Monday, January 2, 2012

Echoes of the past: Who are John Stapleton and James Goldsmith?

"If China," says Mr. Stapleton, M.P., to his constituents, "should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors." (Times, Sept. 3, 1873, p. 8.).

John Stapleton was an English Liberal Party politician who sat in the House of Commons between 1852 and 1874. And yet in just one sentence he explains today's situation much better than most of today's various economists, analysts, reporters, etc. Karl Marx included this quote from Stapleton in his famous book Capital - here's his take on it:
A writer of the 18th century, often quoted already, the author of the "Essay on Trade and Commerce," only betrays the innermost secret soul of English capitalism, when he declares the historic mission of England to be the forcing down of English wages to the level of the French and the Dutch. [37] With other things he says naively: "But if our poor" (technical term for labourers) "will live luxuriously ... then labour must, of course, be dear.... When it is considered what luxuries the manufacturing populace consume, such as brandy, gin, tea, sugar, foreign fruit, strong beer, printed linens, snuff, tobacco, etc." [38] He quotes the work of a Northamptonshire manufacturer, who, with eyes squinting heavenward moans: "Labour is one-third cheaper in France than in England; for their poor work hard, and fare hard, as to their food and clothing. Their chief diet is bread, fruit, herbs, roots, and dried fish; for they very seldom eat flesh; and when wheat is dear, they eat very little bread." [39] "To which may be added," our essayist goes on, "that their drink is either water or other small liquors, so that they spend very little money.... These things are very difficult to be brought about; but they are not impracticable, since they have been effected both in France and in Holland." [40] (Capital I, chap. 24) 
And the footnote amplifies:
[40] Today, thanks to the competition on the world-market, established since then, we have advanced much further. "If China," says Mr. Stapleton, M.P., to his constituents, "should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors." (Times, Sept. 3, 1873, p. 8.) The wished-for goal of English capital is no longer Continental wages but Chinese.
What was once a "wished-for goal of English capital" is now becoming a "dream come true" for Western capital.

Marx was probably the first to realize that, in capitalism, the worker is a actually...a merchant, who trades his labour force - he sells it to a capitalist in the market that has been created for this purpose (the "labour market").

The worker has to sell his "merchandise" to a capitalist in order to survive - if he doesn't, he will starve to death, just like any other merchant. The difference is that in this case, the capitalists are the consumers, and just like any other consumer, they like "low prices" (low wages, pensions, health benefits, etc.), and good quality (high quality products, etc.), and they certainly don't like "cartels" (labour unions, worker's political parties, etc.) which prevent prices from going down.

Suppose you were a capitalist - which of these stores would you prefer?

- Shop A: Let's call this shop "England". It offers
  • 1200 euros in monthly wages
  • 8-10 hours working day
  • a pension when you retire at age 67
  • some rights to form a trade union
  • some social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc.

- Shop B: Let's call this shop "Spain". It offers
  • 1000 euros in monthly wages
  • 8-10 hours working day
  • a pension when you retire at age 67
  • some rights to form a trade union
  • some social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc.

- Shop C: Let's call this shop "Bulgaria". It offers
  • 500 euros in monthly wages
  • 10-12 hours working day
  • a [ smaller] pension when you retire at age 67
  • some rights to form a trade union
  • some social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc.

- Shop D: Let's call this shop "China". It offers
  • 200 euros in monthly wages
  • 12-14 hours working day
  • a [much smaller] pension when you retire at age 67
  • Very little -if any- rights to form a trade union
  • Very few social rights, such as "freedom of speech", "freedom to assemble publicly and organize demonstrations", etc. In fact, the is no free press in China, the State arrests those who disagree with the regime, it uses the police and even the army to crack down on protesters, etc.

"One man's version of heaven is another man's version of hell". In the eyes of a capitalist, the terrible conditions for the workers in China are in fact..."great" - labour force is today one of the most undervalued "commodities", since the capitalists can buy it in the cheap in countries like China, India, etc.
Why share some of the wealth with the western workers, who demand wages of 1000$/month (and they go on strike if they don't get it), when you can keep almost all of the wealth for yourself, by employing Chinese workers for just 1 or 2 dollars per day (30-60$/month)?

After the fall of the Soviet Union, capitalism integrated the countries that were "freed from communism" into the world market. Those countries were, for better or worse, "shielded" from competition on the world market. In fact, the model used in these countries had little to do with Marx's vision of communism, and it is more accurately described as "state capitalism".

One of capitalism's strongest points has always been its Borg-like quality of assimilating all other anachronistic (inferior) modes of production, and we should always support this admirable trade of capitalism (and for those of you that may be wondering, yes, i am referring to the Borg from the Star Trek series and movies).

Shortly after the fall of the Soviet Union, in 1994, the GATT agreement was signed, and tariffs in world trade were abolished, allowing for the full integration of China into the global market.

This gave birth to a new era of "globalization", as billions of new workers were now available in the global "labour market". These new workers (workers from the ex-Soviet states + Chinese workers) were not very competitive in terms of "technical knowledge" - but they were willing to work for cheap wages.

The rest, as the say, is history: The thing that matters most to a capitalist is his own, private property and he's always searching for new ways to increase it. China in particular offered an abundance of cheap labour force, and the industrial capitalists begun off-shoring industrial production to Asia.

This process increased the profits for the capitalists, especially the "big players" in the markets, who had the ability to move their production to Asia (the 'smaller capitalists" are being wiped out, because they can't move to Asia, and, as a result, they simply cannot compete against the cheaper goods coming from Asia. This explains why they are in favour of reverting to protectionism. This is something we should be against - we will talk about this subject in a future post).

This process of "globalization" has helped create a truly world market - and this is an admirable accomplishment for capitalism. The only problem of course is that capitalism has done it they only way capitalism can do anything: By exploiting the workers (social inequalities are breaking one record after another, and they are now -at last- a dominant theme in the "public discussion").

Globalization also means that the "western way of life" is being wiped out: The West is going down, and all the western nations are now "facing a terrible crisis". Germany is the only notable exception, as their superior quality in production and their superior technical know-how is a big "competitive advantage", that balances out the "competitive dis-advantage" of "too high wages and pensions" that all the westerns nations have when compared to the likes of China, India, etc. There are also important differences between the various countries of the West (for example France is not doing very well, but it is not doing as bad as Greece), but they all share the "western way of living", the legacy of past workers struggles, which led to the 8-hour day, a reasonable wage for a big part of the working class people, public healthcare and education system for (almost) all, etc. This is why things were decaying much more slowly before the integration of China and the ex-Soviet countries into the world market - because the world market was somewhat "homogeneous", and there wasn't much profit for a capitalist in off-shoring his business elsewhere. Thing have of course changed.

Globalization is a process that has been going on for 20 years - how was the West able to last for that long, and why is it breaking down now?

In fact, the West would have "gone down" much sooner than 2008, if it wasn't for the bankers.

Don't get me wrong though, i don't blame the bankers. Well, actually i am, but i don't blame them for...everything like most people do these days:

The "banksters" have gone out of control - this much is clear to everyone. What most have not yet understood is the reason why the banks became as big and powerful as they did.

Capitalism needed capital - the industrial capitalists were off-shoring production to Asia, and the western workers would probably have revolted in order to stop this process. Yet, the "anti-globalization" movement never became that massive. The reason was that banks provided the perfect substitute for the loss of industrial capital: Debt (loans). "Fictitious capital" as Marx called it, grew and grew and grew.

We are going to study this topic in more detail in future posts, as levering/deleveraging, gold, and currency matters are now a central part of the discussion.

For now, here are some quotes by Marx on the subject - from Wikipedia:
Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 29 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capital" which is capital actually invested in physical means of production and workers, and "money capital" (actual cash held). The market value of fictitious capital assets (such as stocks and securities) varies according to the expected return or yield of those assets in the future, which is at best only indirectly related to the growth of real production. Effectively, fictitious capital represents "accumulated claims, legal titles, to future production" and more specifically claims to the income generated by that production.
The formation of fictitious capital is, for Marx, linked to the wider contradiction between the financial system in capitalism and its monetary basis. Marx writes: "With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands. The greater portion of this 'money-capital' is purely fictitious. All the deposits, with the exception of the reserve fund, are merely claims on the banker, which, however, never exist as deposits." The expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system; but in periods of economic crisis and uncertainty, capitalists tend, Marx argues, to look to the security of the "money-commodity" (gold) as the ultimate measure of value. Marx tends to assume the convertibility of paper money into gold. However, the modern system of inconvertible paper money, backed by the authority of states, poses greater problems. Here, in periods of crisis, "the capitalist class appears to have a choice between devaluing money or commodities, between inflation or depression. In the event that monetary policy is dedicated to avoiding both, it will merely end up incurring both"
Profit can be made purely from trading in a variety of financial claims existing only on paper. This is an extreme form of the fetishism of commodities in which the underlying source of surplus-value in exploitation of labour power is disguised. Indeed, profit can be made by using only borrowed capital to engage in (speculative) trade, not backed up by any tangible asset.

In short, what happened was that banks started giving out more and more loans, and this provided the economy with enough capital to create a business, to buy a house, to buy a new electronic gadget, to pay for your tuition fees if you are a student, or even to fund a nation's budget/trade deficit (almost all the western nations are running trade deficits for many years now).

As Marx claims, the expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system. Indeed, some loans can be used for starting a business that produces something useful, or to go to a university and become a great engineer. That's great. But what happens if the West can't compete against the Chinese?

Then a lot of these loans (private and public) cannot be repaid. After all, fictitious capital represents "accumulated claims, legal titles, to future production" and more specifically claims to the income generated by that production. But the West's production is shrinking, because it is not as competitive as China's. So, businesses are going bankrupt, unemployment is rising, wages are falling, and the workers or the small capitalists cannot repay the loans they have taken on, the students can't find a job when they graduate so they can't repay the student loans they have taken on, entire nations can't repay the loans they have taken on, etc.

The West finds itself in a position where it has delayed the inevitable crisis (through extensive borrowing), but at a terrible price:

- The banks have become stronger than ever, because they had to grow in order to give out all these loans.

- The industrial capitalists safely off-shored production to Asia, without the workers noticing or fully understanding the meaning and importance of what was happening.

- The process of globalization was allowed to continue for almost 20 years - that means that the industrial capitalists have been able to off-shore a huge part of production to Asia (much more that the workers would have allowed if it wasn't for the "bribe"/"substitute" they were offered in the form of debt. And this is something that the working class is responsible for - instead of overthrowing capitalism, they opted to take the loans the capitalists offered to them).

- All the western nations have now accumulated great debts. A lot of these debts can be categorized as odious debt, as they mainly benefited a few bankers and businessmen, not the workers. We are going to talk about odious debt much more extensively in future posts.

- They biggest problem is that the working class has little understanding of what is happening. What class struggles? Marx is "outdated" - at least that was the general consensus up until now.

- As for the future, the capitalists are using austerity measures in order to "restore competitiveness" (= to reduce the wages of the workers), and they are also inflating their currencies ("printing money"), in order to rescue the banks (all the banks are insolvent, since the loans they have given out cannot possibly be repaid), and also to indirectly reduce the wages of the workers who are getting paid in that currency (the "currency wars" are nothing more than a sub-battle of the trade war between the capitalists - every country tries to lower the wages of its workers, in order to attract investors).

- As almost all the governments print "money" (= currency) out of thin air, capitalists prefer gold. This is a topic that will require a series of posts in the future. We shall talk about the gold market, the "paper gold market" that the capitalists have "created out of thin air", and the coming oil crisis (the oil states do not like selling their oil, the world's #1 energy source, in exchange for dollars that are becoming more and more worthless. It is only a matter of time before they reject them, and ask to be paid in gold, much like they did during the 1973 oil crisis, when they asked for gold in exchange for oil, as a response to US President Nixon's decision to abolish the gold standard, in order to print as many dollars as the USA desired).

And since this is the holiday season, and some of you may have more free time, i highly recommend watching his one-hour interview of Sir James Goldsmith, an industrial capitalist, who was against the signing of GATT (GATT was the treaty that allowed for global free trade, and the integration of China into the global market). His interview in the Charlie Rose show back in 1994 is "prophetic", and it truly stands the test of time. Goldsmith accurately foresees the consequences GATT would have on the workers and on the western nations. He is a capitalist (and "proud of it", as he argues), yet he is fully aware of the class struggles between labour and capital. Although his solution is practically impossible (he suggests that capitalists should refrain from signing this treaty, because he can't understand, or doesn't like to admit, that capitalists are drown to bigger profits, and asking them not to sign GATT is like asking a shark not to eat fish), his analysis is top-notch. This is a must-watch video:


  1. Great post, thanx!

  2. try googling "language barrier" ;-)

  3. lol, is it really that bad? It was the first ever article that i've written in english (i've writing articles in my native language, Greek, for the last 5 years)

  4. lol, no, "language barrier" as a barrier between china and the west

  5. LOL!

    Anyway, language barriers can be overcome (although it can sometimes be difficult - and i guess our conversation is a good example of it). China is..."piece of cake" compared to this :-)

  6. Thank you very much ciaoant1 for this post and for starting writing in English.I always wanted to tell you in Bathy Kokkino that you should write in English, so many of my friends and colleagues here abroad start reading your very good articles..I am an economist myself so I would like your second article to be about Gold and currencies (you can just translate some of your older articles in the previous blogspot or if you don't have time i could help) which I think are 'enlightning' and helpful (for all the people but for economists also,even for traders..) and I almost totally agree with them.

    Keep up the good work in the revolutionary path. redplan b

  7. I'll definetly recomend your blog to people who are still dreaming as my country men did.

    English will come easily as you practise it

  8. @redplan b: Thanks, and sure, if you can translate some of my earlier posts, please do so. You' be saving me a lot of trouble.

    @Demelene: It's good to see some familiar faces around here - thanks for the support. Take care

  9. This comment has been removed by a blog administrator.

  10. Great stuff! Very interesting. I find it amusing when the West, ie USA, claims to have 'won' the Cold War, yet we are up to our eyeballs in debt to a Communist behemoth that now forces the West to lick it's boots.