise of China already achieved to date, is the foundation for realising this ambition. China’s rise to economic strength and political power gives it confidence in its ability to resolve this sticking point.

This, according to China, is badly needed as “external forces” thwart its attempts at resolving the Taiwan question to “halt the process of national rejuvenation” and to “contain China”, i.e. limit China’s further ascent as a world power.

The premier “external force” in the world and the power that is meant here, formulates its standpoint as follows:

“On Taiwan, our approach has been consistent across decades and administrations. As the President has said, our policy has not changed. The United States remains committed to our ‘one China’ policy, which is guided by the Taiwan Relations Act, the three Joint Communiques, the Six Assurances.¹ We oppose any unilateral changes to the status quo from either side; we do not support Taiwan independence; and we expect cross-strait differences to be resolved by peaceful means.

[…]

While our policy has not changed, what has changed is Beijing’s growing coercion – like trying to cut off Taiwan’s relations with countries around the world and blocking it from participating in international organizations. And Beijing has engaged in increasingly provocative rhetoric and activity, like flying PLA aircraft near Taiwan on an almost daily basis. These words and actions are deeply destabilizing; they risk miscalculation and threaten the peace and stability of the Taiwan Strait. As we saw from the President’s discussions with allies and partners in the Indo-Pacific, maintaining peace and stability across the strait is not just a U.S. interest; it is a matter of international concern, critical to regional and global security and prosperity.” — U.S. Secretary of State Antony J. Blinken. The Administration’s Approach to the People’s Republic of China. Speech delivered at George Washington University. May 2022

The US insists that its standpoint on Taiwan has not shifted. It has no interest in changing the status quo where Taiwan is neither recognised as a sovereign country nor incorporated into China. In saying this, it, first of all, declares its principled responsibility for this conflict which China decidedly declares an internal matter. In stating its expectation for “cross-strait differences to be resolved by peaceful means”, it marks this conflict as an international conflict under its jurisdiction. It emphasises this claim of jurisdiction by reference to “allies and partners in the Indo-Pacific” who testify that what China is planning with Taiwan is “a matter of international concern, critical to regional and global security and prosperity.” So, for the US much more than merely what flag flies in Taipei is at stake: to it the issue concerns the entirety of global security and prosperity, i.e. the US-led world order.

On the question of Taiwan, the largest and the second-largest national economies in the world confront each other. The US considers Taiwan as a case of the international order under its jurisdiction, China sees this as a sovereign matter that it can decide without interference. Both sides register that they consider this conflict to be a conflict decisive to China’s place in the world and, as a consequence, the entirety of the US-led world order; and not just a mere local matter.

The American World Order

It makes sense to continue here: the world order that the US implemented after first winning the Second World War and then the Cold War – a world order for and of capitalist states.²

Capitalist states do not merely guarantee and regulate the capitalist economic order on their territories but also promote the growth of their national economies. This economic growth then fuels their power, through resources that can be taxed and a broader economic base for the money which the State issues and goes into debt in.³ Thus, there is a circle where the State subordinates its actions and its power to the purpose of promoting its national economy and this growth then augments the State’s power.

From the point of view of these capitalist states, a perspective beyond a country’s borders starts to emerge. When capitalist accumulation functions well, when business grows, when demand for raw materials grows, and when the mountains of goods that are to be sold grow, the State notices that its territory, its population, its national wealth is too small for the growth demands of its capital.

As a consequence, the State becomes critical of itself. The limit of its authority is a limit to the capitals that it is home to. The State recognises the importance to organise growth opportunities beyond its territory.

From a capitalist state’s perspective, capturing territory and people by force makes sense. It is thus not true to claim that economic development or “trade” inhibits war for the benefit of economic relations. The appeal of territories beyond a state’s border to the growth of its national economy is the fundamental link between global wealth and inter-state violence.

This logic played out in times when the most powerful states were building colonial empires. After the Second World War, the US phased out this strategy.⁴ It urged its allied colonial powers like the UK and France to release their colonies into independence. National exclusive spheres were to be brought to an end, as these contradicted the US’s objective of unleashing its capital worldwide. Furthermore, since capital was lacking in all other countries, the United States offered dollar credit to all participants in the new world economic order. As a consequence, the United States participated in the successes of the worldwide upswing of capitalism after the Second World War.

This way, the United States played a decisive role in driving forward a new world economic order. Neither robbery nor direct control are the modern methods of using the world for national wealth but merely relatively free trade in goods and services. States mutually recognise each other as sovereigns to negotiate treaties which set out conditions under which capital can engage worldwide. National success is then recorded in the trade balance, the current account and the balance of payments. However, the ultimately decisive standard is the quality of a currency. A “strong” currency is a currency that investors buy to, well, invest. It is a currency that is in high demand because it promises that lucrative business can be done in it.

Here, the United States stands out compared to all other economies in the world. First, it has had a trade deficit since 1974: more is imported than exported. This means that more dollars leave the US (to pay for goods from abroad) than being put back in (to pay for goods made in the US). Yet, this does not harm the US dollar. This is because the dollar is not merely used to buy/sell and invest in the US, but globally. Those dollars spent abroad by American people and businesses are to a large extent invested abroad again. When two businesses from different countries do a deal, they might and often do pay each other in US dollars rather than one of their respective currencies. Even if they do their business in one of the local currencies, it is often much harder to exchange currency X for currency Y directly than currency X to US dollars and then US dollars to currency Y, since central banks tend not to hold reserves in minor other currencies, but do hold reserves in US dollars (and other main currencies like the Euro) to facilitate international business in their own currencies.

Second, the United States also has had and continues to have a budget deficit.⁵ It more or less “prints” dollars to finance itself, more precisely it keeps borrowing in increasing volumes and this ever-increasing borrowing does not produce doubts about its debt – called “US Treasuries”. The USA stands out with its potential for almost unlimited borrowing.

This is fortuitous because running the US is not cheap. The flip side of the US’s success on the world market is its dependence on it. The United States’ success depends on the world market because its capital is engaged globally. Its banks lend globally, its businesses buy, produce and sell across the globe and international trade is done in dollars.

As a consequence, the US is chiefly interested in maintaining this global order from which it benefits without bending the rules to its benefit. It does not need to use direct violence to reap the spoils of the world market, because its capitals compete so well on it. However, under this system thus implemented, the reasons for inter-state violence do not go away. Rather, they escalate due to increasing co-dependence of countries, winners and losers are produced and thus are reasons to “correct” losses or enforce beneficial treaties against parties who stand to lose. Here “correct” does not merely mean to secure, say, some natural resources or land by force, but something more fundamental: “correcting” the economic relations between nations, “correcting” their treaties, “correcting” the negotiation positions from which parties confront each other. The Eden of global free markets where parties recognise each other as legal persons to engage in contracts is not to be had without a constant threat of a transition to open violence that would undo it.

To protect its global order, the US claims responsibility, in principle, for all conflicts across the globe. It aims to rule out attempts to correct the world market’s results by force or – even worse – attempts at a different order of international political or economic relations.

The free world market, as the project and basis of the economic power of the USA, requires permanent and absolute superior might over the other states.⁶ This explains why the US has a military presence in various parts of the world and claims responsibility for conflicts across the globe, settling them to maintain the order which then benefits it.

China’s Ascent within the American World Order

Country	Nominal GDP (in trillions)	PPP Adjusted GDP (in trillions)	Annual Growth (%)	GDP per capita
United States	$28.78	$28.78	2.7	85,370
China	$18.53	$35.29	4.6	13,140
Germany	$4.59	$5.69	0.2	54,290
Japan	$4.11	$6.72	0.9	33,140
India	$3.94	$14.59	6.8	2,730
United Kingdom	$3.50	$4.03	0.5	51,070
France	$3.13	$3.99	0.7	47,360
Brazil	$2.33	$4.27	2.2	11,350
Italy	$2.33	$3.35	0.7	39,580
Canada	$2.24	$2.47	1.2	54,870

: Top 10 Countries by Nominal GDP as of Q1 2024

In 1978, the end of the communist experiment in China began, paving the way for a new era of capitalist development.⁷ This way, the Communist Party of China reasoned, China could finally attain the prosperity and might it deserved. However, the students of Mao did not leave this development up to mere chance and foreign interests, but gradually guided the capitalist development in their country. This entails: partially open markets and special economic zones; subsidised state-owned enterprises, propping them up while they cannot quite compete yet on the world market; a rather lax approach to patent and copyright treaties to catch up with the competitors in terms of technological advancements; restrictions on businesses, especially on foreign businesses such as that foreign companies operating in China have to transfer technology to Chinese joint venture partners to increase the own economic competitiveness with foreign know-how; that the State controls the credit businesses, with tight controls and political credit; and currency controls.⁸

None of this is unique, the only standout feature here is that China can maintain these measures against the protest of the leading powers on the world market, especially the US. That is, every country uses the world market to further its interests and, from this standpoint, the restrictions imposed by China are only logical for a developing capitalist economy. While China regulates capitalist accumulation on its territory according to its own priorities, it – like its rivals – then competes on the world stage under the rules there, rules arranged and maintained by the US.

With these measures China accomplished a rise to be the second largest economy in the world, see Table.⁹ China even managed to make the transition to exporting its capital to the rest of the world. For example, with its Silk Road project, China offers loans to other countries to set up infrastructure projects with Chinese companies.¹⁰ China’s rise is unique, no other “developing country” has managed anything remotely comparable. China managed to accomplish this feat relying on several unique factors: masses of people who can be both workers and consumers, a leadership that understood that capitalist development needs to be steered as sketched above, credit and investments from US capitals under conditions partially dictated by the Chinese government and a military might that allows China to not be that easily intimidated by trade partners and competitors.

Like other countries, China maintains a military and China’s military is no stranger to open conflict. China has settled multiple border conflicts with military might, including against the Soviet Union in 1969. For decades, it has boasted a massive army, troops geared towards settling such land-based conflicts with neighbours. As China now increasingly relies on the world market, it also increasingly relies on controlling conditions there. Chinese capital is engaged globally, and the country has an interest in enforcing treaties and favourable conditions, especially in the Pacific region.

As a consequence, the People’s Liberation Army (PLA) is being re-equipped from a mass force to flexibly deployable units. China is increasing its military might: from a much lower level than the United States, but with significantly higher growth rates in its military budget.¹¹

Similarly, while China’s nuclear warhead stockpile is significantly smaller than that of Russia and the United States, it continues to increase its offensive capabilities; and its defensive capabilities to thwart nuclear threats by other parties.¹²

China’s stated aim for its military modernisation is to protect its interests in the Pacific. It wishes to define and defend its interests in that region. This effectively is the declaration of a multi-polar world order where the US can no longer claim to be the undisputed arbiter of every corner of the world. This is an attack on the uni-polar US world order.

America’s Self-Critique

The United States shaped the global order, its rules and institutions. Under the conditions so established, other countries have also been able to develop, which benefited the US, too. These countries represented markets, investment spheres and production sites. First, Germany and Japan rose. Now, China is emerging as a major economic power, using the rules set by the US for its ascent.

One notable aspect here is that Germany and Japan have managed to experience significant economic growth without requiring substantial expenditures on military capabilities. This is because the US has guaranteed their place in the global order, providing them with stable and secure conditions to make use of the world market. As a result, they have been able to focus on developing their economies without worrying about military threats and the associated costs of threatening their partners and rivals.

Now, the point is reached where the US is no longer the unrivalled winner in the global economy, and this has made America’s decision-makers call into question the premise of its guarantee for this global order. Other countries are rising economically, which challenges the US’s dominance. While the focus here is on China, as the second largest economy, US politicians, especially under Donald Trump, also worry about their European allies, i.e. rivals, who they accuse of freeloading on America’s security guarantees.

Moreover, a series of crises, including financial, sovereign debt, COVID-19, and inflation, have weakened the global economy and the place of the US in it. These crises have further encouraged attempts to correct this status quo, re-establishing the US as the unbeatable champion of the system it set up and protects.¹³

Competition

China’s exports to the US have contributed significantly to the country’s trade deficit. In addition, China has also been financing US sovereign debt and its budget deficit by buying US Treasuries with the proceeds from its exports: Chinese companies export to the US and earn US Dollars for their wares. These companies then exchange these dollars with their banks to pay their suppliers, workers, other costs and profits. These banks take these US dollars and exchange them for Chinese Yuan with the Chinese central bank. The central bank then uses these US dollars to buy US Treasures, effectively notes by the US government promising a later payment and a regular interest payment. This made China the largest creditor of the US for a while. As such, the special status of the US in the current world order depends on China.¹⁴

However, China is now trying to move its own trade away from US dollars. For example, instead of paying with US dollars, it is paying “in kind” by building infrastructure in countries exporting raw materials. Additionally, China is now doing some trade deals in Yuan.

A pillar of the US response is to strengthen its national economy, especially in the area of manufacturing, through subsidies such as in the Inflation Reduction Act.¹⁵ Part of this economic strategy is to move some industries critical to the supply chain for high-tech competition to American soil. A prime example here is chip manufacture which is currently dominated by Taiwan and (to a lesser degree) China.¹⁶

Conflict

Additionally, the US responds with sanctions. The most recent sanctions began in 2018 when the Trump Administration banned US agencies from using systems, equipment and services from Huawei, a Chinese telecommunications giant. The reason given was that the company was aiding the Chinese government in its espionage activities.

Similarly, in November 2020, Trump signed an executive order prohibiting all US institutional and retail investors from investing or purchasing from Chinese companies the Department of Defense identified as “Communist Chinese military companies.” In October 2022, the Biden Administration announced there would be limits on sales of new semiconductors to China to slow down the Chinese tech sector and is in talks to cut off Huawei from all its US suppliers.¹⁷

But it remains the case that the US needs China’s massive market and manufacturing. Similarly, China needs the US: as a market and to maintain the value of its massive holdings of US Treasuries. This brewing cold war is not the US vs the Soviet Union, but a competition between capitalist rivals which rely on each other.

This is not to say, though, that these two powers are not prepared to risk it all in a full-out war. They are certainly preparing for it. In particular, Biden’s National Security Strategy promotes China to the primary strategic opponent, recognising the fact that it is increasingly capable of challenging US dominance:

“The People’s Republic of China harbors the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit, even as the United States remains committed to managing the competition between our countries responsibly.” — U.S. President Joe Biden. Foreword to National Security Strategy. Oct. 2022

Previously, Trump’s National Defense Strategy expressed a similar position (while still discussing Russia as the main current strategic foe¹⁸):

“China is leveraging military modernization, influence operations, and predatory economics to coerce neighboring countries to reorder the Indo-Pacific region to their advantage. As China continues its economic and military ascendance, asserting power through an all-of-nation long-term strategy, it will continue to pursue a military modernization program that seeks Indo-Pacific regional hegemony in the near-term and displacement of the United States to achieve global preeminence in the future.” — U.S. Department of Defense. Summary of the National Defense Strategy. Trump Administration. Jan. 2018

With the United States and China, two nuclear powers confront each other in the Pacific. For now, there is a big gap in their destructive potential and China’s nuclear firepower cannot match the destructive potential of the US. Its nuclear weapons do not threaten the US homeland.

Yet, with its means of mass destruction, China cannot be brought under the US’s nuclear umbrella, the security guarantee the US uses to assign its partners as objects of protection and place adversaries under an unbearable threat. China, with its own weapons, is capable of threatening the foes it defines (except the US and perhaps Russia) on its own and thus offers itself as an alternative protective power in the region.

On this basis, Beijing does not claim equality with America’s monopoly on the world order but instead seeks to secure its economic, political, and military rise in the Pacific region on its own authority. As mentioned above, this is what China means by a “multi-polar world order”. This very ambition puts it on a collision course with the US’ essential claim that its might must be unrivalled. The ambitions of these two powers are incompatible.

For China and the US, in Taiwan and elsewhere their highest properties are at stake.

European Powers

We give a brief rundown of how two European powers - the UK and Germany – position themselves towards China.

United Kingdom

The UK’s position on Taiwan agrees with the US position. The UK does not recognise Taiwan as a sovereign state, nor does it maintain formal diplomatic relations with it. The UK government’s official position is: “The UK believes that the Taiwan issue should be resolved through dialogue, in line with the views of the people on both sides of the Taiwan Strait”, which is another way of saying that it considers the question of Taiwan an international matter it gets to weigh in on rather than an internal Chinese matter, as asserted by the Chinese government. The UK government underlined its claim to a say in the matter by sending warships through the Taiwan Strait.

More broadly, the UK considers China under its current leadership an “epoch-defining and systemic challenge with implications for almost every area of government policy and the everyday lives of British people”.¹⁹ That is, the UK considers the conflict with China to be of similar systemic importance as the US does: China’s ascent threatens the world order that the UK holds dear. However, in contrast to the US, the UK has to accept its inferior position relative to China, it does not speak from a position of (presumed) strength. Nevertheless, with China, for the UK, too, a lot is at stake.²⁰ Indeed, similarly, to the US but not quite with the same enthusiasm, the UK defines the Indo-Pacific as a key strategic arena in the next decade (called the “Indo-Pacific tilt” in policy documents):

“In the decade ahead, the UK will deepen our engagement in the Indo-Pacific […], establishing a greater and more persistent presence than any other European country. […]

China’s growing international stature is by far the most significant geopolitical factor in the world today, with major implications for British values and interests and for the structure and shape of the international order. The fact that China is an authoritarian state, with different values to ours, presents challenges for the UK and our allies. China will contribute more to global growth than any other country in the next decade with benefits to the global economy. China and the UK both benefit from bilateral trade and investment, but China also presents the biggest state-based threat to the UK’s economic security.” — HM Government. Global Britain in a competitive age: The Integrated Review of Security, Defence, Development and Foreign Policy. 2021

The UK does identify China as a major challenge and identifies the Indo-Pacific as a focus area of its efforts in the next decade.²¹ Like the US, the UK wishes to continue to earn from business with China, while keeping it in check. Unlike the US, the UK does not meet China on an equal footing.

That said, the UK’s main military focus remains the defeat of Russia, especially since the Russian invasion of Ukraine.²²

Germany

On the one hand, Germany and its business community have made a fortune from China’s economic rise and Germany wants this to continue.

Unfortunately, Germany is realising that “China’s dependence on Europe is steadily declining, while Germany’s dependence on China has grown in importance in recent years.”²³ This calls for the same self-criticism that is being voiced in the US: We let that slide and we need to correct this.

First, in terms of economic policy: “We will strengthen the innovation, investment and competitiveness of industry in order to remain a technological leader.” In this way, the behaviour that the EU accuses China of, namely “abusing” international competition for political power, is to be maintained and strengthened as EU practice. Of course, in this context this is not called “abuse”, but “responsibility”: “Precisely because Germany is closely intertwined with China, the German government has a special responsibility for the enforcement of European economic interests.”

Second, in terms of diplomatic policy: Germany and the EU are taking a similar position to the US on Taiwan. “Within the framework of the EU’s One China policy, we support the relevant participation of democratic Taiwan in international organisations. Any change to the status quo in the Taiwan Strait must be peaceful and mutually agreed. A military escalation would also affect German and European interests.” Germany agrees to a united China in the distant future and does not officially recognise Taiwan as its own state, but it supports Taiwan to the best of its ability to participate in international institutions below the level of the UN and thus indirectly supports it to gain recognition. On this basis, Germany then declares a ban on Chinese military action along the way.

Third, Germany and the EU currently have to rely on the US for such declarations: “Coordination with Germany’s closest partners is the basis of our foreign policy, and this also applies to our policy with and towards China; the transatlantic alliance and the close and trusting partnership with the US, including within the G7 framework, are of outstanding importance for the EU and for Germany.” The fact that Germany, together with the EU, wants to use the US to assert its interests against China puts China in a bad light once again when China finds itself in an antagonism with the US: “Germany’s security is based on the EU’s ability to act and its internal cohesion, the consolidation of the transatlantic alliance, our deep friendship with France and the close and trusting partnership with the US. China’s antagonistic relationship with the US is at odds with these interests.” With the dual aim of, on one hand, increasing its influence within NATO to have a greater say in its military conflicts and, on the other hand, gradually distancing itself from the USA over the long term to reduce its reliance on America, Germany is embarking on a new chapter with the EU.

“The Bundeswehr is a core instrument of our defence against military threats. To this end, it must be fit for war in all areas. This means that its personnel and equipment must be geared towards fulfilling its demanding missions. The yardstick for this is the readiness to fight at all times with the claim to success in high-intensity combat. This is the only way to ensure credible deterrence and peace.” — Bundesministerium der Verteidigung. Verteidigungspolitische Richtlinien. 2023, our translation, our translation

Until then, the German government will reiterate its assertion of being a driving force for stability in the South China Sea by “a temporary military presence in the region, including German naval cruises and cross-force participation in multinational military exercises“.

America’s Taiwan Commitments

Three Communiques

1972: “all Chinese on either side of the Taiwan Strait maintain there is but one China”
1979: the United States government declared that it would end formal political relations with the Republic of China (“Taiwan”) while preserving economic and cultural ties.
1982: the United States declared its intent to continue selling arms to Taiwan and to gradually change its level of arms sales consistent with the PRC’s militarization of the Taiwan strait.²⁴

Six Assurances

The United States has not agreed to set a date for ending arms sales to Taiwan.
The United States has not agreed to consult with the PRC on arms sales to Taiwan.
The United States will not play a mediation role between Taipei and Beijing.
The United States has not agreed to revise the Taiwan Relations Act.
The United States has not altered its position regarding sovereignty over Taiwan.
The United States will not exert pressure on Taiwan to enter into negotiations with the PRC.²⁵

Taiwan Relations Act

Since the formal recognition of the People’s Republic of China, the Act has defined the officially substantial but non-diplomatic relations between the US and Taiwan.²⁶

Footnotes

¹ See Appendices.

² This section is, more or less, a brief summary of imperialism and based on What is Imperialism? available at https://antinational.org/en/what-is-imperialism-talk/.

³ See Sovereign debt and the crisis in the Eurozone for an introduction to sovereign debt, it is available at https://antinational.org/en/sovereign-debt-and-crisis-eurozone-all-parts/.

⁴ “After the Second World War, the United States led a fragmented world to build a new international economic order. It lifted hundreds of millions of people out of poverty. It sustained thrilling technological revolutions. And it helped the United States and many other nations around the world achieve new levels of prosperity.” — U.S. National Security Advisor Jake Sullivan. Renewing American Economic Leadership. Speech delivered at Brookings Institution. Apr. 2023

⁵ It has this in common with other capitalist powers like the UK or Germany, see sovereign debt piece referenced above or also the section titled “Sovereign Debt and Inflation II” in Inflation available at https://critisticuffs.org/texts/inflation

⁶ For example, the US have 11 aircraft carriers, China, India, Italy, Japan and the UK have 2 each. A single US aircraft carrier can carry 80 aircraft, Belgium has 69 in its airforce in total (as of 1999). The UK has 222 (as of 2011), i.e. fewer than would fit on four US aircraft carriers. In total, the US have 3,318 combat aircraft (as of 2011).

⁷ “Since I began my career, the relationship between the United States and China has undergone a significant evolution. In the 1970s, our relationship was defined by rapprochement and gradual normalization. I watched President Nixon make his famous journey to China in 1972. And I heard our two countries begin to speak to each other again after decades of silence. In the years that followed, I saw China choose to implement market reforms and open itself to the global economy, driving an impressive rise into the second-largest economy in the world. Its development was supported by assistance from the World Bank and other international economic institutions. And the U.S. Congress and successive administrations played a major role in supporting China’s integration into global markets.” — U.S. Secretary of the Treasury Janet L Yellen. U.S. - China Economic Relationship. Speech delivered at Johns Hopkins School of Advanced International Studies. Apr. 2023

⁸ China’s exchange rate was considered by its rivals to give it an unfair advantage that allowed it to have export successes vis-à-vis the USA, prompting the United States Department of the Treasury to designate China a currency manipulator in August 2019. However, this designation was withdrawn in January 2020 after China agreed to refrain from devaluing its currency.

⁹ Source https://www.investopedia.com/insights/worlds-top-economies/

¹⁰ This is criticised by Western states as making other countries dependent on China though entangling them in debt relations. In other words, the West is criticising China for successfully copying its methods.

¹¹ To give some examples: China’s PLA has two combat-ready aircraft carriers, with the third being fitted out. Estimates expect five or six aircraft carries by the 2030s. The Navy’s confidence is such that its researchers boast about the ability to sink the US’ Pacific fleet: “In a paper published in May, researchers at the People’s Liberation Army-backed North University of China said a war game had shown that an attack with 24 hypersonic anti-ship missiles would sink a flotilla led by the USS Gerald R Ford ‘with certainty’.”

¹² “Consistent with Chinese President Xi’s statement at the 19th Party Congress that China’s military will be ‘fully transformed into a first tier force’ by 2050, China continues to increase the number, capabilities, and protection of its nuclear forces. While China’s declaratory policy and doctrine have not changed, its lack of transparency regarding the scope and scale of its nuclear modernization program raises questions regarding its future intent. China has developed a new road-mobile strategic intercontinental ballistic missile (ICBM), a new multi-warhead version of its DF-5 silo-based ICBM, and its most advanced ballistic missile submarine armed with new submarine-launched ballistic missiles (SLBM). It has also announced development of a new nuclear-capable strategic bomber, giving China a nuclear triad. China has also deployed a nuclear-capable precision guided DF-26 intermediate-range ballistic missile capable of attacking land and naval targets. As with Russia, despite criticizing U.S. homeland missile defense—which is directed against limited missile threats—China has announced that it is testing a new mid-course missile defense system, plans to develop sea-based mid-course ballistic missile defense, and is developing theater ballistic missile defense systems, but has provided few details.” [National Security Strategy’22]

¹³ “Make America Great Again!” (Donald Trump’s campaign 2016); “Build Back Better” (Joe Biden’s campaign 2020); “But the last few decades revealed cracks in those foundations. A shifting global economy left many working Americans and their communities behind. A financial crisis shook the middle class. A pandemic exposed the fragility of our supply chains. A changing climate threatened lives and livelihoods. Russia’s invasion of Ukraine underscored the risks of overdependence.” [Sullivan’23]

¹⁴ “Some see the relationship between the U.S. and China through the frame of great power conflict: a zero-sum, bilateral contest where one must fall for the other to rise. President Biden and I don’t see it that way. We believe that the world is big enough for both of us. China and the United States can and need to find a way to live together and share in global prosperity. We can acknowledge our differences, defend our own interests, and compete fairly. Indeed, the United States will continue to proceed with confidence about the fundamental strength of the American economy and the skill of American workers. But as President Biden said, ‘we share a responsibility…to prevent competition from becoming anything ever near conflict.’” [Yellen’23]

¹⁵ “The Inflation Reduction Act is already paying huge dividends for the American people – in the last year, dozens of companies have announced they will invest in the United States, creating jobs, supporting our economy, and bringing back American manufacturing. More than $500 billion in investments in the United States have been announced under President Biden according to the White House. According to one report, ‘nearly 80 major clean energy manufacturing facilities have been announced, an investment equal to the previous seven years combined.’ From electric vehicle manufacturing to increasing production of clean energy and all the jobs and investments created as a result, states across the country are seeing the impact of this historic climate legislation.” — The White House. FACT SHEET: One Year In, President Biden’s Inflation Reduction Act is Driving Historic Climate Action and Investing in America to Create Good Paying Jobs and Reduce Costs. 2023

¹⁶ This is not necessarily going great, see e.g. TSMC delays US chip fab opening, says US talent is insufficient.

¹⁷ In addition, in July 2020, Chinese officials were sanctioned by the US for what it calls “gross violations of human rights” in the western region of Xinjiang and entrance into the US for named officials and their immediate families was barred. A month later, the US imposed sanctions on then Hong Kong Chief Executive Carrie Lam and ten other Hong Kong officials for “undermining Hong Kong’s autonomy and restricting the freedom of expression or assembly of the citizens of Hong Kong.” In December of 2020, the US imposed sanctions on the 14 vice chairpersons of the National People’s Congress of China for the same reasons.

¹⁸ See For Russia and the US, in Ukraine their highest properties are at stake available at https://critisticuffs.org/texts/ukraine-russia-usa. Note that Trump’s position seems to have shifted now and he identifies China as the main foe.

¹⁹ HM Government. Integrated Review Refresh. 2023.

²⁰ Eventually, albeit with reluctance, the UK followed the US in some of the US sanctions against Chinese businesses such as Huawei in the 5G area. The UK considers itself especially responsible for Hong Kong, its former colony and has welcomed about 160 thousand people from Hong Kong to resettle to the UK.

²¹ Here, it specifies the Indo-Pacific region to include India where it hopes to use its remaining foothold as a former colony.

²² See For Russia and the US, in Ukraine their highest properties are at stake available at https://critisticuffs.org/texts/ukraine-russia-usa.

²³ Die Bundesregierung. China-Strategie der Bundesregierung. 2023. All following quotes in this section are from the same document, unless marked otherwise; our translation.

²⁴ Wikipedia. Three Communiqués. Accessed 30 July 2024.

²⁵ Wikipedia. Six Assurances. Accessed 30 July 2024.

²⁶ Wikipedia. Taiwan Relations Act. Accessed 30 July 2024.

Peace for our Time

Wed, 29 Jul 2026 20:08:22 +0000

“The United States will once again consider itself a growing nation — one that increases our wealth, expands our territory, builds our cities, raises our expectations, and carries our flag into new and beautiful horizons.” — US President Donald Trump’s Inaugural Address, 20 January 2025

With these words, Donald Trump declared an end to a central pillar of the American world order. This world order prevailed over half of the world since the end of the Second World War and has prevailed essentially across the entire globe since the 1990s. This declaration by Donald Trump upends the competing calculations of capitalist states worldwide, which now contemplate the odds of war, not only with the US but also with each other.

Imperialism 1.0

Capitalist states do not merely guarantee and regulate the capitalist economic order on their territories but also promote the growth of their national economies.¹ This economic growth then fuels their power, through resources that can be taxed and a broader economic base for the money which the State issues and goes into debt in.² Thus, there is a cycle where the State subordinates its actions and its power to the purpose of promoting its national economy and this growth then augments the State’s power.

From the point of view of these capitalist states, a perspective beyond their territories starts to emerge. When capitalist accumulation functions well, when business grows, when demand for raw materials grows, and when mountains of goods that are to be sold grow, the State notices that its territory, its population and its national wealth are no longer adequate for the level of growth now demanded by its capital.

As a consequence, the State becomes critical of itself. The limit of its authority is a limit to the capitals that it is a home to. The State recognises the importance of organising opportunities for economic growth beyond its territory.

From a capitalist state’s perspective, capturing territories and populations by force makes sense. It is thus not true to claim that economic development or trade inhibits war made for economic benefit. The appeal of territories beyond a state’s border to the growth of its national economy is the fundamental link between global wealth and inter-state violence.

This logic played out at a time when European powers were establishing themselves as modern nation-states and defined their borders, for example, through the German wars of Unification between 1815-1870. It also played out when the most powerful states built colonial empires. Examples of this logic are the First and Second World Wars, which were fought between rival imperialist powers.

Imperialism 2.0: the American world order

After the Second World War, the US phased out this strategy for economic success. It urged its allied colonial powers like the UK and France to release their colonies into independence. Exclusive national spheres of influence were to be brought to an end, as these contradicted the US's objective of unleashing its capital worldwide. Furthermore, since capital was lacking in every country save itself, the United States offered dollar credit to all participants in its new world economic order. This way, the United States participated in the successes of the worldwide upswing of capitalism after the Second World War.

This enabled the US to play a decisive role in driving forward this new world economic order. A relatively free trade in goods and services replaced conquest and direct control as the modern method of using the world for national wealth. Sovereign borders were to be respected and not revised by military force. States mutually recognised each other as sovereigns to negotiate treaties which set out conditions under which capital could engage worldwide.

The success of the United States then and now depends on this world market because its capital is engaged globally. Its banks lend globally, its businesses buy, produce and sell across the globe, and international trade is done in dollars.

As a consequence, the US has been chiefly interested in maintaining this global order, benefiting from its impartial rules. It did not need to use direct violence to reap the spoils of the world market because its capitals competed so well on it.

Under this system the reasons for inter-state violence do not go away; rather, they escalate due to increasing co-dependence among countries. Trading relations produce winners and losers who have reasons to “correct” losses or to enforce beneficial treaties against parties who stand to lose. Here, “correcting” does not merely mean securing natural resources or land by force but something more fundamental: correcting the economic relations between nations, their treaties, and negotiation positions.

The Eden of a global free market where parties recognise each other as legal persons to engage in contracts is not to be had without a constant threat of a transition to open violence that would undo it.

To protect its global order, the US claimed responsibility, in principle, for all conflicts across the globe. It aimed to rule out attempts to forcefully correct national boundaries, the world market’s results or the principles of international political or economic relations as such. Its standpoint was not merely that of assessing how a redrawing of the map in a region of the world would affect America’s immediate economic and strategic interests, but also what this redrawing would mean for the “rule-based” world order it had set up and protected. This did not always mean US boots on the ground, but it meant that the threat of this step was on the table, in principle, for any state attempting a “correction”.

The free world market, as the project and basis of the economic power of the USA, required permanent and absolute superior might over other states. To illustrate this, the US has 11 aircraft carriers, while China, India, Italy, Japan and the UK have two each. A single US aircraft carrier can carry 80 aircraft; Belgium had 69 in its air force total as of 1999, and the UK had 222 as of 2011 – fewer than would fit on four US aircraft carriers. In total, the US had 3,318 combat aircraft as of 2011. Similarly, the only power in the world with a strategic nuclear arsenal that can threaten the US homeland is Russia. The need to maintain the global order in order to benefit from it, explains why the US has a military presence in many parts of the world and why it has claimed responsibility for settling conflicts across the globe.

Until the 1990s, this all played out against the backdrop of the Cold War, i.e. a systemic conflict between the capitalist world market on the one hand, and the countries of the real-socialist Eastern block, on the other hand. This further disciplined the lesser powers under the protection of the US.

America’s competitors rise under America’s protection

The United States shaped the global order, its rules and its institutions. Under the conditions it established, other countries have also been able to develop, which in turn also benefited the US: these countries representing markets, investment spheres and production sites. Initially, it was (West-)Germany and Japan that rose. Now, China is emerging as a major economic power, using the rules set by the US for its ascent.

One notable aspect here is that (West-)Germany and Japan managed to experience significant economic growth without requiring substantial expenditures on military capabilities. Indeed, West Germany managed this feat while being a frontline state in the Cold War against the Soviet Union. This is because the US had guaranteed their place in the Western order, providing them with the stable and secure conditions needed to make use of the world market. As a result, they were able to focus on developing their economies without worrying about the associated costs of militarily threatening their partners and rivals.

West Germany’s success on the world market, guaranteed by the US, brought with it a strong currency, the deutschmark. After the collapse of the Soviet Union and Germany’s unification, Germany proposed that its European partners and rivals merge their currencies and economic powers to launch an attack on the hegemony of the dollar: the euro. Germany’s territory, workforce and economy were too small to truly compete with the dollar as a world money, a problem the euro was meant to fix. Protected by America’s military might, Germany, France and other European powers launched their attempt to compete with the dollar. For now, this project has established the euro as a major currency but it is integrated into the world market under America’s and the dollar’s leadership.

The European Union

The euro and the European Union are contradictory constructions, where competing capitalist states sacrifice some of their sovereignty to a supra-national institution in order to strengthen their respective national might.

On the one hand, these countries pool their economic power to compete with the US. Here “pooling” means doing business in one currency and on a single market big enough to compete with the US market, in the hopes of also creating and promoting “global player” corporations that can compete with their US (and other) counterparts.

On the other hand, these states still compete with each other. For example, they still maintain their own tax base and issue their own debt, benefiting from the strength of their own economy at the expense of other, also European, economies.

This contradiction came to the fore during the Eurozone crisis in 2010, when two paths offered themselves: press ahead with economic unification to resolve the crisis or maintain the status quo in which Germany’s economy outcompeted many of its European partners and rivals.³ The crisis directly posed questions of the sovereignty of EU countries such as Greece and Italy, which had surrendered some of their economic powers to European institutions dominated by Germany, their competitor. The end result was some partial suspension of competition (debt jointly guaranteed by all European countries to fend off the sovereign debt crisis) but no fundamentally deeper economic integration.

The European Union is hailed by its proponents as a victory of peaceful coexistence over European wars of old; The Nobel Peace Prize 2012 was awarded to the European Union “for over six decades contributed to the advancement of peace and reconciliation, democracy and human rights in Europe”. Yet, as explained above, the world market does not make reasons for conflict go away but creates new reasons of it: the firmness of peace in Western Europe is explained by the US ruling out such wars between America’s allies. Forced to compete only economically and incapable of “correcting” the outcomes of this competition or to “settle” territorial disputes, pooling their economic might is somewhat viable. The premise of the power bloc Europe is America’s military might.

As an illustration, only under America’s guarantees could a situation arise where Germany, a relatively weak (non-nuclear) military power, is the leading power in the EU instead of the militarily significantly stronger (nuclear power) France (and previously also the UK).

America’s self-critique

The American offer was: “nations of the world, think of yourself and try to promote your national interest within the rules of the free world market”. In accepting this offer, states (which included West Germany and Japan) made themselves the means for the United States’ enrichment, so that its position of being the number one in all areas was continuously re-established.

Indeed, the United States was the undisputed champion in all significant fields until the 1980s. The free world order after the Second World War was the means for the United States to maintain this undisputed position over and over again. However, from the 1980s onwards this was no longer the case: first with Japan and West Germany, now with China.

This has made America’s decision-makers call into question the premise of its guarantee of this global order. This standpoint was and is not one unique to Donald Trump: Biden, Obama, Bush and Clinton had also noticed that the possibility of being overtaken (in some key sectors) had gradually become a reality.⁴

Moreover, a series of crises, including financial, sovereign debt, COVID-19, and inflation, have weakened the global economy and the place of the US within it. The financial, (also US) sovereign debt and inflation crises have weakened the world economy, the solidity of US credit and the dollar. The COVID-19 crisis encouraged countries worldwide to distrust global supply chains and to start “on-shoring” key industries, weakening international trade. These crises have also further encouraged attempts to reassert the status quo and to re-establish the US as the unbeatable champion of the system it set up and protects.

Trump 1.0 cancels the American world order

Under the first presidency of Donald Trump (2017 to 2021), it was the guarantor of the American world order, the United States, which announced that it no longer wanted to observe the rules it had set for the world.⁵

This surprised politicians and newspapers around the world, and even in the United States this change was not uncontroversial. Trump was being told how much and in how many ways the US benefited from the free world order along the lines explained above. Measured by the standard: “The world market is the means of subsistence of the United States and the world market keeps it in a strong position” Trump's policy was absurd.

Yet Trump had, and has, a more radical standard. The development of serious challengers to America’s supremacy worried him: it was not meant to be that way. While Obama and e.g. Germany pursued the goal of breaking China economically by committing it to better follow the rules of (their idea of) the free world market, Trump took on a different outlook : if the free world market and its rules are not currently serving to clearly reproduce the superiority of the United States then the free world market is not a suitable means for the United States and is unfair.

Trump not only focused on China, but was also beginning to define Germany, Europe and Japan as new major opponents. In his eyes, they all cheated the United States. The proof in his mind: in some fields they undermine the clear and deserved superiority of the US.

Trump started imposing punitive tariffs. Going forward, he only wanted to negotiate bilaterally. He no longer wanted to “waste” money on maintaining loser states around the world.

This was not isolationism. It was his attempt to get the world order back on track, by which he means to a status where it clearly re-establishes America as the undisputed champion in all areas deemed important by America. Now, as before, the purpose was simply to ensure the unquestioned superiority of the United States.

Trump 2.0 escalates the cancellation: territorial annexation is back

On the one hand, under Biden the US tried to reestablish its superiority by refocusing on its strategic alliances and treaties. On the other hand, economically, the Biden administration maintained several of Trump’s policies. For example, it maintained Trump’s tariffs on China, and escalated the conflict with restrictions on some key technologies (such as chips optimised for machine learning algorithms). Moreover, the Biden administration introduced the Inflation Reduction Act which contained measures – like subsidies and preferential treatment of domestic firms – considered by, among others, the EU as an assault on free trade. For example, French President Emmanuel Macron eloquently characterised it as “super aggressive”.

Trump’s return to the White House has been accompanied by an acceleration of the US’ pivot, also in the strategic arena. During his first term, Trump threatened and engaged in trade wars. He also threatened to relax American security guarantees for Europe, but he did not threaten the deployment of the military might of the US directly for economic or territorial gain. Trump’s second term sees a significant escalation in this area.

Since taking office for the second time Trump has not only announced in general terms his intention for the US to “expand its territory” (Inaugural Address), but he has also repeatedly threatened the annexation of Canada, the annexation of Greenland, an invasion of Panama and Mexico and the takeover of Gaza and the permanent displacement of its population.⁶

Through these statements, the power that policed the inviolability of sovereign borders over the last decades has announced that it is prepared to disregard the sovereignty of its closest allies (and foes). US military might is no longer to be used to secure the world market peace that produces reasons for war among competing parties but to secure a direct advantage over other competing parties.

This is, on the one hand, a signal to every state in the world that it must now consider in its calculations a potential US invasion for immediate economic or strategic reasons. But it is also, on the other hand, a signal to every state in the world that territorial disputes can again be settled by military force. The US no longer intends to uphold a principle where sovereign borders ought to be respected.

An example of such a dispute so far kept in check by America’s insistence and close to home is that between Greece (backed also by France) and Türkiye over Cyprus, with Greece being an EU and NATO member and Türkiye being a strategic partner of the EU and a NATO member.

The difference between these lesser powers and their ambitions, and Trump’s America and its ambitions is that the US is in a much stronger position to impose its will on its rivals, by virtue of its military might but also by virtue of effectively controlling most institutions of the “rule-based world order” that it established. It is quite something when the strongest country in the world convinces itself that it is hard done by.

Europe considers war with the US

Initially, Denmark and other European states did not treat the renewed interest of the US Government in Greenland as a serious concern (Trump had already proposed to buy Greenland during his first term in 2019). For example, David Lammy, the UK Foreign Secretary stated that a US seizure of Greenland is “not going to happen” in January 2025. But after a phone call between the Danish Prime Minister and Donald Trump, in which the Danish side reportedly made concessions regarding US military presence and mineral rights, the Danish Government considers the American threat as real.

Within NATO several European countries reportedly privately discussed what they would do in case of a US invasion of Greenland, e.g. whether NATO clauses could be triggered to ask NATO allies to defend a NATO member against a US invasion, i.e. the main power behind NATO. Germany and France are reported to have considered sending troops to Greenland for its defence.

Robert Brieger, chairman of the European Union Military Committee, billed as “the EU’s top military official”, also suggested sending European troops to Greenland, both as a gesture to the US which cited strategic concerns regarding China and Russia for its take-over plans, and as a “strong signal” to the US.

As of writing, the Labour Government in the UK has not yet committed itself which side in a US-Danish conflict it would support. Among Conservatives, however, there exists at least some support for siding with the US. In the Telegraph’s reporting on the clandestine European NATO meeting, they managed to find a “NATO diplomat” who claimed that Germany lacked a “moral compass” contrasting Germany’s reported commitment to Greenland with that to Ukraine. Already in January, the Telegraph had published an opinion piece asserting that “history is on Donald Trump’s side in his bid to annex Greenland”. Moreover, the British right-wing press gleefully reported that the UK would have a claim to Greenland itself, if it were for sale.

Fault lines in Europe

Forming a military bloc that integrates the various national military forces has been a topic for European countries for decades, with predominantly France pushing for more integration under its leadership. Already in 2019, Macron had declared NATO “brain dead”. The EU’s leading power, Germany, on the other hand has mostly rejected such advances also because this would threaten its leading role within the EU vis-à-vis France.

However, Friedrich Merz, the likely next chancellor of Germany, has now called for a European nuclear umbrella, i.e. called on France and the UK to either share access to their nuclear arsenal or to extend formal security guarantees to Germany as well. The former is rather unlikely to happen. Macron has, however, indicated his willingness to discuss the latter, which would reconfigure the balance of power in Europe, establishing France as the guarantor and strategic direction giver.⁷ French rightwing politician Marine Le Pen already also voiced opposition to this option: “The French nuclear deterrent must remain a French nuclear deterrent”.

The fundamental reason for Europe’s inability so far to position itself as a military power is the contradiction built into the EU: competing capitalist powers pooling their economic power to compete on the world market while still competing against each other on this world market.

This tension finds political expression in various “eurosceptic” parties gaining momentum in the EU. Britain already left in 2020. Surveying rightwing parties, the AfD won 20% of the votes in the 2025 national election in Germany. In France, while the National Rally no longer campaigns to leave the Eurozone it remains eurosceptic. In Italy, Giorgia Meloni heads up a eurosceptic coalition but has so far proved amenable to the EU’s policies and priorities. In the Netherlands, the Freedom Party (PVV) – heading up the ruling coalition – is eurosceptic.

It is an open question how these patriots will position themselves when faced with the great power conflicts that are arising and may arise. They may double down on their scepticism that the European bloc delivers for their respective fatherlands (against global competitors and rivals, but also against other European economies). Or they may see some strategic European integration as a solid path towards respect in this multi-polar world. But neither result is certain.

What is to be done

In February 2025, The Times newspaper expressed alarm: “Gen Z think UK is racist and would not fight for their country”. The conservative newspaper reported that “only 11 per cent would fight for Britain — and 41 per cent said there were no circumstances at all in which they would take up arms for their country”. The warning was received by the UK Prime Minister Sir Keir Starmer, who responded in the same newspaper: “But The Times finding that less than half of young people are proud to be British is a signal about our social contract that cannot be ignored.”

The UK is a long way off from sacrificing an entire generation (of men) for the fatherland – for the time being its military needs are smaller, quickly deployable military units not mass armies used in a land war. It also wants a population that supports the war efforts and is prepared to make economic sacrifices for it: austerity. In any event, this poll and the Government’s response to it suggest that this state’s ambition to fight wars for its might and the population’s willingness to go along are two separate matters.

This is a task ahead, then. To explain to anyone, young and old, that sacrificing, fighting, killing and dying for the fatherland is not worth it. Let the US have Greenland, let Russia dominate Europe, let China, Russia and the US deprive the UK of its ability to defend its interests, let Türkiye have the Mediterranean, let Argentina have the Falkland Islands, let the invader have any piece of territory it wants.

It does not matter what nation rules a piece of land, but it matters what they do to the people they rule over. Whatever authoritarian regime the conquerors have, it is defeated in a general strike not by fighting the wars of its rivals for respect in this new multipolar world order. On either side of a great power war, the people who are reduced to casualty and war-readiness statistics in government briefings have more in common with each other than they have with those who send them to kill, maim and die.

Most of the first few sections are lifted from The Conflict between the US and China available at https://critisticuffs.org/texts/usa-and-china. ↩
See Sovereign debt and the crisis in the Eurozone for an introduction to sovereign debt, it is available at https://antinational.org/en/sovereign-debt-and-crisis-eurozone-all-parts/. ↩
See Sovereign debt and the crisis in the Eurozone, it is available at https://antinational.org/en/sovereign-debt-and-crisis-eurozone-all-parts/. ↩
“Make America Great Again!” (Donald Trump’s campaign 2016); “Build Back Better” (Joe Biden's campaign 2020). ↩
This section is mostly lifted from What is Imperialism? available at https://antinational.org/en/what-is-imperialism-talk/. ↩
Moreover, on 30 January 2025, Marco Rubio, US Secretary of State, gave an interview in which he stated: “So it’s not normal for the world to simply have a unipolar power. That was not — that was an anomaly. It was a product of the end of the Cold War, but eventually you were going to reach back to a point where you had a multipolar world, multi-great powers in different parts of the planet. We face that now with China and to some extent Russia, and then you have rogue states like Iran and North Korea you have to deal with.” In declaring itself a multi-great power, the US declares itself a power that intends to secure its sphere of influence and advantage with its military might and not the general rules of the world market where states respect each other’s territorial integrity. ↩
It has been remarked by analysts that the UK’s nuclear arsenal is contingent on America’s support and thus could not provide an alternative to America’s security guarantees. ↩

What the coming slaughter is for

Wed, 29 Jul 2026 20:08:22 +0000

as explained by the UK National Security Strategy 2025

“One look at the world today shows the security challenges we face demand nothing less than national unity. Therefore, it is no longer enough merely to manage risks or react to new circumstances. We must also now mobilise every element of society towards a collective national effort.” — The Rt Hon Sir Keir Starmer MP, PM Foreword to the National Security Strategy 2025: Security for the British people in a dangerous world (NSS), p.5

With these words the Prime Minister expresses His Majesty’s Government’s ambition for a total mobilisation¹ of society² towards war readiness. When a politician demands national unity of those he governs, this is the announcement that the various private interests these people have – as “working people” (NSS, p.5), as employers, as landlords, as benefit recipients, as tax payers, etc. – will have to take a backseat to the project of the nation as defined by the Government. In a word, Sir Keir Starmer is announcing hardship to and for the public: coming sacrifices for the war effort.³ The National Security Strategy 2025 (NSS), in which he writes these lines as a foreword, explains why.

The document opens with:

“National security is the first responsibility of government and the foundation for our prosperity and way of life, along with secure borders and a stable economy. It means protecting the British people, promoting British interests and making the country stronger, more sovereign and more competitive in the long-term.” — Introduction, NSS, p.8

The NSS starts with a mission statement:⁴ the first duty of the State is itself; for national security is the “security and defence of a sovereign state, including its citizens, economy, and institutions”, as the dictionary reminds us.

The State’s commitment to itself is not quite as self-referential as that – the same sentence gives a reason for it – but it is worth appreciating what is identified as the highest duty of the State and what is not. It is neither the prevention of crime nor the protection of property. It is neither democracy, the rule of law nor British values. It is not the prosperity, freedom or security of the inhabitants or even citizens of the country.

These goals are central to the British state and it is committed to pursuing them. However, in the NSS, it makes clear what the order of priorities is: the British economy – “prosperity” – and indeed the basic functioning of society with its processes and customs, the way people live – normalcy or “way of life” – relies on the sovereignty of the State; they cannot exist without it.⁵

The logic of the NSS is that because the might of the British State is the absolute condition for British society, every purpose in this society is subordinated to the protection of this might.⁶ This reversal – the means (the State) subsumes the end (society) – is not some inconsequential logical point, but is at the core of the Strategy and the logic of states at war. This document’s central purpose is to coordinate a whole-of-society preparation for mass slaughter,⁷ involving the full arsenal available to the British State, including but not limited to weapons of mass destruction. The NSS embraces “calculated risk” (NSS, p.10), it insists that Russia’s “nuclear rhetoric” (i.e. threats of using nuclear weapons against the UK and its allies) shall not “constrain our decision making” (NSS, p.16) and it proudly declares “the biggest sustained investment in our defence since the Cold War” (NSS, p.5). It is confronting Russia and other adversaries while calculating with the risk of nuclear war – if it were to occur, certainly the end of the British “way of life”.

In this Strategy and its war plans, the British State makes clear that everything and everyone – “every element of society” – is worth sacrificing for the British State. The logic of war expressed clearly in these war plans is: first the State and then your “way of life” and “prosperity”.

To most commentators this is common sense, rather than a cue to question what kind of society so desperately requires an authority to rule over it that the idea that a large number of its members must suffer and die to protect that authority is taken for granted.

An objection to these points could be that the second sentence continues with “protecting the British people”. The British people, however, does not mean ’the people living in Britain’ or ’British citizens’. The people is an abstraction from the various actual people with their varied and conflicting preferences, convictions and interests living in the UK.⁸ Used this way, the ‘British people’ is a thing in itself, separate from and asserted against actual people in Britain. As the NSS prepares the protection of the British people, it does so by risking the actual people who happen to be British. This is the logic of states at war: for the fatherland, its land and people, entire regions and generations are sacrificed.⁹

The second sentence then formulates an ambitious project. National security is not merely the protection of the homeland, but an expansive programme of “promoting British interests” in the world. While the NSS is also preparing for “the possibility of the UK homeland coming under direct threat, potentially in a wartime scenario” (NSS, p.16) its ambitions are much grander, namely the UK being a global power that deserves respect: “a seat at the table of global decision making” (NSS, p.10). The vital interest that Britain is protecting in the world is its power to dictate terms to the world.¹⁰

The NSS spells out what this means, namely being “stronger, more sovereign and more competitive”. With “more sovereign” the NSS addresses the various dependencies the British State finds itself in, due to its integration into the world market and the (military) alliances it is part of. To be able to dictate terms to the world, to bend other powers to your will, these dependencies need to be turned around from liabilities into tools to extract concessions: “This means reducing our dependence on others, including the ability of adversaries to coerce or manipulate us. But it also allows us to increase our value to allies and to strengthen our hand when we transact business with those who have sovereign assets that we seek access to.” (NSS, p.42)

The NSS speaks of a programme of “fiercer competition for resources, military modernisation, technological competition, economic coercion, increased hybrid threats” (NSS, p.14) when it talks about its adversaries and speaks of the ambition to “increase our competitiveness and sovereign strengths – in crucial areas like science and frontier technology” (NSS, p.10) and “an emphasis on greater lethality, warfighting readiness, deeper stockpiles of munitions and innovation in, and adoption of, new technologies” (NSS, p.12) when it talks about itself. In other words, the British State sees itself confronted by creatures that look just like itself – states hellbent on imposing their will on other states and willing to calculate with the risk of mass death for it – and intends to win by escalation, just like every other power in the world.

The bulk of the NSS then spells out a whole-of-society war programme:

Pillar (i): to first secure the homeland in order to have the freedom to manoeuvre when inevitably provoking adversaries abroad,¹¹
Pillar (ii): to use this freedom to project strength across the globe – Africa, the Pacific, the Middle East, the Poles and¹²
Pillar (iii): to build a national base that allows the UK to economically and militarily outcompete its rivals.¹³

The Prime Minister¹⁴ and the National Security Strategy 2025 are adamant that all this preparation for death and destruction is to the service of “working people” who will be asked to “serve”:

“[National Interests] will be defined as the long-term security and social and economic wellbeing of the British people.” — Introduction, NSS, p.9

The British State measures the social and economic wellbeing of its people in the Gross Domestic Product (GDP). The GDP – with some statistical finesse – adds up all newly produced wealth in a society.¹⁵ What is cute about this measure is that it adds up all wealth in society when in this society wealth is not commonly owned but private.¹⁶ There is no such thing as “our wealth”, some people have a lot of it, others make ends meet by working for those who own enough to employ them to augment their own wealth. That is why the Government addresses its citizens as “working people”: what matters is that the vast majority relentlessly work to produce the “economic growth” the Government then adds up in its statistics as our “prosperity”. The poverty that this economic growth produces is so stark, that the British State spends more than half of its budget on the ‘welfare state’, i.e. so that the working and unemployed poor can still get by somewhat.¹⁷

The only thing the National Security Strategy 2025 has to offer for those poor souls is “economic security” (NSS, p.6), the persistence of their status as servants to other people’s wealth. In peace time, they are asked to work for it, in wartime they are asked to die for the State protecting it.

“Just like in the era of the First and Second World Wars, in the next decade those nations that are able to harness productive power – and mobilise all their assets towards strategic objectives – will end up in a position of comparative advantage.” (NSS, p.17) ↩
“The UK defence industrial base will be redefined to include academia, dual-use civilian-military companies, financial services, technologists and trade unions.” (NSS, p.42) ↩
“The months and years ahead will see difficult compromises and trade-offs on resource allocation and prioritisation, short-term and long-term goals and, potentially, values and interests.” (NSS, p.9) ↩
Similarly: “National Security is the first responsibility of any government, that never changes.” (Sir Keir Starmer, NSS, p.4) “My first duty as Prime Minister is to keep the British people safe.” (Sir Keir Starmer, Strategic Defence Review, 2025) “This government is all about security.” (The Rt Hon Lord Cameron, Prime Minister’s speech on life chances, 11 January 2016) ↩
The NSS identifies two other foundations: a stable economy and secure borders. However, the remainder of the document treats secure borders as an area of national security: “In support of this new approach [to national security], we will: Expand our legal and law enforcement toolkit, to ensure the UK becomes a harder target for hostile state and non-state actors including criminal gangs engaged in illegal migration.” (NSS, p.11) The UK Government, like the current US Administration, tackles irregular immigration in the same policy as it does nuclear weapons: as a foreign threat undermining sovereignty. This cannot be brushed aside as a nod to the racist electorate, but must be understood as the policy commitment to treat people wanting to settle in the UK as a foreign threat, with the potential to escalate to a military response. ↩
“Without security and resilience at home, we cannot deliver economic growth or any of the other government missions to improve the lives of the British people.” (NSS, p.21) ↩
“The Army is in transition from the force required for the interventions of the post-Cold War era to a force ready to play its part in NATO’s ‘deterrence by denial’, requiring greater lethality, mass, and endurance.” (Strategic Defence Review 2025 (SDR), p.108) ↩
See also Since you mentioned “us”. ↩
See also Stop conflating Ukraine and its inhabitants. ↩
“The second pillar of NSS 2025 is to achieve strength abroad by using (and combining) all the levers of state and national power including defence, diplomacy, trade, intelligence, law enforcement, science, technology, education and our cultural reach.” (NSS, p.17) ↩
See also “Meet civil defence and resilience planning obligations under Article III of the NATO founding treaty to strengthen deterrence and assure the UK’s ability to project power in support of NATO in the Euro-Atlantic and beyond.” (SDR, p.38) ↩
“The hard realities of our geography, security and trade necessitate a prioritisation of the Euro-Atlantic area as part of our ‘NATO first’ approach. But evidence of countries like Russia, China, Iran and North Korea cooperating across theatres – sometimes opportunistically and sometimes by deepening strategic ties – demonstrates the interconnectedness of the Euro-Atlantic with different theatres like the Middle East and Indo-Pacific, where we already have strong partnerships. As the SDR notes, after the Euro-Atlantic, these are the two additional priority regions for UK defence. Furthermore, the dispersed and diffuse nature of international power in today’s world means that it is a matter of hard national interest that we look beyond our immediate neighbourhood.” (NSS, p.35) ↩
Every aspect of British society is examined in this light: “The UK’s arts, culture, education and science and technology sectors provide a significant source of soft power. These assets help us foster a positive reputation internationally, build trust, and create partnerships which support international stability. As other countries develop their soft power activity, we cannot be complacent about our traditional strengths. Our new Soft Power Council will advise government on how to focus our soft power assets more strategically and in support of our security and foreign policy objectives.” (NSS, p.45) ↩
“[F]oreign policy should answer directly to the concerns of working people” (NSS, p.5) ↩
See also The Economists: Notes on CORE’s The Economy, Unit 1. ↩
This is not lost on the NSS: “Innovation will be fuelled by flows of venture capital, private equity and institutional investments (over which democratic states have less control than authoritarian regimes)” (NSS, p.15). ↩
See also The Dubious Benefits of a Workers’ State: Universal Credit. ↩

CEOs get what they deserve

Wed, 29 Jul 2026 20:08:22 +0000

The annual ritual

Every January, a similar story does the rounds. According to the High Pay Centre, “the bosses of FTSE 100 companies will have made more money in 2026 before midday on Tuesday [6th January 2026] than the average worker will all year”¹. Median FTSE 100 CEO pay is £4.4m. This is a 113 times the £39,039 earned by the median full-time worker.²

The numbers are produced. The unions are wheeled out. The complaint is similar every year. The TUC’s General Secretary says that “while millions of low- and middle-income workers are still struggling with the cost of living, those at the very top keep helping themselves to a huge slice of the pie”, and calls for workers to be given a seat on executive pay committees.¹The High Pay Centre adds that “the idea that executives, as a class, are individually contributing over 100 times more in value than the workers they rely on is simply not credible”.¹

We want to make two points against this complaint. First, a wage is not a reward for what you contribute. Not for the worker and not for the CEO. Second, the worker and the CEO are not paid to do the same thing, and once you see what each is paid for, the pay gap stops being a moral puzzle.

A wage is not a reward

The union complaint takes it for granted that a wage should track what someone contributes, and that the scandal is that it fails to. Carers, delivery drivers and shop staff, the TUC says, “give more than they get back”.³ The implication is that, properly calibrated, a wage would reflect the work performed. The director of the High Pay Centre has put this directly: a maximum pay ratio would help ensure that all workers received “a fair reward for their contribution to business success”.⁴

This is wrong about what a wage is.

At first appearance, a wage is what an employer pays to get someone to turn up and work. From the worker’s side, it is the money they need to live: rent, food, transport, the rest. From the employer’s side, it is a cost and one of several inputs (materials, machines, workers) bought in order to produce something that can be sold for more than the inputs cost.

This sets the floor and the ceiling of the ordinary wage. The floor: across the workforce as a whole, wages have to cover what it costs workers to keep showing up; to eat, sleep, raise the next generation of workers. If they don’t, the supply of workers dries up, which is why the state steps in with minimum wages and welfare programmes. Not out of kindness, but to keep the labour force in working order.⁵ Whether any particular worker can actually live on their wage is, from the firm’s point of view, the worker’s problem.

The ceiling: a company buys or rents “inputs” (such as raw materials, machines, factory buildings) in order to produce “outputs” which earn more than the costs of the inputs added up, counted as profit. A firm hires people on the calculation that the what it can get out of them is worth more than the wages it pays them for it. That is the whole point of hiring anyone.

What the employer buys for the wage is not the worker’s output. It is their ability to labour for a given stretch of time – eight hours, a shift, a month. What actually gets done in that time is a separate question, settled by supervision, deadlines, targets, the threat of being replaced. Anyone who has worked a hard shift under a manager on their back, and an easy shift when no one was looking, knows that the wage paid was the same in both cases.

From the employer’s point of view, the same wage can buy a lot of work or a little. Hence the constant pressure on breaks, shift patterns, productivity targets and headcount: not arbitrary cruelty, but the routine attempt to widen the gap between what workers cost and what can be got out of them. The wage itself is the outcome of a power struggle over that gap, which is why it has to be fought over year after year.

So when the unions say that ordinary workers “give more than they get back”, they are correct and they are describing the normal functioning of paid employment, not its corruption. A worker whose expected output was exactly equal to their wage would not be employed. The wage was never a reward. The worker’s “contribution to business success” is exactly this: being paid a little, working a lot, and the difference going to the firm.

The CEO is paid to do a different job

What the CEO⁶ is paid for is not what the worker is paid for. Once that is clear, the comparison with their pay starts to look strange – the same number, a sum of money paid for a period of work, used to compare two roles that are not the same kind of role at all.

The “ordinary worker” is hired to produce: to assemble, to drive, to care, to serve. What caps their wage is what they themselves can be made to produce in the time they are bought for. Pay them more than that and the employer loses money on them. This is why, for the vast majority of jobs, the calculation runs in one direction: wages down, intensity of work up⁷.

A CEO is not hired to produce. A CEO is hired to make the firm profitable, and to keep it profitable against every other firm trying to do the same. That means organising the people who do the producing: which lines to expand, which to close, how the workforce is structured, how breaks are timed, how performance is measured, how unions are handled, how technology is brought in to intensify the work or replace it. It also means everything that sits around production: which markets to enter and exit, which competitors to undercut or buy out, which suppliers to squeeze, how to position the firm with investors and lenders, how to lobby governments and regulators. The common thread is that all of these decisions are made on behalf of the firm’s profits, against the claims of workers, rivals and suppliers.

Take a single example. A CEO signs off on a new system – handheld scanners on the warehouse floor, monitoring software in the call centre, productivity dashboards in the office – that measures the work as it is done. Every task is timed, every gap between tasks logged, every pattern in the data fed back into the next round of targets. Over the next year, the same workforce produces noticeably more for the same wage bill. The slack that any human pace of work contains, the seconds between tasks, the small, previously unmeasured pauses, has been found and taken back.

The CEO has not produced more widgets. The CEO has reorganised the conditions under which other people produce them, so that more comes out for the same money going in. That is the service being bought. Multiply across a year, and across the scale of a large firm, and you can see why this kind of work can be paid for at a different order of magnitude from the work it organises.

This is why the cap that applies to the ordinary worker’s wage does not apply here. A worker’s pay is limited by their own output. A CEO’s pay is limited by other people’s output – by how much extra can be squeezed out of the workforce they direct, and by how well they position the firm against its rivals. An executive who increases the surplus extracted from ten thousand workers by a few percentage points has, from the company’s point of view, “earned” the equivalent of hundreds of those workers’ wages, and can be paid accordingly without the calculation going wrong.

The structure of executive pay reflects this. CEOs are not paid by the hour. A large share of their income comes as share options, performance bonuses, and long-term incentive plans tied to profit targets, share prices, or returns to investors. This is not a quirk of generosity. It binds the executive’s own income to more profit for the firm: the more they wring out of the operation, the more they personally take home. “Ordinary wages” are structured the opposite way: as a fixed cost the firm tries to hold down regardless of how well the business is doing. What they are paid in is money. What they are paid for is different.

None of this is because companies are sentimental about executives. They would prefer to pay less for them, as they would prefer to pay less for anything. They compete for them, they fire them when they underperform, they design pay packages to keep them on task. But the calculation is structurally different. For the “median” worker, the wage is a cost to be held down: every pound paid is a pound the firm would rather have kept. For the executive, the wage is an investment in a larger return wrung out of everyone else. Paying more can pay off.

So what is wrong with the union complaint?

The standard form of the complaint is a ratio. The average FTSE 100 CEO is paid 113 times the median full-time worker’s salary²; at the extremes, the figure runs higher still. The chief executive of Mitie was paid 575 times the median pay at the firm in 2023-24.⁴ Twenty years ago the figure was lower; in the 1960s, lower still. The ratio is offered as a measure of how far things have gone wrong, and the implied remedy is to bring it back down through pay caps, worker representation on remuneration committees, profit-sharing schemes, or simply public shaming⁸.

The historical movement of the ratio is real and worth taking seriously. The calculation that produces it – workers bought as cheaply as possible, surplus extracted, executives paid to maximise the extraction – has not changed. But how that calculation comes out at any moment depends on conditions. When unions are strong, workers can hold the floor of their wages higher and slow the intensification of work. When unions are weak, the same calculation produces a wider gap.

That the fight has to be fought at all is the point. The wage is not a measure being honoured or violated; it is whatever the two sides can force it to be.

The problem with the ratio is not that the numbers are wrong. It is that the two numbers are not measuring the same thing. A worker’s wage and a CEO’s compensation package are both denominated in pounds, but they are paid for opposite roles in the same operation; one to be squeezed, the other to do the squeezing. Pointing to the “gap” between them does not explain why it exists.

The union complaint gets several things wrong at once. It treats the wage as a reward, when it is a cost. It treats the gap between worker pay and CEO pay as a moral failure. It is the predictable result of two calculations the same firm makes at once: one to minimise the cost of labour, the other to maximise the surplus extracted from it.

It implies that if only remuneration committees were better designed, or workers were given a seat at the table, the pay structure could be made to reflect “fair” contribution. It cannot. The whole arrangement runs on the gap between what workers cost and what can be got out of them. That is what a capitalist firm is for.

The unions are not wrong that workers give more than they get back. They are wrong about what to conclude. What their members suffer from is not that executives are greedy. It is being on the wrong side of the same calculation that pays those executives so well: being bought as cheaply as possible, worked as hard as possible, for as long as their employer can get away with. The CEO is not a parasite on this arrangement. The CEO is the person paid to enforce it. Changing who fills that role, or how much they are paid, leaves the arrangement intact.

The union complaint objects to the result of the calculation without explaining what produces it. What produces it is the arrangement itself: a firm whose business is to extract more from its workers than it pays them, and an executive paid well to make sure it can.

The union’s remedy is then based on this misunderstanding. Rebalancing the pay structure of an endeavour that exists, in the first place, to extract a surplus out of workers; not for the lavish lifestyle of the CEO (this is rather a by-product) but for the production of profit.

“FTSE 100 CEOs earn more than average worker’s yearly pay by noon on 6 January”, The Guardian, 6 January 2026. https://web.archive.org/web/20260410230258/https://www.theguardian.com/business/2026/jan/06/ftse-100-ceos-earn-more-than-average-worker-yearly-pay-by-noon-on-6-january-2026 ↩ ↩² ↩³
High Pay Centre, “Fat Cat Day 2026”. https://web.archive.org/web/20260304162319/https://highpaycentre.org/fat-cat-day-2026/ ↩ ↩²
Frances O’Grady, then TUC general secretary, quoted in “FTSE bosses will make more money by Friday morning than UK workers earn all year”, The Guardian, 7 January 2022. https://web.archive.org/web/20250722071542/https://www.theguardian.com/business/2022/jan/07/ftse-bosses-pay-average-9am ↩
“Average FTSE 100 CEO paid 113 times more than UK full-time worker”, The Guardian, 16 June 2025. https://web.archive.org/web/20260306063324/https://www.theguardian.com/business/2025/jun/16/ceo-chief-executive-pay-ftse-350-uk-companies-ratio-workers ↩ ↩²
For more on the state’s welfare programmes see: https://critisticuffs.org/texts/the-dubious-benefits-of-a-workers-state-universal-credit. ↩
When we refer to CEO, you can include other highly paid executive roles i.e. Chief Operating Officer (COO) etc. ↩
This does not always mean paying workers as little as possible see https://antinational.org/en/wage-and-profit-rate/ ↩
UK quoted companies with over 250 employees are legally required to publicly disclose their executive pay https://web.archive.org/web/20260424145638/https://www.gov.uk/government/news/new-executive-pay-transparency-measures-come-into-force ↩

Education and Capital

Wed, 29 Jul 2026 20:08:22 +0000

a. Capital needs the state to educate

Capital needs workers who can navigate modern life, as well high skilled workers to perform specialised tasks. But taking on the task of educating its workers to these levels would be bad business: workers do not belong to the company, so their education is not an investment in the capital of the company. The state happily takes on this task, because as well as wanting to improve chances of capital success in the future, it also wants to educate its subjects on how to be good citizens. The form in which the states organises school reflects this latter aim: students have to compete for results within the the boundaries of pre-established rules, and punishments are readily handed out for those that break them.

With these purposes in mind, the state organises education in the most economical way possible. It frequently assesses its own and capital’s needs and adapts curriculums accordingly, by cutting down on areas which aren’t necessary anymore and introducing new subjects that have become indispensable.

b. Triage

Capital has a need for a variety of skills with different degrees of educational requirements. The educational system is the tool that sorts future workers into this hierarchy of occupations.

The obligation to participate in this triage process is presented and seen as an opportunity by those subjected to it. Students accept that the rules imposed on them form the conditions for their success. As such, education is always defended as a right to be cherished.

At school, knowledge is dispensed in a pre-determined amount of time, indifferent to the student’s understanding. It’s the student’s obligation to pick it up in that time. The student is then tested for their ability to reproduce the material, also is a pre-determined period. Their efficiency is the measure of success.

The grade obtained in tests determines the advancement or not into further education. This way, those who need less time and help to acquire knowledge are pushed along further in the educational system, and those who require more help are excluded from it. Functional illiteracy is not, therefore, a sign of a failing educational system but rather its expected result.

School treats everyone the same, regardless of background or support at home. The result is that education reproduces in children the respective social class position of their parents.

c. Hierarchy

It is generally accepted that one must study hard to escape the most abject poverty. And it is true that it is school which sorts people into the hierarchy of occupations, where, as a rule of thumb, the less education the worker needs to have, the less income they will be able to procure. But ultimately, it is not education which determines someone’s status in society.

Status in this world derives not from knowledge someone has acquired, but rather from this knowledge’s function for state and capital, what is often referred to as “qualifications”. Whether someone is qualified or not does not depend on their knowledge, but in the calculated usefulness of that person’s knowledge to an employer. If a particular knowledge ceases to be useful for capital, or there is an abundance of people with those skills, it also ceases to be a resource for those who possess it. Therefore, even though someone without an education has less chances of earning a nice income, having an education is no guarantee of a good life. It is simply an offer to the employers which they are free to ignore.

The fact that the educational triage is a basis for admission in the professional hierarchy is used to legitimise the competition arena: in principle, everyone occupies the place that they deserve based on their school performance and has had an opportunity to shape their destiny. Few question the soundness of translating differences in knowledge into social status and wealth. It is no surprise, then, that despite all most people see school as a service provided to them.

Supply and Demand in Neoclassical Economics

Wed, 29 Jul 2026 20:08:22 +0000

If you understand how supply and demand work, you have gone a long way toward understanding a market economy. — Paul A. Samuelson and William D. Nordhaus, Economics 19e, McGraw-Hill Irwin 2010, p.45

Here again we can see how absolutely nothing can be explained by the relationship of demand and supply, before explaining the basis on which this relationship functions. — Karl Marx, Capital Vol 3, Chapter 10, p.282

Introduction

Quotes in the following from Paul A. Samuelson and William D. Nordhaus, Economics 19e, McGraw-Hill Irwin 2010, p.60-61 except when noted otherwise. Emphasis in the original except when noted otherwise.

(1) The analysis of supply and demand shows how a market mechanism solves the three problems of what, how, and for whom. A market blends together demands and supplies. Demand comes from consumers who are spreading their dollar votes among available goods and services, while businesses supply the goods and services with the goal of maximizing their profits.

what, how and for what: Through the market the effect is produced that something is produced for someone. This is reinterpreted into a programme of solving the problem of what, how and for what that does not exist: no economic subject pursues these goals. The starting point of the analysis is to simply posit the purpose “satisfaction of needs”. There aren’t different approaches to solving this problem of which the capitalist mode of production is one.
blends together: The market only blends together what Samuelson rips apart. Rationally, the coordination of supply and demand is simply that the demand determines what needs to be done: one is the purpose, one is the means. These are not two independent forces – supply and demand – that need coordination in general, that have the risk of running off on their own. On a market there are forces of demand and supply but the market does not blend them together, as if they existed prior. This is neither an adequate account of economy in general nor of capitalism.
dollar votes: The image drawn is one of “consumer sovereignty” (p.45) on the one hand and business on the other hand. This identifies demand with consumers and ignores business demand. This is to maintain the problem of individual consumption is the one being solved here.
maximising their profit: Samuelson knows that businesses produce for a profit, but that doesn’t factor into the determinations below. The claim is one of an economy in service to consumers, encouraged by profit. Profit is a means, satisfaction of needs is an end. We shall see if the following analysis lives up to this claim.

Summary

The market is good. Demand and supply are two independent forces.

A. The Demand Schedule

(2) A demand schedule shows the relationship between the quantity demanded and the price of a commodity, other things held constant. Such a demand schedule, depicted graphically by a demand curve, holds constant other things like family incomes, tastes, and the prices of other goods. Almost all commodities obey the law of downward-sloping demand, which holds that quantity demanded falls as a good’s price rises. This law is represented by a downward-sloping demand curve.

They clarify their notion of “demand”:

Our discussion of demand has so far referred to “the” demand curve. But whose demand is it? Mine? Yours? Everybody’s? The fundamental building block for demand is individual preferences. However, in this chapter we will always focus on the market demand, which represents the sum total of all individual demands. The market demand is what is observable in the real world.

The market demand curve is found by adding together the quantities demanded by all individuals at each price. – Paul A. Samuelson and William D. Nordhaus, Economics 19e, McGraw-Hill Irwin 2010, p.48

relationship: The claim is that prices (independent variable) determine demand (dependent variable).
individual preference curve: What the individual customer wants can be depicted by a curve, market demand is merely the sum of individual demands. They have a preference for some magnitude (U) of good (A) at price (X), just as much as some magnitude (U+ΔU) of the same good (A) at price (X-ΔX). Small magnitudes of a given good for a high price are as preferable as a large magnitude of the same good at a low price. This is nonsense – you want a fridge you want a fridge, you want a Playstation you want a Playstation – but enables to “solve” the coordination problem by having two lines that can intersect.
market demand preference curve: These hypothetical individual demands are then added up. Even arguing with market demand preference, how many cornflakes can they eat? Isn’t there a limit to how many they’ll buy? When prices of cornflakes fall, people don’t just buy more cornflakes, they buy enough to have enough cornflakes. In this model all content is extinguished: why and how people buy commodities, that acts of exchange represent actual relations of production and consumption.
other things held constant: On the one hand, this declares that other things influence the demand, but they are excluded from consideration. Then, the authors conclude that the thing they don’t exclude has an effect: the curve of price impacting demand by excluding everything else. For example: “There exists a definite relationship between the speed of the car and its weight, other things held constant.” What have you learned about the thing that makes a car go fast in this statement. What we’d need to know is why we are holding what else constant, why decide that price is the determining factor? Why not the relations of production/consumption, i.e. that demand is determined by what e.g. people need to live.

The claimed law – prices determine demand – is false.

(3) Many influences lie behind the demand schedule for the market as a whole: average family incomes, population, the prices of related goods, tastes, and special influences. When these influences change, the demand curve will shift.

family income, prices of other goods: when family income is held constant but prices change, the limited family income is confronted with prices, means and needs do not fit together. The substitution effect tells the same story: product A is substituted by product B because of limited purchasing power. When prices rise some people are priced out of a commodity. and When incomes fall some people are priced out of a commodity.
influences: Price determines demand except when it doesn’t. When they then list what influences it they give a motley list of stuff – including the weather. This way we learn that everything influences everything.

The claimed law – incomes determine demand – is false, but corresponds to something observable: poverty of the masses.

Summary

Prices determine demand.
Incomes determine demand.

Together: demand is a function of what something costs and how much money people have to spend on it. As a theory of prices this is absolutely useless. This also tells a very different story to “dollar votes”, the limitation of these votes, the poverty of those sovereigns, is the key thing both in thesis 2 and 3.

B. The Supply Schedule

(4) The supply schedule (or supply curve) gives the relationship between the quantity of a good that producers desire to sell—other things constant—and that good’s price. Quantity supplied generally responds positively to price, so the supply curve is upward-sloping.

desire to sell: Producers want to sell (U) items of commodity (A) for price (X) just as much as they want to sell (U+ΔU) items at price (X-ΔX).

When a producer can’t get the price that it wants, needs or considers necessary, it withdraws the supply from the market, the exchange doesn’t happen. Luxury sports cars are not sold at the price of pints of milk because supply and demand will it so. If they cannot be sold for a specific price, they simply aren’t sold, production of them seizes. There is no smooth curve of price/magnitude expressing indifference: all the same. There are prices that enable a profit and prices that don’t. A producer wants to sell for a price relatively high compared to cost, the bigger the difference the better.

The only moment getting close to this is crisis, everybody wants to sell to get their hands on money. But this is not the scenario they’re talking about: the break down of the economy.
mirror: they set up demand and supply schedule as mirrors, one downward and one upward sloping. However, the former has some asserted preference as the thing that’s thing longed one, the latter has profit as the thing being optimised for.
quantity: also at constant prices extension of production makes sense: if you make £1 profit per widget, selling 1,000 widgets instead of 500 means earning £1,000 instead of £500. Yes, if you can make even £1,200 that’s all the more reason, but it is not true that we have supply as a function of price. This mistakes enables the intersection later.

The claimed law – prices determine supply – is wrong.

(5) Elements other than the good’s price affect its supply. The most important influence is the commodity’s production cost, determined by the state of technology and by input prices. Other elements in supply include the prices of related goods, government policies, and special influences.

cost: It is the difference between cost and price that drives supply not absolute cost. It’s not true that cheaper production cost mean increased supply, cheap production cost relative to a high price are a further reason to increase production. If understood this way the law is false, but what they mean is: at a given price, the cost influences profit.

We’ve also therefore learned a completely different determination of prices: how long it takes to produce something: “It takes far fewer hours of labor to produce an automobile today than it did just 10 years ago. This advance enables car makers to produce more automobiles at the same cost. To give another example, if Internet commerce allows firms to compare more easily the prices of necessary inputs, that will lower the cost of production.” (p.52) They cannot and will not sell for less than cost + profit, but Samuelson drops profit despite introducing it earlier.
most important influence: price determines supply except when it does not. They want to say, if the gap between cost and price gets bigger, production is encouraged, when the gap between cost and price gets smaller, production is less worthwhile. This gap is profit, so the whole thing boils down to observing that companies produce for a profit without ever saying it.

The claimed law – costs determine supply – is wrong: profit does.

Summary

Prices determine supply.
Costs determine supply.

Comment

Together: The difference between cost and price determines supply.

C. Equilibrium of Supply and Demand

(6) The equilibrium of supply and demand in a competitive market occurs when the forces of supply and demand are in balance. The equilibrium price is the price at which the quantity demanded just equals the quantity supplied. Graphically, we find the equilibrium at the intersection of the supply and demand curves. At a price above the equilibrium, producers want to supply more than consumers want to buy, which results in a surplus of goods and exerts downward pressure on price. Similarly, too low a price generates a shortage, and buyers will therefore tend to bid price upward to the equilibrium.

equilibrium: is a tautology. The quantity demanded just equals the quantity supplied. What is the quantity demanded: market demand, which is observable, i.e. effective demand observed on the market. Thus, by definition all demand, defined like this, is always satisfied, there is never more demand, since that demand wasn’t demand can’t be observed. People starving to death: all effective demand is satisfied.
intersection: this explains the mistakes they made earlier, having an upward and a downward sloping curve means they must intersect at a single point (that isn’t infinity).

quantity demanded equals quantity supplied: no economic subject has this purpose. Producers do not direct the price according to demand, but according to whether it makes them a profit. Every crisis sees unfulfilled demand on the one hand and heaps of unsold commodities on the other. They then don’t go: “well I sell dead cheap so that market clearing happens”.

Example:

# widgets sold	unit price	# widgets made	unit cost	profit
1000	£12	1000	£8	£4,000
900	£12	1000	£8	£2,800
1000	£10	1000	£8	£2,000

determinations: The logic so far is thus:
1. the price determines the demanded quantity
2. the price determines the supplied quantity
3. supply and demand – at a given price – determine now a price called the equilibrium price
4. this price makes the two magnitudes match.
First, they invent many different unreal prices in addition to the real price, i.e. that are not observable. The reason why the price that exists exists is that other prices would be too high (consumer) or too low (producer). Now, the exchange at the price which exists produces the equilibrium price, which is the price that matches supply and demand, which merely means labelling the price that is as the equilibrium price.

(7) Shifts in the supply and demand curves change the equilibrium price and quantity. An increase in demand, which shifts the demand curve to the right, will increase both equilibrium price and quantity. An increase in supply, which shifts the supply curve to the right, will decrease price and increase quantity demanded.

equilibrium is stable: in their theory only external impacts can take the market out of equilibrium: incomes fall, costs change. Why do incomes fall? Why do costs fall? It’s because capitalists optimise their profits, they are not happy with equilibrium of market clearing prices. You don’t need a shift in the curve for increased supply.

(8) To use supply-and-demand analysis correctly, we must (a) distinguish a change in demand or supply (which produces a shift of a curve) from a change in the quantity demanded or supplied (which represents a movement along a curve); (b) hold other things constant, which requires distinguishing the impact of a change in a commodity’s price from the impact of changes in other influences; and (c) look always for the supply-and-demand equilibrium, which comes at the point where forces acting on price and quantity are in balance.

a and b: Distinguish between increases in supply caused by a price change from increases in supply not caused by a price change.

The circular reasoning formulated as a caution: everything influences everything, so you have to understand what caused what.
c: don’t know what this means.
caution: this is also their critique of false applications of supply and demand.

(9) Competitively determined prices ration the limited supply of goods among those who demand them.

ration: Nothing is rationed, people manage to sell their shit or they don’t. Nothing is allocated. At the end, there is a result. This pretends there are different ways of accomplishing the same thing – rationing – and the market economy is one way amongst many to go about this. But rationing is not the purpose of the economic subjects: they look after their own moneyed interest. The claim is simply: prices mean that those who can pay them, can pay them.

Summary

Prices determine supply and demand. Supply and demand determine price.
Changes in supply resp. demand changes prices and demand resp. supply.
Caution to distinguish price (→) supply/demand and supply/demand (→) price.
The market is good. Same as 1.

Economic Crisis (from 2007 to June 2020)

Wed, 29 Jul 2026 20:08:22 +0000

Version: 08/02/2021

Translators’ note: This text is a translation and adaptation of “Die Wirtschaftskrise 2007 bis Juni 2020 und die staatlichen Maßnahmen – ein Seminarskript”.¹ We will update it as we work through it.

A PDF version is available.

Introduction

The motivation for this seminar is the economic crisis that developed from Spring 2020 and the Government's countermeasures. Initially, the idea was to look at the individual measures taken by governments and central banks and to explain what they intend to achieve, what they are reacting to objectively, how they are financed and what the consequences will be. This was meant to be quite accessible.

This project is complicated not only by the fact that there is a lack of technical expertise about the banking world, but also because the issues involve advanced considerations about capital and that we must always ask ourselves whether the purpose intended by the actor (e.g. lowering key interest rates promotes economic growth) is also the one that is objectively achieved by the measure.

For these two reasons, this text takes a different approach: It attempts to explain, as easy as possible, the interlocking of capitalist exploitation, finance capital, state budget policy and monetary policy both in the normal course of the economy and in times of crisis.

For this purpose, we will go back to the beginning of the Great Recession (2007-2009), because it is an excellent way to show step-by-step how the different layers build on each other, support each other or may produce trouble for each other.² This has a didactic reason: the chronology of the Great Recession can be used to explain in a comprehensible way, as well as possible, the individual measures that are being used with increased force in the current crisis. Anyone who understands the actions of the states and their central banks during the Great Recession will find it easier to keep track in the current situation.

The other reason is that this lead-up time seems to be necessary to understand the current crisis. Not simply because it is always necessary to explain the past in order to understand the present (then one could also start in 1600); but because the crisis of 2007 never ended but has kept on taking on new forms. Against this backdrop, there is now an economic crisis due to a new impulse – the measures taken during the Corona pandemic, which are depressing business. The thesis: in 2020, new crisis mitigation measures are adopted on the basis of a crisis situation in the global financial system that has lasted for the last decade. Hence the structure of this text is:

In Part #capitalist-production we give some general considerations about the market economy without considering credit. This is not intended to be a complete explanation, but to highlight aspects that are relevant to the matters that follow.
In the large middle section (Part #economic-cycle-2007-2020), the years 2007 to the end of 2019 are used to explain what the various crisis events say about capitalist society and how states tried to stop or mitigate the crisis.
In the last part, the new economic crisis since February/March 2020 is briefly described (Part #corona-pandemic) and an overview is given of how states are responding (Part #countermeasures). This should then be understandable with the explanations in the middle section. Finally, a brief conclusion is given with reference to current forecasts in the financial press (Part #conclusion).
This text contains two appendices, the meaning of which will become clear as it progresses.

Capitalist Production – Selected Provisions in Advance

The social metabolism in a capitalist society is fundamentally made dependent on the possession of money. Someone has to sell something – goods or services (i.e. something they do not need, but others do) – to get money and to then buy something they can use.

These commodities must be produced by labour. On the one hand, labour must produce something useful for the owners of money. In this respect, it does not matter whether the work is done quickly or slowly;³ in the end, a use-value for others must emerge. On the other hand, labour is measured and has to prevail over the efforts of all others with the same goal: to make money from their goods or services. The speed of producing a thing (productivity) becomes decisive. So does the art of fitting into a social division of labour, which is teeming with opposites and only becomes apparent afterwards. Compared labour creates monetary wealth in the form of commodities and services.

The formula by Marx of the simple circulation of commodities is:⁴

Commodity – Money – Commodity (C-M-C).

Someone is a private proprietor of a commodity. They get money from the sale. With the money they can buy commodities.

This formula applies to wage labourers when they sell their labour power (C) and with the wage (M) food (C).
It also applies to the self-employed who make money by selling a handicraft product and then buy food with part of the money, but with another part also buy tools and raw materials, so that they can then complete the same cycle in the future.
It further applies to capitalists when they sell the commodities they have had manufactured and then buy food with part of the money, tools and raw materials with another part of the money, and labour power with yet another part of the money, so that the same cycle can be carried out in the future. See below.

But the formula also makes clear: In order to transform C into M, someone is already assumed to be the owner of money. So someone must have successfully turned C into M before, so that you can earn this money as a seller of commodities. All sellers in society are dependent on sellers having been successful before. Further, if everyone just wants to sell and then not spend the money on commodities after, nothing would ever happen.

The formula of capital is:

Money – Commodity – More Money (M-C-M’).

Here money is spent so that in the end there is more money. That is why Marx calls the purchases at the beginning “the advance”⁵ – because with it the purpose of the whole movement is already expressed at the beginning, it is about a return of the same thing that stands at the beginning – but in a larger amount.

Capital (i.e. wealth with the purpose of becoming more wealth) uses wage labour to augment itself.⁶ Wage labour creates wealth that capital uses to access wage labour again. When capital uses workers then these workers create the value basis for capital, with which they can then be used again.⁷ Workers then live just as well or as badly as capital needs them for its calculations.

Their livelihood is a by-product of the thing that actually matters: Workers are used, if and only if they serve to increase the wealth of capital. The separation of the product of labour from the workers is the point of the capitalist mode of production. The exploitation of the working class is the normal state of affairs. This is expressed in the fact that the wage on which the workers live is a cost in the process from which they live. As a consequence, the progress of the productive force of labour is not translated into leisure time for workers.⁸

Augmentation is only possible because the C in the middle does not only stand for means of production, but above all for a labour power. Of course, the $C$ also stands for the fact that the capitalists organise a production process with the purchased goods, which then, through the exploitation of labour power, endows the produced commodities with a surplus. Thus, the complete formula is:⁹

M - C < L/mp - P - C’ - M’

Money (M) is used to purchase labour power (L) and means of production (mp). Then production (P) takes place. The result is commodities whose value is greater than the initially advanced money, hence C’. In the end the commodities are exchanged for money (M’).

What matters here: The formula (or the movement) C-M-C is built into the formula several times, as soon as the capital formula is considered in its repetition:¹⁰

The capitalist sells goods (C’) and gets money (M’) for it. With this money they go shopping for commodities again: Part of it for their private life, part to renew the means of production, part to renew wages, so that workers will return. This movement is in this respect is simply C-M-C.
Or: The worker sells their commodity labour power (C) and gets money (M) for it. With it they go shopping (C). Where do they get it? From the capitalists, who have produced food for the workers – i.e. the C’, in the capital formula.

The formula for the metabolism of society (C-M-C), is an intermediate in the formula for capital. Only when M-M’ works consistently, wage labourers get M (wage) for their C (labour power).

Capital is also dependent on wages for realising the ever-reproduced heap of commodities. If C-M-C is lower because of dismissed workers, this has an effect on the M-M’ of capital. Food-producing capitalists make less. Their lower demand for the means of production then affects the other capitalists.¹¹

One can and should say more about these peculiar relations¹², at this point the following verdicts must suffice: Only when profit-making works then profit-making works.

The livelihood of the working class is made dependent on this principle. If there is no profit, or if there is no prospect of profit, then the working class has no ability to provide for its livelihood.

If, as is now the case in the spring of 2020, wage laborers have less money and also trade is restricted, then this has an effect on the success of capitalist production, so that even more workers are laid off, etc.

This is said in advance, because in the following, with credit and the State, the formula M-C-M’ of the industrial capitalists (and also of commercial capital) itself becomes a middle link of completely new cycles.

A Peculiar Economic Cycle from 2007 to January 2020

The Basic Principles of Credit-Financed Economic Growth by Example of the the Great Recession

2007 saw a crisis in the global financial system.¹³ Before 2007, finance capital created its own booming market with securitised loans, which it then distrusted. This resulted in a worldwide banking crisis. Nothing special happened in the rest of the economy, but with the banking crisis, the rest of the economy is also in crisis. This is worth explaining:

(a)

If capitalist exploitation of the working class functions then having a lot of money is the same as an assurance to make more money.¹⁴

(b)

Money itself receives a price for the temporary transfer of the use-value “making profits”: interest.¹⁵ This is the basis for a banking system that collects all money in society that is lying idle at the moment (the banks promise interest as a lure) and makes that the foundation for its lending business against higher interest rates.

(c)

This will allow industrial and commercial companies to turn their growth and their competitive behaviour upside down:

It is no longer simply a matter of having your own money, i.e. of advancing money, selling commodities to make a surplus in money over the advance and then using this profit to increase the size of the advance, which is then used to expand production and trade, to make even bigger profits and to make even bigger advances.

As a formula: M - C … P … C’- M’ - and then M’ is the advance of the next round and again: M - C … P … C’- M’ (where the C at the beginning of the second movement has the same magnitude as M’ at the end of the first movement).

With banks, companies are confronted with an almost unlimited amount of money for their growth, which is not theirs, but which is available for a promise of interest. The following reversal then takes place: Borrow money against interest, expand the business with this money and pay the interest with a part of the profit then made – and pocket the other part yourself.

Capital growth is then no longer be constrained by the profits already made, but only by the business outlook. This has a consequence for companies:

Profits are no longer the basis for expansion.
Debt is the basis for expansion and profits must justify the promises of payment.

In a developed capitalist society, this is not a one-off process, like this: a company takes out a loan, makes an extension that works and then the loan is repaid with interest. Now the company is bigger and continues to operate old-school mobilising only its own profits.

Credit remains a permanent instrument of capital growth for industrial and commercial capital. If the cycle – debt, business, debt has been justified – works, then this is the best argument for both banks and borrowers to continue the same on a larger scale.

This is why companies operate on a permanent basis with a high proportion of borrowed capital. They constantly pay interest, but the basic amount of the borrowed capital does not from the point of view of the company, have to be repaid, because old debts are paid with new debts: The loan is renewed.

As a consequence, the competition of the capitalists changes through the extensive use of outside capital:

Those who lose money are not immediately bankrupt if banks think that this is only temporary, there is further or even extended credit and the company stays in the market. Anyone who makes profits that appear comparatively low to finance capital or whose future seems shaky to banks must pay higher interest or will not be able to obtain a loan. If the latter happens, the company is bankrupt. The banks thus become the judge of the survival of the corporate world.

For companies, the results are:

The purpose of the company is to increase the private property of its owner or owners. This equity capital ought to accumulate faster supported by outside capital.
The existence of the company is made absolutely dependent on continuous credit. If this does not happen, equity capital does not simply grow at a lower pace, but no longer grows and is destroyed – the company is bankrupt. This reason for existence is reflected into the company's purpose: a company must constantly pay attention to its creditworthiness. Debts (including interest) must always be serviced punctually. This is only possible if the company gets new loans to pay off the old loans.

As long as the company is creditworthy, it is creditworthy. In other words, as long as it is creditworthy for some banks, it is creditworthy for other banks.

The actual core business is reduced to a basis of trust to underpin this tautology: the exploitation of workers is given the function of continuously validating the creditworthiness of companies. Expressed as a capital formula, where K stands for the creditworthiness that the M obtains in the first place and the K at the end stands for the permanent creditworthiness that is justified by the M’:

K-M-C … P … C’- M’ - K - M - C … P … C’- M’ - K - M - C … P … C’- M’ - K

(d)

Banks are debtors and creditors at the same time.

They collect money against a promise of interest.
They create book money (e.g. an overdraft) for which they have to provide real money when requested.
They borrow money from other banks.

Their power to lend ever increasing funds on a permanent basis is itself based on the fact that their creditors extend the loan further and further (i.e. give new loans so that the old ones can be paid).

In this respect, here too – in analogy to the companies – we have:

The purpose of the bank is to increase the private wealth of its owners. Equity capital ought to increase more effectively, supported by borrowed capital.
The bank's existence is made absolutely dependent on ongoing credit. If this does not happen, the equity capital does not simply increase more slowly, but does not increase at all and is destroyed – the bank is bankrupt. This reason for its existence is reflected into the bank's purpose: it must constantly pay attention to its creditworthiness. Debts (including interest) must always be serviced punctually. And this is only possible if the bank gets new loans in order to pay off the old loans:

As long as the bank is creditworthy, it is creditworthy. The actual core business (collecting interest from the corporate world) is reduced to a basis of trust to support this tautology. The quality of the promissory notes that it holds as a creditor certifies the bank's creditworthiness.

(e)

The previous points are summed up as an interim conclusion on the overall character of the capitalist economy: Debts spur on businesses to expand and then the debts are expanded. The credit circle is validated by an independent principle that is separate from it: the production of wealth through command over the labour of others, i.e. exploitation of the proletariat.

(f)

Loan capital is further developed to the valuation of debt instruments/securities/IOUs. Finance capital compares existing IOUs and assigns them a value by buying them at a price on a market (stock exchanges, capital markets, money markets).

So instead of simply opening a new credit relationship by lending money to a company in order to earn interest, finance capital refers to existing debt relationships and gives them a price in comparison.

This creates a new money augmentation strategy. Instead of (only) collecting interest, the market price change of the debt instruments themselves is speculated on in order to make money from this price movements. Anyone who buys a security more cheaply than they later sell it for is bound to make a profit.

Here again, the credit circle results in: If there are enough investors who continuously speculate on the valuation of securities, then the securities have a value. If they stop speculating then they have no value. The profitability of the companies to which these debt instruments relate provides the material for their circle.

(g)

If the markets for securities are developed, there are opportunities for large corporations to free themselves from the scrutiny of banks that lend capital. Two forms are particularly prominent: bonds and shares.¹⁶

Companies issue bonds of their own accord and collect money from the financial capitalist investor community. They do not beg for credit from the banks and have to fight for the conditions. They go out into the world with confidence and say: “I'm a big shot, here is a paper with a fixed interest rate promise and an expiry date. Give me money.”

Another procedure is the transformation of the company into a joint stock corporation. The advantage of shares is: the money given to the company never has to be paid back. There is merely the promise of a variable interest rate, that is, a dividend; in exchange for part ownership.

This way the market for securities is enriched by two additional debt instruments which are continuously valued at stock exchanges or elsewhere: corporate bonds and stocks.

The banks also use both forms of financing. They themselves are usually public limited companies and issue bonds that are valued in the world's financial centres.

The freedom from the scrutiny of an individual bank has now been replaced by the scrutiny of the securities investor community, which critically compares every bond and share on the stock exchange. The end of a company is initiated in the same way as above (see (c)) when it is dependent on new money from the stock exchange (new issue of bonds or shares), but the price on the stock exchange has collapsed.

(h)

Then there are also derivatives.¹⁷ They are a copy for the business in securities from a completely different sphere of business, which will be briefly mentioned here in an brief digression:

Since raw materials are subject to large price fluctuations, there is a need for companies to buy a certain amount of raw materials at a fixed price at a certain date in the future. This ought to make their profit calculation more, well, calculable. A forward transaction satisfies this need. There are essentially two basic forms of forward transactions:

Futures

A legal title that promises the holder that they will receive a certain quantity of raw materials at a certain price on a certain date in the future. The holder must then buy and the “debtor” (i.e. the person who enters into the obligation) must then deliver. In the beginning, a fee must be paid for this legal title.

Call Option

Is the same as a future except that the holder has the option to buy but does not have to realise it. In the latter case, the debtor does not have to deliver (or is stuck with the stuff). This legal title costs a fee, too, of course.¹⁸

Exchanges for these rights developed along the raw materials business: oil, coffee beans, pork chops, etc…

The legal constructs of futures and options are now extended to all types of securities: for example, the right to buy a stock in a month at a certain price.

A future or option on a debt instrument is itself a debt instrument, but one with reference to other such debt instruments. Therefore, it is aptly called a “derivative”.

There are separate marketplaces for derivatives (in and for Europe, London is the main centre) and the derivatives themselves are given a value there.

There now exists all kinds of creative developments in finance capital. The securitised loans that blew up in 2007 (i.e. whose value was virtually destroyed by the mere practice of no longer wanting to buy them) were also derivatives. They were debt relations that were related to other debt relations. But we do not want to explain them here.

(i)

The growth of a developed capitalist society now looks like this: Companies are getting bigger and are growing. On the one hand, for family businesses or corporations their own capital is growing. At the same time, outside capital held by companies is growing. Massive corporations are purely based on debt obligations, i.e. legal titles to payment. They are joint stock companies. The debts on banks' books are growing: (1) those they have taken on, (2) those that represent claims against others. Finance capital benefits the other types of capital, the other types of capital benefit finance capital.

The growth of debt is beneficial to the efficient exploitation of the proletariat if credit allows to arrange for workplaces that are set up, in terms of means of production, to be competitive and to press a lot of work out of the workers. This efficient exploitation of the proletariat is in turn beneficial to the growth of the debt relations.

This is the form in which the material reproduction process of capitalist society takes place, whose elementary principle – for all the wacky forms it takes – is the multiplication of private wealth measured in money.

At the same time, the two forms of accumulating wealth are not a cooperative relationship, but two ways of using each other to make your own accumulation work. Debt-making speculates on future returns on debt making and the development of the so-called “real economy”. Whether then the speculation within the financial world confirms its own speculation is another question. It is moreover open whether the basis of trust that the exploitation of the proletariat is supposed to create is sufficient for the speculatively presented debt relationships.

So from 2007 onward, we had a crisis triggered in a higher level of finance capital itself. The reason for the lack of trust was not simply a lack of profits in the rest of the corporate world, but rather that the profits generated did not meet the demands of financial capital. The loss of confidence in the value of their own financial products then led to the interruption of the credit prolongation between banks and then spread to the rest of the economy, then also here credit chains broke.

Nothing had changed in production, on the contrary, it was profitable. But it was only profitable on the basis of ever more extended chains of credit. When suddenly creditors do not want to extend the credit chains but want to be paid out (because their creditors do the same with them), then it becomes apparent:

Economic growth based on debt is suddenly supposed to function without debt. This is not possible and therefore everything is torn down. The banks are of systemic relevance and their failure produces the Great Rescission. Governments and central banks intervened and created a peculiar economic growth pattern for the coming years.

NB: As an anticipation of today's times, when business closures due to the Corona pandemic directly affect production and trade. It is clear that society's credit circle can be torn down from “below”. Nothing special needs to happen in the financial world, but if – for whatever reason – profit making from the exploitation of the proletariat becomes more precarious, then the so-called real economy will fail in its service as a basis of trust for the all-round debt relationships. A crisis in capitalist production and/or capitalist trade immediately turns into a crisis of finance capital, which in turn has a repercussion on industrial and commercial capital.

The Basic Principles of Sovereign Debt by Example of the Sovereign Debt Crisis 2010 Onward

The big realisation came when the US Government let Lehman Brothers fail. This bank had approximately $600 billion of debt outstanding against it and, on the other hand, had debt claims against others on its books to the same extent.

The creditors had to write off their debt claims against Lehman and these creditors were banks from all over the world. It was also clear that Lehman would have to sell all its securities in the insolvency proceedings. This emergency sale has or would have torn down the securities markets.

First of all, after the experiment it was clear: This must not be allowed to happen again.¹⁹ Governments themselves became shareholders in banks or set independent institutions where bad debts were outsourced (bad banks). They financed this with sovereign debt. They put their still creditworthy sovereign debt behind bad debts. In this way, they prevented the destruction of securities, prevented their devaluation and maintained their price.

This did not solve the financial crisis, but rather mitigated it and at the same time raised it to a higher level: What does this Government action mean for the sovereign debt itself? However, first, a step backwards: What is the quality of sovereign debt in “normal” times?

How is sovereign debt built into the functioning cycle of “debt, exploitation, debts confirmed, more debt, more exploitation …”?

The bourgeois state does not earn money, it takes it – taxes are not an exchange.²⁰ This is how it organises its activities. It obliges society to earn money by the fact that it collects the required tribute in money. And it respects money-making when it pays its subjects for their services to itself. Thus it is already expressed in this form of the organisation of state activity that the State wants this private materialism as a principle of its society.

The State has learned from the reversal that has taken place in the capitalist economy. The rule there is: Do not wait until you can expand the business with the help of profits already made, but take out loans so that you can expand the business and justify the loans with the higher profits thus produced.

The State does a similar thing: It does not wait for citizens to earn more money for extended state activity and then for more money to flow into the treasury through taxation.

Rather, the State issues bonds, i.e. takes loans to set in motion an expanded state activity. The debts of the British State amounted to approximately £1.78 trillion at the beginning of 2018.²¹ The development of economic growth can thus be promoted independently of the already existing tax income and the growing tax revenues are then to justify the debts.

On the one hand, sovereign debt has the peculiarity of being a consumer loan in economic terms. The State spends the money, but it is not a capitalist whose advance is later realised. On the other hand, the State has the power over all incomes in society and is therefore the best debtor in a society.

Once more, the rule here is that borrowing is not just a one-time special action, the debt is repaid and that's it. If the economy is growing, this is the best argument for taking on more debt to create even better conditions for economic growth. Thus, not only will sovereign debt not be reduced, but old debt will be paid off with new debt and, in addition, more debt will generally be taken on (new net debt).

Therefore, the following now also applies to the State: its ability to repeatedly resort to credit depends on the fact that there are financial actors who continuously give it credit. If these do not exist, any State will have a sovereign debt crisis. Then virtually no more business will go on in the country.

In this way, the national economy, over which the State has control and which it promotes with economic policy measures, is then also viewed in a new perspective: The national economic development must provide sufficient messages of success that send signals to finance capital so that it continues to provide the State with credit.

Here it is now getting tricky, if you want to express it as a cycle, because one part is bigger than the whole. We said earlier: The growth of debt relations in companies and banks benefits the exploitation of the proletariat and the exploitation benefits the growth of debt relations.

With sovereign debt, we must now say: Sovereign debt stimulates the whole chain by providing better conditions for growth:

The growth of debt relations (for banks and companies)
benefits the exploitation of the proletariat and this
benefits the growth of debt relationships (for banks and companies).

This chain in turn is supposed to justify the sovereign debt so that the cycle can be repeated with even more sovereign debt.

Here the activities of finance capital are part of the middle of the cycle of sovereign debt – economic growth – sovereign debt. Yet, although finance capital itself is the middle link, it is also the outer link of the cycle: Finance capital gives credit to the State

which must use it to trim its economy so that it gives the financial world signals for future credit
then the State can pay its debts to the financial world (with new loans)
and the financial world is satisfied and can begin the cycle again and on a larger scale.

Sovereign debt and the management of debt as a source of finance by finance capital are thus mutually dependent on each other but are also mutually independent calculations. The State has thus made itself dependent on a functioning banking system and its management of debt as a source of money. If the capitalist economy functions as a whole, then the two intertwined cycles take a symbiotic course.

Back to the Crisis and Sovereign Debt

In the financial crisis, States tried to keep the securities that have become rotten by the practical judgement of the financial world in value with their public credit. The State (and in the Basel Accords²² major states together) continue to impose stricter regulation on financial market players and oblige them to be more cautious in their debt operations.

Not only in the Eurozone, but especially there, finance capital then critically examined the cycle from this vantage point (states have obliged them to speculate more cautiously) and gave the states the verdict: they speculated against the value of sovereign debt and only hesitantly extended their loans to those states.

After all, these states have not expanded their credit in speculation on future growth and therewith sent signals to the financial world that they could interpret as “here ‘invest’ this state has a prosperous future”. States had expanded their sovereign debt to stop the crisis. Here the financial world became critical and said: “Then the certification of the entire sovereign debt will become precarious, because an enormously increased sovereign debt now represents at most the same, if not reduced future economic power.”

The financial markets were threatening not to prolong the sovereign debt as usual (i.e. to give new loans so that the old ones can be paid off). As a result, it was not only the State that gets into difficulties, but the financial world itself: sovereign debt is built into the bank balance sheets as an extensive component of the accumulation of securities. The devaluation of these securities was imminent and this would have then lead to another financial crisis and then economic crisis.

If debt chains break down, there is only one thing that helps: real money – but what does real mean here?

The Basic Principles of Currency Policy by Example of the Sovereign Debt Crisis 2010 Onward

Central Bank Actions in Relation to Sovereign Debt

Now the central banks stepped in to keep the sovereign debt in value. The US Federal Reserve did this immediately by buying new sovereign debt directly from the Government. The US Government had fresh money to pay off the old debts to the banks. The best thing that can then happen is that the banks are prepared to continue to give new loans to the Government under the same conditions, because it is then clear that the debt will not devalue.

In Japan, this procedure has been in use since the country's financial crisis in 1990 and has had to be continued on an ongoing basis. There, they have had an economic development which has been for 30 years similar to what is now beginning in Europe and the USA in 2010 and is continuing until today.

In the Eurozone, the situation was more complicated.²³ Competing economies have a common money here, and a dispute started over whether and how the currency can help individual countries out in a sovereign debt crisis. Out of the dispute, two new instruments are created which are also relevant in today's crisis management:

The ESM (European Stability Mechanism): Euro states get credit from a pot that is filled by the sovereign debt of the other states. Practically an attempt to place the still creditworthy sovereign debt of other states behind precarious sovereign debt (e.g. Greece) (here above all Germany is important as a creditor).

This opens the equation: Greek sovereign debt equals German sovereign debt. This should inspire confidence. Of course, this is exactly the opposite interpretation of risk: in this case, that the German sovereign debt represents not only the economic activity in Germany, which the financial markets regard as good, but also the economic activity of the entire Greek society (State and Economy), which the financial markets regard as unsuitable. In addition, the German sovereign debt will in the future also represent the precarious social activity in other potential crisis states (Italy, Spain and perhaps even France). To the extent that Germany uses its good credit rating to support the precarious creditworthiness of other states, Germany's credit rating itself becomes precarious.

The lenders have therefore limited the credit fund for stumbling debtors to €600 billion. That is enough for the Greek debt, but the financial world had already started to speculate against Italy and the pot is not enough for that if really all the debt is to be paid off. The fund thus has the contradiction that the limitation meant as a confidence measure can at the same time be interpreted as a risk factor (which is what the financial markets did initially).
The credit lines are subject to conditions (keywords: austerity programme for Greece and monitoring by the Troika). The Greek State should consider itself as something to be saved and thus bring confidence to the financial world. This can also be interpreted against Greece: there is no growth in Greece after all, because the economy will shrink as Government activity shrinks.

The valuation of Greek sovereign debt had already gotten out of hand to some extent, now the same was threatening to happen to Italian and Spanish sovereign debt. But for the time being, ECB President Draghi brought calm to the Euro sovereign debt crisis with the OTM (Outright Monetary Transactions) programme and the phrase “whatever it takes”. The ECB decided independently (i.e. not in consultation with the heads of governments and with one vote against in the ECB Governing Council, attributed to the German representative Weidmann): The ECB buys unlimited government debt when financial markets speculate against a Euro member. The only condition: The country must submit to the ESM programme (austerity and surveillance).

The ECB thus declared the equation: Precarious sovereign debts are equal to Euros, so they are valid money.

This has calmed the financial markets and they have significantly reduced speculation against the precarious countries.

But it is also clear that this equation could have been read the other way round and can be read in the future: The Euro is only as good as the precarious sovereign debt in the Eurozone.

The important centers of capitalist accumulation in the world, therefore, have put their money behind

precarious sovereign debt,
which itself has become precarious because sovereign debt had been used to guarantee securities that have become precarious,
which themselves have become precarious because the underlying economic life has not been able to validate the anticipations of finance capital,
these anticipations, in turn, are crucial to economic life.

A Step Back: What is Modern Money, What is a Modern Currency and What is its Basis when Economic Life is “normal”?

Within society, the national currency is a product of state power in terms of quality. The State obliges the economic subjects on its territory to settle their payments in the national currency (between themselves, but also when paying the State itself – taxes).

When the economic subjects then conduct their trade in society via this currency, they continuously confirm the quality of the currency: through this practice, it is the valid economic power of access to social wealth.

The same happens when payments are processed via database entries by the banks and when their book money, which consists of debt obligations by the banks, is related to the banknotes as valid social wealth. Monies in a bank account are thus, on the one hand, money symbols – they stand for money and with a bank transfer one can pay rent or buy means of production. On the other hand, book money amounts are credit symbols. The banks are obliged to pay out the national money at any time, i.e. real banknotes.²⁴

The provision of fresh money, which society needs for its purposes – the increase of private wealth – is linked to the banks' business of speculating on growth: money is available to the commercial banks when they, in return, deliver existing well-rated securities to the central bank. The central bank charges an interest rate, which is taken as a discount on the security. Either the security is sold to the central bank in the discount procedure against a discount on interest, or it is only deposited as collateral in the Lombard procedure – but also with the obligation to waive a bit of interest when the security is returned (or to pay it to the central bank).

New money comes into the world by way of a credit procedure and each new monetary unit contains the demand to the banks to provide for the accumulation of money. In this way, the central bank makes it clear that money is not in the world to buy chewing gum, but has the mandate to multiply.

Obviously, with this method of providing money the central bank supports society, with th aim of encouraging economic growth with increasing magnitudes of debt relationships. To be more precise, it supports the banks in their efforts to expand credit. To the extent that they receive fresh money, the basis on which they can then carry out the actual credit expansion increases. Basically, the central bank provides the banks with an unrestricted expansion of the basis for a credit expansion.

The barrier set by the central bank is simply that the banks should supply it with well-rated securities for more fresh money. Debt relationships that have already been entered into and whose fulfilment the financial sector (or its service providers – the rating agencies) regard as certain are supposed to be a measure of whether or not more money should be available for more loans. In the case of securities with particularly good ratings, there is a fiction that nothing can go wrong. The central bank's claim is clear: new money should only be born to the extent that business grows safely. Conversely, however, no really good business should fail because there is a lack of credit to get it started.²⁵

The central bank uses this procedure to construct the equation:²⁶

Currency = good debt instruments.

This equation leads to some conclusions:

Good debt instruments are as good as money. This is interesting for the banks and the issuers of good securities (bonds of large companies). The banks need real money as a basis for their lending operations. They must always be solvent, either in the form of issuing the required cash or in the form that the central bank balance is sufficient to balance the balance sheet imbalances that arise from their customers' remittances. If good debt instruments are as good as money because of the central bank then they themselves serve as a good basis for lending to less good debtors.
If good debt instruments are as good as money then debt instruments are good if they are exchangeable for money.

The central bank itself adopts a practical tautology: When it comes to the question of which promissory notes are good, it wants to rely on the judgment of the financial world, which is independent of it (rating agencies). At the same time, it interferes strongly with the judgment. After all, there is no better promissory note than one that can be converted into real money at any time at the central bank.

The circle then is: good promissory notes are as good as fresh central bank money and promissory notes are good if they can be converted into central bank money. Basically, the central bank used precisely this tautology when it announced that it would buy up badly rated sovereign debt indefinitely. This point also becomes important in the discussion of central bank policy from 2015 to date.
National money is as good as good debt instruments. This is a quality judgement of money – at least it should be from the perspective of the central bank (and its owner, the State). The national money is a pretty sure promise of money multiplication.

The equation “the national money is equal to the promise of good economic development” is particularly important for the international comparison of currency values.

The State can, up to a certain limit, force national finance capital and national capitalists to use the domestic currency as money. However, the State cannot force the international investor community to do so by force, but can only impress them with business prospects. The value of a currency compared to another currency (exchange rate) is determined by supply and demand. However, imports and exports play only a minor role in quantitative terms (≈2%). Decisive are the transactions of international finance capital, which determine the value of a currency in comparison to other currencies.

One may make profits in the Turkish Lira, e.g. earn high interest rates, which are not otherwise available in the world. But if the Lira is continuously losing value relative to the Euro then low interest rates in Euros are comparatively better than high interest rates in Lira.

Here you now have a circle on an even higher level: If international finance capital continuously goes out of one currency, then that is the best reason to go out of the currency.

The whole society as developed above,

exploiting the proletariat so that companies can make a profit,
which maintains their creditworthiness
and encourages finance capital to create new credit relationships,
which also keeps debts in value
and ultimately also sovereign debt
and strengthens the inner monetary value

is reduced to an independent substructure for the decisions of international finance capital what currencies to go into or not.

If a state does not succeed in impressing the international financial world, in extreme cases the state can pretty much pack up (e.g. in May 2020: Argentina, Lebanon, South Africa).

If it succeeds in impressing the international financial world with its currency, then through the practice of international finance capital, this currency gains the quality to function as money beyond national borders, it then becomes world money (USA, partly Euro states, part Japan, partly Switzerland).

This then gives a state enormous power in the matter of making society fit for the future competition of national economies, and at the same time provides it with the military means of violence to force other states to comply with certain rules in international relations, which benefit the superior state.

It is only because of this rosy prospect that the powerful states allow, or rather promote, the fact that the international financial world can become the judge of the prosperity and misfortune of entire nations.

Returning to the Crisis Mode since 2012 – the World's Currencies Lending each other Unlimited Credit

As a reminder: The important centers of capitalist accumulation in the world have thus far put their money behind

precarious sovereign debt,
which itself has become precarious because the sovereign debt has been used to guarantee securities that have become precarious,
which have themselves become precarious because the underlying economic life has not been able to validate the anticipations of finance capital
and economic life lives on the continuously expanding credit, i.e. on the justification of the anticipations of finance capital.

This raises the anxious question of whether and when finance capital will pick one of the world's monies to speculate against it. Here the most important governments and central banks have decided to put a stop to this speculation for the time being.

They have given each other a mutual assurance in 2013 that they will grant each other unlimited credit (in the pre-crisis period there were also agreements in place, but they were limited in quantity). The ECB is allowed to indebt itself to the Fed in dollars without restriction, so in case of doubt it can intervene and take countermeasures against a sharp fall in the exchange rate of the Euro against the Dollar. Conversely, the Fed may borrow as much Euro from the ECB as it wishes. All this also applies to Switzerland, Japan, UK and Canada.

With this they have declared the equation:

USD = EUR = YEN = CHF = GBP = CAD

Everything is equally good. Or equally, everything may be equally bad.

It is interesting to note that there was a discussion about this measure in the US Senate. The Republicans took the position: “Why should we share and burden the quality of our good Dollar with the troubled Euro?” This debate had the same broad lines as those of the German parliamentarians when they discussed “aid” to Greece. Only that from the American point of view, Germany (or the Eurozone) was Greece.

Added to this is the fact that the Euro project was conceived from the outset as a project competing for the world's money and has also had some successes to show. So why support a competitor in world money matters?

In the end, however, it was decided to go along with the crediting of the Euro on the basis of an argument similar to the one used in the Germany-Greece debate: yes, it is a risk and you have to be careful (threat to call it off), but letting the Euro hang out to dry would have much more fatal consequences for the Dollar. Thus, the important states of the world have stopped the devastating verdict of finance capital for the time being.

Central Bank Policy since 2013

The devaluation of securities that the financial world itself considered unsound has more or less been stopped. The devaluation of sovereign debt has been halted almost entirely (with the exception of the partial restructuring of Greek sovereign debt in 2011). The world's important monies have taken on all the load and keep themselves mutually in value through unlimited mutual credit lines.

This has impacted the rest of the economy in such a way that there have been crisis years with an overall economic slump (2008/2009 and 2012). Now the economy ought to start through again, but it is not really doing so.²⁷

The world's major central banks were concerned about the weak economic performance. They believed that economic growth was too low to underpin their currencies well and started to implement their own kind of stimulus programmes.

They had already massively reduced key interest rates during the crisis. They did no stop there but continued to cut them.
When they decided this was not enough, they not only continued to actively buy up sovereign debt on the market, but also bought up all kinds of securities with the purpose of bringing fresh money into society. This is known as “quantitative easing” (QE) which really gets going in 2015.

The Key Interest Rates

Three different interest rates are meant by “key interest rates”, which are explained below using the example of the ECB:

Interest Rate on the Main Refinancing Operation

This interest rate is the ECB's main key interest rate and is therefore often referred to as [the]{.underline} key interest rate. At this interest rate, a limited amount of central bank money is made available to commercial banks in a weekly tender procedure (a kind of auction). Debt instruments are deposited and fresh money is made available in return.

Marginal Lending Facility

At this interest rate, banks can obtain liquidity from the ECB on an unlimited and “overnight” basis, if they have provided appropriate collateral. Since a commercial bank will not be prepared to pay a higher interest rate than the rate on the marginal lending facility in the event of short-term liquidity needs in interbank trading, the interest rate on the marginal lending facility effectively represents the upper limit to the interest rate that can be charged on overnight deposits in the open market.

With these key interest rates, the ECB can try to stimulate the lending business of the banks and in society in general. If it demands only low discounts when accepting good debt instruments – this is the idea – then it is economically viable for the banks to demand lower interest rates when granting loans, at least to good debtors.

That happens on the one hand. The interest rates on loans in society are falling sharply. Companies and consumers go into debt on a large scale. However, this does not translate into significantly expanded economic growth. GDP growth rates remain low. More on the reasons in a moment.

Above all, low interest rates do not create a new solid basis of trust between the banks, which in normal times allow each other the degree of liquidity they need for their expanded lending operations. The ECB can see this in the use of the third key interest rate principle:

Deposit Facility

At this interest rate, banks can deposit excess central bank funds in the ECB until the next business day. Since no commercial bank will settle for a lower interest rate when lending money in interbank trading, the deposit facility will normally constitute the floor of the overnight market interest rate.

The large deposits that the banks make here are disturbing the ECB. It wants the banks to borrow money from each other overnight, if they have any left over. It lowers the deposit facility into negative, that is the so-called penalty interest rate. Banks now lose money if they have money left over at the end of the day and park it at the central bank.

The ECB is still adhering to this to this day. The fact that it has to do so permanently shows that it is not in its power to use its interest rates to stimulate commercial banks to lend to each other without further ado.

General Conclusion on Key Interest Rates and Their Effect

By lowering interest rates, the central bank tries to give the banks quantitative incentives to solve a qualitative dilemma.

Companies do not want to go on the offensive by incurring large amounts of new debt, either because they are concerned about their own solidity as debtors or because they do not see the right opportunities. It is also possible to combine them as follows: Because the companies are worried about their creditworthiness and do not dare to take credit risks, there is no prospect of earning more money from each other in society, and that is the best reason not to take any more risks.

The accumulation of industrial and commercial capital, which is usually based on the general use of new credit, is not progressing because the individual capitals have no confidence that the other individual capitals want to expand with the help of credit and see this as a reason for not taking credit for the expansion of production and trade capacities. The confidence in their own progress is gone. The reason why this does not get into a continuous negative cycle is that world money has placed itself behind all credit chains.

Loans are indeed used extensively, but for other purposes:

Where potent companies make money and thus gain creditworthiness for additional loans, this is also partly used. They draw credit lines or issue bonds and buy back their own shares. This is a kind of price maintenance, because with the reduced proportion of shares in the world, each individual share then stands for a higher share of the dividend cake. That's what makes each stock rise in price. One also hears of lavish dividend payments during this period – another instrument of price management. But all this is not a start of expanded production.
Furthermore, takeovers of companies by powerful other companies are taking place – credit-financed. However, this is also only a centralisation, i.e. a growth in size of a company, without any overall growth.
Not so potent companies take the cheap credit to stay alive. They use it to pay off their old debts and the interest on the old debts. Not because the business outlook is improving, but because those who would have been the casualties of the 2008-2012 crisis are still able to keep their heads above water at 2% interest (instead of 5% as in the pre-crisis period) and refinance their old debts despite poor business. Thus the new economic trend is accompanied by the worried reporting in the financial press about so-called zombie companies.²⁸ Their business is going so badly that an interest rate hike by the central bank to 2% (which would still be below the pre-crisis level of 2007) would break their necks.

A similar dilemma arises with the banks. They have become cautious among themselves, the trust in the credit chains they grant each other is gone. Moreover, since 2007 they have been increasingly urged to be cautious by the regulators. The central bank can stop the settlement if mistrust persists, but it cannot inspire confidence in mutual credit relations.

In addition, the central bank's program has another catch for the banks. While companies are at least able to do better in terms of servicing interest with low interest rates and continued refinancing, the banks (insurers and all other financial market players) have to realise that the low interest rates are putting the banks' remaining business at a lower profit. A loan to a company with formerly 5% interest rates, which now expires and is refinanced with a new loan of 2% interest, is still profitable business for the banks, but with a worse return. For the same amount of profit, now much more credit mass is needed. This increased credit mass is also achieved to some extent while the creditworthiness of the debtors continues to deteriorate.

The State, for its part, does not provide any impetus for business life initiated with new credit – at least not in Europe (unlike in the US, where Trump implemented major corporate tax cuts financed by debt). Germany is pursuing a programme of the black zero, i.e. it is not creating new net debt. This also reflects the fact that Germany is worried about its creditworthiness, has no ideas what to initiate and is relying on signalling to the financial world: We are very careful and cautious with our credit.

For Germany, the calculation works out to the extent that its bonds, as a safe haven in times of continuing mistrust in credit, are in such demand that their yields are also sliding into the red. This means that Germany can even reduce its gross debt to some extent without any austerity measures.

For the competing economies in the Eurozone, the trend is not quite as good. Although interest rates on sovereign debt are falling, the status quo with its lousy growth figures and, above all, horrendous unemployment figures calls for a credit-financed programme of departure. Germany and other countries in the northern hemisphere are preventing this by vetoing it. They insist that the Maastricht and Euro stability criteria should remain valid.

Thus, the Euro countries are not providing the impetus for an economic recovery plan in the form of increased sovereign debt.

The ECB analyses the situation differently. Instead of admitting to itself that it had the power to stop the settlement of the old credit relations, but that it does not have the power to create new confidence for an extension of the credit relations between the banks, but above all to control the way in which the increased credits are used in the corporate world, it recalls its mission: a healthy economic development is expressed in 2% inflation. However, inflation is virtually non-existent in the Eurozone, and a state of deflation is looming.

Instead of the prices of all goods rising slightly, prices in general threaten to fall. Thus, the value of a hoarder's money would constantly increase without further effort. Then, according to the logic of the central bank, consumers will not spend anything at all, because a delayed sale would increase the quantitative power of access of money, and the capitalists do not want to invest more because the money is later worth more by itself.

The objective state in which no one really trusts in credit, but the cancellation of the credit prolongation is stopped; where then companies lower the prices of goods in order to get something out of the market and/or delay their demise (which is also possible with low interest rates in the matter of credit prolongation), the central bank translates ideologically as a state of too little money mass in society.

The interest rate cuts do not seem to be enough for the necessary money mass and now the central bank is entering the financial market more directly. With newly created central bank money, it is buying up a lot of securities itself (i.e. without waiting for the banks to bring them to it).

Quantitative Easing ECB: Expanded Asset-Purchase Programme (EAPP)

Quantitative easing refers to central bank programmes that aim to actively buy up securities on the market. Thus, instead of waiting for banks to show up at the central bank with well-rated promissory notes to exchange them for fresh money at the key interest rate, the central bank itself actively enters the securities markets.

This has been practised in Japan since 2001 and serves as a practical model for the other central banks for this instrument, which was rather unconventional until the financial crisis of 2007.

Japan intensified this instrument already at the beginning of the financial crisis in 2007 and the USA, UK and the ECB started in 2009. in the crisis years, the instrument had more the function of stopping the threatening fall in the price of securities. Now the instrument is being expanded to stimulate the economy. The ECB started the EAPP (Expanded Asset-Purchase Programme) in 2015.

This means that the central bank itself determines how much fresh money it injects into society. This initially ends up with the owners of securities, from whom the central bank buys the securities.

Objectively, the central bank has no control over what they do with it. It seems that they immediately put the fresh money into new securities and thus triggered an astonishing stock market boom, which, however, was not accompanied by a clear economic upswing. Likewise, the fresh money seems to have fueled an astonishing real estate speculation.

To the extent that the desired effect (inflation and economic recovery) did not occur, central banks became more radical. Instead of buying up – as was initially the case – only halfway secure sovereign debt, they bought more and more bonds from banks and companies with a poorer credit rating.

Apparently, the same effect ensued: The stock markets and property prices are exploding, the economy is making only slow progress, inflation is not coming (at least in the Eurozone and in Japan).

In the US, in 2017, in view of slightly better US economic figures (evoked by Trump's radical tax cut with the help of enormous expansion of the sovereign debt), the Fed comes up with the idea of raising its key interest rates well above zero again and slowly scaling back the QE programme. Due to the negative impact on the economy as a whole (see the debate above on zombie companies), the Fed has repeatedly interrupted this attempted “return to normality” and left it alone for the time being at the end of 2019. In the summer of 2019, there were even distortions on the US repo market, where commercial banks lent each other overnight money and deposited US government bonds as collateral. Not even this business with the world's safest debt as a default guarantee was easily trusted by the commercial banks. The Fed had to intervene.²⁹

The Global Economy in Early 2020 – A Conclusion

In 2007, the global economy was on the brink of collapse because a banking crisis threatened to drag everything down with it. Some things were also torn down, but the settlement was held up with sovereign debt.

In 2010, the Eurozone was on the brink of an abyss because a sovereign debt crisis had broken out and threatened to drag everything down with it. Greece was clearly torn down, but with the help of the European central bank (and the help of the central banks among themselves) the general settlement was halted.

On this basis, a new economic growth emerged that is tentative. While central banks may be able to prevent the widespread mistrust in credit from turning into a general settlement, they cannot create new confidence in the business world to use the expanded credit to create significant new expanded economic growth, which then justifies the credit and, on this basis, expanded credit. There are too large outstanding claims by capital (in the form of debts and existing production facilities) in the world for the exploitation of the proletariat to promote such extended credit expansion, which then leads to even greater exploitation of the proletariat, which could then justify the old and new claims.

What is interesting here is the disintegration of different monetary functions: As a measure of value, it still works. Measured against the world of goods, no general devaluation can be detected. It continues to function as a commanding power over the labour of society, and profits are certainly made in production, at least in the more successful countries like Germany, the USA and China. Only its function as money capital is broken. If you take a very superficial look at this economy (at least until the end of 2018), there is not much to see of a crisis.

The return to normality, as it applied from 1945 to 2007, can only be achieved with a destruction of capital (to the extent that it existed in the period from 1928 to 1945). The claims would have to be decimated so that the economic growth created by new loans would then only have to justify the new loans – and not the old ones.

The states and central banks do not want to allow this capital destruction. The question is how long financial capitalists will somehow go along with this uncertain situation without turning their speculation against the level that is currently the holding line: targeting one of the world currencies.

There has been global economic growth since 2013, but it has been tentative. However, this was already slowing down in 2018. And then comes COVID-19.

The Corona Pandemic is Prompting the Major States to take Measures, including Comprehensive Business Restrictions

The majority of states are convinced that the new corona virus is not simply a new conventional type of flu. Most states can be convinced that a concept of herd immunity (i.e. letting it run) is not desired.³⁰

Social distancing is intended to reduce infection rates, so that time can be gained to better understand the virus, develop vaccines and, in the meantime, not to overburden the health system.

Businesses are temporarily closed, and in some cases production is discontinued or significantly reduced, either directly or indirectly (through businesses closing down).

Even if – as in every crisis – there are some crisis winners at first (food trade, pharmaceuticals, online services), a universal economic crisis has been initiated on a general scale. Suppliers for production are failing and sales of goods are stagnating.

Companies initiate a tremendous mass unemployment, which affects solvent consumer. Companies cannot easily pay their old debts. Securities threaten to be worthless. Panic selling is taking place on the securities markets. The tax revenues for 2020 are falling. Investors are withdrawing their money from countries whose currencies are weak. This plunges the countries comprehensively into a crisis and applications to the IMF skyrocket.

Countermeasures by Governments and Central Banks

The states, that are able to, are counteracting the breakdown of their economies with the help of extensive sovereign debt (taxes are collapsing for the time being anyway) and central banks, that are able to, do it with extensive fresh money.

All the previously listed instruments to halt a financial and sovereign debt crisis are now being used on an even larger scale. What is new is that the states now not only want to help the financial sector to maintain the system, but also to provide extensive support to companies and wage labourers.

In the following, we give an overview of the important actors, origin of the money, measures and target groups.

The State

State – Sovereign Debt – Unemployment Benefits – Employees and Self-employed

In one way or another, extensive unemployment benefits (furloughing schemes and basic security are meant here too) are introduce. Assistance to self-employed persons is also partly covered here. These services are not a loan to the recipients, but simply payments.

The State pays for this aid directly through sovereign debt – supplementary budgets are adopted and these are financed purely by loans.

State – Sovereign Debt – Liquidity Assistance – Companies

The state grants loans to companies (in Germany, tiered according to size) so that they can continue to meet their payment obligations (old debts, rent, etc.) in the event of a collapse in income and, to some extent, maintain production on a smaller scale (buy new raw materials, pay wages, continue to pay rent).

These benefits are a credit for the recipient – they have to be repaid later, i.e. they have to be earned at some point, or replaced by new credit.

Ultimately, these loans are also financed by sovereign debt. But this is partly mediated here. For example, Germany: The Federal Government takes on new debts and deposits a certain amount as a default guarantee for its KfW bank (Kreditanstalt für Wiederaufbau). This bank in turn takes up a higher credit volume due to the additional funds, thus contracting more debt. This new total volume is in turn the default guarantee for the loans that the private banks are ultimately to pay to the companies. In some cases, loans are also granted directly by KfW to companies.

State – Sovereign Debt – (Partial) Nationalisation of Companies – Companies

Large companies that the State considers critical and for which the measures are not sufficient to avoid insolvency are partly bought up by the State. Especially in aviation this is done in many countries. With its money the State keeps the company alive, pays the old debts and keeps the production of the company going for the time being. The State finances this with sovereign debt. The hope is that in later years, when aviation is back to “normal”, the State will be able to sell its shares again and thus pay off the debts it has taken on.

For example, in the UK train companies have effectively been renationalised.³¹

State – Sovereign Debt – Tax Relief – Companies

For example in Germany, the reduction of VAT or the advance crediting of losses in 2020 against the tax payment for 2019 is intended to relieve companies and stimulate domestic demand. This implies reduced tax revenues for 2020, which – unless government spending is cut, which is not currently planned – will have to be financed by a further debt-financed supplementary budget. This did not happen in the UK.

State – without Money – Deferral of Rent Payments – Workers and Companies

By decree, the State releases the tenants from the obligation to pay the rent on time. However, the obligation to pay rent remains, it must be paid up later, the money must be (re)earned in the future. This was done in Germany. In the UK there was an eviction holiday.

State – without Money – Changes in Financial Market Legislation – Banks/Financial Market Players

Some states prohibit short sales for a limited period of time by regulation.

In short sales, a financial market player borrows a block of shares for a fee. This is sold in speculation on falling prices, later bought again at a lower price and returned to the creditor. In normal times, this action is considered and allowed as a liquidity-providing action for the stock exchanges.

In times of falling prices, this action is prohibited as an additional contribution to a stock market crash. As of 16 April Spain, Italy, Belgium, Austria, Greece and France have implemented such measures.

By regulation, the states (or the financial supervisory authorities) allow the banks to take more risk in their lending. They are allowed to give more loans relative to their equity capital compared to previously. These equity capital requirements were meant to force banks to have collateral for defaulting loans. This is intended to encourage the continued granting of credit in times of imminent cancellations of credit extensions.

For example, as of 2 April 2020 the US central bank, the Federal Reserve (Fed), relaxes the debt rules for major banks. US government bonds are now no longer considered assets of a bank that need to be backed with capital. This should increase the liquidity of the banks. The rule will apply for one year for the time being.

States in “Cooperation”

EU States – Taxes – Grants – Individual EU countries

The EU Commission decides to allocate funds to weak states for additional health care expenditures. This is done simply by reallocating money from the EU budget, which was filled with taxes of the EU member states. The sums are not high. For the beneficiaries these are grants, not loans with a repayment obligation.

EU States - without Money - Flexibilisation of Stability Criteria – all EU States

The EU States release themselves from the obligation to adhere to certain budgetary principles, if they are an obstacle to the management of health emergency.

Previously, the following applied. The ratio of total debt to GDP must not exceed 60% (although many states do this, get letters of reprieve for it and have to justify how they are planning to remedy the situation, e.g. by incurring even less net new debt than normal permitted).

Furthermore, the ratio of net new debt to GDP must not exceed 3%. As a rule, more stringent attention is paid to this.

The new rule is: for a limited period of time and in a flexible way they allow each other to incur more debt.

EU States – National Sovereign Debt Leveraged – Loans – Individual EU Member States

The EU States have the European Investment Bank (EIB). 200 billion Euros are available here for small and medium-sized enterprises. These loans must be repaid.

EIB funds are organised through loans on the capital market. The EIB's creditworthiness is excellent because its owners are the EU States. They support the EIB in its borrowing activities on the capital market through paid-up deposits or guarantees. In this respect, the EU States enter into commitments here.

The EIB's Management Committee decides on the distribution of the funds, which must be justified to the EU Member States. The EIB's borrowers are states, regions and companies. The loans must be repaid.

In addition, the European Commission will support wage labourers with 100 billion Euros through the “Sure” short-time working programme. Here, too, national guarantees leverage an EU loan, which will then be passed on to the individual EU States as a loan.

In addition, there is to be an “EU Reconstruction Fund” from the EU for the EU States to the amount of EUR 750 billion. This money will be used to initiate or support research in the EU. The EU Commission is to be authorised to raise this money via bonds on the financial markets. In this respect, this fund contains a reflection on the possibility that mere national extended borrowing could trigger speculation against individual countries and their sovereign debt.

Details on the distribution of the funds and the long-term servicing of the loans by the EU are still under discussion. It could be that the details, or even the principle of the new type of debt, will break open the smouldering conflict in the EU over communal debt (as of 7 June 2020).

Euro States – National Sovereign Debt – Support for Medical Tasks – Euro Countries with Weak Credit Ratings on the Financial Markets

The ESM (European Stability Mechanism) – born in the Sovereign Debt Crisis in 2012 will be modified. The ESM currently has 410B€ at its disposal (it is 600B€, but there are countries that have used it in the past: Greece, Ireland, Portugal, Spain and Cyprus)

Every Euro State commit to put money into the ESM pot in the case of an emergency. In this respect, no money needs to be mobilised now and the sovereign debt will not be increased in real terms. Nevertheless, this is a form of sovereign debt, because if need be the money has to be paid and this can only be done by a real expansion of the sovereign debt.

On the basis of the national commitment entered into, the ESM has credit in the financial markets and permission from the national states to take this credit when it matters.

As of 10 April: The compromise provides for the ESM to provide loans of up to 240 billion Euros. Under the scheme, these loans must be used directly or indirectly for the health sector; see the following point.

Euro States – National Sovereign Debt – Making it Possible to Fulfil one's Obligations to the Financial Market – Euro States with Impending Sovereign Debt Crisis

ESM loans for other expenditures will continue to be subject to strict conditions (austerity programme and monitoring, known from Greece).

Any Euro State whose sovereign bonds come under pressure on the financial markets can fall back on the ESM pot and signal to the financial world: “I can pay you off if you want – so you don't need to speculate on the default of the debt”.

Note: This procedure is close to transforming sovereign debts into communal debts. Nevertheless, the construction is such that it is clear that this is a situation where nation states, in agreement, help other nation states. The debts are not communal debts.

On this procedure, the AfD founders have precisely emphasised the communitisation of debts and rebelled against it.

Proponents of communitised debts wanted Eurobonds then as now. In addition to German sovereign bonds, Greek sovereign bonds, etc., the Euro group was to issue Euro sovereign bonds. Here initially Germany, the Netherlands and some other countries objected. However, the above-mentioned “EU Reconstruction Fund” is now to be used to issue EU bonds.

IMF States – National Sovereign Debt – Making it Possible to Fulfil Obligations to the Financial Market – States with Existing or Impending Sovereign Debt and Currency Crisis

Investors from all over the world are currently withdrawing their investments in emerging markets and poorer countries. This is causing currency collapses. In the past, states and companies have contracted their debt in a foreign currency (usually dollars).

With the currency decline, it becomes even less likely that these debts can be paid in dollars (this is a terrible simplification here) and the State is threatened with a collapse of its economic life and the financing of its State activity.

The rich countries of the world take this as a problem for themselves:

When states collapse, they fail as a place of business and as an import and export market for the global players. In addition, regulatory problems arise (refugees, danger of epidemics, Islamist groups).
The defaulting debt payments affect the lenders (i.e. the banking world of the rich countries).

The world economic order since 1945 has thus afforded itself the IMF to prevent or mitigate such scenarios. Now a great many countries need the “help” of the IMF. The IMF grants loans with conditions (structural adjustment measures = austerity policies). This enables the faltering states to maintain their state activity, support currencies and pay off debt obligations. The money for this is mobilised by the rich countries themselves by increasing their sovereign debt.

Because this is currently mobilising unmanageable new masses of credit and the rich countries will at some point have to worry about their own creditworthiness, there is now a proposal that the poor countries should be able to suspend their debt payments (deferral with the obligation to pay later) or even allow partial debt relief.

Partial debt relief means that banks and states sit down together and decide: The debtor state, for example, is forgiven half of the debt. It can then continue to service the remaining debt from its own resources (or with the help of the IMF).

For creditors, this means that they can write off part of their claims which is bad, as it may cast doubt on the soundness of creditors' balance sheets and then again make additional rescue measures by the states necessary for the banks. The “advantage” of debt relief: Creditors can be sure that some part of their claims will be met. This is good compared to the threatening situation where a state decides to simply not service any more debt.

In general, debt relief or rescheduling has a precarious side: it makes it clear that sovereign debt is not a safe haven.

Interim Conclusion as of 07 June 2020

Depending on the method of calculation, one arrives at different sums of money which the states mobilised in terms of credit. In the case of guarantees, there is the possibility that they will not be drawn on at all; in the case of nationalisation or loans granted to companies, there is also the possibility that this money will flow back to the State, depending on the development of the economy.

It is, however, undisputed that the sovereign debt of all countries and especially of the capitalist centres is increasing at a “historic rate”.

For example, for Germany Dobrindt (a conservative German politician) arrives at 1400B€ at the end of March (i.e. before the second supplementary budget and the EU reconstruction fund) for all aid packages of the German government (guarantees, emergency aid, liquidity aid, loans, etc.). In contrast, the Federal Government reported the following amount in mid-May: “The total amount of measures affecting the budget is EUR 353.3 billion and the total amount of guarantees is EUR 819.7 billion.”³²

Including the second supplementary budget of the Federal Government and the economic forecasts in June, the Institut der Deutschen Wirtschaft Köln (Institute of the German Economy, Cologne) calculates for Germany:

	2019	2020	2021
Level of debt	2053B€	2667B€	2797B€
Debt / GDP	59,8%	81,4%	80,0%

Example USA: The US Senate, Congress and the White House agreed on the largest rescue package in American history. It's worth around $2 trillion.

Central Banks

Central Banks – Creating Money – Refinancing Aid through Interest Rate Cuts – Banks and Brokers, all Borrowers

From the central banks, private banks receive fresh money in “exchange” for securities with good credit ratings. The procedure varies from country to country: the securities are sold to the central bank or only deposited temporarily (in which case there is a “buy-back” obligation). In any case, this costs a fee in the form of a discount on the interest on the securities. This is one of the important key interest rates.

The reduction of the base rate (i.e. the fee) is intended to facilitate the supply of fresh money to banks. On the one hand, this should help them to meet their credit obligations. At the same time, it should encourage them to grant loans with low interest rates to others (states, other banks, companies).

Example USA, as of March 16: The Fed cuts its key interest rate almost to 0%.

Central Banks – Creating Money – Buying up Securities – States and Banks

The central banks create money and use it to buy securities of all kinds on the financial markets. This is to keep them in value and to signal this to other participants: You can sell securities if you feel that they are not as profitable as others in relative terms – you can use the money you make to buy other securities. However, you don't need to sell securities just because you believe that soon there will be no more buyers on the stock exchange, so everyone just wants to sell. Then all goes to shit. This does not happen because I, the central bank, am now a buyer.

An example from the ECB, as of 19 March: The European Central Bank's (ECB) aid programme, the so-called Pandemic Emergency Purchase Programme (PEPP), which it had presented the evening before, comes into force. According to this programme, bonds issued by companies, banks and governments can be purchased to the amount of 750 billion Euros. It is also the first bond programme that includes Greece. The aim of the central bankers: to nip in the bud any possible speculation on illiquidity of debtors and a consequent fall in the value of securities.

“Although the real economic development looks very bleak as a result of the Corona crisis, the Dow rose again by up to almost 30% from its low on 23 March. What is the reason for this? (…) Once again, the confidence of financial market players is likely to be based primarily on the extraordinary measures taken by central banks. According to Jung, the G4 central banks – including the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan – announced liquidity injections of $2.7 trillion between mid-March and mid-April, with two-thirds of the funds coming from the Fed. This was more liquidity than the G4 central banks had provided at the height of the financial crisis in 2008 and 2009. At that time it was $2.5 trillion – within 12 months.”³³

Central Banks – Creating Money – Negative Interest Rates for the Deposit Facility – All Those who Depend on Credit

If banks have cash on hand at the end of the day, after all settlements of mutual debts with other banks, they park it as book money on the account at the central bank. In normal times (i.e. before the Great Recession) there is even an interest rate for this. In the abnormal times that have prevailed for the last 10 years, several central banks are charging an interest rate. In this way, it wants to encourage banks to grant more loans than to keep a liquidity surplus at the end of the day. This is intended to serve all those who are dependent on continuous credit from the banks (states, other banks, companies.)

The Six Major Central Banks – Balance Sheet Expansion – SWAP Arrivals – The 6 Major Central Banks

As in the times of the Sovereign Debt Crisis (but now more limited for the time being), the central banks are promising to support each other with favourable credit lines.

“The US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada and the Swiss National Bank want to counteract the economic effects of the Corona crisis. As they announced on Sunday evening, they want to strengthen US dollar liquidity in the global capital markets. For example, starting Monday, the price terms of the existing US dollar swap agreements will be reduced by 25 base points (0.25 percentage points). The new rate is the so-called Overnight Index Swap (OIS) for US dollars plus 25 basis points. The new conditions are intended to remain in force as long as is appropriate to ensure the functioning of the US dollar financing markets. As the SNB points out in its communication, swap lines are an important liquidity hedge to reduce tensions in the global financing markets. Negative consequences for the supply of credit to households and companies at home and abroad are to be cushioned with the measures that are coming into force.”³⁴

“In order to increase the effectiveness of swap lines in the provision of US dollars, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank (SNB) have agreed to increase the frequency of operations with a seven-day maturity from weekly to daily. These daily operations will start on Monday 23 March 2020 and will last at least until the end of April, as announced by the SNB on Friday. The central banks will continue to conduct weekly operations with a maturity of 84 days.”³⁵

Central Banks' Balance Sheets

Immediately before the financial crisis, the balance sheet total of the ECB was about 1.5 trillion Euro and then rose sharply to approx. 2 trillion Euro. The year 2014 is then of interest: from that year onwards, there was a steep increase in the balance sheet total from 2 trillion Euros to about 4.8 trillion Euro in 2018. This level was then maintained until early 2020. In the course of the Corona crisis, a strong increase (up to now to 5.5 trillion Euros) has been recorded again. The increase between the end of 2014 and 2018 is practically only due to bond purchases. The total amount of bonds purchased rose from 0 to approximately 2.6 trillion Euros worth. Overall, the money supply created by the ECB has tripled within 9 years.

The development at the Fed was similar: before the crisis, 1 trillion USD, then a rapid rise to 2 trillion USD and a subsequent increase to 4.5 trillion at the end of 2014 when it reached a plateau. At the beginning of 2018, the Fed – in contrast to the ECB – began to reduce its balance sheet total, which reached a level of just under 4 trillion USD in mid-2019. It reached a temporary low in mid-2019, but rose again at the end of 2019. In the wake of the Corona crisis, total assets have been increased to (for the time being) 7 trillion USD. so since 2008 we have seen a sevenfold increase in total assets.³⁶

Conclusion

This debt-financed crisis mitigation programme will increase the mountains of debt on all sides. Future growth must then justify this.

Two possible development paths are currently being discussed in the business press.

There will be a V-shaped recovery. Now a quarter of significant economic collapse, then, if the pandemic measures are eased, first a slow and then a more significant upswing.
There will be a severe disaster for all sectors of the economy in all countries.

On the first: If this were to happen, it would escalate the hardship of the global economy from the period between 2012-2019. The upswing would anyway only express that the production capacities that have been cut back are increasingly being restarted. A new credit-financed global economy will not yet come about in this way. It remains to be seen what the planned reconstruction programme of the EU states will achieve. If it comes to that, sovereign debts will at least rise considerably, and only then will we see what economic growth this will bring.

On the second: If the financial markets speculate against one of the world's currencies, then the only thing that helps is the mutual assurance of the world money central banks to lend to each other without restriction. This may well not happen due to the competition between economies. This threatens produce a local slump, which is guaranteed to have an impact on the other regions. How strong, we will then see. Alternatively, the world money central banks give each other unlimited credit and then finance capital speculates against all world money. Then everything is fucked.

Either way, it is clear that the working class will be liable for the successful economic growth as well as for the crisis.

Money and private property are not clever mechanisms for the supply of goods in a society based on the division of labour, but the basic principles under which material life, work, the division of labour and the means of production are bent – within developed capitalism then in the complicated but appropriate way this text has explained.

Appendix 1: Some Economic Data

GDP Growth

Preliminary EU:

“Overall, the growth rate of real GDP in the EU-27 countries rose from 1.8 to 3.9 percent annually between 1996 and 2000, then fell to 1.2 and 1.3 percent respectively until 2002/2003 (2000 was the crisis of the so-called growth stock markets, the crisis slowly spread to the entire economy until 2003; author) and rose again to a value of 3.3 percent until 2006. While growth in 2007 was also high at 3.0 percent, it was already influenced by the crisis in 2008”.³⁷

EU and Eurozone

2008/2009: Collapse of economic growth
2010/2011: Slow rise in GDP
2012: Another slump
2013: Still falling, but less severe and the beginning of the economic recovery
2014-2017: Growth rates of 2%
2018: Slowdown in growth (last quarter: 1.2%)

Specificities of individual countries (2014 to 2017 only):

Italy's economy developed below average: 2014 - 0.1%; 2015 - 0.9%; 2016 - 1.1%; 2017 - 1.7%.
Greece is almost in a permanent recession.
Germany's development is average, but in 2018 it will bypass a recession.
Spain above average with 3% growth.
France is below average with approx. 1% in 2014-2016, then 2.2% in 2017.
UK on average, but there is already a definite drop to 1.4% in 2018.

The following applies to almost all countries: Hardly any country can match the high growth rates of 2007. All of them are significantly below this level. Poland and Slovenia, for example, which had growth rates of around 7% back then and will now continue to grow by around 3% in the period 2014-2017.

Global Economy

2010: 5.4%; 2011: 4.1%
Thereafter relatively stable at 3.2-3.7% until 2018

USA

Slump in 2008 and 2009
2010 to 2017 somewhat erratic between about 1.5% and 2.9%

Japan

Slump in 2008 and 2009
2010: 4,2%
2011: -0,12%
2012 to 2016: Erratic growth between 0.4% and 2%

China

It is never in a crisis, but high growth also gets a kink in the financial crisis.
Otherwise continuously declining growth rates from 2010 - 10%; 2012 - 8%; 2017 - 6.9%.

Unemployment

Eurozone	7.3%
Greece	16.3%
Spain	13.6%
Italy	9.7%
France	8.1%
German	3.2%

: February 2020

Overall Decrease

Eurozone peak in 2012: 12%
Then each year, a little less than 1% decrease.
The outlier here is France, which reached its peak in 2015.

Appendix 2: What is Central Bank Money, What is Book Money and What Happens in a Bank Transfer?

The Euro is the common currency in the Eurozone. Euro banknotes and coins are legal tender. Only the central banks – in Germany the Deutsche Bundesbank - are allowed to put it into circulation. They do this on behalf of the ECB. Even if this is not 100% correct in some fields, one can imagine in the following that the Deutsche Bundesbank is a kind of branch of the ECB.

Cash is put into circulation by the Deutsche Bundesbank via the commercial banks' business accounts. Every German commercial bank has an account at the Deutsche Bundesbank (the sort code is the account number of a commercial bank at the Deutsche Bundesbank) and can withdraw cash from its balance. This credit balance then decreases. Cash transport companies transport the Euro banknotes and coins in armoured vehicles from the Bundesbank to the commercial bank. If a commercial bank deposits cash at the central bank, its credit balance at the central bank increases. Balances at the central bank can therefore be converted into cash – and cash back into balances.

Balances with the central bank and cash are grouped together under the umbrella term “central bank money”. This is in distinction to the book money of commercial banks, i.e. the money that all sorts of people or companies have in their account at a commercial bank. This money is called "fiat money". These database entries represent an obligation of commercial banks to their customers that these amounts can be converted into cash at any time. Furthermore, the commercial bank undertakes to ensure that an account holder can make payments by bank transfer. For these transfers between commercial banks, the commercial banks require central bank balances. Here are a few examples:

When Mr. Maier, a Commerzbank customer, transfers money to Mrs. Müller, a customer of a Deutsche Bank, his credit balance at Commerzbank decreases. At the central bank, the amount is transferred from the Commerzbank account to the account of the Deutsche Bank. The Deutsche Bank credits the amount to Mrs. Müller's account. Central bank balances are only ever transferred to accounts at the central bank. Customer balances at commercial banks are not central bank money.

If on one day the many customers of Commerzbank transfer one million euros to the customers of Deutsche Bank and at the same time the customers of Deutsche Bank transfer one million euros to the customers of Commerzbank, then this balances out on the balance sheet. The many individual accounts of the customers have changed. But the accounts of the two banks at the central bank are each as high as before. If on one day the many customers of Commerzbank transfer one million euros to the customers of Deutsche Bank and at the same time the customers of Deutsche Bank transfer two million euros to the customers of Commerzbank, this results in a balance sheet surplus of one million euros. Commerzbank's account at the central bank increases by one million euros, and this million euros is deducted from Deutsche Bank’s account.

When Commerzbank customers transfer one million euros between themselves, these transactions are recorded within Commerzbank. Nothing happens with the central bank.

If a commercial bank grants a company a loan of over €1 million, then this is book money for the time being – it is created by the commercial bank. If the company then makes transfers and this only ends up in accounts that are themselves with the commercial bank, then it remains the same: this book money is a claim against the bank to convert it into cash at any time, only that the owner of the claim has changed. But as long as no cash is demanded and transfers only take place between accounts within the commercial bank, this does not affect the central bank balance of the commercial bank at any point. However, when book money moves back and forth between commercial banks, balance sheet surpluses are claimed as movements on the accounts of commercial banks with the central bank.

Commercial banks must therefore ensure that they only use book money in their lending operations to the extent that the use of this book money by capitalists or other customers does not cause their balances of central bank money to run out. The refinancing procedure, under which the commercial banks can obtain fresh central bank credit against the sale (discount procedure) or the deposit (Lombard procedure) of promissory notes with a good credit rating, thus secures the commercial banks' lending or, if necessary, encourages them to calculate at a higher risk. With the key interest rate of this refinancing, the central bank makes obtaining fresh central bank money “more expensive” or “cheaper”.

available at https://antinational.org/die-wirtschaftskrise-2008-bis-juni-2020-und-die-staatlichen-massnahmen-ein-seminarskript/ ↩
This approach is nicked from a nice lecture by Peter Decker of GegenStandpunkt, who chose it in a talk on the book “Finance Capital” (see https://en.gegenstandpunkt.com/books/finance-capital), available (in German) at: https://youtu.be/btOh9T9q9CY ↩
“This property of a commodity is independent of the amount of labour required to appropriate its useful qualities.” (Karl Marx, Capital Volume 1, p.126) ↩
Karl Marx, Capital Volume 1, p.200 ↩
“The money therefore is not spent, it is merely advanced.” (Karl Marx, Capital Volume 1, p.249) ↩
Karl Marx, Capital Volume 1, Chapter 6: The Sale and Purchase of Labour-Power ↩
Karl Marx, Capital Volume 1, Chapter 23: Simple Reproduction ↩
See What is wrong with free money? available at https://antinational.org/en/what-wrong-free-money/ ↩
Karl Marx, Capital Volume 2, p.124 ↩
Karl Marx, Capital Volume 2, Chapter 1: The Circuit of Money Capital ↩
Karl Marx, Capital Volume 2, Chapter 20: Simple Reproduction ↩
Karl Marx’ Capital Volume 1 to Volume 3 (until Chapter 15) deals with this. ↩
See Financial Crisis 2008ff available at https://antinational.org/en/financial-crisis-2008ff/ ↩
“On the basis of capitalist production, money – taken here as the independent expression of a sum of value, whether this actually exists in money or in commodities – can be transformed into capital, and through this transformation it is turned from a given, fixed value into a self-valorizing value capable of increasing itself. […] In this way the money receives, besides the use-value which it possesses as money, an additional use-value, namely the ability to function as capital.” (Karl Marx, Capital Volume 3, p.459) ↩
“What then is the use-value that the money capitalist alienates for the duration of the loan and makes over to the productive capitalist, the borrower? It is the use-value that money receives through the fact that it can be transformed into capital, that it can function as capital so as to produce in its movement a definite surplus-value, the average profit (anything more or less than this quantity appears here as merely accidental), besides conserving its original value.” (Karl Marx, Capital Volume 3, p.472) ↩
See GegenStandpunkt, II. The development of finance capital’s credit power: The accumulation of “fictitious” capital, Section 2 available at https://en.gegenstandpunkt.com/books/ii-development-finance-capital%E2%80%99s-credit-power-accumulation-%E2%80%9Cfictitious%E2%80%9D-capital ↩
You can skip the point (h), it is quite difficult but not necessary for understanding the principle of capitalist growth here. ↩
The mirror of a call option is a “put option” gives the right to sell but not the obligation. ↩
See Sovereign Debt and the Crisis in the Eurozone available at https://antinational.org/en/sovereign-debt-and-crisis-eurozone-all-parts/ ↩
See “I pay my taxes” – so what?! available at https://critisticuffs.org/texts/taxes ↩
https://en.wikipedia.org/w/index.php?title=United_Kingdom_national_debt&oldid=969870683 ↩
When it was founded in 1974, the Basel Committee on Banking Supervision included the so-called G-10 countries, and now many more. The Basel Committee provides a forum for regular consultations on banking supervision and regulation. Basel I to Basel IV are understood to be recommendations of minimum standards under supervisory law. ↩
In the UK the Bank of England purchased sovereign debt – “gilts” – through its Asset Purchase Facility, but not directly from the state but on the open market https://web.archive.org/web/20100726113941/http://www.bankofengland.co.uk/markets/apf/index.htm ↩
If you are not familiar with the distinctions between cash, central bank money and banknote and book money, jump to Appendix 2 at this point. ↩
See Bitcoin - Finally, fair money? available at https://antinational.org/en/bitcoin-finally-fair-money/ ↩
See GegenStandpunkt, III. The ‘systemic’ importance of finance, and the public power, Section 1b available at https://en.gegenstandpunkt.com/books/iii-%E2%80%98systemic%E2%80%99-importance-finance-and-public-power ↩
For the data and how differences between countries emerged, see #economic-data. ↩
See e.g. How Coronavirus Can Bring Down Zombie Companies — and the Economy http://archive.today/2020.03.16-152939/https://www.nytimes.com/2020/03/16/opinion/coronavirus-economy-debt.html ↩
See e.g. Why is the Federal Reserve pouring money into the financial system? available at http://archive.today/2019.09.21-013759/https://www.ft.com/content/345da16e-d967-11e9-8f9b-77216ebe1f17 ↩
See https://critisticuffs.org/texts/covid-19-and-crisis-20 and https://critisticuffs.org/texts/love-of-the-state-in-the-time-of-covid ↩
See e.g. ONS says UK rail has effectively been renationalised during pandemic available at http://archive.today/2020.08.01-092638/https://www.theguardian.com/business/2020/jul/31/ons-says-uk-rail-has-effectively-been-renationalised-during-pandemic ↩
http://archive.today/2020.07.07-095604/https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Schlaglichter/Corona-Schutzschild/2020-03-13-Milliarden-Schutzschild-fuer-Deutschland.html, our translation ↩
http://archive.today/2020.04.28-115826/https://www.nzz.ch/finanzen/boerse-und-aktien-zentralbanken-schalten-marktpreise-aus-ld.1553500, our translation ↩
http://archive.today/2020.04.28-121344/https://www.fuw.ch/article/corona-krise-notenbanken-spannen-zusammen/, our translation ↩
http://archive.today/2020.04.28-121607/https://investrends.ch/aktuell/news/zentralbanken-verstarken-versorgung-mit-us-dollar-liquiditat/, our translation ↩
On the balance sheet of central banks, the Bank of England has a good primer: Understanding the central bank balance sheet available at https://www.bankofengland.co.uk/ccbs/understanding-the-central-bank-balance-sheet ↩
http://archive.today/2020.08.07-132410/https://www.bpb.de/nachschlagen/zahlen-und-fakten/europa/70549/entwicklung-des-bip, our translation ↩

critisticuffs.org

A Companion to David Harvey's Companion to Marx' Capital, Chapter 1

Introduction

Chapter 1, section 1: use-value, exchange-value, value

Abstract labour

Quality and quantity

Substance of value: congealed abstract labour

Economic laws and common sense

Socially necessary labour-time and productivity of labour

Value-Form Analysis: Commodities and Money

Value

Value-form analysis

Money

Accumulation

Fetish

One Nation

“with a million young people out of work”

“the gap between the richest and everyone else getting worse”

“hard work not rewarded”

“our country risks becoming two nations”

Austerity & Debt Interview

Tell us a bit about yourself? A bit about Gruppen / critisticuffs / kittens journal?

What are we encouraged to think about austerity?

Why is that last bit wrong?

So the state could just collect what it wants in taxes?

Is that an argument for lower taxes from the state’s point of view?

So that’s an argument for higher taxes from the state’s point of view?

Austerity is a policy to tackle sovereign debt. What is the relationship between the two?

How does cutting spending restore trust from investors when state spending is necessary for the economy?

Why does it always seem to be welfare spending which is targeted by cuts? What does the bedroom tax have to do with the UK’s AAA rating?

Would there be any difference in the fiscal policies of an ostensibly left wing government?

Critiquing Corbyn: Capitalism Isn’t About Sharing

A necessary mistake?

How do these necessary things combined create capitalist wealth – and poverty?

Pushing wrong ideas about wealth can’t help those excluded from it

Mistaking the role of the State – a necessary step for any decent leader of the State

The Economists: Notes on CORE’s The Economy, Unit 1

Introduction

The hockey stick

Distributions

Gross domestic product

Reduction to one dimension

Addition, no matter what

Dividing the pie

Much wealth

Specialisation

Technology

Little cake, much work

The travails of capitalism

“I pay my taxes” – so what?!

Taxes are taken by force

You don’t get anything in exchange for paying your taxes – the state spends where it wants

What is the ‘national interest’? Creating the conditions for a capitalist economy

Taxes taken from wages and profits fund the conditions for the misery of wage labour and the continued conditions for making a profit

Our NHS

Economics 101: Immigrants Suppress Wages

Housing Crisis

Build More Housing

Build Affordable Housing

Build Social Housing / Rent Control

"Where there is discord, may we bring harmony"

Covid-19 and Crisis-20

An external shock, for once …

… and the state reacts accordingly

Footnotes

Covid-19 and Harvest-20

Love of the State in the time of Covid

What is the R value of bad ideas? Rumours of the demise of state power have been greatly exaggerated

Science within reason

Who needs a People’s Army when you have the consent of the people

Never gonna give you up: Trump and what elections are for

Godwin’s law: Elections bring opposition to the fore

Two parties, one cup: Elections rely on and ought to affirm unity

Not today, Satan: Elections and moral choices

I can has second term?: Trump and the concession

Vaccine Imperialism: Oh the Humanity

Fantastic thoughts and where to find them: the unabated popularity of the capitalist mode of production

That economy

A necessary practical standpoint

The spontaneous theoretical standpoint of a civil mind