This article was first posted on this website on 2008-10-27 and is being re-posted as a "source article" for a section of the author’s new book DAOIST-LEGALIST SOCIALISM: One with real Chinese characteristics, §2-1(5) Origin and ugly consequences of unrestrained expansion of unjust capital (a).

DAOIST-LEGALIST SOCIALISM: One with real Chinese characteristics 
(Table of contents)

 

Preceding installments:

A New Political Economy: A theory of three sources of value & 3-tier joint community ownership (1): Three-Source Value Theory

A New Political Economy: A theory of three sources of value & 3-tier joint community ownership (2): Capital’s hegemony over three sources of value

III. UNJUST CAPITAL: WHERE IT ORIGINATES

III-1. Capital: original vs. regenerated, just vs. unjust

        In modern days, a larger part of the money people use as capital for investment is actually partial or total profits from previous investments. This kind of reinvestment capital can be called “regenerated capital”, as in contrast with “original capital”, or “first-time” capital, usually savings from compensation for labor.
If original capital comes from compensation for labor, which means it comes from some justifiable source, then we can call it “just capital”. From the past up till today, there have also been existing “unjust capital”, i.e., capital collected from unjustifiable sources, such as through aggressive wars, colonization, trade in black slaves, and what not. The profits generated from such capital are of course “unjust profits”. If such profits are reinvested as new capital, they are second-time “unjust capital” and will bring about second-time “unjust profits”.

        Now suppose the original capital is from justifiable sources and we will show how, under the system of capital hegemony, even just capital can generate unjust profits and, if reinvested, unjust new capital and second-time unjust profits and so on and so forth…. 

III-2. Simple (single-process) commodity production

         In modern societies, most products are produced through a series of processes involving more than one producer, This is the social nature of today’s production of goods. Therefore, the relationship between value, profit, and capital is quite complicated. To make it easier to comprehend, let us start from the simplest.

         First imagine the single-process production, in which some natural resource (such as land, forest, mineral site, fishing waters) is developed with simple tools and skills (manual planting, manual lumbering, manual mining of coal, manual fishing, etc.) and the basically unprocessed or only roughly processed products (corn, lumber, coal, fish, etc.) are sold by the producer directly to consumers. In this case, business profits come from sales of such products, and the sales prices are basically decided by the utility value of these products to the consumer. Price fluctuations caused by such contingent factors as production cost, consumers’ purchasing power, market availability or scarcity of the products, and business owners’ competition strategy are always centering around, not turning away from, the good’s utility value to the consumer-buyer. Production cost is not decisive, because business owners would not choose to produce goods with low utility value, low effective demand, but high cost; they would neither lower the prices for goods with high utility value just because production cost is low. And consumers would be happy to buy goods with high utility value at comparatively higher prices only if they can afford, no matter how high or low the production cost is on the producer’s side – usually they would not bother to think about the producer-seller’s cost. In a word, prices and profits are ultimately decided by the utility value of the products.

         As said above, all means and results of production get their value from the three sources: Nature endowment, collective wisdom and individual labor. In the above simple commodity production, commodity value and business profits are gained basically from Nature endowment and manual labor. Production cost is mainly for unskilled labor and simple tools. As a result, profits, or “surplus value”, come mainly from the Nature-endowed potential value in the natural resources (land, forest, mineral site, fishing waters, etc.) besides low-paid unskilled labor and also the business owner’s or his agent’s entrepreneurial and managing labor. And in most places and times where and when laborers do not have real and actual political power, business owners do not have to pay for such values from Nature endowment. If they pay somewhat at all, such as rent or purchase price to the land owner or taxes or special fees to the government, these can only be viewed as a sort of profit sharing (just or unjust) between business partners, not compensation or profit payments to the original owner of these resources, that is, the all-humans community. This is because: a) Nobody is able to determine the potential utility value and assign an appropriate price accordingly to any of the resources in view of the immeasurability of a good’s utility value and the immeasurability of and inalienability between values from all the three sources; b) The supposed “owners” or the governments of a state or a region who receive such profit shares do not have the right to represent the all-humans community, nor do they have the right to unilaterally assign any exchange value (price) to natural resources and to accept profit shares based on it. But because of the inseparability of unpaid-for natural value from the labor value integrated in the products, Capital as master of Labor also becomes sole master of Nature-endowed value and of profits from such values without being noticed. This is how unjust profits and, if re-invested, unjust new capital are generated. 

III-3. Multi-business, multi-process commodity production

         Now imagine a case in which some natural resource has to go through two production processes each run by a separate business entity before it becomes a finished product and reaches the consumer. That is to say, to continue from the above single-process case, the buyer of the basically unprocessed or only roughly processed product is not the ultimate consumer but some other business (B2) who buys it as raw material for further processing (the second process, such as food processing, petroleum or lumber processing). If the first business entity (B1) sells its product to B2 at the price for the consumer, B2 would have to pay, among others, for the Nature-endowed value integrated in the product, which makes up the major part of B1’s profits as said above. If B2 also uses simple tools and skills only, it will not be able to reap much profit as B1 can and would easily go bankrupt. Under such a circumstance, B1 would lower its price for B2 so as to expand its sales and increase its total profits. This can be viewed as B1 re-distributing part of its profit to B2, or a sort of profit-sharing scheme. If the final product has gone through more than two business entities from the natural resource developer to the retailer who serves the consumer face to face, the profit-sharing scheme and its nature, that is, the sharing of Nature-endowed value among capital owners only, stays the same. 

III-4. Technology-laden commodity production

         In the above cases, production tools and skills are supposed to be simple and, so, what is shared among, or the “surplus value” exploited by, capital owners is mainly Nature-endowed value. Now, if production involves technology-laden equipment and skills, that means the products will contain much value from collective human wisdom, which also belongs to the all-humans community as the sole owner after paying current scientists and technologists for their labor, their special individual contributions to the accumulated pool of human wisdom. As said before, collective human wisdom and the results of individual mental labor can neither be separated nor should be confused as one thing either. Therefore, all those businesses who manufactures or employs machines, especially high-tech equipment, would gain a great deal of value and profit from collective human wisdom, besides from Nature-endowed value in raw materials. If money capital or/and tech capital usurps the profits from this value to the exclusion of non-tech laborers and all humans, taking advantage of the inseparability between collective wisdom value and individual labor value, then their profit gains also contains unjust profit, which, if re-invested, would become (at least partially) unjustly generated capital.

         The institution of “intellectual property right”, while justifiable and also necessary for the protection of mental labor value from usurpation by money capital, may also be used to usurp the value from collective human wisdom contained in all intellectual properties and also Nature-endowed value in the materials used when intellectual properties are invested, or joined by money capital partners, as tech capital, to the exclusion of non-tech labor. This would be unjust, either, as in the case of sole money capital is. To put it more accurately, if scientists and technologists generate rich profits for themselves out of the high-tech which is the result of their mental work based on collective human wisdom accumulated ever since the remote past, that part of the profits which approximately corresponds to the amount and quality of labor they have given out are justly theirs. If such money gains are re-invested, it is still just capital. But if the part of profits which have come from collective human wisdom and Nature-endowed value also fall into their possession or are shared with money capital only to the exclusion of other laborers and the all-humans community, that would be unjust. Any new money capital converted from such unjust profits is unjust capital, too. 

III-5. Vicious cycle between unjust profit and unjust capital

         To sum up, in all the cases above, if original money or tech capital is a converted form of the owner’s past or current labor, then part of the current “surplus value” is also from their labor. Any profit which corresponds to that part is just, and, if re-invested, would be just capital. But the other parts should in principle belong to other current laborers and the all-humans community. If these parts are usurped by money or tech capital as their profit gains and re-invested, they would be unjust profits and unjust (unjustly generated) capital. All profits and new capital starting from this first round of vicious cycle would obviously be unjustifiable altogether.

(To be continued)

A NEW POLITICAL ECONOMY: A THEORY OF THREE SOURCES OF VALUE (4): Ugly consequences of unchecked expansion of unjust capital