Central Party School professor on "capital"
A Chinese Marxist view on "reaping its benefits & eliminating its harm"
There is a lot of talk about capital in this socialist economy with Chinese characteristics these days. Pekingnology today presents an article published on Dec. 22, 2021, in the Central Party School’s《学习时报》Study Times newspaper by an associate professor with the school: 《正确认识和把握资本的特性和行为规律》Correctly Understand the Characteristics and Behavioral Law of Capital.
Please note the《人民日报》 People’s Daily carried a commentary [Chinese] by the same title on February 8, 2022, but the Study Times article offers an ideological view in the Marxist political economy. Whether you find it coherent and agree with it or not, that view could be useful in shedding light on how the official ideology here approaches capital. It goes without saying that Marxism-Leninism is one of the guidances listed in the Communist Party of China Constitution and the People’s Republic of China Constitution and, as Charles Parton OBE recently quoted the late Hungarian Jesuit priest Lazlo Ladany as saying, China watchers should “study the basic tenets of Marxism.”
Before that, Jiangsu Provincial Party Committee and Government announced a new task force to "thoroughly" investigate the awful case of the apparently trafficked and mentally-ill woman-turned-mother of eight who had been filmed being chained by the neck. The awful case and the catastrophic fiasco to resolve it for as long as a month throughout Spring Festival and the Olympics have outraged the Chinese people, after the Feng County- and then Xuzhou City-level investigations failed pathetically to convince public opinion or quell anger.
While the case has been widely reported in English, my friend Yang Liu a few days ago published on his Beijing Channel substack a piece on how thousands of Chinese women were brought to the east from the west.
Correctly Understand the Characteristics and Behavioral Law of Capital
Author: Cai Jiangbing, Associate Professor, Economics Teaching and Research Department, Central Party School/National Academy of Governance
Source: Study Times, December 22, 2021, Page 2
The Central Economic Work Conference clearly underlined correctly comprehending and grasping the characteristics and behavioral law of capital. Capital is an important factor of production. A correct understanding of its characteristics and behavioral law will enable [us to make] capital to play a greater, better, and more effective role under the socialist system, and it is also a must for improving the theory and practice of the socialist market economy with Chinese characteristics.
From the perspective of the formation and function of capital, capital is characterized by its duality that runs across all links of socialization of production such as production, distribution, circulation, consumption, and competition. To correctly comprehend and grasp the behavior law of capital, we must leverage the positive role of capital in the five major links while constraining their negative impact.
In production, the expansion of capital can both stimulate economic growth and stifle economic growth. On the one hand, the expansion of capital is a critical engine to promote productivity and economic growth. Due to its strong correlation with the prelude and beginning of the Industrial Revolution, the capitalist system performs an indispensable role in incentivizing the entire society’s enthusiasm for the socialization of production. The fundamental reason for this is that the profit-driven, large-scale, and rapid expansion of capital had massively unleashed the productive forces of the entire society.
Due to its profit-seeking nature, the expansion of capital on the other hand often displays a trend of disorder and excessiveness beyond industry boundaries. As a direct result, a wide range of industries related to people’s livelihood suffered from “over-commercialization.” Industries such as medical care, education, and eldercare, for example, are supposed to be for the public good in which the government plays the leading role. They are supposed to serve and fulfill the basic living and development needs of ordinary people. However, driven by profit, excessive expansion of capital has led these industries not to adhere to their function and positioning of serving the people but to prioritize economic interests.
If left unattended, in the long run, the cost of living and production in the country will climb, resulting in a rapidly declining sense of happiness among the people and limiting the country’s potential for sustainable development.
In distribution, capital helps develop the economy and can also obstruct dividing the “cake” equitably.
Capital consists of means of production and labor. [According to Karl Marx,] There are concepts of “value composition of capital” and “technical composition of capital”.
[The 'technical composition of capital' measures the relation between the elements of constant capital (plant, equipment and materials) and variable capital (wage workers). It is 'technical' because no valuation is here involved. In contrast, the 'value composition of capital' is the ratio between the value of the elements of constant capital involved in production and the value of the labor. Marx found that the special concept of 'organic composition of capital' was sometimes useful in analysis, since it assumes that the relative values of all the elements of capital are constant.]
In the process of production, capitalists constantly pursue the improvement of production technology and embrace new production equipment to maximize profit and outperform rivals in fierce competition. As a result, the ratio of constant capital representing technology and equipment, therefore the ratio of the organic composition of capital, will continue to rise, and the production efficiency and the final total output will also increase accordingly. This is a crucial step to making the “cake” bigger.
However, the increase in the ratio of constant capital entails the rise of the substitution of human labor by machines and the decrease of the overall demand for human labor in the production process.
As a result, the dominance of capital in dividing the “cake” rises, and the gap in the distribution of income between capitalists and labor will gradually widen, eventually resulting in a huge gap between rich and poor.
As Thomas Piketty put it in Capital in the 21st century, because the rate of return on capital is higher than the nominal economic growth, the free market economy-oriented distribution system will result in a solidified gap between rich and poor. It can be seen that the increase in the organic composition of capital will, at the time of making the “cake” bigger, lead to capital’s increasing share of the "cake,” and lead to the widening of the income gap.
In circulation, the duality of the rate of turnover of capital not only helps accelerate the circulation of the economy but also leads to excessive deviation from the real economy.
According to Marx’s theory on the rate of turnover of capital, one of the important factors that determine profit is the length of the “time spent in motion”, or the time spent in production and circulation. The longer it is, the longer for capital to complete the circuit, and the fewer the number of circuits and the total profit that can be achieved within a fixed period.
In this context, capital will shorten the time in production and circulation by expanding the scale of industrial collaboration, increasing the division of labor in different links of the industry, and adopting advanced production and transportation technology. In this way, it will bring about more circuits and obtain higher total profit [within a given period of time].
However, based on the nature of the turnover of capital, the circuit cannot be shortened indefinitely through the aforesaid methods. A fundamental reason is that the decisive factor determining the length of the time of production and circulation is the composition of production capital: If the circulating capital, used to purchase raw materials, fuels, auxiliary materials, and other objects and to purchase labor, accounts for a large share of the total capital, the speed of production and circulation will be high. On the contrary, if the fixed capital used to purchase means of labor such as factory plants, machinery, equipment, and tools accounts for a large proportion, the speed of the time of production and circulation is low.
In this context, no matter what type of cooperation, division of labor, or production technology is applied, if capital an industry of the real economy that requires a wealth of fixed capital investment, the number of complete circuits and total profit obtained will be, under the same conditions, fewer than those in the virtual economy, which hardly relies on fixed capital investment.
Therefore, to obtain higher profits, capitalists will continuously take effective measures to remove obstructions in the economy and accelerate the economic circuits to reduce the time of production and circulation. However, the limitations by fixed capital on reducing the time of production and circulation will eventually incentivize capital to pursue a development path that deviates from the real economy.
In consumption, the duality of capital accumulation provides a class of consumers who contributes to the popularization of new products and also inhibit overall consumption by lowering most people’s income. In the normal process of production, capitalists can freely gain the surplus value created by labor, and will not invest all the surplus value to expand reproduction, meaning that capitalists will easily become the class that “gets rich first”.
Judging from historical experience and reality, this group [of people who gets rich first] often plays an important role in leading and demonstrating the consumption and popularization of new products and is one of the important driving forces for overall consumption.
However, because the fundamental goal of capital accumulation is to secure more surplus value through expanded reproduction, capitalists will continue to invest the majority of the surplus value they’ve got in reproduction in face of the fierce market competition, and use new technology and equipment to improve the organic composition of capital. As a result, the demand for labor by capital and the normal wage rates of labor paid by capital come under great pressure.
It can be seen that although capitalists can secure or even greatly increase their consumption power by grabbing surplus value, the fundamental goal of capital accumulation and profit-seeking, as well as the path to achieve them, determine that laborers, as the major social class, will be stuck with inadequate income. Apparently, the increased share of consumption by the absolute minority of capitalists cannot offset the decreased consumption by the absolute majority of laborers. As a result, the consumption of the entire society will face the risk of continued shrinking and sustained inadequacy.
In competition, the concentration of capital also has duality. It helps improve the market economy system, but also leads to a competition pattern that is oriented to a high level of monopoly.
The growth of one single capital depends on its own accumulation, whereas the concentration of capital results from the competition of different capitals. Through fierce market competition, capital with higher production efficiency will defeat and devour capital with lower production efficiency, whereas small and medium-sized capital in the disadvantaged position will use credit tools to unite and counteract big capital.
Therefore, through continuous and repetitive competition between big and small capital, rules for fair market competition and a sound market environment will be gradually established and improved, and the institutional system of the market economy will mature as a result.
However, the concentration of capital occurs not only within the same industry but also among different industries. This means that big capital seeks not only an absolute monopoly within the industry but also even tries to monopolize all industries.
As Karl Marx put it, “In a given society, it would not have reached its ultimate limit until the entire national capital should form only one single capital in the hands of a single capitalist or of a single company of capitalists.”
Therefore, both the aforementioned analysis and the highly monopolistic competition strategy of big capital in the real world prove that this kind of capital concentration will distort the fair competition in a market economy.
Given the duality of capital that runs throughout the socialization of production, such as in production, distribution, circulation, consumption, and competition, the overall principle should be to “reap its benefits while eliminating its harm” -while enabling capital to play its positive role as a factor of production, we should effectively control its negative effects.
Specifically, in production, it is necessary to establish a clear boundary between the government and the market, give capital great autonomy in the field where the market [is supposed to] play a decisive role, and set “traffic lights” on capital to prevent their excessive expansion towards/in the sectors related to the people’s livelihood.
In distribution, it is necessary to encourage the timely and wide application of advanced technology and equipment, and also move faster to improve the minimum wage system, wage increase system, and social security system to ensure that the gap in the [income] distribution based on different types of factors can be kept within a reasonable range.
In circulation, it is necessary to move faster to improve the taxation structure, reduce the tax burden on the real economy, and balance the profit relationship between the real economy and the virtual economy. Simultaneously, it is necessary to make conscious efforts to guide and plan the tiered layout of the industries, in order to avoid money circulating within the financial sector instead of entering the real economy or being diverted out of the real economy.
In consumption, it is necessary to allow and encourage the advanced and leading spending by the owners of elements of capital and at the same time unswervingly promote the income doubling plan for the middle-income group, the strategy of stimulating domestic demand, and the strategy of “houses are for living in and not for speculation”, and promote healthier driver for domestic spending.
In competition, it is necessary to allow and respect reasonable competition between capitals in the market and allow and respect their M&A strategies aimed at boosting the enterprises’ competitiveness and their capability in controlling the industrial chain. It is also necessary to tighten effective supervision on capital according to the law, and prevent capital from choosing the model of barbaric growth to achieve “monopoly for the sake of monopoly”.
In brief, capital is not the decisive factor that differentiates the socialist system from the capitalist system, but the path for the capital playing its role and its ultimate effect will have an important influence on the quality and success of a country’s development. Therefore, while improving the theory and system of socialist market economy with Chinese characteristics, we should understand and grasp the duality of capital, and steer capital to play a more active, effective, and rational role.
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