The billions that come and go and come and go

An Australian Associated Press report a few months ago unintentionally pointed out one of the absurdities of modern capitalism. This is that a good part of the so-called wealth of capitalist societies doesn’t really exist. According to the report (as printed in the October 1 Sydney Morning Herald), the outbreak of the international economic crisis in 2008 caused personal wealth (excluding housing and self-owned businesses) in Australia to drop by 27%. It quoted the multinational Boston Consulting Group (BCG) as saying that Australian personal wealth fell by more than $600 billion from the year before. And — shed a tear for them — 32,790 households stopped being millionaires (leaving only 49,452).

But if you think back to the second half of 2008, did anything happen that actually destroyed great quantities of people’s assets? Was there anything comparable to the Victorian bushfires of early 2009, any great physical destruction of property? No. So where did those billions go? Equally mysterious is where they came from in the first place. According to a BSG official, “In the five years to 2008, total personal wealth in Australia still increased by 38 per cent”. Furthermore, although the article didn’t give figures, a significant part of the wealth lost in 2008 was recovered in 2009. Now you see it, now you don’t, now you do: what is going on?

The wealth that keeps appearing and disappearing is primarily the current price of shares listed on the stock exchange. If you own 10,000 shares of the Greed Corporation, and the shares are selling for $100 each, then you’re a millionaire. If the shares go down to $90, you’re not a millionaire any more, but if they go back to $100 or more, then you are once again. But what makes the price of shares go up and down? Originally, because a “share” was legally just that — a proportional part of the ownership of a company — the price of a share depended on the value of the company’s property. If the company mainly consisted of a factory worth $10 million, and there were a million shares, then each share would be worth $10.

However, as capitalism developed and changed, so too did the immediate motives of shareholders. Capitalists don’t buy shares for the sake of owning them, but in order to receive some of the profits (“dividends”) from that company. In an earlier period, when most industries were competitive, there was usually a fairly direct relation between the size of a company’s physical assets (machinery, etc) and its likely profits.

But in capitalist economies today, when there are many companies (not only banks) that are “too big to fail” (which means that the government subsidises them in one way or another), a corporation’s expected profits may have no connection at all with the amount of capital invested in physical assets. The expected profits can be based on a new technological discovery, or a bribe that will secure a government contract, or hopes of finding a scarce mineral, or plans to monopolise some scarce commodity, or a Ponzi scheme, or almost anything at all. It was for this reason that Karl Marx described the market value of traded paper certificates such as company stocks and bonds as “fictitious capital”.

So the “value” of corporations on the stock exchange is only partly based on real values, on capital actually invested in the purchase of machinery, raw materials and workers’ labour-power. A big part of the corporations’ “value” is merely a promise that nobody can be held to: put your money here, and you should get a good return. That is how the supposed wealth of Australians could go up and down so fast. A large part of that so-called wealth was in the form of paper certificates (shares) that were priced according to the expected profits of the corporations. When the economy plummeted, so did the expected profits and therefore the traded price of those paper certificates. When capitalists decided things were recovering, their profit expectations went up, and so did their paper wealth. In the meantime, however, many workers’ superannuation funds had been savaged.

What these vanishing and reappearing billions make clear is that much so-called wealth in capitalism is not something that exists now. It is only a legal title to profits from the future exploitation of workers’ labour. That makes mandatory super plans particularly vicious — workers are forced to hand over their retirement saving to capitalists to be gambled on investments in the exploitation of our fellow workers.