Seventeen Contradictions and the End of Capitalism (33 page)

The resultant unbearable denial of the free development of human creative capacities and powers amounts to throwing away the cornucopia of possibilities that capital had bequeathed us and squandering the real wealth of human possibilities in the name of perpetual
augmentation of monetary wealth and the satiation of narrow economic class interests. Faced with such a prospect, the only sensible politics is to seek to transcend capital and the restraints of an increasingly autocratic and oligarchical structure of capitalist class power and to rebuild the economy’s imaginative possibilities into a new and far more egalitarian and democratic configuration
.

The Marx I favour is, in short, a revolutionary humanist and not a teleological determinist. Statements can be found in his works that support the latter position, but I believe the bulk of his writings, both historical and political-economic, support the former interpretation. It is for this reason that I reject the idea of ‘fatal’ in favour of ‘dangerous’ contradictions, for to call them fatal would convey a false air of inevitability and cancerous decay, if not of apocalyptic mechanical endings. Certain contradictions are, however, more dangerous both to capital and to humanity than others. These vary from place to place and from time to time. Were we writing about the future of capital and humanity fifty or a hundred years ago, we would very likely have focused on different contradictions from those which I focus on here. The environmental issue and the challenge of maintaining compound growth would not have called for that much attention in 1945, when settling the geopolitical rivalries and rationalising processes of uneven geographical development, all the while rebalancing (through state interventions) the contradictory unity between production and realisation, were far more salient questions. The three contradictions I focus on here are most dangerous in the immediate present, not only for the ability of the economic engine of capitalism to continue to function but also for the reproduction of human life under even minimally reasonable conditions. One of them, but just one of them, is potentially fatal. But it will turn out so only if a revolutionary movement arises to change the evolutionary path that the endless accumulation of capital dictates. Whether or not such a revolutionary spirit crystallises out to force radical changes in the way in which we live is not given in the stars. It depends entirely on human volition. A first step towards exercising that volition is to become conscious and fully aware of the nature of the present dangers and the choices we face
.

Capital is always about growth and it necessarily grows at a compound rate. This condition of capital’s reproduction now constitutes, I shall argue, an extremely dangerous but largely unrecognised and unanalysed contradiction.

Most people do not well understand the mathematics of compound interest. Nor do they understand the phenomenon of compounding (or exponential) growth and the potential dangers it can pose. Even the dismal science of conventional economics, as Michael Hudson shows in a recent trenchant commentary, has failed to recognise the significance of compounding interest on rising indebtedness.
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The result has been to obscure a key part of the explanation for the financial disruptions that shook the world in 2008. So is perpetual compounding growth possible?

In recent times there has been a flurry of worry among some economists that faith in the long-held supposition of perpetual growth might be misplaced. Robert Gordon, for example, has suggested in a recent paper that the economic growth experienced over the last 250 years ‘could well be a unique episode in human history rather than a guarantee of endless future advance at the same rate’. His case rests largely on an overview of the path and effects of innovations in the productivity of labour which have underpinned the growth of per capita incomes. Gordon joins with several other economists in thinking that the innovation waves of the past have been much stronger than the most recent wave, resting on electronics and computerisation, that began around the 1960s. This last wave has been weaker in its effects than generally supposed, he argues, and is in any case now largely exhausted (reaching its apogee in the dot-com
bubble of the 1990s). On this basis, Gordon predicts that ‘future growth in real GDP per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99 percent of the income distibution will be even slower than that’. The inherent weakness of the last wave of innovations is aggravated in the case of the USA by a number of ‘headwinds’ that include rising social inequality, problems deriving from the rising cost and declining quality of education, the impacts of globalisation, environmental regulation, demographic conditions (the ageing of the population), rising tax burdens and an ‘overhang’ of consumer and government debt.
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But even in the absence of these ‘headwinds’, Gordon argues, the future would still be one of relative stagnation compared to the last 200 years.

A component of one of the ‘headwinds’, government debt, has, at the time of writing, become a political football in the USA (with many echoes elsewhere). It has been the focus of strident and exaggerated arguments and claims in the media and in Congress. The supposedly huge and monstrous burden debt will place on future generations is again and again invoked to promote draconian cutbacks in state expenditures and the social wage (as usual, of course, to the benefit of the oligarchy). In Europe the same argument is used to justify imposing ruinous austerity on whole countries (like Greece), though it does not take too much imagination to see how this might also be for the benefit of the richer countries like Germany and the affluent bondholders more generally. In Europe democratically elected governments in Greece and Italy were peacefully overthrown and for a while replaced by ‘technocrats’ who had the confidence of the bond markets.

All of this has made it particularly hard to get a clear-eyed view of the relation between the compounding of debt obligations, the exponential growth of capital accumulation and the dangers they pose. Gordon’s concern, it should be noted, was primarily with per capita GDP. This looks rather different from aggregate GDP. Both measures are sensitive to demographic conditions but in very different ways. A casual inspection of the available historical data on total GDP
suggests that while there has always been a loose relation between wealth and debt accumulation throughout the history of capital, the accumulation of wealth since the 1970s has been far more tightly associated with the accumulation of public, corporate and private debt. The suspicion lurks that an accumulation of debts is now a precondition for the further accumulation of capital. If this is the case, then it produces the curious result that the strenuous attempts on the part of the right-wing Republicans and analogous groups in Europe (such as the German government) to reduce if not eliminate indebtedness are mounting a far graver threat to the future of capital than the working-class movement has ever posed.

Compounding is, in essence, very simple. I place $100 in a savings account that pays 5 per cent annual interest. At the end of the year I have $105, which at a constant rate of interest becomes $110.25 the year after (the figures are greater if the compounding occurs monthly or daily). The difference between this sum at the end of the second year and an arithmetic rate of interest without compounding is very small (just 25 cents). The difference is so small it is hardly worth bothering with. For this reason it easily escapes notice. But after thirty years of compounding at 5 per cent I have $432.19 as opposed to the $250 I would have if I was accumulating at a 5 per cent arithmetic rate. After sixty years I have $1,867 as compared to $400 and after 100 years I have $13,150 instead of $600. Notice something about these figures. The compound interest curve rises very slowly for quite a while (see
Figures 1
and
2
) and then starts to accelerate and by the end of the curve it becomes what mathematicians refer to as a singularity – it sails off into infinity. Anyone with a mortgage experiences this in reverse. For the first twenty years of a thirty-year mortgage the principal still owed declines very slowly. The decline then accelerates and over the last two or three years the principal diminishes very rapidly.

There are a number of classic anecdotes to illustrate this quality of compounding interest and exponential growth. An Indian king wished to reward the inventor of the game of chess. The inventor asked for one grain of rice on the first square of the chessboard and
that the amount be doubled from one square to the next until all the squares were covered. The king readily agreed, since it seemed a small price to pay. The trouble was that by the time it came to the twenty-first square more than a million grains were required and after the forty-first square (which required more than a trillion grains) there simply was not enough rice in the world to cover the remaining squares. One version of the story has the king so angry at being tricked that he had the inventor beheaded. This version of the story is salutary. It illustrates the tricky character of compounding interest and shows how easy it is to underestimate its hidden power. In the later stages of compounding the acceleration takes one by surprise.

An example of the dangers of compound interest is illustrated by the case of Peter Thelluson, a wealthy Swiss merchant banker living in London, who set up a trust fund of £600,000 that could not be touched for 100 years after he died in 1797. Yielding 7.5 per cent at a compound rate, the fund would have been worth £19 million (far in excess of the British national debt) by 1897, when the money could be distributed to his fortunate descendants. Even at 4 per cent, the government of the time calculated that the legacy would be equivalent to the entire public debt by 1897. The compounding of interest would produce immense financial power in private hands. To prevent this, a bill was passed in 1800 limiting trusts to twenty-one years. Thelluson’s will was contested by his immediate heirs. When the case was finally decided in 1859, after many years of active litigation, it turned out that the entire legacy had been absorbed by legal costs. This was the basis for the celebrated case of Jarndyce versus Jarndyce in Charles Dickens’s novel
Bleak House
.
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The end of the eighteenth century saw a flurry of excited commentary about the power of compound interest. In 1772 the mathematician Richard Price, in a tract that later drew Marx’s amused attention, wrote: ‘money bearing compound interest increases at first slowly. But, the rate of increase being continuously accelerated, it becomes in some time so rapid, as to mock all the powers of the imagination. One penny, put out at our Saviour’s birth to 5 per cent compound interest,
would, before this time, have increased to a greater sum, than would be contained in one hundred and fifty millions of earths, all solid gold. But if put out to simple interest, it would, in the same time, have amounted to no more than seven shillings and fourpence halfpenny.’
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Notice once more the element of surprise at how compound growth can produce results that ‘mock all the powers of the imagination’. Are we too about to be shocked at what compounding growth can lead to? Interestingly, Price’s main point (in contrast to the current crop of alarmists) was how easy it would be to retire the existing national debt (as the Thelluson example also showed) by putting the powers of compound interest to work!

Angus Maddison has painstakingly attempted to calculate the rate of growth in total global economic output over several centuries. Obviously, the further back he goes, the shakier the data. Significantly, the data before 1700 increasingly relies on using population estimates as a surrogate for total economic output. But even in our own times there are good reasons to challenge the raw data, because it includes a number of ‘gross national bads’ (such as the economic consequences of traffic accidents and hurricanes). There has been significant agitation by some economists to change the basis of national accounting on the grounds that many of the measures are misleading. But if we stick with Maddison’s findings, then capital has been growing at a compound rate since 1820 or so of 2.25 per cent. This is the global average figure.
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Clearly there have been times when (for example, the Great Depression) and places where (for example, contemporary Japan) the growth rate has been negligible or negative, while at other times (such as the 1950s and 1960s) and in other places (such as China over the last twenty years) the growth has been much higher. This average is slightly below what seems to be a generally accepted consensus figure in the financial press and elsewhere of 3 per cent as a minimum acceptable rate of growth. When growth falls below that norm the economy is described as sluggish and when it goes below zero this is taken as an indicator of recession or, if prolonged, of depression conditions. Growth that goes much above 5 per cent, on the other hand, is typically taken in ‘mature
economies’ (that is, not contemporary China) as a sign of ‘overheating’, which always comes with the threat of runaway inflation. In recent times, even across the ‘crash’ years of 2007–9, global growth kept fairly steady, close to 3 per cent or so, though most of it was in emerging markets (such as Brazil, Russia, India and China – the BRIC countries in short). The ‘advanced capitalist economies’ fell to 1 per cent growth or below from 2008 to 2012.