In order to understand what the problem is in the world, there are two words we could focus on. Those two words are: "preliminary transformation." These are words that Frederick Engels used in describing how capitalism operates—in explicating Marx's great breakthroughs in uncovering the nature of capitalist production and accumulation. Or, to convey more fully what Marx was getting at, we could expand this focus slightly to include the four words: "preliminary transformation into capital."
Now, what Marx was talking about, and what's crucial to grasp, is that specifically in the sphere of economics—which is the foundation of all societies, and of all systems—in order for anything to be done within the realm of capitalism, and in line with the dynamics of capitalism, social wealth (money or whatever) has to undergo a preliminary transformation into capital. In other words, if you're talking about building housing, for example, under capitalism, this has to be done through the dynamics of how the capitalist system operates—there has to be investment in a way that turns that investment into capital. Now what do I mean by capital? Most fundamentally: control over and use of the labor power (the ability to work) of others, and the utilization of that labor power to produce profit that is accumulated privately. Let's break that down.
Say, for example, you have a stack of money: how do you make it undergo the "preliminary transformation into capital?" Money just sitting there doing nothing is not capital—it's just money. If it were money in the hands of a socialist government, we'd say: what are the social needs and how do we apply this accumulated wealth to meet those social needs in the context of everything else that we have to take into account? We wouldn't have to undergo the preliminary transformation into capital. But a capitalist, or a capitalist system, fundamentally cannot do that. Particular capitalists have to say: how can we invest this in labor power, as well as in raw materials, in means of transportation, and so on, in a way which will be most profitable for us? The defining feature of capitalism is profit in command—and profit accumulated privately. That's why Marx referred to the accumulation of surplus value (or profit) as "Moses and the prophets" of the capitalist system. You have to pursue the accumulation of profit—and it essentially has to take place in the form of private capital and profit in private hands.1
So, in order for something to happen under capitalism—such as, again, housing being built—whatever would be allocated to that has to undergo this preliminary transformation into capital; it has to be transformed into the investment of capital, into the means of production and into labor power, which are under the control of particular capitalists. And then, as the Sherlock Holmes character would say, "the game's afoot." Then the question is: can you make back what you invested, what you transformed into capital—can you recoup that, plus an additional amount? You are not operating in the abstract or in a vacuum, you are operating in conditions of competition with other capitalists—and, increasingly under the capitalist system, you are dealing with monopolies, with large scale and international aggregations and associations of capital. So you cannot just say: "We have a social need, housing, let's apply money to build housing." You have to undergo that preliminary transformation—to turn things into capital and then see if that capital can be more profitably employed in building housing, or in something else. And you can lose—when I say "the game's afoot," you can lose the whole thing. You are investing in buildings, and other means of production, and each individual capitalist or aggregate or association of capital is doing the same thing—turning whatever they've accumulated, whatever they have at hand, into capital—not just investing in means of production (such as buildings in which to carry out production) but, again, purchasing labor power, to try to more intensively and extensively exploit the workers who are employed by that capital, whose labor power has been purchased by that capital and is now being used by the capitalist, and is the sole means through which more wealth can be produced and accumulated as capital. You are doing all this in order to complete the process of re-accumulating wealth: recouping your initial investment—but not just that—beyond that, accumulating wealth on a bigger scale. The point is, you cannot just say: "Let's chart up all the social needs, let's see how much we have available to us and, through a process of political decision-making, let's allocate what we think is the best and wisest allocation of resources to the various social needs we can identify." You cannot do that under capitalism, because there's that necessary step of "preliminary transformation into capital," and then the drive, the competitive drive—the drive conditioned by competition with other capitalists seeking to do the same thing—to recoup that capital not just on the scale on which it was originally invested (the scale on which you originally transformed things into capital) but on a bigger scale (again, based on the exploitation of wage labor) in order to, in turn, repeat the process, in competition with everyone else doing the same thing.
Capital will, it must, chase the most profitable investment—that is the nature of capitalism—and if it's not most profitable to build housing, you won't do it even if you can identify a great social need. Or you will not take into account environmental concerns, because (as Raymond Lotta has pointed out a number of times in talks and writings published in Revolution) such environmental concerns are considered "externalities" from the point of view of capitalism. Such concerns don't figure into the calculations that I was just speaking of. These are somebody else's concern, somewhere else.
The Government Cannot "Regulate Away" the Fundamental Dynamics of Capitalism
Well, some people might say, the capitalists do have a government and they do have "wise people," above and beyond individual competing capitalists who are conditioned and driven by the need to go through this "preliminary transformation into capital" and then the need to have it reassume the form of capital on a higher level, in the form of profit. There's a government there—even under capitalism, why can't the government identify the social needs, get the revenue it needs, and then apply the revenue to meet those social needs, even while private capital is doing what it does? Why can't the government curb and restrict and control capital so that it doesn't get completely out of hand? Well, let's just briefly walk this through.
Alright, where does the government get its money from (to put it simply, to boil it down to simple terms)? Well, it can get it by borrowing—but then that has to be repaid, and with interest, so that in and of itself is not a money-making venture for the government. When it sells bonds and similar things for its borrowing activity, those are purchased usually by banks, or other financial institutions, and those bonds have to be repaid with interest. The government could also print more money; in the final analysis, however, simply doing that doesn't create more wealth but contributes to reducing the value of the currency. Ultimately, in order to meet its financial requirements, the government has to raise revenue that is larger than what it already has. How does it do that? Through taxes. Now, on what basis does the government tax? It taxes private citizens, and it does tax businesses and corporations. And in turn all that cumulative money, from which the government could tax, depends ultimately, under the system of capitalism, on the profitability of capital investment. If the capitalist economy is not doing well, not profiting, the wages of workers will go down; and therefore, the money you can tax from them will be less. The earnings of the petite bourgeoisie—the small business owners and small traders, and so on—will go down, and the profits of the corporations will go down. And the money you can tax from them will be less.
Ultimately, what the government can raise—even in the sphere in which it might seek to, in a certain sense, "stand above" competing capitalists and address social needs—this still depends upon the profitability of the system, on the operation of capitalism in an overall sense. It still depends on that process which begins with the preliminary transformation into capital and aims to end up with more capital than was initially invested through that preliminary transformation. So, even the contexts and the limits and confines within which the government can address social needs depends, in an ultimate and fundamental sense, on the profitability of capitalism. The government is not free, even within this limited sphere, to say: "What is social need?—let's raise the money and then let's apply it to the social needs." Because, after all, taxes are in fact in conflict with profitability for discrete, individual aggregations of capital—corporations and banks, and so on. Taxes are in conflict with that.2 Now, to the degree that capitalists can recognize the larger interests of their class, and to the degree they have the freedom to do so because their profitability is great enough at a particular time, they can, under many circumstances, be prevailed upon to accept certain taxation. But it's always working against this whole other drive which is fundamental to this system—a drive which takes place not through just one big capitalist sitting somewhere deciding on investments, but through competing aggregations of capital which will drive each other under.
This is not just happening in one country, it's happening internationally—and even if you regulated what the capitalists could do in a particular country, that regulation would break down because of the international dynamics in which capitalism is embedded in this era in particular, this era of capitalist imperialism. The capitalists in your country would be undermined and driven under by other capitalists, in other countries, who didn't have those constraints on them, if you imposed constraints (such as taxes) beyond a certain point in a particular country. Plus, capitalism operates on a gigantic scale and speculates on a gigantic scale and is highly parasitic on a whole international level anyway. And, once again, ultimately—not in a linear or simplistic sense, but ultimately—the economics will determine the politics. If you constrict and constrain the capitalists too much, there will arise among them conscious representatives who will get rid of you and bring forward other representatives of the ruling class who will not do that to them. You see this battled out all the time within the ranks of the capitalists and through their political system. There is the political expression of this and then, if you dig more deeply, you can see it in terms of how it goes on behind the scenes—not in open political contestation so much, but behind the scenes.
Why "Life is Not Fair," Under Capitalism...Why the World is the Way It is, and How It Could Be Radically Different
The reason "life is not fair" is because the capitalist system operates according to certain dynamics. And one of them is that most of the people in the world scramble to have barely enough to eat—or don't succeed in having enough to eat. That is daily existence for the majority of humanity. Now, if you step back from it, you would say to yourself: "Well, what could be more basic than the right to eat, what is more essential to life than the basic right to eat—and to have some shelter, and to have clothes—but, in a concentrated sense, the right to eat, what could be more basic?" How can it be that you have a world in which there is no right to eat? In which the great majority of humanity either does not have enough to eat or has to scuffle everyday to get enough to eat. How can that be? Especially amidst all the wealth there is in the world that surrounds and mocks people at every turn. Once again, materialism, dialectical materialism, teaches us that this is because of the fundamental production relations of capitalism: the fundamental contradiction of capitalism between the socially produced wealth—wealth that is created by large numbers of people working in networks of production—and the private accumulation of that wealth by aggregations of competing capitalists.
This is fundamentally related to the phenomenon that's described by "preliminary transformation into capital." It is driven by the need of capital to reproduce itself, and on an expanded scale—not to reproduce and expand social wealth to be distributed according to the needs of the people, but to reproduce itself as capital on an expanded scale.
There's a vast difference between reproducing wealth on an expanded scale which can be and is applied to meet social needs, and reproducing wealth on an expanding basis as capital. In understanding that difference you understand fundamental things about why the world is the way it is and how it could be radically different.
1 Even if we're talking about state capitalism as it existed in the Soviet Union for a time—from the time of Khrushchev, beginning in the mid-1950s, until the end of the Soviet Union itself, at the beginning of the 1990s—even under the state form, while the state played the centralizing and key role in regard to the economy and the accumulation of capital, nevertheless that capital in fact consisted of particular and competing capitals—through different regional ministries, through different sectors of the economy and those who had the predominant influence in those sectors, etc. So "the one social capital of the state" in turn was made up of many and competing capitals. This has to do with the fundamental nature and dynamics of capitalism, which will assert themselves and have effect once the essential "law" (the "Moses and the prophets") of capitalism—the drive for the accumulation of profit above all else, and in particular above social need—has assumed the commanding role. [back]
2 While taxes do underwrite the vital functions of government that serve the larger, longer-term, and more strategic interests of capital, like the preservation and extension of empire, and while certain government activities may directly or indirectly enhance the overall profitability of capital, it remains the case that taxes are in conflict with profitability for individual aggregations of capital. [back]