By ELEUTÉRIO FS PRADO*
The primary form remains industrial profit, which confirms that capitalism is still capitalism.
This article answers this question with a negative: no, capitalism has not become rentier. It should be noted, however, that this position does not aim to fall into a vulgar assessment, since, on the contrary, it seeks to go back to the critique of political economy. Let it be clear from the outset: an affirmative answer to this question would already contain strong criticism of the direction of this mode of production.
In fact, the thesis outlined in the question contains a grain of truth that needs to be understood in another way. For this very reason, this note is developed through a critique of Brett Christophers' important book under the same name. In Rentier Capitalism,[I] This author not only states, but also asks who are the owners of the economy thus constituted and who pays for it.
In this book, this tireless researcher argues that the British economy – and, by extension, many other countries in the world – is dominated by a type of company that he classifies as rentier because it is exclusively dedicated to asset management and, thus, obtains profits “without producing anything”. It is important to see how he presents it:
“When we think about companies, we tend to think in terms of the classic model that divides economies into three sectors of activity: extraction of raw materials (primary sector), manufacturing of products (secondary sector) and provision of services (tertiary sector). But [this kind of company] doesn’t really fit into any of these three types. It doesn’t extract or make or provide anything. In fact, the crux of its business model is not doing (extracting/producing/providing); it’s just having.”
Even if this statement is not accurate, since asset managers do provide a service to the financial funds that hire them, it seems to contain, strangely, some truth: what is hidden behind this performative contradiction? To discover it, it is necessary to understand well how this author understands the economic notions of income extraction (rent[ii]) and rentier (reindeer).
“The assets held by rentiers are as varied as the rentiers themselves. Some – such as housing, telecommunications infrastructure, digital platforms, etc. – exist as physical constructions, whether in virtual or real spaces; others – such as intellectual property rights, outsourcing contracts, etc. – exist as legal forms, not as physical constructions; and still others – such as land and natural resources in general – are not constructed, but simply exist as spontaneous things. (…) Whatever the particular qualities involved, it is clear that there must always be an asset for there to be rent extraction. This rent, and this is fundamental, comes from the control of a valuable asset; the rentier, in turn, is the one who receives this rent. Without some asset, there is neither rent extraction nor a rentier.”
This excerpt shows that Brett Christophers, as he himself points out, expanded a notion of income that he had found in the writings of David Harvey. This author defined “income extraction (rent) in a broad sense as ‘the return of monopoly power that comes, crucially, from private ownership of an asset’.” However, if this Marxist author excluded gains from financial assets from the category of “rent extraction,” he includes them because he follows a tradition that goes back to John M. Keynes.
From this perspective, just like this famous author who wisely and eclectically mixed classical economics with neoclassical economics, he adopts, as he himself says, “a hybrid, orthodox and heterodox definition of income extraction”. Behold, the income extracted (rent) is “income derived from the ownership, possession, and control of a scarce asset under conditions of limited or absent competition.”
Thus – as can be clearly seen – he combines the property condition (classical economics) and the market condition (neoclassical economics) in his definition of rent extraction (rent). What should now become even clearer is that his way of theorizing emerges from the appearance of the capitalist mode of production. He understands the forms of distribution by thinking from the circulation of goods, that is, from the utilitarian practice in the markets and the legal conditions that allow this practice.
Now, it is necessary to suspect that this mixture of David Harvey (a Marxist popularizer) with Keynes (a classical/neoclassical economist) cannot produce a coherent theory, free from contradictions such as the one already pointed out. It is worth remembering here that it is from this type of mixture that more performative economists, such as Yanis Varoufakis, dare to think that capitalism recreated feudalism. Now, in the modern mode of production, the relations of production are indirect, that is, they are mediated by the commodity form. But the thesis that it has transformed into neofeudalism or technofeudalism claims that it has regressed to a mode of production in which the constitutive relations are direct.
To untie these knots, it is necessary to return to the rigor of Karl Marx's text and his way of understanding reality through categories that internalize contradictions; because the mere understanding of this reality by political economy in general, even that which is not vulgar and which examines the internal connections manifested in phenomena, makes use of “clear and distinct” notions that are nonetheless pregnant with vulgar contradictions.
After presenting the processes of production and circulation of capital in books I and II, Marx, in book III, shows, among other points, how surplus value and its distribution tend to evolve, that is, of that portion of the value generated by subordinate labor that feeds the accumulation of capital.
In section VI of Book III, Karl Marx deals with the transformation of surplus profit into ground rent: “The form of landed property which we are considering here is a specific historical form, the form transformed under the influence of capital and the capitalist mode of production, whether from feudal landed property or from small-peasant subsistence farming, in which possession of land constitutes one of the prerequisites of production for the direct producer, and in which his ownership appears as the most advantageous condition for the prosperity of his mode of production.”
It is with this topic that the effort of clarification undertaken here must begin; it should be noted, however, that the knowledge presented in section VI can be generalized as a general theory of rent obtained through private ownership of resources that are not generally produced and that exist in limited quantities. If Marx thinks in terms of land rent, the results obtained also apply to rent from fishing, mining, oil extraction, etc.
To this end, this note draws on a brilliant exposition of the theory of land rent by this classic author, in addition to his original text. In Analysis of income income in Marx,[iii] The Indian economist based in the US, Deepankar Basu, to present this category of distribution, begins, like Marx, with agricultural production under certain historical conditions, in which the class of landowners alienates the land to capitalists who produce natural foods on it in the form of commodities.
This exposition makes it clear that land rent does not arise from mere ownership, but from a historically well-established method of distributing surplus value. Here, idle owners of land, which is an unproduced productive resource, appropriate the extra profit generated by agricultural activity carried out under the command of capitalist tenants.
It should be noted that ground rent arises and can only arise under certain historical conditions in which property and production are under the control of classes opposed to each other; when the direct producer is himself the owner of the land, under other historical conditions there is no ground rent, since he appropriates the extra profit generated by agricultural production. In any case, it must be seen that land has no value and that the price of land is explained by the capitalization of ground rent.
Now why was there extra profit in agriculture in the mid-nineteenth century? Since the organic composition of capital in this sphere was lower than in industry, the production of surplus value per unit of capital invested there was higher than the average observed in social production as a whole. However, since arable land was limited and monopolized by a traditional social class, surplus value in the form of extra profit could not enter into the equalization of the rate of profit; instead, it was appropriated as rent by the landowners.
And this income – let us note – is not extracted arbitrarily, it is not torn away by means of a force that comes from the right to property, because the tenant, in order to invest in production, needs to have the expectation that he will obtain the average profit like all other capitalists on average.
In Marx's conception of land rent, strictly speaking, it would be necessary to distinguish between absolute rent obtained on marginal land, differential rent of type I obtained due to the superior quality of the land in relation to marginal land, and differential rent of type II which comes not from bare land, but from improvements that the land has received in the past. And here an important point arises for the argument of this short article. Since these improvements are means of production produced, and come from the investment of capital in the land, type II land rent implicitly has the nature of interest.
Now, we need to think about the importance of this type of income in agriculture, livestock farming and beyond, in the contemporary economy. As Deepankar Basu shows through some examples, it continues to be important, especially in qualitative terms. For example, in studying real estate production and oil production. However, this presentation, even though brief, leads us to believe that income obtained through ownership of non-produced resources is of little importance in quantitative terms, whether in the British economy or in the world economy.
So why does a scholar like Brett Christopher dare to think that capitalism has become rentier and that rent extraction now predominates? A straightforward answer is that, by thinking from the perspective of the circulation of goods, he confuses income as such (which is not the usual notion in national accounting) with interest, that is, with the gain associated with loan capital, without further distinguishing the fictitious capital of the interest-bearer. It is quite true that he gives the notion of rent (rent) a critical tone, conceiving it as a form of income extraction based on the ownership of assets – and not on productive activity as such.
Now, all this raises the question: what happened to the forms of distribution of value in the secular development of capitalism? Or, put more specifically, what happened to the distribution of surplus value produced by labor as the economic system based on the capital relation evolved?
To answer these questions, it is good to start with the primary distribution. The value produced by labor is divided into necessary, that is, the part obtained by the worker and which reproduces his labor force, and surplus, that is, the remaining part, called surplus value, which is appropriated by the capitalist and which feeds the accumulation of capital. Now, this presentation of the distribution is still abstract. For, as Marx himself said, “the capitalist (…) who extracts unpaid labor directly from the workers (…) is the first appropriator of this surplus value, but not the last”. Thus, surplus value, through various circuits, is divided into various components: profit, interest, land rent, etc.
In section IV of book III of The capital, Marx first shows how commercial profit originates, that is, how commercial capital appropriates part of the surplus value generated in the production of commodities. He then indicates how interest arises from the lending of monetary capital to the activities of production and circulation of commodities. Note that when monetary capital is lent in this way, it presents itself as interest-bearing capital. For “in this capacity as possible capital, as a means for the production of profit, it becomes a commodity (…) sui generis, that is, capital as such becomes a commodity”.
This is how what can be called secondary distribution takes shape: surplus value now appears as business, industrial and commercial profits, interest and land rent. However, it is even more complex, but here it is worth adding the following: a part of the profits and wages are transformed into taxes collected by the State; as the latter spends more than it collects in taxes, it borrows money, issuing and selling bonds to capitalists; furthermore, as the socialization of capital occurs, the equity of companies (now corporations) begins to be represented by shares and part of their profits are transferred to shareholders in the form of dividends (roughly speaking).
Now, these two economic operations give rise to what Marx calls fictitious capital, a social form that originates from loans, that follows the logic of M – M' and that, therefore, seems – only seems – to be interest-bearing capital. As is known, as presented by Marx, capital is the social relation that subordinates labor to obtain surplus value and that appears in circulation in a reified form as money, labor power, means of production, commodities and, thus, as increased money. Now, fictitious capital operates outside this circuit and does not contribute to the formation of value. It consists, therefore, of mere withdrawal rights over the value generated or to be generated in the capitalist economy.
Em The capital, Marx gives public debt securities and shares as examples of fictitious capital: “the independent movement of the value of these titles of possession, not only of public debt securities but also of shares, reinforces the illusion that they constitute real capital”. But he also shows how this illusion extends: (a) when land as such is understood as landed capital and (b) when labor power, raw or improved by education, is insanely understood as human capital (even if this term is not used). In fact, all forms of lending of money and things offered as commodities – housing, vehicles, digital platforms, etc. – whether for private or public consumption or even for speculative activities, give rise to fictitious capital.
What Brett Christophers observes and describes as a notable characteristic of contemporary capitalism consists of an explosion of indirect forms of appropriation of surplus value – since, in addition to the income extracted from the transfer of the use of unproduced means of production, in addition to the interest on capital loaned to production, they have grown extraordinarily in the form of effective and expected gains from fictitious capital. And these indirect forms have also begun to appropriate part of the necessary value, that is, the gain obtained by workers (wages in general).
What he grasps, then, is the culmination of the secular process of socialization of capital, which came about through the separation of ownership of capital from the management of enterprises. In this process, large companies were transformed into corporations; in the same way, strictly private property was largely subverted into collective property of large, but also of medium and small capitalists, and even of better-paid workers (directly or through retirement funds).
The most prominent expression of this process is the recent rise of asset management companies that, depending on their specialization, operate both with financial assets (bonds, insurance and shares) and with so-called real assets (companies, buildings and natural resources). An asset in general is, by definition, something that has monetary value and that seems to have the fetishistic capacity to generate some profit in the future. In fact, it is what allows the existence of withdrawal rights both on the value already produced and on the value that will still be generated by labor in the future.
The enormous accumulation of these rights – currently their amount exceeds the world GDP by several times – occurred in the wake of a new expansion of imperialist domination centered on the United States, in conjunction with an internal change in the capitalist economies of the center and periphery. The commercial and financial liberalization that then took place produced a second wave of globalization after the end of the Second World War – the first occurred between 1945 and 1980 – which lasted until the 2008 crisis.
Economies have been transformed by the technological revolution in information technology and communications and by the dominance of the tertiary sector in GDP. A new mode of management called neoliberalism has radically transformed the economic, social, political and psychological life of the social classes. While the bourgeoisie has accumulated wealth asymmetrically, growing masses of workers have begun to experience precariousness.
Even if this commentary does not endorse its central notion, it acknowledges the enormous research and exposition value of the book. Rentier capitalism by Brett Christophers.
If Marx said that capital creates barriers, overcomes these barriers to create even more formidable barriers, this contemporary author clearly shows the enormous magnitude and the dangers for humanity of this new – using here a term that he himself uses – “entrenchment” of capital.
No, capitalism has not become rentier; as the volume of the aforementioned drawing rights (financialization) has grown, so has “jurism” (if one can admit this provocation) as a secondary form of appropriation of surplus value. The primary form continues to be industrial profit, which confirms that capitalism is still capitalism.
However, the evolution of capitalism produced a socialism… not of the workers, but of capital (another provocation), that is, a mode of redistribution of surplus value (from the bottom to the top in the class hierarchy and from the South to the North in the hierarchy of countries) that is intimately connected with the evolution of imperialism.
* Eleutério FS Prado is a full and senior professor at the Department of Economics at USP. Author, among other books, of From the logic of the critique of political economy (anti-capital fights).
Notes
[I] Christophers, Brett – Rentier Capitalism: who owns the economy, and who pays for it? Verso, 2020.
[ii] Instead of translating “rent” simply as “rent”, it is preferable to do so in this context using the expression “income extraction”, which seems to be more in keeping with the spirit of the thing.
[iii] Basu, Deepankar – Marx's analysis of ground rent: theory, examples and applications. Discussion paper from the Department of Economics, University of Massachusetts, Amherst, USA, 2018.
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