"Give me a cash register and a place to sit," says our bourgeoisie, "and I'll reproduce the expanding universe. And call it value."
Living a life it can never really call its own because its existence is the appropriation of time belonging to others, our class of capitalists senses itself to be running short on time, losing time. Obsolescence shadows and illuminates, follow and leads our bourgeoisie in its every advance. Obsolescence is the cost and content of progress. At its most modern, the bourgeoisie embraces the most backward, and at the core of its universe of expanding value, the black hole of devaluation.
After the panic of 1857, the emergent capitalism of the Northern United States recovered just enough to take itself right into the recession of 1861. The solution to the problems of expansion appeared in the dream of unimpeded expansion. The obstacle to unimpeded expansion was, of course, the slave economy of the South; the economy that had been like mother's milk to the merchant and industrial bourgeoisie of the North, or more correctly, the Northeast. These big, or at least bigger, capitalists, survived, prospered by accommodating the needs of the South; by adapting its own needs to those of the plantation owners. They were a bit hesitant to slice off the breast that had suckled them.
Not so the case with the farmers of the North, with the farmers of the Northwest, with the farmers of the West. The slave economy of the South maintained its political control of the Union only to the extent that it maintained itself as the fundamental impediment to the expansion of free farming.
For our merchant capitalist, freedom was an abstraction, profit was the concrete. For the farmers of the North, freedom was earthly, freedom was a function of property. "Free soil" was simultaneously a political and an economic program. Freedom itself was a market transaction, an expanding exchange. Free soil, access to soil meant access to land, to buying and selling of land and the buying and selling of the products of the land-- the soil as distinct from the laborer. The farmer wasn't bought. The product of the farmer's labor was bought. Farming for subsistence, for subsistence plus surplus, for the satisfaction of domestic needs had been in decline since the close of the War of 1812. Farming was for the market. The moment of wealth, of value, became real, solid, capital, only in the distinction of the product of the farmer's labor from the farmer's needs, from the farmer himself.
Free soil meant free labor. Access to labor meant the buying and selling of labor, the power to labor, rather than the laborer himself/herself. The moment of wealth, of value, materialized only in the distinction of the product of the "free laborers" from the laborers' needs; the separation of labor-power from the laborers themselves.
This free soil army, if not a new model at least a new market army, would do for the bourgeoisie what the bourgeoisie was reluctant to do for itself. For the Union to survive, slavery had to go. It did go
Dragged along, our foot-dragging, line toeing, fence-sitting bourgeoisie reluctantly engaged the South in the Civil War, consoling itself with the government contracts it captured for supplying the Union army, soothing itself with the interest collected from the government debt-- resigned, optimistic, despairing, hopeful, somber, frantic- those qualities so essential to the progress of a salesman.
Victorious in the Civil War, with the triumph of free soil assuring the access to free labor, the bourgeoisie declared the property of the slaveholders to be free, but the freedom of property is not the emancipation of labor. Reconstruction in the South was designed to transform a population that had toiled collectively, that had labored socially, into a mass of individual small property holders. The radical Reconstructionists dreamed of a league of black yeoman farmers. The reality of capitalism was that the time of the yeoman farmer was long gone, gone even as the yeoman farmers of the North forced victory upon the bourgeoisie. The reality was that with the end of the Civil War, capitalism had established more than the "freedom" of property. Capitalism had secured the point of separation, the point of antagonism between the freedom of property and the emancipation of labor, the point at the heart of capitalist production.
The end of Reconstruction was determined well before the compromise of 1877. The defeat of Reconstruction was assured even before the panic of 1873; before even the Paris Commune had put the feet of the foot-dragging bourgeoisie to the fire. The end of Reconstruction was determined by the same objective of the bourgeoisie during the Civil war. That objective was the need to establish and consolidate a national market.
The North had secured its victory of the South when its army moved away from the "Anaconda" strategy of slowly squeezing the strength from the Confederacy through containment and blockade and embraced Grant's meat grinder strategy. Lincoln had found his general all right, two or three of them in fact, generals who where able to apply the weight of the North's quantitative and qualitative superiority in the means of communication, transportation, production to bear upon the South. Heavier battalions mean something in combat. Heavier maneuver battalions count for a whole lot more. When the battalions can be delivered rapidly ahead of or behind the enemy; when the battalions can be resupplied and refitted in the field during battle, losses can be absorbed without the loss of combat capability, pursuit can be maintained, and the most difficult movement of all, an orderly disengagement with the enemy to implement a new maneuver can be achieved.
The North's superior industry, telegraph, locomotives, provided the amplification of force through transport, communication, resupply-- through the management of logistics. The Civil War was prelude, overture, development, and coda to the great themes of modern capitalism: the creation of markets through destruction, the expansion of power through successive applications of mechanical force, the concentration of capital through the devaluation of existing capitals, through overproduction.
Capital, the irresistible force, has run into the movable but ever present obstacle, which is itself, private property. The radical capitalists imagine the emancipating impulse of capital to be the creation of millions of small property holders, when it is nothing other than the impulse to create a social organization of labor that can be exploited.
The moment for the creation of yeoman free soil farming in the South had been crushed by the weight of the plantations; by the ability, and willingness of the plantation owner to work his slaves to death to preserve revenues as opposed to accumulating capital. The future for yeoman farming was being destroyed in the North by the immense concentrations of capital represented in the very railroads that carried, in just seven days, the yeoman farmers of the Union's Army of the Potomac from Virginia to Tennessee to effect the relief of Rosencrans.
4. For example...
[The following is, in large part, a brief summation of a critical period in Reconstruction presented by Scott Reynolds Nelson in his book Iron Confederacies: Southern Railways, Klan Violence, and Reconstruction, University of North Carolina Press, 1999]
Thomas A. Scott, vice-president of the Pennsylvania Railroad had worked diligently, and brilliantly, in moving the 11th and 12th Corps of that Army westward. At the conclusion of the war, Scott determined to create and control a unified network of rail lines in the South, extending from Washington, DC to Atlanta and on to New Orleans. Successful in gaining control of some state, and partly-state owned railroads, Scott faced the opposition of the once and ever prominent former officers of the Confederacy whose rail lines that would be eviscerated if Scott's plans were successful.
In Georgia, opposition to Scott's plan for rail consolidation was the vehicle for the violent "redemptionist" attacks on black legislators, skilled black workers, and the Republican governor, Rufus Bullock. Bullock had aided Scott's efforts, not the least by leasing out convict labor for the construction of Scott's railroad in Georgia.
In September1868, the Georgia legislature expelled all the black representatives, but voted to provide bond guarantees to the state's railroads, including Scott's.
In 1869, Bullock, knowing a terrorist when he saw a white sheet, utilized revenues from the state's Western and Atlantic railroad to pay for, among many other things, bounties for the arrest of Klan members.
Now it's one thing for the state to lease convicts to private contractors, and to award its tax revenues to railroads, and it's some of that same thing for the railroads to return some of those social revenues in the form of private payments to the representatives of the state. All of that falls into the category of businessmen doing business. Using the revenues of a railroad however to fund bounties on arrest of white men, white property owners is something else, and something else very disturbing to other white property owners, like Northern industrial capitalists, like Northern bankers.
By the time the federal government had restored the black representatives to the Georgia legislature, Bullock had leased the entire prison population to Scott's contractor. Bullock was attacked, and rightly so, as promoting chain gang slavery.
Scott knew Bullock's days were numbered, and he knew Reconstruction's days were numbered, in part because he was doing the numbering. Railroads required capital, capital required the stability of private property, the stability of private property required the acquiescence and subjugation of labor. In 1870 Scott, planning creation of the Southern Railway Security Company, a holding company which actually performed no business other than the holding of titles, deeds, stocks, sat down to dinner with Ben Hill, the voice of Klan terror in Georgia; Joseph Brown, former military governor of Georgia, Simon Cameron, former secretary of war in Lincoln's cabinet, and Columbus Delano, then current secretary of the interior in Grant's cabinet.
The topic of dinner table conversation was railroads. Not exactly. The topic was the ownership of railroads in order to make money. Scott's holding company would be fronted by Hill and Brown, in a show of reconciliation that would gag a maggot. The company would buy up the stock in major railroads in the South. Scott would have his network. Hill would have his redemption as Delano toasted the state of Georgia, essentially promising that Union troops would not defend Bullock, black legislators, and black voters.
Redemption had begun. The market was there to be made, but to be made it first had to be made secure. It was secured. The very advance of capital had conjoined the future of accumulation with the immediacy of deconstruction, expansion with regression, development with redemption. The progress of capitalism is marked in its embrace with reaction
The fate of Reconstruction was sealed. Reconstruction would die. Reconstruction had to be killed. It was killed.
In 1877, Tom Scott delivered the congressional votes that sealed the compromise that elected Hayes, that withdrew the last of the Federal troops from the South. In exchange, Scott received federal guarantees on the bonds of the failing Texas and Pacific railroad.
In 1877, the B&O Railroad unilaterally reduce wages twice in response to the depression that followed the Panic of 1873. The railroad's workers struck the railroad, blocking the movement of all traffic. The strike spread throughout the national rail network.
In 1877, Tom Scott of the Pennsylvania Railroad stated that strikers "should be fed a rifle diet for a few days and see how they like that kind of bread." Hayes delivered the rifle diet, with Federal troops, now removed from the South, ordered to break the strikes.
Standard Railroad of the World? Indeed, very low standards.
All the elements of modern US capitalism were in place.
Sources: Rescue By Rail, Roger Pickenpaugh, University of Nebraska Press, 1998; Railroads in The Civil War, John E. Clark Jr., Louisiana State University Press, 2001; The Northern Railroads in the Civil War, 1861-1865, Thomas Weber, Indiana University Press, 1952; Iron Confederacies; Southern Railways, Klan Violence, And Reconstruction, Scott Reynolds Nelson, The University of North Carolina Press, 1999.
4. OPM
The contradictions inherent in the movement of capitalist society impress themselves upon the practical bourgeois most strikingly in the changes of the periodic cycle, through which modern industry runs, and whose crowning point is the universal crisis. That crisis is once again approaching, although as yet but in its preliminary stage; and by the universality of its theatre and the intensity of its action it will drum dialectics even into the heads of the mushroom-upstarts of the new, holy Prusso-German Empire.
-- Karl Marx, Preface to the Second Edition, Capital, Volume 1, January 24, 1873.
In 1873, the United States entered into an economic contraction of greater severity and duration than those it had previously endured. The depression would last six years, and would only be relieved in the US when sustained crop failures almost everywhere except the US reversed the price declines of US grain exports in the world markets. The "uptick" lasted through 1881. In 1882, the US entered another recession, this one lasting three years to 1885. From 1885 to 1893, the US economy revolved in approximate three year cycles, with two years of expansion rotating into a year of contraction. In 1893, the United States entered into another severe and extended depression with unemployment levels reaching fifteen percent. The close of this cycle was marked by the initiation of the Spanish-American War.
The economies of France, Germany, Belgium, Australia, Britain operated in cycles similar to those of the United States. The entire period is known as the "long deflation," for the steady decline in producer, wholesale, and consumer prices. In the US, wages also declined. Overall, however, despite the periodic and intense declines, the period of the long deflation was a period of sustained growth in GDP per capita, GDP per hour worked, value of exports, and value of merchandise exports.
In his study, The World Economy, Angus Maddison extends the boundaries to include the period from 1870-1913. He calculates the growth in GDP per capita during this period at seventy five percent for twelve countries of Western Europe. For the US, his figure is one hundred percent. GDP per hour worked increased ninety percent for the Western European countries and 127 percent for the United States; the value of exports 329 percent for the twelve of Western Europe, 600 percent for the United States; volume of merchandise exports 300 percent for Western Europe, 800 percent for the United States, 800 percent for Argentina, 700 percent for Australia, and 1000 percent for Mexico.
The long deflation was rooted in the very same dynamic that propelled the cumulative growth of this period. The deflation was based on the amplification of labor productivity through the application of machine power to the production and transportation of commodities. More than an application, machine power was the substitution, reducing the proportion of labor in production; reducing the time of production and the time in transit; reducing the circulation time of the commodity so that it might be transformed into money.
If increased aggregate amounts of production, reduced unit costs of production, and greater profits constitute the paradise, salvation, and redemption, the trinity of capital, then the aggrandizement of surplus value through its expulsion from the labor process is its holy grail. Reduction in transit time, the circulation time, so that money can more rapidly, and frequently shed its earthly form of commodity-capital and achieve the miracle of transubstantiation-- where it assumes its heavenly form as profit-- is its holy sub-grail. With the opening of the Suez Canal, the application of steam power to the maritime shipping, with expansion of railroads, capitalism was feeling nearer to god than ever. Except, of course, when it wasn't; when its accelerated production of commodities at reduced costs swamped the decks of the good ship Lollipops, when the anchors of such machinery dragged profits under.
Reduced transit times create reduced the reproduction costs of transit. Reduced transit time equals more rapid conversion of the commodity into money, equals reduced time of turnover, equals more frequent turnovers, equals more rapid recoverty of amounts invested in the constant elements of production, particularly the "sunk" fixed assets, equals increased and more rapid conversions of money back into the components of capitalist production, into greater quantities, and values, of raw materials, more fixed assets, more fuel, more wage-labor, which equals accumulation, which equals expanded reproduction, which is the conversion of revenue into increased production. What a wonderful world it is when everything equals everything; when everything that is, equals more, and everything more equals cash flow.
Within accumulation during the long deflation, there was an alteration, a cumulative if uneven change in the proportions exchanged between living wage-labor and the inanimate materials of production. This change in ratios reduced unit labor costs, reduced production costs, increased production. Now industrial capitalism, industrial-based commodity production is not like other commodity production. Capitalism's markets are not like other markets. Prior to capitalism when, and if, commodities were produced, it was by chance, by fortune, by nature's bounty or benevolence. Commodities existed only after needs. As miserable as subsistence based production, as the production of owners who are both owners and direct producers, can be, its very existence is antithetical to capitalist commodity production. As lucrative as "subsistence plus surplus" can be for the direct producer, and/or the merchant intermediary, it too cannot sustain capitalism, nor reproduce itself as capitalism, as the direct producers' needs remain a priority and interrupt, obstruct exchange. Only when the producer is no longer directly producing and consuming for subsistence, only when the producer no longer possesses any means for subsistence, only when producers indirectly secure their subsistence by selling their labor power, only when the needs of the producers become essentially immaterial and invisible to the production of marketable values, only when labor itself is only a means of exchange do we get true commodity production, do we get "self"-expanding value-- capital.
This true commodity, this true commodity production, is not like any that has come before it, and there will be no commodity production to follow it. Invisibility is its vector, its ways and means, its transparent and evident manifestation. Value, cloaking the commodity, hides its own makeup in this act of camouflage. This true commodity is like no other in that the qualities of its existence are not need our usefulness, but need or usefulness as mediated, as presented, as materialized by the social relation of production. Value then, in all its invisibility obscures just that social relation. Value then as this materialized social relation can only maintain its existence to the degree that it renews itself through renewed demands on the organization of labor. Value then exists everywhere and invisibly only to the extent that it can command the production of more value; to the extent that it can create and populate a whole universe of increasing values. Value exists only as the process of valorization.
The social process of valorisation means that the unpaid labor concealed in the wage-form, and the paid labor displayed almost as a diversion in the wage form, and the value of the materials and machinery consumed at different rates in production cannot be realized by any single capitalist in aliquot parts apportioned to the components of value, to the components of the productive process. The return on the commodities is the return on the complete cycle of production.
The value existing in the commodities exists in a "shared state," a collective tension with all the commodites produced not just by that capitalist enterprise, but in a shared state of collective tension with the totality of commodities produced by all capitalist enterprises. Such is the meaning of exchangable value; of equivalent values. Surplus value cannot be aggrandized as profit through the circulation of fractions of the commodity-capital, because the surplus value can materialize as money by claiming a portion of the total profit in the markets as money. The individual commodity is meaningless, and useless, in capitalism. The metamorphoses of all commodities into money for the purpose of converting revenue into means of purchase of increased components of capital is....priceless.
The capitalist thinks he or she is retrieving all of his or her owned value in the market. In reality, the profit any capitalist obtains is a portion of the total profit realized through the expanded reproduction of capitalism as a whole.
In this collective tension is both the source and the manifestation of capital's success and failure, each through the other. The realization of the surplus value appropriated by any individual capital depends upon the realization of the surplus value appropriated by all capitals. At the same time, the market is a distributive mechanism. The realization of any value in relation to all other values is also dependent upon proportional devaluation, loss of marketability, of market share, of sections of the total commodity capital pushed into the markets.
With the continued amplifications of labor productivity through machine power production increased, costs of production decreased, greater masses of commodities crowded each other and the markets, prices declined, greater numbers of commodities could not realize their value, and died in the markets. Turnover slowed, extended, dragged. What a miserable world it becomes when everything that once equalled more now equals less.
Price drops were dramatic and sustained. Between 1870 and 1880, food prices declined twenty-three percent, rents by eleven percent, clothing by thirty-three percent, fuel prices by twenty-five percent.
With this decline, daily earnings of workers also declined. In 1865, the daily wage for non-farm employees stood at $1.54. By 1870, it had fallen to $1.47; by 1875, $1.27; 1880, $1.16; 1885, .90, a cumulative decline of forty percent in fifteen years.
The average monthly earnings, with board, for US agricultural workers follwed a similar downward trend, from $16.57 in 1870 to $11.70 in 1880. The monthly wage had recovered to $13.93 in 1890, but the 1870 peak was not exceed until the turn of the century.
Declining wage rates were one product of the tremendous improvements in labor productivity, unit output per unit time, brought about the substitution of machine power for labor power in the production processes. Time isn't the measure of all things, but it is the measure of all of capital. In US agriculture, labor-hours required for the production of one hundred bushels of wheat dropped from 233 hours in 1840 to the 1880 mark of 152 hours. The labor-hours required for production of 100 bushels of corn declined from 276 hours to 180 hours. Labor-hours declined even in the South, even in the production of cotton. The working time represented by 100 bales of cotton declined from the 1840 level of 448 hours to the 1880 level of 303 hours.
The social transformation precipitated by the increased productivity of agriculture and industry was the transformation from an agricultural based capitalism to an industrial based capitalism. While both the agricultural and urban laboring populations consistently grew during the post-Civil War period, by 1880 non-agricultural employment was twice that of agricultural employment. The "value-added" in agricultural production, the value/receipts for shipments minus raw material and intermediate inputs [fuel, fertilizer, etc.] exceeded that of manufacturing throughout the 19th century until 1884, when the relation was first reversed. By 1894, the value-added in manufacturning was 60 percent greater than the amount added through agriculture. Value-added by manufacturing grew, in constant 1879 dollars, from $1.96 billion in 1879 to $3.22 billion in 1884 to $5.48 billion in 1894. The ratio of value-added in manufacturing to the wages of production workers increased from 2.07 in 1879 to 2.83 in 1899.
The amplification of labor-productivity, the proportional expulsion of labor-power and its replacement by machines drove prices down and production up. The more the total capital increased, the more the means of production expanded, the more the output increased, the more the efficiency of the means of transportaton and circulation increased, then the lower the prices. The lower the prices, the greater the volumes of commodity capital poured into the markets to realize, to garner, a portion of the profits. The greater the volumes of commodities poured into the markets, the more capital required extension of the markets, the increase of the arena, geographically, those relations of exchange for which reason alone, capital existed. The greater capital's need for expansion of the markets, the greater the need for greater amounts of capital to be advanced in the production process. Consequently, capital existed in a perpetual, or near perpetual, condition of overproduction-- producing commodities at a far greater rate than it was capable of reproducing the social relations that could realize, and ration, the mass of profits necessary to the expanded reproduction. Production outruns reproduction. Devaluation of larger numbers and amounts of commodity-capital becomes essential to the realization and rationing of any profit whatsoever. The means of production, the productive power of labor, have outgrown the relations of production.
Between 1879 and 1889 the book value, in constant 1929 dollars of the capital invested in US manufacturing added 131 percent of its original value . Between 1889 and 1899, the capital invested in manufacturing added another 67 percent. By the turn of the century, the cumulative growth had added $13.8 billion to the original amount of $4.8 billion.
David A. Wells, in his Recent Economic Changes, D. Appleton & Co., 1889, writes in his preface:
"Concurrently, or as the necessary sequence of these changes, has come a series of wide-spread and complex disturbances; manifesting themselves in great reductions of the cost of production and distribution and a consequent remarkable decline in the prices of nearly all staple commodities, in a radical change in the relative values of the precious metals, in the absolute destruction of large amounts of capital through new inventions and discoveries and in impairment of even greater amounts through extensive reductions in the rates of interest and profits, in the discontent of labor and in an increasing antagonism of nations, incident to a greatly intensified industrial commerical competition."
Let the good times roll.
Wells, in this remarkable book, examines the depth and breadth of the recent changes, identifying at every turn the increased productivity of labor, the intensification of the production process through the substitution of machine for labor power, as the source for the price declines and the destruction of capital. In what reads like a catalogue of exasperations, Wells continues:
"...railroads, ships, houses, live-stock, food, clothing, fuel and luxuries have year by year been accumulating and with the greatest rapidity and offered for use of consumption at rates unprecedented of cheapness. If lack of capital, furthermore, by destruction or perversion, had been the cause, the rate of profit on the use of capital would have been higher; but the fact is, that the rate of profit on even the most promising kinds of capital during recent years has been exceptionally low."
Wells is perplexed by the seemingly unending expansion of trade despite the steadily declining prices and the shortage of profits:
"In fact the volume of trade, or the quantities of commodities produced, moved exchanged has never been so great in the history of the world as during the last ten of fifteen years; and the soc-called depression of trade during this time has been mainly due to a reduction of profit to such an extent that...it has not paid to do business. "
How to explain this? First, it still paid to do business, for some businesses, and it paid for the totality of business. In agriculture, between 1870 and 1880, the wholesale price for wheat dropped from $1.37 to $1.06 per bushel. Between 1880 and 1887, prices declined to 77 cents per bushel. Costs of production however had declined to 42 cents per bushel.
In manufacturing, some, but not all, rates of profit of some capitals were exceptionally low. The ratio of the total value of manufactured products to the total costs of raw materials, fuels, purchased energy plus wages was 124 percent in 1879, 133 percent in 1889, 136 percent in 1899. Through all its bankruptcies, contractions, deflations, capital was accumulating; accumulating profits, and accumulating through devaluation.
The increasing importance of manufacturing to the US and global capitalist expansion was built upon improved agricultural productivity, increased production, reduced transit times and costs of food products. Declining food prices not only, and were not the only force that, drove down the costs of reproduction of labor, that drove down wages. Across the globe reduced prices for agricultural output displaced less-efficient agricultural producers directly in their home markets. Wheat flour from Minnesota was cheaper in Milan than flour from wheat raised in Lombardy.
The small producers were being ruined. Outside the more advanced capitalist countries "subsistence plus" producers were reduced to less than subsistence producers by the lower prices of the agricultural goods being produced cheaply, and being delivered quickly, from Argentina, Australia, Canada, and the United States. Inside the more advanced capitalist countries, debt, the picture to the Dorian Gray of capitalism, was eating its way through the smaller producers. Where it was ruined, small agricultural production was not reconstituted along the model of the free-soil yeoman farmer. Capital's yeoman days were will in the past. Concentration of capital in manufacturing, concentration of capital amplifying the productivity of agricultural labor, required larger units of production. These rural producers, dispersed by the market, were likewise reconcentrated in cities, or across oceans.
The small farmers experienced everyday what capital experiences, recognizes with a shock, only during its crises-- that the accelerating productivity of labor, in reducing the costs of production in total, as a mass, socially, necessarily devalues the products themswelves. Yesterday's production, produced at yesterday's cost reaches the market just in time to be sold at tomorrow's price which is being steadily eroded by improvements in productivity. Sooner and later, all value is devalued in the pursuit of surplus value.
The "long deflation" was that period where capitalism was establishing its real domination of the world markets, of the productive process, by aggrandizing not just absolute surplus value, by working the laborer for an extended number of hours in order, consuming over a longer duration labor power to expand capital, but aggrandizing relative surplus value, intensifying production through the application of machinery so that the collectivity of laborers, the class of laborers, reproduced the value equal to their wages in less time, making more time surplus labor-time, making the total mass of surplus value extracted-- the valorisation process-- a relatively greater portion of the working time, even as value of the labor as expressed in wages declined in proportion to the total capital employed in the process itself.
In 1840, US cotton mills required 14 labor-hours to produce 9600 yards of cotton sheeting. In 1886, 10 labor-hours yielded 30,000 yards of sheeting. In 1840, the annual wage for mill workers averaged 176 dollars. In 1886, the annual wage averaged 285 dollars. Emerging now from the accelerated productivity of capitalism was its other great secret-- with productivity so high, and output so great, wage increases were increasingly insignificant in the relational costs of production. Wage rates are always significant in their demands on, and challenges to profits, but not as a factor in the pricing of commodities.
Between 1869 and 1890, the US wholesale price index, calculated in constant dollars, declined forty percent. By 1890, the price index for agricultural and manufactured goods was lower than it had been in 1820, or 1830, or 1840, or 1850, or 1860.
Increased productivity, declining prices, efficient transportation drove the expansion of exports from the capitalist countries.. Between 1870 and 1913, the value of exports from twelve western European countries grew 329 percent. Exports from Australia grew 400 percent . US exports grew 600 percent
Wells, and others, recognized that this period of the long deflation was anything but a depression in trade. It was not, except for the periods of its most severe contractions, a depression in production. It was exclusively a depression in profits-- in the rate of return on investment in production. And even then, it was not a depression in profits for all capitalists. Profits were realized. Capital did accumulate. Declining prices allowed the most efficient producers to establish their prices of production as the social prices of production, thus taking market share, and cash flow, away from the less efficient producers.
"The years of expansion were years of large return to the owners of the old investments."-- Arthur Hadley, Railroad Transportation, New York, 1885.
The valorisation process, the extraction of surplus value, cannot exist separate and apart from the production of commodities as both values and useful articles. Use-values are the mules that carry the gold of labor time, of value, through the exchanges of the market. Capitalist production is driven by the need for profit, for the realization of value through exchange. Reproduction, however, is dependent not just upon exchange value, but also upon the utility of the commodities produced. This usefulness is not an usefulness of the individual commodity to the individual consumer, nor of the mass of commodities to the mass of consumers, but rather the social usefulness of the social production of the mass of commodities. The utility of the commodities depends on the level of social development. When capital overproduces, it is always overproducing capital. It is producing commodities beyond its own ability to maintain social development. Production outpaces reproduction. Value struggles. Commodities accumulate, clump, coagulate rather than circulate. Markets don't just shrink in size, but falter in time. The shrinkage is simultaneously a decline in the volume of exchanges and a lengthening of the time of achieving exchanges-- turnover time, the velocity of capital's exchanges in the markets, lengthens. Commodities remain longer in warehouses, on ships. Ships become warehouses. The means of transport themselves accumulate, rather than circulate. Value, with a half-life measured in hours if not minutes, decays. The limit to the developmeent of capital is capitalist development.
"In the three years 1880-1882, we built 29,000 miles of railroads, an addition of thirty-four percent to the railroad mileage of the country. Not more than one third of these were justified by existing business. Another third, perhaps, were likely to be profitable at some future date, or at any rate to be of real service to the community; but not now. Of the remainder, some were built to increase the power of existing systems, where they were not needed on their own account. Some were built to put money into the hands of the builders, as distinct from the owners. Some were built to sell, as a blackmailing scheme against other roads....
The rest of the story is soon told. Insolvent themselves, they dragged their solvent competitors down to their own level. The causes whin in 1879-'81 had operated to produce an advance soon passed away. The natural decline, which at best would have cut down the profit of the permanent investments, found some of them loaded with a weight of new debt, and many of them struggling against the reckless competition of insolvent rivals...What has been true of railroads hs been true of other forms of permanent investment. First, high charges and high profitrs. Then speculative investments in the same line. Next an overstocked market, and no profit at all. Finally, cutthroat competition and the widespread insolvency."--Hadley
During the best of times, the circulation of commodities cannot keep up with the capitalist production of commodities. For the valorization process to be sustained, production must be maintained on a continuous basis. The application of more efficient machinery-- the fixed portion of the capitalist's "constant capital"-- requires, not individually for each production unit but socially, greater volumes energy, raw materials, intermediate inputs. Socially the process requires greater outlays of money before production can be valorized. Socially, circulation time cannot absorb, exchange the masses of commodities quickly enough to re-finance production, to sustain the rate of reproduction.
In this tension in between production and circulation, credit and finance are born. During the best of times, credit and finance are imagined by the capitalist as smoothing over the uneveness of the markets, as buying the time until the market makes the time of production good. During the best of times, credit and finance are the bourgeoisie's attempt to paper over, and to repress, the expanding hole in their pockets. Yet, credit and finance, secured by claims against the value of the commodities to be produced and circulated, are the extrusion of the self-contained negation of value inherent in every commodity. During the worst, or next to worst of times, which are any times not the best of times to our bourgeoisie, credit and finance confirm the inability of value to prove its own utility. The expanding production of value becomes the basis for the devaluation, the social devaluation, of the mode of value production.
Economists have long talked of a "scissors crisis" afflicting agricultural producers in modern capitalism; a crisis where the productivity of agriculture drives down the price of its products to its cost of production, but the capital costs of the inputs to maintain that productivity--machinery, fertilizers, pesticides, irrigation,etc.-- continue to rise. This creates an ever widening spread between the two points of the scissors, which the farmer attempts to close through the assumption of debt. However, the scissors crisis is not solely about the growing divergence between the cost of inputs and the cost of production. The scissors crisis is also about the time-lag between production and realization, where the farmer in essence mortgages the anticipated future yield to begin current production. Any delay, disruption, in production, and/or dimished yield in circulation wipes out the value, or a portion of the value of the investment made in the "capital assets" required for production, as the collateralization of the debt demands either liquidation of the these assets or the assumption of more debt as the small farmer is forced to mortgage next year's crops in order to fund this year's failed reproduction.
The intermediate result of the widening of the scissors is the expansion of debt, which compels greater production, greater masses of commodities pushed into the markets in the attempt to recuperate the previous loss. This overproduction further drives down the market prices of the agricultural commodities. With each increase in productivity, the value of and in each individual unit of the products-- a bushel of wheat, or corn; a gallon of milk--contracts, while the mass of values expands. The price of production, or market price, of any single unit, and all the units, tends towards the cost of production, compressing profits and profitability. Any failure to realize the total value of the total product creates a contagious devaluation of all products.
The scissors stretches and strains the agricultural producer as the points open, as the cost of the inputs and the price of the product diverge. The scissors cuts the agricultural producer as the points close, as the market price of agricultural commodities trends toward the actual cost price.
This process creates ever greater concentrations of capital in ever fewer hands; it creates ever larger units of production controlled by ever fewer owners.
Agriculture is not just agriculture, it is capitalist agriculture, and the scissors that strains and cuts the farmer is the same scissors at work in all of capitalism, in the development of industrial production, in the continuous amplification of the productivity of labor through the application of machinery to the production process, the scissors crisis becomes the emblem of all capitalism. Value production becomes devaluation. Declining prices and increased capital investment were the two points of a scissors that cut both ways against itself.
This was the source of the long deflation. It was the era that saw, and felt, the transformation of the valorisation process from one based on the extraction of absolute surplus value, lengthening of the working day, to a process dependent upon the extraction of relative surplus value, intensifying the productivity of labor.
The repercussions of this transformation were brutal to the workers, the poor, and the small producers, and terrifying to the bourgeoisie. The market, by which the bourgeoisie supposedly measured all things, was measuring capitalism and capitalism was coming up short. There was no reversing the effects of the transformation on the workers, the rural small producers. The bourgeoisie did not desire such a reversal. What the bourgeoisie did desire was insulation, protection from the market forces of its own creation. What the bourgeoisie did desire was relief from the conflict at the heart of commodity production, between value, appropriated from the productivity of labor-power, which could only be realized through the social utility of the commodities, and the very same productivity of labor which made value inconsequential, superfluous, and revealed capital as an obstacle to the development of social utility.
Relief was attempted in a variety of manners-- it was sought in the establishment of trusts, syndicates, in tremendous concentrations of capital, the largest of the large, the bourgeoisie knowing that size really does matter. The bourgeoisie thought they were establishing prices, controlling the market through control of production when in essence the trusts, syndicates were simply mechanisms for the rationing of the socially available profit.
Relief was sought in the linkage between industry and banks, in the creation of banks by industry, to provide financing, and to maintain a means for aggrandizing the already accumulated wealth of others.
Relief was sought in regulation, in the federal government pre-empting all the local and state governments and set uniform rates, rendering uniform judgements, with the government acting as the measure, a stand-in, for social utility.
Relief was sought in exclusion of sections of the population from the requirements, benefits, and costs of social development. In the midst of the 1893-1898 spasmodic contraction, the US Supreme Court confirmed that the South had not only risen again, had not only "redeemed" itself, but had indeed conquered, with its decision in Plessy v. Ferguson, excluding black Americans from equal protection.
Relief was sought in empire-- where the burdens, the costs, the responsibilities of social development could be ignored, repressed; where production was extraction and reproduction was subjugation; where modern capitalism declared it had not the desire, the need, nor the ability to revolutionize the relations of land and labor; where capitalism reinforced, and is reinforced by debt peonage, sub-subsistence wages made possible through the practics of subsistence agriculture; where capitalism in its real domination takes on the formal appearance of the inquisitor, the hacendado, the guarantor of immiseration, marginalization.
Sources: Railroad Transportation, Arthur Hadley,
G.P. Putnam's Sons, 1885.
Railroading Economics, Michael Perelman, Monthly Review Press, 2006. Special thanks to Michael for challenging me to read his book.
Recent Economic Changes, David A. Wells, D. Appleton and Co. 1889.
Railroads and Regulation 1877-1916, Gabriel Kolko, Princeton University Press, 1965.
Capital, Vol. 2, 3, Karl Marx, Charles H. Kerr & Co., 1919. "Commodities as the Product of Capital," Karl Marx, as reproduced by the Marxist Internet Archive,
www.marxists.org, "The Direct Production Process," Karl Marx, as reproduced by the Marxist Internet Archive.
The World Economy, Vols. 1 & 2, Angus Maddison, OECD, 2006.
BicentennialEdition, Historical Statistics of theUnited States, Colonial Times to 1970, Parts 1&2, US Department of Commerce, Bureau of the Census, 1975.
January 4, 2010
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