Finance and the “other exploitation”

Submitted by AWL on 6 January, 2015 - 6:02 Author: Martin Thomas

Review of Costas Lapavitsas' Profiting without producing, Verso 2013

Capitalist exploitation is not just by the boss extracting from the worker, in return for a meagre more-or-less “living wage”, an expansible value-added which may be something like three times what’s paid out in wages.

It also comes from making working-class households pay interest on debts which they run up, often on disadvantageous terms, because of their relative poverty and relative lack of power in the markets.

This “other” exploitation is not a new idea. Costas Lapavitsas quotes references to it from Marx’s Theories of Surplus Value, and Marx also wrote about it in the Communist Manifesto:

“No sooner is the exploitation of the labourer by the manufacturer, so far, at an end, that he receives his wages in cash, than he is set upon by the other portions of the bourgeoisie, the landlord, the shopkeeper, the pawnbroker, etc.”

It is, Lapavitsas suggests, a bigger factor now because of the “financialisation” of capitalism.

He attempts no numerical estimate of the size of the “other” exploitation. US figures show that in recent times debt service payments have taken up to 13% of household disposable income, easing after the 2007-8 crash to about 10%: bit.ly/otherex1, bit.ly/otherex2.

These are figures for payments both of “principal” (the actual amount borrowed for a mortgage or on a credit card) and of interest, so overestimate the exploitation. According to J W Mason (bit.ly/jwmas) interest payments were about 8% of household disposable income from the late 1980s to the crash.

That is a noticeable exploitation, though still much smaller than exploitation-in-production, which has been estimated by Fred Moseley and others at about 300%.

By far the bulk of the stock of household debt, Lapavitsas shows, is mortgage debt rather than credit card debt or other forms of consumer credit. Indeed, and surprisingly, in the USA (the only country for which a good long run of statistics is available), consumer credit ballooned from 1945 to the early 1960s, but has been fairly static as a percentage of GDP since then. Mortgage debt has expanded much more than consumer credit.

Since interest rates on credit cards, payday loans, and the like are much higher than on mortgages, it may be that consumer-credit interest payments are a much bigger proportion of household interest payments than consumer-credit debt is of household debt. US figures show that monthly debt-service payment on consumer credit totals about the same as monthly debt-service payment on mortgage debt.

It is commonly said that household financialisation has been a means for capital to keep consumer demand buoyant while wages stagnate.

Capitalists selling to working-class consumers of course benefit here and there from people buying things on credit. But Lapavitsas’s figures show that the outstanding total of consumer credit has not risen markedly faster than GDP in recent decades. Most of the increased household debt is mortgage debt. That has been rising steadily for decades, even before “financialisation”. It rose in eras of faster-increasing wages, too.

The reason why is that it has become more and more advantageous for workers to buy houses if they can (because they themselves can pocket a bit of the “other exploitation”, by way of capital gains on their houses, instead of paying “other exploitation” tribute to landlords); more and more workers stretch their budgets, sometimes grotesquely, to do that; and, from decade to decade though not year to year, more workers can afford to. They squeeze their consumption of consumer goods in order to “get on the housing ladder”.

Some older people then cash in their gains from “other exploitation”, by remortgaging, to buy consumer goods; but the net effect on day-to-day consumer spending of more people paying bigger mortgages is downward rather than upward.

On the other hand, if a lot of working-class consumers become crippled by consumer debt, then they spend less on day-to-day consumption, not more. The capitalists to whom they pay interest benefit, but not (longer-term) the capitalists whose consumer products they might buy.

J W Mason finds: “The rise in [household] debt [in the USA] in the 1980s is explained by a rise in non-demand expenditures [i.e. expenditures which do not generate consumer demand]. Specifically, it is entirely due to the rise in interest payments, which doubled from 3-4 percent of household income in the 1950s and 1960s to over 8 percent in the late 1980s. Interest payments continued around this level up to the Great Recession, falling somewhat only in the past few years”.

Currently 34% of US households are carrying forward credit card debt from month to month, and it was 44% in 2009. About 15% roll over $2,500 or more in credit card debt each month. Average credit card debt per borrower is $5,234, so many of that 15% must have way over $2,500 outstanding. In the USA, people seeking credit counselling in 2013 had nearly six cards, on average, and average unsecured debt of over $17,500, equivalent to half their average yearly income.

This is a big thing, though maybe not more “other” exploitation than in the heyday of the pawnbroker. In England, in 1870 a parliamentary enquiry found that over 200 million items had been pawned the previous year (an average of 40 per household). The ordinary legal rate of interest for pawnbrokers was 27%, and they were legally entitled to charge rates up to 1014% for small loans for short periods. Pawnbroking reached its peak just before World War One in England, and just after that in the USA.

Lapavitsas calls on the left to campaign for publicly-owned banks, operating as public services; public controls on financial trading; and a reconstruction of public services and welfare.

I think he is right. As Trotsky put it: “The socialist program of expropriation, i.e., of political overthrow of the bourgeoisie and liquidation of its economic domination, should in no … hinder us from advancing, when the occasion warrants, the demand for the expropriation of several key branches of industry vital for national existence or of the most parasitic group of the bourgeoisie…

“We reject indemnification… we call upon the masses to rely only upon their own revolutionary strength… we link up the question of expropriation with that of seizure of power by the workers and farmers”.

• Longer review here

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