By J. E. Karla
APRIL 16, 2020
HAMPTON THINK
There’s an old saying that leftists have predicted seven of the last three economic downturns. We know that capitalism is doomed to crisis, but we are often disconnected from how that crisis actually comes to pass. Now that we face a looming depression that’s surprised nearly everyone, it’s a great time to try thinking about production a little like a businessperson. It actually yields some pretty communist results.
The trick to thinking this way is pretty simple: businesses exist to make money, and the finer points of Marxist political economy notwithstanding, they make money by bringing in more revenues than expenses. These expenses can be broken down into the costs of goods and services, costs of revenue, operating costs, taxes and interest.
The costs of goods and services were the very things Marx focused on in his critiques of political economy – the costs of raw materials supplied by nature and the human labor-power used to transform them. This is the source of all value, and even capitalists understand that the surplus here pays for everything else. That’s why “gross profit,” total sales minus these costs, is their primary measure of profit. Even service businesses – airline, hotels, lawyers, etc. – have to make their money from gross profits generated by a commodity manufacturer somewhere else in the system.
With production gutted right now, this surplus isn’t getting generated, and that’s why the entire system is in big trouble. Demand-side problems caused by everybody isolating are bad enough, but Marxists know it’s the production side that runs the whole thing. On a micro level it’s true that their costs of goods and services aren’t being accrued right now, but debts on materials already purchased and perishable materials rotting in warehouses threaten to sink enterprises, nonetheless. Add in their other costs, and their options without a bailout are to dig into savings, sell off assets, or go bankrupt – an option with cascading consequences throughout the supply chain.
These other costs include “costs of revenue,” including salaries for managers, payments on long-term purchase agreements for raw materials, and – crucially – all of the income for service businesses. They also include operating expenses such as the costs of making sales and the overhead for the business. If businesses are renting space, paying mortgages on idle facilities, on the hook for service contracts or supply arrangements, having to ship mostly empty trucks, or still getting utility bills without the sales to cover them they either have to default and go bankrupt, or get outside help. As for taxes and interest, the government is going to want their money sooner or later, and not paying the bank now means the debtor can’t borrow after the pandemic, when credit will be more necessary than ever.
The system as a whole definitely does not have the reserves to cover all of these costs for very long, and they can’t sell assets for enough money to cover them either. They’re still trying, of course, which is why pretty much all asset prices dropped in recent weeks. Capitalists have been trying to get whatever they can to pay as many bills as possible, and their slide has only been halted by the promise of incoming bailout funds.
So, the only alternatives the businesspeople of the world can see are either a global decimation of production with no real prospect of restarting in the foreseeable future – an economic depression – or bailouts. The word “bailout” refers to the process of rescuing a sinking ship by dumping water from a leak overboard, a process that only works if you can collect and dump water at a faster rate than the ship takes on.
Central banks and governments are – as a result – furiously printing money in the hopes that it will be enough to keep the system afloat. At the same time they are also hoping that the consequences of uncharted economic policy won’t make things worse in ways they haven’t anticipated. Will it work? Nobody knows, but it’s a good time for one of our customary predictions of doom.
A much surer alternative would be to simply use state power to suspend contractual obligations, debts, rents, utility charges, and taxes – plugging the hole instead of bailing out the ship. They could then provide a universal basic income and guarantee delivery of necessary services without payment. They could compel the continued delivery of vital goods through government order and compensate all the necessary workers at a level commensurate to the benefit they are providing to society. They could further streamline things by eliminating unnecessary marketing and management positions.
At most a much smaller bailout might be needed to pay for ramping up operations after the pandemic has passed. In return, the government could claim an equity stake in all of these enterprises, using their ownership to serve the public interest.
Some caveats aside, the name for such a system is socialism, and the businesspeople of the capitalist class would rather endure a depression or kill millions of people than tolerate even a limited experience of socialism. Even the plausibility of such an arrangement – virtually every element of that description has been officially proposed or adopted somewhere in the last few weeks – terrifies them, because it makes it clear how close a socialist society really is. We could, conceivably, have it tomorrow.
The biggest caveat, of course, is that the existing bourgeois state will never do this. And smashing it while building a new one makes the task much harder. But the state’s legitimacy is eroding more and more every day, and a protracted depression is sure to swell the ranks of the proletariat, creating the very solution to our primary problem. Even if they pull off the bailout, they’ll only leave the system as a whole less prepared for the next crisis.
That's why the same business guys so enamored of up-by-the-bootstraps tales of rugged settler individualism are so desperate for government checks right now. We may have called more shots than we’ve made, but that’s only because we have always known one thing they are just now learning: capitalists are trapped on the high seas of crisis, surrounded by a world ready to throw them overboard, soon.
There’s an old saying that leftists have predicted seven of the last three economic downturns. We know that capitalism is doomed to crisis, but we are often disconnected from how that crisis actually comes to pass. Now that we face a looming depression that’s surprised nearly everyone, it’s a great time to try thinking about production a little like a businessperson. It actually yields some pretty communist results.
The trick to thinking this way is pretty simple: businesses exist to make money, and the finer points of Marxist political economy notwithstanding, they make money by bringing in more revenues than expenses. These expenses can be broken down into the costs of goods and services, costs of revenue, operating costs, taxes and interest.
The costs of goods and services were the very things Marx focused on in his critiques of political economy – the costs of raw materials supplied by nature and the human labor-power used to transform them. This is the source of all value, and even capitalists understand that the surplus here pays for everything else. That’s why “gross profit,” total sales minus these costs, is their primary measure of profit. Even service businesses – airline, hotels, lawyers, etc. – have to make their money from gross profits generated by a commodity manufacturer somewhere else in the system.
With production gutted right now, this surplus isn’t getting generated, and that’s why the entire system is in big trouble. Demand-side problems caused by everybody isolating are bad enough, but Marxists know it’s the production side that runs the whole thing. On a micro level it’s true that their costs of goods and services aren’t being accrued right now, but debts on materials already purchased and perishable materials rotting in warehouses threaten to sink enterprises, nonetheless. Add in their other costs, and their options without a bailout are to dig into savings, sell off assets, or go bankrupt – an option with cascading consequences throughout the supply chain.
These other costs include “costs of revenue,” including salaries for managers, payments on long-term purchase agreements for raw materials, and – crucially – all of the income for service businesses. They also include operating expenses such as the costs of making sales and the overhead for the business. If businesses are renting space, paying mortgages on idle facilities, on the hook for service contracts or supply arrangements, having to ship mostly empty trucks, or still getting utility bills without the sales to cover them they either have to default and go bankrupt, or get outside help. As for taxes and interest, the government is going to want their money sooner or later, and not paying the bank now means the debtor can’t borrow after the pandemic, when credit will be more necessary than ever.
The system as a whole definitely does not have the reserves to cover all of these costs for very long, and they can’t sell assets for enough money to cover them either. They’re still trying, of course, which is why pretty much all asset prices dropped in recent weeks. Capitalists have been trying to get whatever they can to pay as many bills as possible, and their slide has only been halted by the promise of incoming bailout funds.
So, the only alternatives the businesspeople of the world can see are either a global decimation of production with no real prospect of restarting in the foreseeable future – an economic depression – or bailouts. The word “bailout” refers to the process of rescuing a sinking ship by dumping water from a leak overboard, a process that only works if you can collect and dump water at a faster rate than the ship takes on.
Central banks and governments are – as a result – furiously printing money in the hopes that it will be enough to keep the system afloat. At the same time they are also hoping that the consequences of uncharted economic policy won’t make things worse in ways they haven’t anticipated. Will it work? Nobody knows, but it’s a good time for one of our customary predictions of doom.
A much surer alternative would be to simply use state power to suspend contractual obligations, debts, rents, utility charges, and taxes – plugging the hole instead of bailing out the ship. They could then provide a universal basic income and guarantee delivery of necessary services without payment. They could compel the continued delivery of vital goods through government order and compensate all the necessary workers at a level commensurate to the benefit they are providing to society. They could further streamline things by eliminating unnecessary marketing and management positions.
At most a much smaller bailout might be needed to pay for ramping up operations after the pandemic has passed. In return, the government could claim an equity stake in all of these enterprises, using their ownership to serve the public interest.
Some caveats aside, the name for such a system is socialism, and the businesspeople of the capitalist class would rather endure a depression or kill millions of people than tolerate even a limited experience of socialism. Even the plausibility of such an arrangement – virtually every element of that description has been officially proposed or adopted somewhere in the last few weeks – terrifies them, because it makes it clear how close a socialist society really is. We could, conceivably, have it tomorrow.
The biggest caveat, of course, is that the existing bourgeois state will never do this. And smashing it while building a new one makes the task much harder. But the state’s legitimacy is eroding more and more every day, and a protracted depression is sure to swell the ranks of the proletariat, creating the very solution to our primary problem. Even if they pull off the bailout, they’ll only leave the system as a whole less prepared for the next crisis.
That's why the same business guys so enamored of up-by-the-bootstraps tales of rugged settler individualism are so desperate for government checks right now. We may have called more shots than we’ve made, but that’s only because we have always known one thing they are just now learning: capitalists are trapped on the high seas of crisis, surrounded by a world ready to throw them overboard, soon.
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