Another Turn of the Screw

By KENNETH COUESBOUC Counterpunch 1/23/08

Adam Smith was the first to argue convincingly that wealth depends on human activity’s ability to transform the material environment. A constant remodelling of nature that has given mastery over the whole planet to one particular animal species, human beings.

Work acts on matter to give it use value. Exchange value is something else. Exchange value is the consequence of scarcity and abundance and thereby determines the distribution of wealth. Scarcity increases value and obtains a greater share of the abundance produced. Use value is the result of human action, whereas exchange value measures relative rarity. Two distinct values that are inseparable, as exchangeability supposes usefulness and, whatever its exchange value, a commodity is always the result of human activity.

Work creates use value as scarcity creates exchange value. But, before Adam Smith, work was denied its role in the creation of wealth. Use value, and hence wealth, came from the land, the soil and what lay beneath, claimed the physiocrats. Exchange value, and hence wealth, was produced by trade and commerce, replied the mercantilists. In both cases, scarcity was the essential factor. Scarcity of land owned by just a few, scarcity of commodities in the hands of merchants. And, as the work force was plethoric and workers two a penny, their participation in the production of wealth seemed negligible, proportionate to the meagre share of wealth they received.

The harnessing of steam power gave a new significance to the concept of work. Human activity kept its low status, but the new-fangled machines were increasing output and wealth at an unprecedented rate. Adam Smith had been influenced by the humanism of 18th century Scottish enlightenment and, writing at the threshold of the mechanical age (The Wealth of Nations, 1776), he still considered work to be a human activity. A century later, James Joule was defining a unit of work in terms of mechanical energy and heat produced. By then, “work” was done by machines and workers were required to serve them, expendable appendages to the production process.

Capitalism seems an old idea. Some see its origins coinciding with those of money and the first measure of exchange value. Whatever may be, capitalism’s raison d’être is a return on investment, a surplus value. This had been obtained by merchants and money lenders throughout history. But surplus value acquired its modern sense with the industrial revolution and mechanised production.

The average productivity of human activity at the beginning of the 18th century had not changed much since Roman times. By the end of that century, however, the steam engine and the innumerable inventions that accompanied it were increasing productivity at a prodigious rate. With mechanical power, precision and speed, a few were doing the work of thousands. This did not alleviate the work load, nor was it a cornucopia. It simply generated enormous profits and gave a new dimension to the theory of capitalism. Capital investments were not just land, or commodities, or gold currency. They included all the means of production. Wealth resulted from the combination of real estate, credit, raw materials, state of the art machines and, incidentally, labour.

By all accounts, the 19th century was a bleak period for the working class. Charles Dickens described a pathetic situation, with no apparent hope other than charity and some Scrooge like miraculous change of heart. Forced into exile, Victor Hugo grudgingly recognised that a popular uprising could challenge tyranny (Les Misérables). But neither conveyed the vicious cruelty of the times as well as did Karl Marx in the first volume of Das Kapital. His factual comments, mostly taken from official British and continental sources, depict a very gruesome picture. Lives were short and absolute squalor was the rule. Slums were little more than shanty towns with foul water, no sanitation, dubious food, venereal diseases, tuberculosis and moral decline. It was the latter that first raised concern. Slums were a breading ground for crime and for dangerous political ideas. Gambling, drugs and prostitution, illicit distilleries, thieves and bomb throwing nihilists were thriving in these urban sprawls of grinding poverty. Muted criticism grew to a chorus and, finally, to a public outcry. The underworld became the subject of novels (Joseph Conrad, Jack London), reforms were called for, but history is a material process. Moral campaigners merely climb on the band-wagon (1).

During the 18th century, the developing agro-business began emptying the countryside of all non-essential inhabitants. A rural exodus, culminating in England with the General Enclosure Act of 1845 that brought a continual flow of labour to the urban centres. But, by the mid-1800’s, the flow had slowed down considerably. Even the Irish surge that followed the potato famine (1845/1851) was but a brief respite, as it also inaugurated cheap passages below deck on steamships to America. The labour force was dying young, often in childhood as employment would start at the age of ten or less, and health in general was worsening. Finally employers realised that the time of abundance was over. An expanding productive work force could no longer be maintained by replacements, it had to be taken care of. To paraphrase Marx, labour must earn enough to renew its strength individually and to produce new generations. The first step was to repeal the Corn Laws in 1846 and allow the import of cheap cereals, notably from America (2). Followed a minimum of education, a preoccupation for public health and the construction of low rent housing.

By the turn of the century, the proletarian condition had considerably improved on both sides of the Atlantic. Industrial expansion needed valid workers, as did the armies of empire. But this did not stop recurrent economic slumps causing mass redundancy and social unrest. And so, in 1914, the world plunged once again into war. As though making guns and ammunition, and killing and getting killed could resolve the lack of work, the poverty and hunger. After four years of slaughter (mostly working class dead and disabled, though upper class junior officers were badly hit too, Eton and Ypres) some academics turned their minds to the study of wealth. How was it produced, how did it circulate? Keynes even went as far as to read up on Marxist theory (the young John Maynard frequented the leftist Bloomsbury group). Meanwhile, Ford was paying his workers enough for them to be able to afford one of his model-Ts. This, probably for the first time, made the link between value produced and value consumed. Making things for the market can only be profitable, if there is a demand. So the consumer must have money in his pocket. Then recession struck again and nothing much came of it all. Though the support of state intervention by Keynes, while keeping well wide of socialism, is said to have influenced Roosevelt’s New Deal.

War followed war like a fatality, a human stain. But cyclical inevitability was finally being studied and reflected on. Trade and business, the production, exchange and final consumption of wealth, these grew, wilted, and grew again. Cyclical events were taking place and being measured. Juglar had noticed a 10-year cycle at the close of the 19th century. Kondratieff had found a 60-years one using Russian and soviet statistics, and was sent off to die in the Gulag. Kuznets studied building cycles in Canada and brought to light a 20-year period. Finally Schumpeter pontified that business cycles were caused by the ups and downs of technological innovations. And what can be done about that? Other than have faith in the inventiveness of the future.

Events that repeat themselves at regular intervals must have reasons that explain the regularity of the repetition. Just as night and day are the consequences of the earth’s rotation. Business cycles are close to cosmic precision in their recurrences. Whereas the haphazard evolution of human technology is ongoing and dialectical, and tends to accelerate. As trial and error have no calendar and do not go round in circles, some other phenomenon must be at work. And the most obvious culprit has yet to be publicly unmasked.

In the complex mesh of production, trade and consumption, some periodic events do take place at fixed intervals. Salaries and rents come and go regularly, so do taxes and dividends, profits and interest. But not one of these intervals lasts more than a year. Only borrowing has fixed terms for repayments that go beyond the twelve month period, while covering that time scale as well. A loan can last hours, days, weeks, months, years, to almost a century (99-year Disneybonds). However, among all these possibilities there are preferences. And it so happens that, in the medium to long range, the most favoured intervals are 5, 10 and 30 years. Just the halves of the cycles studied by Juglar, Kuznets and Kondratieff.

Credit is the most obvious mechanism behind business cycles, behind the splendours and downfalls of the capitalist system, behind immense wealth and dire poverty. And yet no one points an accusing finger (Northern Rock and City Group are labelled black sheep but seem to be scapegoats). No one turns on the spot light. Even academics are wary of the subject. This suggests a closely guarded secret, a form of taboo, a potential lese-majesty. And, in fact, scrutinising credit means plunging to the very heart of power and wealth. A place where angels fear to tread, where only a fool sees the naked truth.

Credit is power. It makes the debtor beholden. And unlimited credit is unlimited power. The guns and the thugs are just for the wielding of power and to demonstrate its inherent brutality. Whereas the source of power is paying and holding, holding the puppet strings.

All right, now back off, there’s nothing to see.

But there must be, because the credit machine is fundamentally flawed and is constantly breaking down and crushing all human aspirations to freedom, health, knowledge and the pursuit of happiness. Though, sadly, these naïve ideals don’t count for much in a power hungry, money grabbing world. They just get a little lip-service from the candidates, when election time comes around. Don’t look at the strings, feel the emotion, the warmth, the charisma. I’m not a puppet, I’m human, and I suffer and care just like you.

Hey! You’ve been told to back off. This is your second and last warning.

Kenneth Couesbouc can be reached at


1. cf. Marx’s article on the American civil war and the abolition of slavery

2. Where, for a variety of reasons, the non-essential rural native inhabitants were unable to make the move to the cities, and almost disappeared.