On the consequences of capital concentration

1 What is capital?

The term ‘capital’ is used in several senses.

In its most basic sense, ‘capital’ refers to physical goods that may be used in the production of other goods or services. In this sense, something as simple as a box of pencils counts as capital.

In another sense, the term may also include non-material goods, such as patents, proprietary code, or the value of a well-known brand.

In a third sense, the term may refer to those types of capital that, in a given era, would provide an advantage over one’s competitors in the provision of certain goods and services – as tractors did for some farmers, at the expense of others, at the turn of the 20th century, and as network effects did for some social media networks, at the expense of others, at the beginning of the 21st. This sense disregards capital which common to all or most participants in a monetary economy (or sector thereof) in order to focus on those granting distinction to their owners.

In a fourth sense, the term is used to refer to goods that, while not themselves capital in any of the above senses, are goods derived in some way from these more basic ones. Common stock, which signify ownership of the right to provide input concerning the direction of capital in these senses, is capital in this sense. A bank loan, which is a tangible signifier of the goodwill that a borrower has in the estimation of a lender, is also capital in this sense.

Capital may be concentrated by location, as, for instance, New York City has a greater quantity and variety of capital than the entire state of Wyoming. It may also be concentrated by class, e.g. if capital ownership is largely restricted to individuals within a given social or economic group.

2 The initial consequences of capital concentration

In all but the most basic sense, the concept of capital is correlative to that of labor power. While nothing prevents labor from itself being regarded as a form of capital, inasmuch as the capacity to work is exercised in the production of goods and services, it is typically regarded as a separate category. The original reason for this was that since labor is a cause of every produced good, and thus a source of capital in the sense of goods used in production, it itself could not be regarded as capital in the same sense that these goods themselves were. The distinction has remained, though the reason that originally grounded it has been abandoned by most mainstream economists.

A society in which capital is sufficiently concentrated in one class of individuals is one in which labor, rather than contributing for the most part to household production of goods for consumption, instead contributes to the sale of goods in a market economy. This occurs in a society where the use of money is directly or indirectly necessitated by law, e.g. via its collection as taxes for the provision of common goods like national defense. The necessity of the provision of taxes in monetary form itself conditionally necessitates formal participation in buying and selling.

However, when capital in the third of the above listed senses becomes available to some members of society, but not others, such individuals have the capacity to produce goods at greater speed than others. Inasmuch as money is itself a means for securing those external goods necessary for maintaining a life, the capacity to produce goods more quickly, and hence to increase sales where there is demand for those goods, may be used as a way of ‘purchasing’ additional leisure time, as a way of providing goods at a lower price than one’s competitors (thus increasing one’s gross profit by cutting into the number of items a competitor sells, while decreasing one’s profit per item sold), or a combination of both. However, since competition for sale of goods and services is not a one-time event, but one iterated indefinitely many times, any choice to not increase production is simultaneously a bet – and a bet against the odds – that competitors sharing the similar capital advantages will act likewise. Because of this, the prudential decision, at least outside of monopoly conditions, will be to use one’s advantage to increase production and thereby lower prices. These conditions provide an instance of a type of scenario call an iterated non-cooperative game, which is one of several kinds of games studied in a discipline called game theory.

As this process is reiterated, previous businessmen will find themselves unable to compete directly with those who have accumulated greater levels of capital, and may find themselves in a situation where rather than selling goods produced, their own competitive advantage lies in selling their labor, i.e. in working for a capitalist. By doing so, they avoid direct competition with their employer, and partake of the advantages that that capitalist has against other competitors, while those employing them are provided with greater labor power against those same competitors. However, since the remaining capitalists will themselves not be in a situation of equilibrium as long as they have competitors, this process will continue to iterate in such a way as to dispossess previous capitalists of their labor for so long as there is not a monopoly and/or the kind of economy in which economic activity operates remains one where access to goods for production plays a decisive factor in determining the place of individuals within that society.

3 Later consequences of capital concentration

For as long as tangible material goods play an important role in a capitalist economy, those goods will have to be located in some place. As those goods become more concentrated in a given class of individuals, they will also become concentrated spatially. As a result of this, those not in a position of capital ownership will compete with each other by offering their labor to the far fewer number in a position to productively employ them. Since opportunities for sale are limited, some will not be hired, and will become poor. In this way, capital concentration generates the problem of urban poverty.

At the same time, as barriers to sales across large distances decrease, certain entire areas will find themselves required and unable, in the absence of deliberate protective measures, to compete with those in possession of greater capital. Since this will be practically impossible, those in possession of sufficiently in-demand skills will leave their areas. The areas they leave will then lack not only the resources, but also the talent to compete with those businesses in the city. In this way, capital concentration generates the problem of rural poverty.

This situation then conditions several further shifts in the economy of the city. In order t secure the advantages of greater production in a situation where buyers of the goods are increasingly scarce, programs are developed to ensure that the poor have at least some purchasing power. In other words, the problem of urban poverty has, as one of its possible, albeit temporary solutions, the creation of the welfare state. This grows government itself as a sector of employment, on the one hand, and –  as these programs come to count the employed among their users – artificially lowers worker wages on the other, since it lowers the price of labor by providing for basic necessities that had earlier been secured by a wage. In this way, welfare provisions then act as an indirect subsidy to employers,  further accelerating the process of capital concentration.

Those workers who find work in the city will find themselves among others who lack work. Some of these will have recourse to participation in the sale of illegal items as a way to provide for their wants and needs. Others will have recourse to theft, sometimes violent. In this way, capital concentration should lead to a relative increase in criminal activity wherever it is located amidst sufficient poverty – which, given the draw of excess labor towards capital will be everywhere capital is located.

As capital becomes sufficiently concentrated in a small number of citizens in a small number of cities, those same citizens come to wield sufficient power that local economies come to depend on them. In this situation, those economies will be less able to extract taxes from them at a rate less advantageous to them than those of neighboring locales. That is, localities, then states will find themselves in the same sort of iterated non-cooperative game with respect to taxation that capitalists themselves were initially in with respect to conditions of leisure. In this way, capitalism, which arises within the context of strong states in great part out through forced participation in the monetary economy in the form of monetary taxation, ultimately inhibits the collection of taxes, and removes the capacity for meaningful self-governance from local political communities .

Correspondingly, those governmental bodies that are capable of exercising taxing power will be those relatively far removed from local communities. As a necessity of counteracting large capital accumulations at sufficient scale, government decisions will begin to be increasingly concentrated at the highest levels, leaving it both unresponsive to the greater mass of its citizens and susceptible to corruption by those parts of society it initially sought to regulate.

Given the absence of sufficient numbers of buyers for the kinds of goods typical of an early market economy, the constant fierce competition for those buyers among existing firms, and the relatively large accumulations of capital by those firms, economies develop to serve not consumers in the traditional sense, but those companies, whose consumption is itself ordered toward the augmentation of their own competitive advantage. These conditions of the lack traditional demand, large capital accumulations, and competition for scarce buyers provide the precondition for the outsized role played in today’s economy by ad revenue and data mining.

The need to ensure a market of buyers for goods that are consumed multiple times requires that buyers not create products that undermine their own demand. Within fields like medicine, the form this will naturally take is a preference for repetitive care on a subscription-like basis over one-time solutions, as instanced in a focus on the development of drugs for repeated use over the cures, and on the very notion of health-care – which emphasizes a concept of care as constant superintendence over the emphasis on recovery from sickness emphasized in the notion of medicine. In other sectors it will take the form of a lower product quality to ensure that users return to buy a given product in a sufficiently short amount of time to make good the money spent in securing one’s competitive advantage. In this way, capital concentration leads to the generation of excessive pollution and landfill.

This list of negative consequences of capital concentration is incomplete. In the following days, I intend to discuss ways not to address these problems, then better methods for doing so.

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