Finance and Industry: Who creates wealth?

Many people have a shrewd suspicion that the profits that find their way into the pockets of those who own stocks and shares come out of the wealth produced by those who work. For the capitalist class this is unfortunate since their system runs on profit. To pursue their profit-making in peace they must convince the rest of us that they are doing it for our benefit; they must brand those who link profit with exploitation as ignorant agitators. Sir Peter Runge, a joint vice-chairman of Tate and Lyle and a director of Vickers, in a speech last May, later published by millionaire Labour MP Robert Maxwell’s Pergamon Press under the title The Role of Profit, had a go at showing that profit does not come from the unpaid labour of those who are employed to work. Here is his specious argument:

“Let us look at profit in its first role — as an incentive to create capital, without which economic growth is impossible. Capital can only be created by savings, that is to say by the postponement of consumption. Under a voluntary regime consumption is postponed if it is judged that in doing so there is a consequential advantage. Judgement normally rests on the prospects of having more to consume as a result of the postponement; and clearly the better the prospects the greater the incentive to postpone consumption and thus to save. The extra consumption made possible by having waited is the reward for having saved; it is the profit generated by the capital which has been created. Without the reward there would be no capital formation and therefore no growth and therefore no real increase in standard of living or in real wages. Looked at in this way, the reward of capital — I am not talking about usury — exploits no one; it is an essential part of growth in a free economy.”

This seems plausible until you take it to pieces. Take the sentence “capital can only be created by savings, that is to say by the postponement of consumption”. What does Runge mean by capital? We doubt, somehow, that he is using it in the Marxian sense to mean wealth used to exploit wage-labour for profit. Nor does he seem to be using it in the more conventional sense of academic economists to mean wealth used to produce more wealth. He seems merely to mean wealth that is not consumed immediately. In which cases his sentence is not a statement of fact but a definition that capital is postponed consumption. He argues that profit is needed as an incentive to save. In fact, he’s not really talking about profit, properly so-called, at all but about interest, the price of money. To talk, as Runge does, about rewards is just to confuse the issue.

We can assume that Runge is not so stupid as to think that money automatically reproduces itself. Or can we? What are we to make of his claim that “the extra consumption … is the profit generated by the capital which has been created”? Perhaps he can explain just how capital (in his sense) produces profit. Since he has defined capital as what is saved, and thus talks interchangeably about the “reward for having saved” and the “reward of capital”, he would seem to be committed to the patently absurd view that profit is produced by waiting. But waiting produces, and can produce, nothing. Waiting, in fact, is doing nothing. If Runge doubts this, let him take a sum of money and lock it up in his safe and wait. We can assure him that he will be waiting a long time before his reward materialises. On the other hand, he could lend it to someone who would use it as productive capital. The factory-owner who borrows the money will use it in his business. In his factory people in his employ will work raw materials into finished goods; they will produce new wealth. Part of this will return to them as wages. The rest belongs to their employer, the factory-owner. This is the source of profit and its subsidiaries, rent and interest. It arises in production from the unpaid labour of those who work. Out of his profit the factory-owner can pay Runge interest for the loan of his money.

Significantly, Runge chooses to steer clear of the realm of production and to discuss instead how interest can be justified. And even here, instead of seeing interest as a price he speaks of rewards, substituting for an economic category, as Marx put it in another context, a sycophantic phrase.

Another capitalist who has an even more absurd view of how wealth is produced is Tory shadow Minister, Sir Keith Joseph. He thinks it is a few thousand top executives who are the “wealth-creators”. In a speech pleading for a reduction of taxes on the rich, as reported for their benefit in the Financial Times of June 26, he declared:

“The Government that wants the standard of living to rise so that there is more for all … must start by allowing its wealth-creators to keep more of their earnings. . . . There are at any given time very few wealth-creators probably no more than a few thousand.”

We know that capitalism develops social productivity but had not realised that it had gone quite this far. So only a few thousand people mine all the coal, operate the railways, run the factories, shops and offices! Who are they? Who are these super-men? According to Joseph this fantastic feat is performed by

“the creative businessmen who detect new needs and new markets or new versions of old needs and old markets for products or services — and set about supplying them; or the managers who have the brains, character and drive to make an organisation more efficient.”

Runge tries to confuse us with his illogical arguments. Joseph just insults our intelligence. Nobody would deny that top executives work, but what about the rest of us, who spend the greater part of our lives in producing wealth that belongs to a privileged and often idle few, do we not create wealth too?

Incidentally Joseph, a Lloyds underwriter and deputy chairman of Bovis Holdings Ltd., hit upon an idea to create wealth for himself (and, of course, for us as well) that never fails. He had the enterprise, brains, character and drive to be born the son of one of the original partners of a construction firm called Bovis.

Why many people look up to men like Sir Peter Runge and Sir Keith Joseph is difficult to understand. They are just human beings like the rest of us, only, perhaps, a little stupid. It is us, the working class, who by applying our energies to nature-given materials produce all new wealth; it is us who run industry and society from top to bottom. Is it not time we did so in our own interests for a change?

A.L.B.