Geo-temporal Displacment via Fictitious Profits (reply to Comarde Bond)

Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Mon Nov 2 20:09:49 PST 1998


Patrick has criticized the Grossmann/Mattick tradition for having ignored the spatio-temporal displacement of crisis. This concept, which Patrick has developed from David Harvey, is also to be distinguished from the classic theory of counter-tendencies. I think Patrick has raised a great set of issues here, and if I can provoke him to share his theoretical innovations with us, it will be to our advantage, I am sure.

Now let me begin with Harvey on "temporal displacement through long-term investments":

"Fictitious capital, however, is a claim on future labour. If its value is to be realised then future labour must be deployed in such a way as to ensure a rate of return on the initial investment. What happens, in effect, is that present problems are absorbed through contracting future obligations. To the degree that the problem is absorbed rather than eliminated, dynamic equilibrium means continuous temporal displacement through accelerating fictitious capital formation. the volume of indebtedness increases and future labour is increasingly imprisoned within a framework of contractural obligations [Harvey includes a figure showing the net interest payments as a percentage of capital income rising from 6% in 1946 27% in 1980 to 37% in 1983]. At some point the debts must be paid. Exactly when depends upon the turnover time of the capital deployed in particular physical and social infrastructures. But accelerating fictitious capital formation--the true heart of the spiral of development--means that more and more living labour in current production has to be given over to working off past obligations." David Harvey, "The Geopolitics of Capitalism" in D Gregory, ed Social Relations and Spatial Structures.

Now from Mattick's perspective the issuance of govt debt allows overaccumulated capital to function only *as if* it were capital. We thus have to differentiate the forms of fictitous capital. We can count the increase in the value of an equity from an increase in its dividend payout as fictitious if the actual profitability of the company has not indeed improved (Carchedi); on the other hand, the whole of claims on govt debt represent fictitous capital.

Indeed for Mattick the rise of govt production and debt was the most important new feature of post WWII capitalism, a view also shared by Gabriel Kolko. The so called golden age from rose colored glasses or the so called totally administerd society from the perspective of critical theory was only the mirage of a boom; it was an age characterized in Mattick's conceptually innovative theory by *fictitious* profits and fictitious capital, and it was bound to come to an end. Mattick had already seen through this by the end of the 50s

What Mattick's theory provides an explanation for is why the US national debt has now risen to close to $4 trillion in 1997, some 13x more than it was in 1970. Mattick did not claim that such debt financed production was the cause of crisis though he did suggest that it would go from delaying crisis to accentuating it. It seems to me the paradigmatic form of a temporal displacement, but Patrick may well disagree.

I'll quote from an early Mattick analysis:

"If the goal of govt intervention is the stablization of the market economy, govt-induced production must be non competitive...Govt purchases, and the production, they entail, must fall out of the market system; they must be supplementary to market produciton. Govt is therefore predominantly concerned with goods and services that have no place in teh market economy, that is, with public works and expenditures of all descriptions.

"The govt increases 'effective demand through purchases from private industry, either financed with tax money or by borrowings on the capital market. In so far as it finances its expenditures with tax money, it merely transfers money made in the private sector to the public sector, which may change the character of production to some extent but does not necessarily enlarge it. If the govt borrows money in the capital market, it can increase production through its purchases. Capital exists either in liquid form, i.e. as money, or in fixed form, that is, as means and materials of production. The money borrowed by government puts productive resources to work. These resources are private proerty, which, in order to function as *capital*, must be reproduced and enlarged. Depreciation charges and profits gained in the course of govt-contracted production--are 'realized' out of money borrowed by the government. but this money, too, is private property--on loan to the govt at a certain rate of interest. Production is thus increased, the expense of which piles us as government indebtedness.

"To pay off its debts and the interest on them, the government has to use tax money, or make new borrowings. The expense of additional, govt contracted productionis thus carried by private cpaital, even tough it is distributed over the whole of society and over a long period of time. In other words, the products which the govt 'purchases' are not really purchased, but given to the govt free, for the govt has nothing to give in return but its credit standing, which in turn has no other base than the govt's taxing power and its ability to increase the supply of credit money. We will not enter here into the intricacies of this rather complex process, for, however, the credit expansion is brought about and however it is dealt with in the course of expanding govt induced production, one thing is clear, namely, that the national debt, and the interest on it, cannot be honored save as a reduction of current and future income generated in the private sector of the economy..."

"Because govt induced production is itself a sign of a declining rate of capital formation in the traditional sense, it cannot be expected to serve as the vehicle of private capital expansion effective enought to assure conditions of full employment and general prosperity. It rather turns into an obstacle into such expansion, as the demands of govt on the economy, and old and new claims on the govt, divert an increasing part of the newly produced profit from its capitalization to private account.

"Of course, claims on the govt, which make up the national debt, can be repudiated, and 'profits' made via govt induced production are thus revealed for they actually are, namely, imaginary profits."

Paul Mattick, The Limits of Integration. In The Critical Spirit: Essays in Honor of Herbert Marcuse, ed. Kurt Wolff and Barrington Moore, Jr. 1967

Of course to complete the argument I would have to include Mattick's critique of the Keynesian multiplier.

good nite, rakesh



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