Capitalism's Fatal Flaw, and the Way Forward: Part 3 of 8 -- The Equitists' "Malady and Remedy" Manifesto.

Dear Reader,

This blog-entry contains the third part of my serialization, within this blog, of the Equitist Advocacy Group's groundbreaking manifesto entitled "Malady and Remedy: What's Wrong, and What to Do About It", with my own edits added to their text, for its improvement [at least, I think so!].

In my opinion, this text is too important to be treated as any kind of "sacred text".

It needs to be improved upon, and circulated, <<samizdat>>, worldwide, in such "improved" forms -- i.e., in as many versions as are seen as being needed, by every author who thinks that [s]he can improve upon it [including this one].

Here is a link to the original version, including to its "endnotes" --

http://equitism.org/Equitism/Equitism-entry.htm

http://www.equitism.org/Equitism/MaladyAndRemedy/MaladyAndRemedy.htm

Regards,

Miguel

Part 3.: Malady and Remedy --

What's Wrong, and What to Do About It.

Diagnosis: What's Wrong [continued].

Hypothesis I: The Two Phases of the History of the Global System of Capital(s)

A reversal, an historical turning point, eventually arises for the core of the global capitals-system as a whole — a turning point from the progressive to the increasingly retrogressive reign of the global system of capitals, and of the capital-based, core, concentrated-capital-owning plutocracy.

This turning point arrives when the transient capital-value gains to that plutocracy, no longer exceed, "in the net", on average, the capital-value losses to that plutocracy, for those gains, or self-expansions, of capital-value, and for those losses, or self-contractions, of capital-value that are both due to a single causative process: "the growth of the social forces of production" [Marx], i.e., the growth of the [human-social self-]productivity of capital-based industry; of industrial capital.

The gains result from temporary increments to the plutocracy's profitability, due to reductions in the costs (per unit of the commodity-output), of the labor-time, and of the other ingredients, required for the production of that commodity-output, relative to the unit costs, for the same kinds of commodity-output, of their competitors, when that unit-cost-advantaged commodity output is sold at the prevailing prices established by their competitors, or for lower prices, still covering those lower unit-costs plus a profit-margin.

These cost reductions express technological productivity gains in monetary terms.

These gains to capital in question accrue to the plutocracy via installed and producing advances in technological productivity, embodied in their newer vintages of capital "plant and equipment".

These losses to capital in question arise due to the exposure of the plutocracy's businesses to their competitors' installations of superior new vintages of productivity-advancing capital "plant and equipment".

The resulting increments to the plutocracy's losses to capital, arise due to the competition-enforced "premature" scrapping of the plutocracy's older-vintage capital "plant and equipment" assets.

These losses to capital result from scrapping capital "plant and equipment" assets before the normal time-span of their "wear and tear" depreciation, or physical depreciation, has ensued.

Thus, these losses arise due to the scrapping of "plant and equipment" assets, before the cost of those capital-assets has been "amortized" and recovered via the depreciation charges included in the prices of their sold commodity output.

Therefore, all these losses to capital result from the non-physical depreciation, from the “moral depreciation” [Marx], from the technological-depreciation, or from the productivity-gain-induced depreciation, of such of the core plutocracy's capital "plant and equipment" assets as are confronted with competitor-installation of technologically, ‘productivitistically’ superior vintages of capital "plant and equipment" assets.

This is especially true in the case of the installation of superior such later vintages by new entrant competitors, who do not share the legacy burden that the older entrants may share among themselves, of, e.g., 50-year loans taken out to finance the purchase of the earlier, now ‘productivitistically’ inferior vintages of capital “plant and equipment” assets.

The “old entrant” competitors must still bear all of the present and future costs of paying the contractual debt-service on those old-vintages' loans, despite the fact that those old vintages have been taken out of service and scrapped, no longer making any physical contribution at all to those “old entrant” capitalists’ commodity output.

The “old entrant” competitors must also bear the costs of paying the contractual debt-service on any new loans, needed to finance their purchase of the new vintages, which these “old entrants” were forced to install by competition from the new entrants, i.e., from those who first launched with the newest -- with the very latest -- vintage “plant and equipment”, from their very inception, e.g., without ever having made any capital investment at all in the old, now-obsolete, vintages.

Thus, the profitability potential, and the ‘‘‘competitivity’’’, of the “old entrants”, is impaired relative to that of new entrant(s), even after the “old entrants” have scrapped the old-vintage equipment, and installed the new.

The core plutocracy comprises, by definition, the owners of the most concentrated, most consolidated, most centralized portions of world-market-system core industrial and financial capital-assets.

Their continual exposure to competition from technologically superior "plant and equipment", installed by rivals, and/or by “upstarts”, by new entrants, perhaps located in the newly-industrializing periphery of the original, core countries of capitalist development, and the net losses to their fixed capital, and to their profit-returns on that fixed capital, that such exposure increasingly entails, after this historical turning point, increasingly threatens the economic basis — the predominant capital-ownership basis, and the predominant money-control basis — of the ‘ultra-coveted’ socio-political power of this core plutocracy.

This turning point can be characterized as that of a turn or shift in the ratio of the capital-value of “fixed capital” (“plant and equipment”, which is exposed to capital losses due to ‘technodepreciation’), divided by the capital-value of “circulating capital”, for core world-market-system industrial capital.

The value-quantity of “Circulating capital” includes:

charges to [re-]cover the cost of the physical, “wear and tear” depreciation of “fixed capital”, e.g., of “production plant and equipment”;
the wages “direct costs”, and;
the “direct costs” of other “ingredients”, of other “inputs”, required by the “recipe” for the commodity-output in question;
“indirect costs”, and “general & administrative overhead” costs [“G&A”], e.g., the costs of managerial, marketing, etc., private bureaucracies.

These cost components "circulate" via the prices of commodity output offered, on the market, for sale.

The physical commodity-capital output, as “circulating capital”, thus also embodies the “gains” to profitability, as “savings” to ‘“inputs costs”’, due to technological productivity gains.

The aggregate fixed-capital-to-circulating-capital ratio thus approximately measures the proportion of exposure -- the ‘‘‘cross-section’’’ of vulnerability to ‘technodepreciation’ -- of world-market-system core industrial capital.

As industrial capital accumulates over the historical time period of the global-capitalist epoch, and as the industrial capitalists grow the social forces of production -- as human ‘“social productivity”’ increases -- as reflected in the rising physical mass of industrial fixed capital, this ratio turns.

It shifts from magnitudes which are less than 1 (i.e., with circulating capital value, in the denominator, preponderating), to magnitudes which are greater than 1 (i.e., with fixed capital value, in the numerator, preponderating), for world-market-system core industrial capital as a whole.

This process of competition-enforced, productivity-gain-induced, net-loss depreciation — of "obsolescence depreciation", "moral depreciation", "technological depreciation", or ‘technodepreciation’, for short — can generate (1) steady, competition-driven secular ‘techno-deflation’ of the prices of the plutocracy's commodity output, and also (2) aperiodic, e.g., crisis-driven write-downs of the "book-value(s)" of these capital-assets.

Hence, also, the latter, can generate aperiodic loss-charges against the plutocracy's "retained earnings".

Both of these effects reduce the rate-of-return on the “historical” or “original” cost value of the plutocracy’s past, “sunk” capital investments, as a visible, if ‘fluctuatory’, “secular” trend over time.

Indeed, the accelerating growth of technological productivity did just that, in the U. S., in the immediate post-Civil War period, in the ~35-year 'Long Techno-Deflation', from about 1865 to about 1900, i.e., in the period leading up to the "Great Panic" of 1907, followed by the imposition, by the plutocracy, of the “Federal Reserve System”, and of the Federal Income Tax, in 1913, and the first world-wide war, starting in 1914.

For example, note the relative levels of prices and inflation from 1665 to 2005 below [e2]:

After the "turning point" as defined above — i.e., once fixed capital "outweighs" living human labor-power in the plutocracy's core industrial production mix — these processes will generate a generally-declining trend in the return on the plutocracy's core industrial capital investments.

This declining trend arises, because the exposure to ‘technodepreciation’ losses of the plutocracy's core industrial “plant and equipment”, exceeds the potential profitability gains, both these losses and these gains being produced by a single cause: productivity increase -- “growth of the social forces of production” [Marx].

This declining trend will continue for as long as that plutocracy permits such competition to operate somewhat freely, or, for as long as that plutocracy lacks the accumulated, concentrated capital-money-based political power necessary to successfully contrive to constrain such competition.

Extensive extracts from the writings of many observers of political-economy, describing this dynamic of ‘technodepreciation’, have been collected in one document. [e3]

We will cite, here, only two examples, not included in those extracts, to epitomize the flavor of those other expert observers’ observations:

Example A:
From Charles Babbage's (circa 1832) book, On The Economy of Machinery and Manufactures. Even in the early-to-mid 1800s, in the U.K.'s machine-based manufacturing:

"The improvement which took place not long ago in frames for making patent-net was so great, that a machine, in good repair, which had cost £1200, sold a few years later for £60. During the great speculations in that trade, the improvements succeeded each other so rapidly, that machines which had never been finished were abandoned in the hands of their makers, because new improvements had superseded their utility." [e4]

Example B:
From Harold Livesay's book, Andrew Carnegie and the Rise of Big Business. In the late 1800s, around 1888, in the U. S. steel industry:

"Carnegie ... [gave] his staff standing orders to replace obsolete machinery.... Bill Jones complied enthusiastically and soon had a renowned dump full of outmoded though not outworn machinery.... Carnegie once ordered Charles Schwab to rip out and rebuild a three-month-old rolling mill when Schwab said he had discovered a better design." [e5]

As noted already in Hypothesis I, lodged above, such declining profitability, tied to declining prices of general industrial output, occurred, for example, in the U. S., in the late 1800s, leading up to the imposition, by the plutocracy, of the Federal Income Tax system, and of the “Federal Reserve System”, in 1913, and of World War I, in 1914.