by Tim Di Muzio
The advance made by the 18th century shows itself in this, that the law itself becomes now the instrument of the theft of the people’s land, although the large farmers make use of their little independent methods as well. The parliamentary form of the robbery is that of Acts for enclosures of Commons, in other words, decrees by which the landlords grant themselves the people’s land as private property, decrees of expropriation of the people (Marx 1996: 506).
These expropriations form the basis of the ‘princely estates of the English oligarchy’ (ibid.: 505). But the apparatus of domination over the peasantry and newly minted vagabonds unattached to the land was also facilitated by the creation of the Bank of England and the national debt. The national debt – even to this day – will become a key source of wealth for the 1%. It is worth quoting Marx at some length:
At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges they received, were in a position to advance money to the State. Hence the accumulation of the national debt has no more infallible measure than the successive rise in the stock of these banks, whose full development dates from the founding of the Bank of England in 1694. The Bank of England began with lending its money to the Government at 8%; at the same time it was empowered by Parliament to coin money out of the same capital, by lending it again to the public in the form of banknotes. It was allowed to use these notes for discounting bills, making advances on commodities, and for buying the precious metals. It was not long ere this credit-money, made by the bank itself, became the coin in which the Bank of England made its loans to the State, and paid, on account of the State, the interest on the public debt. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation down to the last shilling advanced. Gradually it became inevitably the receptacle of the metallic hoard of the country, and the centre of gravity of all commercial credit (ibid.: 30).
What this passage suggests is that the Bank of England – which in the beginning was a privately owned institution – could not have survived without the power of the state. However, it is unclear whether Marx understood that the money lent to the 1% in parliament, while backed by precious metals, was created as credit out of thin air.10 In other words, the bank did not lend the government all the money that it had on deposit but money created as debt, albeit anchored to a metallic hoard of silver and later gold. As one modern study demonstrates, implementing this exclusive system of money creation required a whole field of operations:
Safeguarding the nascent culture of credit required debtors’ prisons for the insolvent and the threat of execution for clippers and counterfeiters. Moreover, thousands of African slaves were carried in chains to the New World, so that profits from the South Sea Company might bolster people’s trust in public credit. An unprecedented number of Englishmen were hurt or killed in wars with France that England would not have been able to conduct on the same scale without the employment of credit (Wennerlind 2011: 2).
Based on this fraud, the owners of the Bank of England went on to charge interest on the loans they extended to the government.11 The money could also be loaned to capitalist landlords and commercial enterprises and was intimately involved in funding English colonialism. In return for this finance, parliament would then tax the population to raise revenue to service its debt to the owners of the bank. Marx called this the ‘alienation of the state by sale’, since the bank’s owners were effectively capitalising the government’s ability to implement and enforce taxes on the population.12 And as we saw in Chapter 2, Marx reasoned that taxation would balloon.
As was mentioned earlier, the majority of these loans went to finance imperial wars. As Brewer asserts: ‘the Fall of James II in 1688 inaugurated the longest period of British warfare since the middle ages. Britain was at war with France, and allies of France, in 1689–97, 1702–13, 1739–63 and 1775–83’ (Brewer 1989: 22). Such wars were not primarily fought for honour or national glory but for the accumulation of wealth:
War was an economic as well as military activity: its causes, conduct and consequences as much a matter of money as martial prowess. Nowhere in eighteenth century Europe was this better understood than in Britain. As Casanova, visiting London shortly after the Seven Years War, discovered in his conversations with Augustus Hervey, the captor of Havana, the British viewed war as far more than a matter of honor. It was also a question of property and profit (ibid.).
In order to finance war, an elaborate fiscal bureaucracy developed to collect taxes. Domestically, a mushrooming army was tasked with enforcing tax payments and preventing discord and insurrection erupting due to the increased levies on the population (ibid.: 44). As Braddick confirms, Marx was indeed correct: the national debt made the British the most overtaxed people on the planet (Braddick 1996: 21–48). Excessive taxation, according to Marx, was universally recognised as one of the most effective ways of expropriating ‘peasants, artisans, and in a word, all elements of the lower middle class’ (Marx 1996: 530). Those who could not pay their taxes entered into usurious and ruinous debt to moneylenders who would then take possession of the collateral (typically land) in lieu of payment. Taxation also served to bring the price system to the countryside and compelled labourers to work for wages or grow cash crops so that they could afford the tax. Evidence from the colonies demonstrates its wide application:
In those parts of Africa where land was still in African hands, colonial governments forced Africans to produce cash crops no matter how low the prices were. The favorite technique was taxation. Money taxes were introduced on numerous items – cattle, land, houses, and the people themselves. Money to pay taxes was got by growing cash crops or working on European farms or in their mines (Rodney 1972: 165, emphasis original).
Failure to pay taxes was met with swift punishment at best, the loss of ancestral land at worst (Forstater 2005). A key aspect of expropriation by taxation was the system of tax protection for domestic manufacturers. Heavy taxes on imports protected domestic manufacturers by giving them a price advantage in the market. Britain would then encourage ‘free trade’ with its colonies so that its own goods could enter the colonial market at cheaper prices. For example, in 1814 the import tax on British woollens and cotton and silk goods was 2% to 3.5%, while the tax on imported Indian textiles to Britain was 70% to 80%. The consequences were devastating for the people and textile industry of India (Stavrianos 1981: 247).
So whereas Smith takes wage labour for granted and views the expansion of the market as a natural outgrowth of individual self-interest in spite of the state, Marx demonstrated the ways in which the creation of the market, modern ownership, great wealth for the few and the control of humanity through prices would have been unimaginable without state power. Polanyi summarises the situation aptly: ‘the road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism. To make Adam Smith’s “simple and natural liberty” compatible with the needs of a human society was a most complicated affair’ (Polanyi 1957: 140). That was Polanyi being judicious. He later states: ‘the market has been the outcome of a conscious and often violent intervention on the part of government which imposed the market organization on society’ (ibid.: 250). The market and the price system were imposed on humanity not as a matrix of choice but as a mechanism of domination. The very precondition for capitalist power was market dependence and, for its universalisation, wage labour.
Marx’s historical narrative of capitalism’s emergence is far more convincing than Smith’s. Yet Marx does not root his theory of value in the organised power he so clearly understood. Marx argued that the sole source of profit was unpaid surplus labour. In other words, workers were paid less during the working day than the value of what they actually produced. He held to his labour theory of value because, quite naturally, he saw humans as t
he only beings capable of producing extra or surplus value:
It is only on this basis that the difference arises between the value of labour-power and the value which that labour-power creates – a difference which exists with no other commodity, since there is no other commodity whose use-value, and therefore also the use of it, can increase its exchange-value or the exchange-values resulting from it (emphasis original).13
However, there is one commodity that can indeed be used to increase economic growth, or, in Marx’s parlance, the level of virtually all exchange values: non-renewable fossil fuels. As long as the energy returned is greater than the energy invested to obtain fossil fuels, the energy released by using coal, petroleum and natural gas does indeed have the power to generate an incredible surplus (Goldstone 2002; Wrigley 2010). This is what made Britain, and later Europe and North America, so exceptional compared with the rest of the world: the exploitation of fossil fuels expanded the limits of the possible by adding greater capacity to do work (Hall and Klitgaard 2012). A contemporary of Marx’s noted the relationship:
Day by day it becomes more evident that the Coal we happily possess in excellent quality and abundance is the mainspring of modern material civilization ... It is the material energy of the country – the universal aid – the factor in everything we do. With coal almost any feat is possible or easy; without it we are thrown back into the laborious poverty of early times ... This question concerning the duration of our present cheap supplies of coal cannot but excite deep interest and anxiety wherever or whenever it is mentioned: for a little reflection will show that coal is almost the sole necessary basis of our material power, and is that, consequently, which gives efficiency to our moral and intellectual capabilities (Jevons 1866: 5, my emphasis).
Since Jevons, oil and natural gas have been added to the world’s energy supply – albeit a supply that is unevenly shared throughout the world. The evidence for the link between energy and wealth is overwhelming and simple enough to verify in two ways: 1) all countries with high levels of GDP are large consumers of energy whereas those with low GDPs consume far less energy (UNDP 2000); and 2) the massive increase in global capitalisation (and therefore the accumulation of money) has corresponded with increasing energy consumption (Di Muzio 2014: 19–35). This does not mean that consuming fossil fuel energy is a sufficient condition for the production of immense wealth, but it is a necessary and decisive one. If we think back to Braudel’s question about whether it is a law of history that the rich always be so few, one thing becomes crystal clear: what the 1% have been able to do remarkably well is to redistribute more energy wealth to themselves in the form of money. This was true of rulers in the past who usurped the energy and products of slaves, serfs, peasants and small pools of wage labourers before wage dependence and private property became ubiquitous. With the turn to fossil fuels, the main way in which incredible wealth is now achieved is through the ownership and capitalisation of organised power combined with the historically difficult task of shaping, disciplining, and quite often brutalising, a global labour force where the human capacity for work is commodified in wage form and capitalised by the owning 1%. As discussed in Chapter 2, the goal of capitalists is differential capitalisation – to accumulate more money faster than others. One important dimension of this is the capitalisation of the money supply and its links to energy and social power.
The general theory of money, energy and power
There is a litany of modern books on the generation of wealth, but none so far has fully appreciated the deep connections between energy, money and power and how the current arrangement benefits the 1% (Bernstein 2004; de Soto 2003; Hall and Klitgaard 2012; Landes 1998).14 Since capitalist power operates through and is registered by the price system, we should have a keen focus on money. There have been different forms of money historically but the more durable coins made from various metals were typically issued by sovereign authorities to finance war, trade and the affairs of state (Davies 2002). The big historical turn, however, came when private social forces gained control over the money supply so that commercial banks – with a central bank acting as regulator – now issue about 97% of the world’s money supply through interest-bearing loans. Today, in richer regions of the world, most of the new money in circulation is due to banks creating number money on computer screens for mortgages and loans for big ticket items such as cars (Rowbotham 1998). But from the perspective of capital as power, we must ask what it is that bank owners are capitalising?
The first thing owners capitalise is the power of banks to issue money as interest-bearing debt. This, of course, is based upon an exclusion: no one else is permitted to issue money. Second, the bank’s owners capitalise the borrower’s ability to service the debt; the hope is that the debt is never fully repaid, so interest fees become perpetual. So a loan is essentially the capitalisation of earning or income capacity regardless of what form credit takes. However, access to money is radically unequal in our societies: banks deem that some people have greater capacity to repay than others (i.e. creditworthiness). What this means is that the distribution of money in the economy through loans will be skewed towards those who already have assets or a decent income stream from their labour. This might seem like an absurd proposition to some readers: if the rich really are rich, why would they need to borrow money? There seem to be three reasons: first, their money or investment managers often borrow large sums in an effort to make more money. So an asset pool of US$2 billion can become US$10 billion or so with borrowed number money from a bank. A 10% return on US$10 billion is more than a 10% return on US$2 billion. The second reason appears to be that people with considerable wealth, but not quite at the top of the high-net-worth pyramid, borrow so that they can keep up appearances with their more moneyed counterparts (Frank 2007). A final reason is that the corporations or businesses they own take on debt to expand or acquire other companies. At any rate, the unequal provision of money is crucial, but not the only important point to note.
The most important point is that, in a market-dependent economy, money is a necessity for everyone and there is never enough of it. As Smith even remarked: ‘No complaint, however, is more common than that of a scarcity of money’ (Smith 2005: 348). This was as true in the past as it is today.15 But the supply of money is not democratically decided by our governments but premised upon people willing to go into debt to banks, which are largely owned by private individuals and the families of the 1%.16 The banks do not have this money. It is not the savings of the owners or of depositors that is lent. They create it out of nothing.17 It is fraud, pure and simple, but a highly guarded fraud.18 Centuries ago, if you or I issued our own money we could have been blinded, have our hand cut off, been castrated, or a mixture of all three – or, what surely might sound better to some, given the options, put to death (Davies 2002: 140). In most countries today, counterfeiting would land us in jail for a good part of our lives. From bodily tortures and death to years in prison, such has been the progress of modern capitalism! Either way, a convincing argument is that no country can be declared democratic and no democratic people sovereign until that country controls its own money supply. Where the few capitalise the creation of credit in a money-starved economy, the rest of us are an interest farm for the bank-owning 1%. That this practice is such a lucrative business is confirmed by the fact that, after oil and gas companies, banks are the most heavily capitalised industry on the planet.19 Put another way, investors and owners know that where there is not enough money in the economy for workers to purchase the goods and services they produce, there is a constant demand for interest-bearing credit.
But this is only part of our general theory. We now need to consider energy. We can define energy as the capacity to do work; thus, having more energy means – all things being equal – having a greater capacity to do work. Expressed differently, consuming more energy means that our societies have a greater capacity to shape and reshape the terrain of social reproduction. Because energy, like
money in a market economy, is central to everything we do, it is a highly coveted resource. The source, quantity and quality of our energy supply has changed over time. Before the turn to fossil fuels, the energy historian Vaclav Smil called humans ‘solar farmers’ – that is to say, a people tending to, transforming and consuming the products created by nature through photosynthesis.20 Of course, coal was known in antiquity, but it was used sparingly, most likely because wood was preferred where it was available and cheap. The transition to fossil fuels – with coal being the primary source of fuel well into the twentieth century – begins in Britain. As Nef (1977) points out, by the 1500s, Britain was suffering an acute energy crisis due to centuries of deforestation, enclosures of forests for the aristocracy and the high cost of wood. The use of coal and the technological developments that resulted from its use gave Britain a decisive wartime advantage over its European rivals and contributed to it becoming the largest empire on earth. By 1922, the British Empire ruled over one-fifth of humanity. Coal and later oil energy created more capacity to do work in the economy and allowed bankers to expand the amount of interest-bearing debt money in that economy.21 The result was the largest stock market capitalisation on earth until the United States started to exploit domestic oil deposits and overtook Britain in energy consumption and the extension of credit (Arrighi 1994).22 Today, the New York Stock Exchange is the largest exchange by market capitalisation, while the United States consumes about 19% of the world’s total primary energy supply. So, the general theory of money, energy and power can be summarised as follows:
1 Commercial banks have a monopoly on the extension of credit or money creation.
2 The power of banks to create money by issuing interest-bearing debt is capitalised by dominant owners.
3 The money supply is contingent on banks being able to find willing borrowers with the capacity to repay or service interest payments. This is facilitated by the monopolisation of money creation and its general scarcity (even where the money supply happens to appear massive).