Pt 3. Class and Financialization

This is the concluding part of my reply to a question from a friend who wanted to know my opinion of a paper by Dick Bryan, Randy Martin and Mike Rafferty entitled “Financialization and Marx, Giving Labor and Capital a Financial Makeover,” published in the 2009 Review of Radical Political Economics.

“Households,” Bryan, Martin and Rafferty write, “live the contradiction of being both capitalist and non-capitalist at the same time. Economically, the household not only consumes commodities and reproduces labor power, it also engages finance, particularly through its exposure to credit, the demands of financial calculation, and requirements of self-funding non-wage work in old age.”

Bryan, Martin and Rafferty point to the enormous growth of consumer credit. An increasing number of people in the imperialist countries are being exploited not only as wage and salaried workers but as debtors. This is part of the phenomena called “financialization” that Bryan, Martin and Rafferty are trying to come to grips with. How does “financialization” affect class and relations among the classes?

However, Bryan, Martin and Rafferty appear to be confused, perhaps by their exposure to marginalist notions, about who is and who is not a capitalist. Without a clear understanding of what we mean by “capitalist” we cannot even begin properly to analyze class and class relationships.

To begin with, I don’t like how they use the term “households.” Bourgeois economists such as Keynes, for example, like to use the term “households” to hide class. There is a world of difference between a capitalist “household,” which lives off the profit obtained through its ownership of capital, and a working-class “household,” which lives off the income obtained from selling the labor power of one or more members of the “household” for wages.

Exactly what class is Bryan, Martin and Rafferty referring to?

What Bryan, Martin and Rafferty are referring to is the household of a well-paid wage worker, or more likely a salaried worker, living in an imperialist country, which is carrying a considerable burden of consumer debt. The type of “household” that Bryan, Martin and Rafferty are attempting to analyze is further clarified a few paragraphs down:

“Calculations and decisions must now be made about a range of issues. Some such issues have emerged because the management of certain exposures is no longer undertaken by the state: there is now need for private calculation and decisions about such things as health insurance, education investment, and investment in an asset portfolio for retirement.”

We have a household here in an imperialist country—not China or India—that would generally be considered “middle class.” (1) It might be the household of a well-paid union worker, though this is increasingly unlikely. More likely, it is the household of an office worker, where the husband has some sort of white-collar position, perhaps working as an accountant, a professor or system administrator, or an engineer of some type, and the woman also works, perhaps as a “pink collar” administrative assistant.

The children, if they are of high school age, are probably expected to get summer jobs, and if they are of college age are expected to hold some kind of job as they pursue their college studies. In other words, all members of the family from high school age up are expected to sell their labor power at least part of the year. This is a pretty typical picture of a “white-collar,” middle-class family in the United States today, and it is the kind of family that Bryan, Martin and Rafferty seem to have in mind.

In what sense is this kind of family a part of the capitalist class? Bryan, Martin and Rafferty seem to think that it is capitalist insomuch as it engages in “calculation.” In my opinion, this is a major error. Here we would be better off going back to Adam Smith, though Smith lived in what was in many respects a very different—but already a predominately capitalist—world.

Smith, and after him the classical economists, defined class by the types of income that people received. According to the classics, there were three types of income: the wages of labor, the profits of capital, and the rent of land. If individuals depended on the wages of labor, they were working class; if they depended on the profits of capital, they were capitalists; and if they depended on land rents, they were landlords. When it came to defining classes, Marx was merely the student of the classical economists.

There was no notion among either the classical economists or Marx that engaging in “calculation” made one a capitalist in any sense. In fact. all people who deal in commodities and money—that is, all normal people who live in capitalist society—engage in “economic calculation.”

Among those who have to make calculations are those who deal in the commodity labor power, whose incomes take the form of wages. (2) Neither the classical economists nor Marx considered the sellers of the commodity labor power to be capitalists! Long before financialization, workers would have to decide whether to accept a particular job offer or hold out for a better offer. Workers would have to decide whether to accept or reject overtime—assuming it is “voluntary.” If a worker had the flu, the worker would have to decide whether to come to work anyway risking serious illness—or take the day off risking loss of pay or loss of his or her job altogether.

Wage workers have always had to decide exactly what specific commodities to buy with their wages—indeed, this is the starting point of the marginalist analysis. None of this, however, makes the worker a capitalist, only a seller of a commodity that we call labor power, and after the wages are paid, an owner of money and the buyer of means of subsistence.

We can be pretty sure that the members of our “middle-class household” are obliged to perform more labor than they receive in wages, whether or not their labor power is productive of value and surplus value. They are therefore exploited as wage or salaried workers. Since few “middle-class” households in the imperialist countries can afford domestic servants these days, we can also assume that the women are doubly exploited by having to perform the lion’s share if not all the housework.

But unlike the classical worker described in Marx’s “Capital,” doesn’t our “middle-class household” have to borrow a great deal of money and commodities in order to maintain a “decent middle-class” standard of living? This is certainly true. Whether in the form of a mortgage on their home, home equity loan, an auto loan, credit card debt, and possibly other types of bank loans, a considerable amount of their income must be spent servicing their debts.

Doesn’t this make them not only representatives of “labor”—they have to work for wages or salaries—but also representatives of capital—since they have to repay more money than they borrowed M—M’? Doesn’t the difference between M’ and M represent some type of surplus value that the workers must somehow appropriate and then pay to the providers of consumer credit—the lender? Isn’t this similar to the interest that industrial and commercial capitalists who have to surrender some of their profits in the form of interest to the owners of loan capital? Is labor—the worker—here also acting as a capitalist? Do we have labor as capital here? Not at all.

A given piece of money can be capital to one person because it enables that person to appropriate a share of the unpaid labor performed by the working class and function as a mere means of circulation for another person. Even in the classic wage labor and capital relationship that was so throughly analyzed by Marx in “Capital” and other works, a given gold sovereign would for an industrial capitalist function as the money form of his variable capital. The industrial capitalist would use the gold coin to buy the commodity labor power, which in turn our capitalist would use to produce surplus value. For our industrial capitalist, the sovereign was very much capital.

But for the worker who received the sovereign as payment for the worker’s labor power, the same sovereign was a means of circulation and in no way capital. He—few women were paid in sovereigns, only skilled male workers earned this much in 19th-century England—used the sovereign to purchase the means of subsistence that were necessary to reproduce his labor power.

From the viewpoint of the creditors—the various types of money lenders the workers deal with—the money or commodities lent to our typical “middle-class household” is capital (M—M’). Our money lender is using the money to get the borrower to perform unpaid labor for him. The borrower—a wage or salaried worker—must hand over some of the proceeds from the sale of his or her labor power in order to pay interest on the debt. Therefore, in addition to performing unpaid labor for his or her employer, the worker must now perform additional unpaid labor for his or her creditor. Performing unpaid labor for a creditor most certainly does not make you a capitalist!

Even if the worker is paid a wage or salary that is above the value of the worker’s labor power, the worker will then be forced to hand over part of, or maybe all of, this extra wage to the creditor in the form of interest. In this case, the creditor—the provider of consumer credit in one form or another—is performing the economic function of reducing the wage or salary that the worker receives to the mere value of his or her labor power, after the cost of servicing the debt has been deducted. In this case, too, the debtor is no capitalist.

Even if the worker in question is employed in a job that does not produce surplus value—for example, a school teacher in a public school—the worker must still work, unlike the capitalist, in order to obtain his or her share of the surplus value. (3) The fact that the worker has to hand over a portion of the surplus value obtained by selling his or her labor power does not in any sense make the worker a capitalist.

To further clarify this point, let’s examine the case of a classic productive (of surplus value) worker who obtains a credit card—a not uncommon occurrence in the imperialist countries these days.

Suppose I am a productive (of surplus value) wage worker with a wage high enough to qualify for a credit card. I run up a large negative balance on the card by not keeping up with the monthly payments. Indeed, this is exactly what the the bank that issues the card devoutly hopes I do.

From this point on, I am not only a wage slave but a debt slave as well. I will be forced to perform unpaid labor not only for my industrial capitalist employer but also for the bank in my capacity as a debtor. Some of my wages must now be paid to pay the interest on the credit card debt. As a wage worker, I am already obliged to perform a considerable amount of unpaid labor for my boss. Now I will be obliged to perform additional unpaid labor for the bank.

True, the money destined for the bank appears in my pay check. But I cannot use this money to purchase means of subsistence. I must hand it over to the bank to service my credit card debt. The part of the work day during which I reproduce the value that is destined for the bank is just as much unpaid labor as the part of the work day that I produce surplus value for my boss the industrial capitalist.

I am certainly not moving in the direction of becoming a capitalist in my own right; I am moving further away from it. I am more enslaved to the capitalist class than I was when I was a mere wage slave. Now I am both a wage slave and a debt slave.

For example, I might be forced to accept overtime—assuming my boss offers it on a voluntary basis—that I might otherwise turn down in order to meet the interest payments on my credit card or other loans. In this case, when I am working overtime I will not be working for myself but free of charge for the bank.

Health insurance

What about the need to purchase private health insurance, something that I will be legally required to do if I am a legal resident of the United States under President Obama’s newly passed health care reform starting in 2014. While this will increase my need to perform economic calculations—commonly known as penny pinching—this hardly will make me a capitalist. On the contrary, it moves me even further away from being a capitalist.

Each individual premium, though a considerable sum for me as a worker who is forced to purchase health insurance that requires me to pay it, is still far too small to independently function as money capital. (4) However, the health insurance company by collecting premiums from millions of workers will be able to convert the combined premiums into a capital of considerable size. This certainly makes the health insurance company a collective capitalist—it does not make me a capitalist!


Now let’s return to our middle-class family.

Middle-class families are very much concerned about how to finance their children’s college education. Since most middle-class families generally want to send their children to a four-year college and perhaps to graduate school after that, and since even state universities are getting progressively more expensive these days, the sums are likely to be a considerable drain on the family budgets. Indeed, deciding how to finance such an expense involves a considerable amount of “economic calculation.” But the need to engage in these types of calculations—penny pinching in the vernacular—is only evidence that one is not a capitalist.

Indeed, the real capitalists have sufficiently large dividends and interest payments flowing from their mere ownership of capital that they can easily cover the expense of a university education for their children without having to do any “penny pinching” at all. They also have enough income that if they do engage in any “economic calculation” regarding education expenses—perhaps using them as a way of getting out of paying taxes—they can have it done by their hired accountants!

That is the beauty of being a capitalist. You don’t have to engage in any kind of labor unless you want to. Not the labor of running a business—you can always hire managers whose labor power can be found on the market just like any other type of labor power. Not the labor of looking after your investments—you can hire a professional money manager to do that, whose labor power can also be found on the market.

As a capitalist, all your time is free time to spend as you like. You might even decide to work or hold a job, but you do it for the pleasure it brings you—and to avoid boredom. You do not do it because you have to—in order to live. You never have to worry where the next meal will come from, or where the rent, or mortgage payments, or the payment on your credit card balance will come from. You are freed of these concerns only because there are other people who are forced to work for you in order that they may live. Behind the facade of a “free society” where everybody is, in Milton Friedman’s words, “free to choose,” things are not so different for you as a capitalist than it was for the ancient Roman senator who had huge armies of slaves to meet his every need and whim.


But what about the “asset portfolio for retirement”? Assets here might include whatever equity the family has managed to accumulate in the house. Economically, this comes down to the hope that the land under the house will rise in price—the price of land being simply a capitalized ground rent.

In order to benefit from the rise of the rental value of the land under their home, our family must be careful not to re-mortgage the house—or take out home equity loans—so that the mortgage is gradually paid off. To the extent the middle-class family manages to do this, it makes that family a petty landowner on a very small scale. But the hope for appreciation of the house never comes close to freeing them of the need to work, which is the case with a true member of the “landed classes.” (5) If a capitalist is a person who can live off profit—interest plus profit of enterprise or perhaps just interest alone—a landlord is a person who can live off ground rent—like the profit a portion of the surplus value—without having to perform work of any kind.

What other “assets” might our middle-class family possess? Maybe some certificates of deposit or an Individual Retirement Account invested in certificates of deposit, bonds and stocks. Or perhaps our middle-class family owns a few shares in a mutual fund or money market fund of some kind. Perhaps the man or maybe even the woman might hope for a pension of some kind after they reach retirement age. And if they live in the United States—the very center of the empire—there is always the small pensions from Social Security and the inadequate Medicare health insurance program for those over 65—which is scheduled to be cut back further in order to finance the Obama health care program.

As regards health care, if they live in an imperialist country other than the United States, the situation is better for working-class and middle-class families due to “single payer” or even socialized health care programs that have been won by the struggles of the workers’ movement. The exact situation varies from country to country.

Remember, Bryan, Martin and Rafferty are talking about savings for retirement, mostly the years after age 65. For real capitalists, “retirement” begins at birth. If your “portfolio” supports you only for your retirement years—the years after 65 at an above-poverty-level standard of living—but you are forced to work from high school—starting in the form of summer jobs—to 65, you are indeed better off compared to “pure proletarians,” who are forced to work even after 65—if they live that long. But you are are still very far from being a real capitalist.

Usury versus capitalist credit

In Volume III of “Capital,” Marx does not deal with what we call “consumer credit.” He confines himself to the loans that are granted to the industrial and commercial capitalists. What happens if industrial or commercial capitalists work with borrowed capital? They will have to share a portion of the profit—called interest—with the lender. The rest of the profit including the interest earned on the non-borrowed portion of the capital will be pocketed by the industrial and commercial capitalists.

Even if the industrial or commercial capitalists work entirely with their own capital, they will divide their profit into interest and profit of enterprise. If an investment yields less than what they could get by loaning out their capital, it will make little sense to carry out the investment.

In the main posts, I examined the forces that determine exactly how the total profit—surplus value minus ground rent—is divided between interest and profit of enterprise. This is a very important question for crisis theory. But it is a secondary question for Marx in “Capital.” The central question for Marx is how surplus value, which enables a class of non-workers—capitalists—to exist, is produced even if all commodities including labor power sell at their labor values and not a penny more.

In “Capital,” Marx begins with industrial capital in Volume I but leaves his treatment of loan capital and merchant capital until Volume III. Since industrial capital—the exploitation of wage labor—in the sphere of production is central to analyzing a society based on the capitalist mode of production, Marx begins with the analysis of industrial capital.

This is not, however, the way capital developed historically. In history, capital began not with industrial capital but with usury and merchant capital. Usury or loan capital and merchant, or trading, capital appear thousands of years before the rise of the capitalist mode of production.

Therefore, throughout most of its existence, capital confined itself to exploiting the various pre-capitalist modes of production as it found them. It generally functioned as a force of disintegration of the modes of production it exploited. Only when a class of “free” wage workers arose was capital able to develop its own mode of production.

As capitalist production proper developed, it succeeded in subordinating the credit system as well as merchant capital to its own needs. Capital now had its own mode of production and no longer existed primarily by exploiting other modes of production. The old pre-capitalist money lender—or usurer charging sky-high interest rates—gave way to the the modern banker, who charges a much lower rate of interest to the industrial capitalists, allowing the industrial capitalists to keep—except during periods of crisis—the lion’s share of the profit in the form of the profit of enterprise.

In “Capital,” however, Marx was not interested in writing the history of capital starting with the earliest forms of capital and ending with the capital of 1860s. Instead, he examined the laws of motion of the capitalist mode of production that prevail through the life span of this particular mode of production. This is why “Capital” remains crucial to understanding the society that we unfortunately still live in today, though “Capital” was written more than 140 years ago.

And at the center of the capitalist mode of production is not commercial capital or financial capital but industrial capital. Therefore, Marx begins his analysis of capital with industrial capital beginning in Chapter 4 of Volume I of “Capital.” Marx only deals with financial capital and commercial—or merchant capital—in Volume III.

Central to Marx was the exploitation of the wage workers, forced to sell their labor power at its value—or direct price—to an industrial capitalist. He shows that even if there is a fair exchange and the workers sell their labor power at its full value—and not a penny less—the industrial capitalists can use the workers’ labor power to produce a value that is greater than the value of the labor power—a surplus value. The wage relationship when Marx wrote “Capital” was then and remains today the main form of capitalist exploitation.

However, the main form of capitalist exploitation does not mean the only form of exploitation. Even in Marx’s day, workers had to rent tiny plots of land—apartments to live in. Everybody must either rent or own land—space—unless they live on the street. If workers had sudden unexpected expenses or faced long layoffs, they were often forced to pawn what few possessions they possessed at a considerable rate of interest. Marx himself often had do this while he was writing “Capital.” Marx therefore mentions the secondary forms of exploitation but largely ignored them in “Capital,” since they would have detracted from the main analysis.

The evolution of imperialism

The most important change since Marx wrote “Capital” more than 140 years ago has been the rise of monopoly capitalism and the consequent growth of monopoly super-profits. Remember, a super-profit is a profit above and beyond the average rate of profit prevailing on the world market in a given period of time—or at least over a given industrial cycle. By their very nature super-profits can never be generalized. (6)

This greatly expanded the possibility of certain capitalists of certain nations realizing monopoly super-profits and then sharing them with sections of the working class. By doing this, imperialism was able to create a material basis for opportunist currents in the organized working-class movement.

Imperialism itself has gone through a series of phases since it emerged at the turn of the 20th century. When Lenin wrote “Imperialism” during World War I near the beginning of the imperialist epoch proper, there were perhaps four or five “great” predatory powers engaged in all-around economic, political and military struggle with one another. These included the United States, Britain, Germany, France and Japan, with lesser imperialist powers aligning themselves with one or another of the “big” players. None of these imperialist powers was able to completely dominate the others in either political or military terms.

In 1945, the struggle for political and military domination of the globe among the predatory imperialist powers was resolved—not forever but for a prolonged period—by the overwhelming victory of the most powerful and predatory of the imperialist contenders—the United States. (7) The extent of the U.S. victory was shown by the occupation of the capitals of Germany and Japan by American forces. (8) The political and not least the military power of U.S. imperialism was so overwhelming that none of the other imperialist powers was able to challenge it in these spheres, and even 65 years later none shows any signs of doing so.

In 1945, the United States was tempted to use its overwhelming political and military power to forcibly de-industrialize Germany and Japan. By eliminating Germany and Japan as not only military and political but economic competitors, huge super-profits for American corporations could have been guaranteed for decades into the future. But U.S. global rule was not complete. It faced the power of the Soviet Union and the radicalization of the workers of both Eastern and Western Europe brought on by decades of war and economic crisis. In addition, it faced revolutions in the former colonial and semi-colonial countries. These countries did not want to exchange one imperialist yoke for another but instead wanted to free themselves from imperialist rule altogether.

The leaders of the United States realized that if they forcibly attempted to de-industrialize Germany and Japan—which would have deprived millions of German and Japanese workers of their livelihoods—the struggle of the German and Japanese workers might well have merged with the defensive struggle of the Soviet Union against American imperialism and the rising struggle of the colonial and semi-colonial countries, which was then spearheaded by the developing revolution in China. Such a combination of forces just might have overwhelmed American capitalism and led to a victorious world socialist revolution in the second half of the 20th century.

In order to avoid this outcome, American imperialism made the decision to encourage the economic recovery of Germany and Japan and the rest of Western Europe. The measures taken included initially the Marshall Plan programs of grants and loans and, more importantly over the long run, the opening up of the American home market through the progressive reduction of protective tariffs.

The whole process was helped by the fact that in the first few decades after World War II, in contrast to the situation after World War I, the world market was passing through one its periodic prolonged expansionary phases. I examined the causes of this expansion in my main posts dealing with long waves or cycles. See in particular this post.

In the years immediately following the war, the U.S. government created special military institutions such as the North Atlantic Treaty Organization—NATO—and the “special security agreement with Japan”—which made the military occupation of Germany and Japan essentially permanent. All this was—and is—carefully designed to prevent the re-emergence of Germany and Japan, or indeed any other imperialist power, as a challenger to U.S. domination in the political or military spheres. Essentially the German and Japanese capitalists were to get a slice of the imperialist super-profits—and in time share it with sections of their own working and middle classes in order to dampen down the internal class struggle.

Since they were making far greater profits than they had in the pre-1945 years, big business in Germany and Japan made no attempt to upset the profit apple cart by supporting right-wing nationalist movements. To the capitalists, profit alone is the end while patriotism, love of country and other similar virtues are only a means to the end—when they aren’t simply slogans to dupe the workers and the middle class.

Again in contrast to the post-World War I situation, the German and Japanese “middle classes”—including the labor aristocracy—having gained a share of super-profits—were also disinclined to support right-wing nationalist organizations such as the German neo-Nazi National Democratic Party that emerged first in West Germany and then since 1989 have been able to extend their operations to the rest of Germany. (9)

However, the price paid by American imperialism for these policies was the growth of economic competition from (West) Germany and other West European countries and Japan as they recovered economically. In the long run, the forces of uneven economic development are working to undermine this arrangement, but so far it has held.

Still, it must not be overlooked that the United States has not withdrawn its armed forces with the end of the “Cold War” from either Germany or Japan. This shows that the United States by no means trusts its fellow imperialists and fears that if the U.S. occupation troops were withdrawn, the kind of political and military competition that ended in the two world wars of the 20th century would reemerge sooner or later with even more disastrous consequences.

Imperialism since 1945

We can divide the post-World War II history of imperialism into the following periods:

The post-WWII long wave

The first period coincided with the post-WWII long wave of expansion and began with the surrender of Nazi Germany and Imperial Japan and the occupations of their capitals in 1945 and continued through the mid-1960s. In this period, the United States enjoyed an overwhelming competitive advantage relative to virtually every other capitalist power in the world.

The prolonged stagflation crisis

By end of the 1960s—around the time of the collapse of the gold pool, which kept the dollar price of gold at $35 an ounce—a second period began. The rapid economic growth of Western European capitalism—especially West German capitalism, broke the American industrial monopoly that existed in 1945. American imperialism now had to share the super-profits with the West European and Japanese capitalists, reducing the flow of super-profits to itself. A period of great financial and economic instability set in in the form of a prolonged stagflation crisis that didn’t end until the Volcker Shock of 1979-82.

With super-profits no longer growing for American corporations—remember, super-profits are the profits over and above the global average rate of profit and must not be confused with capitalist profit as a whole—the real wages of American workers stopped rising. In order to maintain the “middle-class” standard of living that so many American workers had gotten accustomed to after 1945, virtually every member of the family between high school age and at least age 65 had to go to work.

Indeed, the living standards of the American workers were no longer much above the living standards of the workers in Western Europe—especially if the far superior social insurance arrangements available to West European workers are taken into account. In many ways, the American workers appeared to be super-exploited relative to their West European counterparts. The American capitalists simply had less super-profits to share with the American workers. Moreover, the United States had to continue allocating a sizable portion of its super-profits to military outlays to defend its far-flung empire, although its imperialist satellites were by now assuming a share of the burden.

The ‘Great Moderation’

A new period began with the “Great Moderation” that set in after the Volcker Shock of 1979-82 and lasted until the panic of 2007-09. Compared to the post-1945 long wave, economic development between the United States, Japan and Western Europe was more or less evened out. U.S. imperialism scored a major victory in the wake of the Volcker Shock when it got the other capitalists to continue to accept the U.S. dollar as the main standard of price and means of payment on the world market, though the dollar was no longer convertible into gold like it had been in a limited way in the pre-1968 years.

In return, the United States had to halt the depreciation of the dollar against gold that occurred between 1970 and 1980. Indeed, the general tendency was for the dollar to appreciate gradually in terms of its gold value until 1999 though it regained only a small portion of the value it had lost between 1970 and 1980. (10)

U.S. imperialism—and the world capitalist class as a whole—scored an even bigger victory with the triumph of bourgeois counter-revolutionary forces in the Soviet Union that began with the naming of Mikhail Gorbachev by the Central Committee of the then ruling Communist Party of the Soviet Union as its new general secretary in March 1985 and climaxed with the formal dissolution of the Soviet Union in 1991. The military and political power of the U.S. empire—despite its relative economic decline—was suddenly greatly strengthened. After 1945, the Soviet Union had represented the only significant military counter-power to the predatory military might of U.S. imperialism.

The other big change of this period was the rapid growth of capitalist industry in China after the reforms of 1978. Between the victory of the Chinese Revolution in 1949 and 1978, the imperialist corporations were not able to exploit the workers and peasants of China directly, depriving imperialism of a huge source of potential super-profits. After 1978, imperialism has been able to wring huge super-profits from China—but with a difference: It has had do so under conditions whereby it was forced to develop the industrial power of China.

In a development of tremendous historical significance, this period saw the emergence of China as a major new center of industrial production. (11) This broke the joint industrial monopoly of the United States, Western Europe and Japan that had held throughout most of the 20th century. By the turn of the 21st century, Chinese industrial competition was becoming a major threat to imperialist super-profits of the United States, Western Europe and Japan.

The crisis of the dollar system and the panic of 2008

The fact that the U.S. dollar is accepted as a means of payment around the world means that the United States can buy a lot more than it sells. No other country can do this, at least for very long. In this respect, the United States continues to reign supreme. This is reflected in the huge U.S. trade deficit that, though reduced, has survived the panic of 2008.

The dollar system also enables the United States to finance a gigantic system of bases, occupation forces and ongoing colonial wars around the globe. This could not continue if the dollar system were to collapse. If the United States had to service its huge debt in something other than dollars—gold, for example—it would soon be forced to close down the bulk of its foreign bases and halt or at least limit its ongoing colonial wars.

After 2001, the U.S. dollar resumed its depreciation against gold, though so far the renewed depreciation of the dollar has been modest compared to its plunge between 1970 and 1980, when it lost more then 90 percent of its gold value. However, the renewed depreciation of the dollar since 2001 has broken Washington’s implicit promise that in the absence of a formal gold standard it would keep the dollar more or less stable against gold.

This unofficial policy has been called Bretton Woods II. Even before the dollar resumed its depreciation, however, a question was posed: How long could the dollar system continue in the face of the progressively declining share of U.S. industrial production on the world market.

In a sense, the dollar system is self-liquidating. That is, the dollar’s role as the de facto world currency has encouraged the United States to import rather than produce at home. This has led to the steady decay of U.S. industrial production—dubbed “de-industrialization.” At some point, it seems, the share of U.S. industrial production in the world will become too small to support the dollar system.

Faced by a depreciating dollar and a slowing economy in the wake of the initial panic in the summer of 2007, the Federal Reserve Board refrained from massively expanding the dollar monetary base, which is its main anti-recession weapon. In doing so, the “Fed” risked an old-fashioned panic—a risk that became reality in the fall of 2008. Why did the Fed behave in this way?

The Fed—and other U.S. financial policy makers—feared that if it reacted to the threatening recession by rapidly expanding the monetary base by, say, 10 percent like it had indeed done in the face of the far milder crisis brought on by the collapse of the speculative bubble in 2000—the dollar system would have been put in grave danger. Instead, it preferred to risk panic on an unprecedented scale, hoping that “financial engineering”—the art of blowing up the system of credit money and credit on a stagnating monetary base—would stave off the crisis.

When the full-scale panic hit in September 2008, the dollar’s continuing role as a means of payment enabled the Fed to inflate the U.S. monetary base to an unprecedented extent. During the panic, capitalists were demanding repayment in debts that were overwhelmingly denominated in dollars. Debtors everywhere were forced to sell other currencies, commodities and gold in order to obtain dollars to meet their debts. The consequent soaring demand for the dollar ended the immediate danger to the dollar system. Cash was king, and the dollar was still cash. The panic allowed the dollar system to survive a awhile longer.

If the dollar standard had crumbled, the worldwide global political and military empire of the United States would have followed. This would not only have encouraged the oppressed nations to throw off the yoke of U.S. imperialism, but it would have pressured the imperialist powers of Europe and Asia to begin to re-assert themselves in the military and political spheres in a way they haven’t done since 1945.

Imperialism would then have been thrown into the kind of political and military anarchy that led to two world wars in the first half of the 20th century. The panic of 2008 and the depression in world production, employment and world trade that followed was the price that had to be paid to maintain the continued domination of the dollar system and the American empire—which does maintain “law and order” among the rival imperialist powers—a little longer. But left unanswered is what will happen when the next economic crisis hits.

Imperialism, the rise of the American empire and the development of modern consumer credit

As long as wages more or less coincide with the biological subsistence levels, the possibilities of money lenders making money by lending to wage workers and pocketing a portion of their wage income in the form of interest payments on consumer loans is extremely limited.

When lending to wage workers, the granter of consumer credit is aiming at pocketing a share of the wage income of the workers. As we saw above, if this happens the wage workers in addition to performing unpaid labor for the capitalist buyers of their labor power will also be forced to perform unpaid labor for the the lenders.

However, as long as the industrial capitalists are paying the workers little more than biological subsistence and the work day is 12, 16 or even 18 hours long—which it often was in the 19th century—the workers after performing unpaid labor for their capitalist employers are not going to have much labor power left over to perform additional unpaid labor for a predatory lender. The capitalists who purchase the workers’ labor power have fully consumed that labor power, and there are very few pickings left over for other types of capitalists.

To the extent that wages rise above mere biological subsistence, and where the work day is shortened due to the struggles waged by the trade unions and workers’ political parties, first to only 12 hours of labor per day, then to 10 hours a day, and then to eight hours, the possibility arises for the makers of consumer loans to pocket some of the “extra” wages—relative to the workers’ mere biological subsistence—for themselves. (12)

For example, suppose an eight-hour work day is won. The hourly wage is now high enough for the workers to be be able to reproduce their labor power in an eight-hour work day and have plenty of time left over to produce surplus value for the capitalist class. If the workers take on consumer loans and must then service the debts, the workers might be forced to accept “voluntary” overtime in order to pay the debts. Suppose the workers are forced to accept two hours of “voluntary” overtime under these conditions. The eight-hour work day has again been lengthened to 10 hours.

Perhaps the workers work four hours for a capitalist employer and four hours for themselves. But the workers have to accept two additional hours of labor—the “voluntary overtime”—in order to earn the money to meet interest payments on consumer debts of various types—such as interest on mortgage loans and on credit card debt. Instead of working four hours for capital, the workers now work six hours for capital—four hours for the employer and two hours for their creditors.

In effect, instead of a rate of surplus value of 100 percent (four hours of paid work and four hours of unpaid work), we have six hours of unpaid work—four hours producing surplus value for the boss and an additional two hours producing surplus value for the money lenders. This comes to a rate of exploitation of 6/4, or 3/2, or 150 percent.

In the United States, the value of labor power was somewhat higher than mere biological subsistence from the very beginning. This had to do with the shortage of wage labor. Due to the presence of vast amounts of land—stolen from the original native Americans—it was relatively easy for ambitious wage workers to obtain cheap or even free land in the American West and take up farming or ranching. Therefore, the value of labor power in the United States in addition to what was necessary for mere subsistence included a relatively large additional element beyond it. But it also created the possibility for money lenders to take this extra wage away from the workers through the age-old methods of debt slavery—also called usury.

The loan sharks

There arose a layer of money-lending capitalists called loan sharks, who specialized in making predatory consumer loans to workers at very high interest rates—far higher than the interest rates paid by the industrial and commercial capitalists. They aimed at transforming their victims into perpetual debt slaves. Later in the 20th century, when the worst abuses of loan sharking were outlawed, the loan-sharking business became the province of organized crime—capitalists or aspiring capitalists who due to their low social status were obliged to work outside the protection of law.

The domination of U.S. imperialism

Even before U.S. imperialism gained a political and military monopoly in 1945, the United States was emerging as the world’s economic super-power. The American capitalists were able to share their growing super-profits with more and more of the American working class as I explained in my last post. However, while these super-profits can be used to bribe large portions of the working class, they also provide a tempting target for the providers of “consumer credit.”

What monopoly capital gives to some workers with its right hand in shared super-profits, it can take back with its left hand in the form of usurious consumer loans. And in a period of reduced super-profits—the situation that American capital faced from the late 1960s onward—consumer credit has been one of the ways of taking back super-profits that it was willing to share with the upper level of the workers—and the “middle class” of white collar office employees—when there were a lot more super-profits to share. The result has been the temporary maintenance of living standards of the better-off workers and “middle-class” at the cost of the growing debt load they have taken on.

How it works

Advertising does what it can to whet the consumer appetites of the now greatly reduced blue collar workers’ aristocracy and the now much broader middle class of white collar employees. To give some current examples: Flat screen TVs are about to become obsolete, it’s now 3-D flat screen TVs you need—or will very soon. The iPhone, oh that is so 2009! Now you also need, in addition to a laptop and an iPhone, an iPad. It is an absolute necessity! Ah for the days of our grandparents when owning a single desktop computer was considered sufficient for a middle-class family!

But wait! Neither the iPhone or the iPad that you can buy now can handle multitasking—running more than one application at a time. But just wait, coming soon the iPhone and the iPad will soon be able to mulititask! The solution? Buy a single-tasking iPhone and iPad this year and replace it next year with the new multitasking iPhone and iPad, which will then be an absolute necessity you will not be able to do without. Just keep charging up that credit card. Soon you will be unable to meet your monthly payments, and you will sink into the debt trap. Exactly where bank wants you.

The American dream of homeownership

Starting with the Roosevelt administration in the 1930s, the U.S. government began to encourage wide-scale home ownership among white workers—especially the newly unionized CIO workers—a privilege extended to the best-paid African Americans only as a result of the Civil Rights and Black liberation movements of the 1960s. This was part of the effort by the New Deal to counter the radicalizing effects on U.S. workers of the Depression and the victorious struggles to unionize basic industry.

As post-World II America became flooded with imperialist super-profits, real estate prices—largely driven by rising land prices—began their relentless rise. The “middle class” homeowners shared in the super-profits in the form of the ever-rising “value” of their homes—until the panic of 2007-9 came along. In the final stages of the recent housing boom, predatory mortgage bankers explained to their victims: Don’t worry about whether you will be able to pay. As the value of your home rises, you can simply take out more loans and pay your mortgages out of the proceeds. You will have no trouble getting the loans as long as the value of your home keeps rising. The potential victim might ask, what if home values fall? It will never happen, the mortgage bankers explained. Home prices move in only one direction—ever upward, much as the American empire will rule forever.

The commercial banks get into the act

Until the 1960s, the commercial banks rarely extended consumer loans. If the loans were mortgages on homes, they were generally granted by savings banks or savings and loan associations that specialized in that type of credit. If the loans involved the purchase of so-called consumer durables, the credit was granted either by the industrial capitalists themselves or by the large commercial retail chain stores that came to dominate retail trade—pushing aside mom and pop stores—after World War II.

But as the super-profits earned by American corporations began to come under pressure due to rising West European and Japanese competition starting in the 1960s, the commercial banks got into the act in the form of credit cards. There was a need to relieve the well-paid American workers and white-collar office employees of some of the super-profits that the American capitalists had been sharing with them since the end of World War II, and the banks were willing to do their duty.

Instead of asking for a specific loan to purchase a specific commodity, you are offered a card with a specific credit limit, lets say $10,000. As long as you keep up on your monthly credit card bills, you don’t have to pay interest, but if you miss a payment—which the bank devoutly hopes you will—you fall into the debt trap the bank has prepared for you. From that point on, you will likely be performing a considerable amount of labor—unpaid, that is—for the bank.

Neo-usurious capital

If you read the newspapers in the United States, you have read how the Federal Reserve System has in response to the economic crisis, pushed short-term interest rates to “near zero.” Well, if you are a bank paying interest on small deposits, this is true. But interest rates have not fallen to near zero if you have any credit card debt. Indeed, they never fell out of the double digits! At the lowest point in the fourth quarter of 2008, according to the Federal Reserve’s own data, the interest rate on credit card debt averaged a double-digit 12.03 percent! Not exactly zero, not anywhere close. And don’t worry, thanks to the economic recovery, interest rates had recovered to 14.26 percent as of February 2010. And it is still very early in the industrial cycle.

Thanks to the huge increase in the dollar-denominated monetary base, consumer credit rates are likely to soar once again in the not-too-distant future. Indeed, if a major dollar crisis develops—and this seems only a matter of time—perhaps after an initial wave of inflation, which itself considering the current state of the unions will mean a major drop in real wages—interest rates could rise through the roof. Experience shows that big increases in the “monetary base” lead sooner or later to major devaluations of paper currency, and such major devaluations end with dramatic rises in the rate of interest. If this happens, the wages and salaries paid to American workers including office employees will more and more be appropriated by the commercial banks that are already operating more like old-fashioned usurious money lenders than the commercial bankers Marx talked about in “Capital.”

This is what Bryan, Martin and Rafferty are grappling with, though their confused notions of who is and who is not a capitalist and the exact meaning of capital as a social relation of production—and exploitation—keep getting in the way of their analysis. However, the phenomena that Bryan, Martin and Rafferty are discussing will have great political importance and consequences in the years to come.


1 This is not to say that the evolution of class relationships in today’s China and India are not important. Nor is it to hold that class relationships are identical in China and India. But Bryan, Martin and Rafferty are clearly referring to the imperialist countries.

2 Once a society has become capitalist, virtually all people have to engage in “economic calculation” —that is, deal in commodities and money. It is very convenient for bourgeois economists to imply that all people who deal in commodities—including the sellers of the commodity labor power—are in some sense capitalists, since this hides the division of society into classes. It is a major error to equate engaging in “economic calculation” with being a capitalist.

3 Strictly speaking, everybody consumes capital. Consumer goods before they are sold form part of the commodity capital of society. The part of the commodity capital consumed by the capitalists, landowners, and unproductive (of surplus value) workers must be replaced by surplus value. The productive workers, in contrast, produce a value that replaces the commodity capital they consume, plus an additional surplus value, some of which is used to replace the capital consumed by the capitalists, landowners, and unproductive workers and some of which is used to create additional capital.

4 If I attempt to start a business that has any realistic chance of yielding a profit high enough to enable me to live without working, I will need under today’s conditions hundreds of thousands, or more likely millions, of dollars. If I have a smaller sum of money to invest, let’s say a thousand dollars, I can put it in the bank. The banks will combine this money with many other similar deposits and will be able to form a money capital of considerable scope that will enable the large shareholders of the banks to live without working. But the share of the interest that I receive on a $1,000 deposit, $10 at a 1 percent rate of interest, for example, is an insignificant annual supplement for any income I earn by selling my labor power for a wage or a salary. Even if the rate of interest on deposits was to rise to 10 percent, I would still get an interest income of only $100 a year. An interest income of $10 or even $100 per year certainly does not allow me to live without working and therefore does not come close to making me a capitalist.

5 In countries such as England where feudal relations preceded capitalist relations, there is a class of traditional landowners. In feudal times, those who were rich in terms of money—merchants and money lenders—were quite distinct from those who were rich in terms of land—the feudal ruling class. Wealth in land predominated over wealth in money. This relationship reversed as feudal production gave way to capitalist production.

In countries such as the United States, Canada and Australia, there was no traditional feudal ruling class. In these countries, there is no traditional landowning class separate from the capitalist class. The wealthy are both capitalists and landowners at the same time, appropriating their income in the form of both profits and rents that they lump together as “assets.” The fact that Bryan, Martin and Rafferty refer to the “assets” of the middle-class “household” that they are investigating—a term used to disguise class relationships rather then explain them—shows that they still have a long way to go before they can be considered to have fully put bourgeois marginalist economics behind them.

6 The one exception would be the super-profits earned by capital during the boom phase of the industrial cycle. However, such profits are always offset by lower than average profits or outright losses during the crisis and depression phases of the industrial cycle. The average profit is not simply an arithmetic average earned by capitals invested in different branches of production at a given moment in time but an average of the profit rates in particular industries over a series of average, good and bad years—that is, over an industrial (business) cycle. When analyzing the super-profits that arise because of imperialism—or monopoly—we can ignore the purely transient super-profits that occur during the boom phase of the industrial cycle.

7 During World War I and World War II, Germany was fighting for the domination of Europe, Japan was fighting for the domination of the Far East, and Britain was trying to hold on and if possible expand its empire. The United States, which already dominated the North American continent, was fighting for the domination of the entire world.

8 The Soviet Union actually captured Berlin, the capital of Nazi Germany, in April-May 1945. But the United States insisted that it along with Britain and France be allowed to occupy their own zones in the German capital. While the Soviet government under Premier Joseph Stalin had hoped that a neutral united Germany would emerge, the United States insisted on creating the so-called Federal Republic of Germany—known as West Germany—out of the occupations zones of the United States, Britain and France.

The United States and Britain had successfully invaded Germany in the final stages of the war. France was also given its own occupation zone in the west. In 1952, the Stalin government made an offer to reunify Germany with the united Germany being neutral in the sense of not being a member of the NATO alliance—that is, not acting simply as a U.S. satellite regime but rather as a buffer between the Soviet Union and the United States. This offer was turned down by the United States and West German governments, though it would have meant a restoration of capitalist relationships in East Germany.

The Soviet Union, therefore, had no alternative but to support the creation of the German Democratic Republic in its own occupation zone—one-quarter of postwar Germany. The GDR was politically led by the German Communist Party and some Social Democrats, which together formed the new Socialist Unity Party of Germany.

Berlin, the German capital, was well within the Soviet zone. Naturally, the Soviets hoped that the United States and its satellites—Britain and France—would withdraw from Berlin and confine themselves to building up West Germany—which had its capital in Bonn—in the territories that the U.S. and British armies had actually conquered in their 1945 invasion of Germany.

But the United States and its satellite imperialists Britain and France refused to withdraw from Berlin. Instead, they insisted on creating a separate “West Berlin” that was not officially a part of West Germany in their zones of occupation. They made sure that West Berlin was flooded with consumer goods to entice skilled workers to move to West Berlin or West Germany. The Soviet and East German governments made many attempts to convince the United States, Britain and France to withdraw their occupation troops from West Berlin and recognize a united Berlin as the capital of the German Democratic Republic, but the United States refused and threatened World War III if the Soviets or the East Germans used force to clear Berlin of its U.S., British and French occupiers.

Finally realizing that the United States, Britain and France would never voluntarily withdraw, and unwilling to call their bluff and clear Berlin of its U.S., British and French occupiers by force, the East German government, backed by the Soviet government of Premier Nikita Khrushchev, built a fortified border that literally walled off “West Berlin” from the rest of the historical German capital—an obviously very abnormal situation that the U.S. propaganda machine took maximum advantage of.

In 1989, as part of the unfolding capitalist counterrevolution in what was soon to be the ex-Soviet Union, Gorbachev helped to overthrow the Socialist Unity Party-led East German government and then agreed to the unilateral withdrawal of Soviet troops from Germany—though it was Soviet troops who had actually defeated the armies of Nazi Germany at a cost of at least 20 million lives—while U.S. troops remain to this very day.

This is one of the reasons—though not the only one—why Gorbachev is almost universally reviled in Russia today. Far from being neutralized like Stalin proposed in 1952, the now reunified Germany remains a NATO member and, like West Germany before it, functions as a satellite imperialism of the United States.

9 One area in Germany where neo-Nazis have made considerable gains is on the territory of the former German Democratic Republic—the old Soviet occupation zone. The destruction of the former planned economy of East Germany has led to a huge unemployment crisis, which more than 20 years after the victory of the counterrevolution shows few signs of going way. As a result, feeling betrayed by the working-class movement for failing to resist the counterrevolution and defend the planned economy of the former German Democratic Republic, and being offered no future except permanent unemployment by the capitalist system, a section of the youth have been attracted to the siren call of the neo-Nazis. So far, however, the ruling class of Germany has not been tempted to encourage the neo-Nazi or other nationalist movements, since their industry continues to command a huge share of the world market, both because of its productivity—the power of German industry is not entirely a myth—and because of the protection of their U.S. imperialist masters. They also remember what happened the last time they took on the U.S. military and have no desire to repeat the experience.

However, as the power of U.S. industry on the world market continues to wane, the point is getting closer when the United States may feel it has no alternative but to use whatever means are necessary to defend its remaining industry. If U.S. industry continues to decline, U.S. military power will eventually wane as well, since military power ultimately rests on industrial power. When this comes to pass, the German ruling class will have no alternative but to once again promote its own interests through its own economic, political and military strength within the jungle that makes up the capitalist world market. The overwhelming domination of U.S. imperialism is only a phase in the history of the imperialism. The power of the U.S. economy is being progressively undermined by uneven development of world capitalism, which formerly greatly favored the U.S. capitalist economy but is now working against it.

10 This in and of itself was a not huge problem for the capitalists in the long run once the losses that dollar creditors incurred were absorbed. What the capitalist system needs is a stable currency. It doesn’t really matter how much gold bullion measured in terms of weight a dollar represents as long as it is more or less stable over time. What is very dangerous for capitalism is a currency that is subject to violent swings against gold bullion—money material—especially downward swings—though upward swings are also very destabilizing. Either such fluctuation undermines the relationship between creditors and debtors and thus undermines the entire capitalist credit system, which needs a currency with a stable and predictable value to function properly.

11 The Soviet Union before its destruction between 1985 and 1991 also represented a very strong center of industrial production. Indeed, by the time Gorbachev was elected general secretary of the Central Committee of the Soviet Communist Party this was the case in many branches of basic industry—such as steel, machine tools, cement, tractors—and even some consumer goods such as wheat and shoes.

But the Soviet Union, along with Eastern Europe including the German Democratic Republic, as well as the Peoples Republic of Mongolia, North Korea and Cuba formed an economic bloc based on the planning principle—not the market—that had only limited interactions with the market-based world capitalist system. There was little capitalist market competition between the Soviet-centered socialist camp and the U.S. imperialist-dominated world capitalist system.

In contrast, the Chinese industry that has expanded so rapidly since the reforms of 1978 has grown up on the basis of the world market, and represents major economic competition to the industry of the United States, Europe and Japan. For those of us who are old enough to remember the Cold War, about the only things that could be bought that were made in the USSR were the cheap though high-quality editions of the works of Marx, Engels and Lenin and some other Marxist writers that were produced by now-defunct Progressive Publishers. Perhaps a few brands of vodka produced in the USSR were available, but that was about it.

Today, the label “made in China”—not necessarily by Chinese-owned industry nor are all the parts of course made in China—can be found on items ranging from cheap items of clothing to consumer electronic items that include devices based on the most sophisticated consumer computer electronics. Therefore, the economic relations between, say, the United States and China today bear almost no comparison with relations that prevailed between the Soviet Union and the United States 25 or 30 years ago.

12 The May Day holiday, which is once again approaching and celebrates the great struggle for the eight-hour day, emerged during the late 19th century. The fact that the basic work day remains around eight hours shows how stubborn has been the resistance of capital to any further shortening of the work day, though the productivity of labor has advanced many times since the late 19th century.

3 Responses to “Pt 3. Class and Financialization”

  1. Financialization and Marx—Pt 3. Class and Financialization « A Critique of Crisis Theory Says:

    […] Read more … […]

  2. Abdulmalik Yusuf Says:

    This is a wonderful job.I’m very greatful tothe author.

  3. Says:

    Precisely what really encouraged u to write
    “Pt 3. Class and Financialization | A Critique of Crisis Theory”?
    I actuallygenuinely enjoyed the post! Thanks
    for your effort ,Lamont

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