Wall St. And Business Wednesdays: Understanding Black America's "Capital To Labor Ratio" I

After reading Earl Ofari Hutchinson's recent column, "Rosy Picture Masks Black Economic Slide" and reflecting over what we wrote last week, on the condition of Black-owned banks, I am absolutely convinced that if something doesn't change, Black America will be deep in a depression with no where to turn by the end of President Bush's first term. I am also convinced that unless the Black electorate does not radically change the way that it views and handles the subject of economics it will be totally unprepared for what awaits this country as a result of a war that takes an unexpected turn for the worse abroad and the continued erosion of the economic, social and moral fabric of this country at home - compounded by a litany of anemic, failed and inappropriate fiscal and monetary policies.

That is one of the reasons why we started Black Electorate Economics University (BEEU) to offer an educational forum and a way of looking at the subject of economics not from the standpoint of narrow partisan ideologies and agendas but more scientifically - from the perspective of principles, history and application. We humbly submit that the members of the University will learn more relevant ideas, facts and insights about pertaining to the subject of economics and business in 10 or 20 weeks of readings, studying, and dialogue at BEEU than virtually anywhere else - accredited university, think tank or otherwise.

One of the ideas that is central to the first semester at BEEU is the concept of the capital to labor ratio. And after reading Mr. Hutchinson's well-written but superficial column and spending sometime early this morning thinking of the overall condition of the Black community I decided today to openly touch on the subject which we have already begun to plumb the depths of within the University.

If you talk to most Blacks and many Black economists about the economy you are liable to sooner rather than later get into a discussion of jobs and bank loans. In the area of jobs most Blacks that vote will speak in the vain of how it is largely the government's job to ensure that people have jobs and to fight discrimination and ensure equal employment opportunity in the workplace. In the area of bank loans most Blacks that vote will inform you of their view that it is the government's responsibility to ensure that lending institutions that receive their charters and right to do business by law, do not discriminate on the basis of race when making loans.

If one accepts the view that human needs are human rights and governments are instituted to secure such rights, then the expressed view of Black voters, economists and academics is not only correct but it is justified and the basis of establishing equity in economics. (All of this relates to why all Americans should support the principle of reparations for slavery. But, that is another subject for for another day.)

However, the Black political establishment, most civil rights leaders and many grassroots activists have framed their economic views and even forced them into the most narrow of political ideologies, programs and agendas. They have taken a vast clear and scientific view of political economy and forced it into partisanship. This primarily takes place among Blacks who are Democrats who consciously or subconsciously equate a "Black agenda" with a (White-determined) liberal or progressive ideology that usually (not always) is heavily influenced by the most narrow of interpretations of what Karl Marx taught, and a romanticism with socialism. Quite often under such thinking and as a party to political coalitions guided by this sentiment and ideology, the Black electorate's deeply-held religious beliefs or theological worldview; and interest in wealth creation are marginalized, dismissed or deemed in one form or another as illegitimate or elite and certainly incompatible with the political methodology advertised as essential to solving economic problems. There is an enormous gap between Black spiritual and economic views popular in civil society and the political methodology Blacks utilize when communicating with the State. Why? Virtually no political economist or theologian gets to the root of this "dynamic".

Blacks who pursue wealth creation, entrepreneurship, and both capital accumulation and formation are frequently labeled as "capitalist" or "bourgeoisie". While certainly Blacks could be considered to be part of the proletariat to this very day, there has never been a time with the possible qualified exception of a period right after slavery that Blacks could be considered as truly part of the bourgeioisie, actually owning the social means of production. This narrow fit of course does nothing to account for the lack of distribution power among this small group of Blacks as well as the dehumanizing treatment they still received on the basis of their skin color. One of the most interesting applications of Marxist terminology (with very little understanding of it) is the the manner in which many Black intellectuals use the phrase "petty-bourgeois" when referring to their own community. In essence they equate that phrase with entrepreneuriship and small business operators. The result has frequently been the alienation, mistrust and ostracization of members of the Black business community - who are full-fledged members of Black civil society - on the grounds that because these individuals have day to day control, but not ownership over a form of production, distribution and exchange, they are closer to the bourgeois capitalist than the proletariat working-class. Even though he is referred to as a "bourgeoise Black nationalist capitalist" by many of these individuals, the Honorable Elijah Muhammad, patriarch of the Nation Of Islam, in making a larger point in Message To The Black Man provided the shortest, most concise and lucid reason that I have ever read as to why Blacks, in their historical and current condition could not be considered "bourgeios", petty or otherwise, according to how Marx used the term. Do Black intellectuals and economists who use the "lexicon" of Karl Marx, or John Maynard Keynes and even Adam Smith and apply it to the Black experience in America really know what they are talking and writing about?

While others may not think so, upon a cursory glance, the previously-mentioned premises, underlying assumptions and partial understandings have deeply impacted the political thinking of most Blacks on the subject of economics. This of course, must be combined with the reality that the White slave-masters and their descendants never intended to ever teach, on a mass or broad-scale the subject of economics and business to Blacks. And these two factors should be connected with the self-hatred, distrust, envy and jealousy that unfortunately pervades the conduct of internal Black business activities today. These three elements - together - are part of a confluence of forces that Blacks hardly ever confront when discussing and conferring about their condition in the United States of America.

Essentially a critical key insight to evaluating the economic condition of the Black community and developing effective programs that will end poverty, foster economic growth and produce prosperity within her lies within an understanding of the concepts embodied by the term "capital".

A fundamental misunderstanding that many Black intellectuals who identify themselves as Marxists have made is that they transpose or equate what Marx taught about the capitalist mode of production nearly two centuries ago, with the reality of financially wealthy Blacks today. They overlay Marx' arguments regarding the power of industry on top of the segment of the Black community that holds the most power in terms of finance. The result is that a flawed analogy is constructed wherein Blacks who work for others are the new proletariat working-class, and affluent Blacks with money - regardless to how they obtained it, earn it or accumulated it - are the bourgeiose capitalists. But the fundamental flaw in the analogy is that somehow these wealthy "Black bourgeiose capitalists" are lording over the "Black proletariat working-class" in the manner that Marx described. This is overwhelmingly not the case. Look at the Black Enterprise 100 wealthiest companies. How many Blacks do they employ? What fraction of the Black working-class does that amount represent relative to the percentage of work-able and work-seeking Blacks in the United States? Do these "Black bourgeiose capitalists" have the overwhelming negotiating power over the "Black proletariat working class" as that which existed when Marx wrote his books? At that time the vast majority of England's population – which had been growing rapidly - had no access to credit or education. That large mass of hard working people that Marx saw had virtually no negotiating power. Neither the financial nor the political institutions were "democratized". Is there a scenario in the Black political economy that is even remotely analogous? What determining influence do "Black bourgeiose capitalists" exercise over the political and financial freedom of the modern-day "Black proletariat working class"?

In all of my discussions with Black intellectuals who call themselves Marxists or Socialists I have never encountered one who had a grasp of how capital and labor could only be understood (within their worldview) in terms of what Marx taught on money. These insights are buried in the magnum opus, Capital. It is the height of irony and even paradox for said Black intellectuals to learn or realize that for Marx, capital and labor were one – in money. While Marx, in my view, excessively spoke of money as capital one of his most important insights, ignored and glossed over by Black academics and economists today is that Marx taught that money was the social incarnation of human labour.

The students of BEEU are learning this in only their second lesson!

In lesson number two, "Capital Development And Matching" I wrote the following:

Marx argued that it was in money that every society had the potential to equally value labor, regardless of profession. This was true, Marx argued, if the money, itself was a commodity, embodying human labor, like gold. This type of money was viewed by Marx as a universal measure by which all forms of labor - manual or not – could be represented as values of the same denominator. In this vein, labor is best represented in terms of equality in society by capital, money. This may be the ultimate contradiction of what is commonly held to be Marx's thesis.

While today we are not on a gold standard de jure, we are always on a de facto one by nature of the unaltered reality that gold is the most monetary of all commodities and that its estimation in terms of paper money, say dollars, always represents a valuation of units of human labor i.e. the effort that it takes to mine an ounce of gold. The discovery and production of all commodities embodies human labor.

Essentially capital is Assets. We capitalize the "a" because one of the greatest of all assets is human labor. People "own" their time and energy, even in slavery. With an internal decision a slave can choose to withold his or her effort or labor, but potentially at the ultimate price. Thus as an Asset exercised by the will of the sovereign human being, labor is actually a diversity of "intangible" capital.

More broadly speaking, capital is either one of four things: wealth, potential, money and assets. Nations have wealth in a beautiful river or in land within its borders rich in natural resources. Human beings have potential in terms of ideas and latent labor power. A woman has money in terms of her weekly pay check and the cash in her pocketbook. And workers in a union have assets in employee stock ownership programs and pension funds. All forms of capital.

Is it really useful for Blacks to accept a narrow economic interpretation that has been institutionalized in a political and partisan-determined dichotomy of labor and capital? Does that way of thinking benefit, empower and realize Black economic interests or more generally, only those of partisan-political coalitions that include Black membership?

Consider the following excerpt from the introduction of BEEU Lesson Number 2:

We really can't think of a more harmful dichotomy than that which styles itself as the division of economy and wealth into capital and labor categories. Is there such a thing as "labor" to start with? Or is it more useful to talk about "physical," "human" - and other forms of "capital"? After all, engineers, technicians, scientists, entrepreneurs, plumbers, physicians, nurses, importers and exporters, grocery store owners, and financiers all have plenty of knowledge in their heads, be it on technical, political or pricing matters. Not much insight is gained by putting them together and calling them "labor." And even if one was talking about the "unskilled," not much insight can be gained, since the unskilled vary in their features: some are more disciplined and others; some get along better with a team than others; some are faster learners; some are more punctual. What insight can one gain by putting all these people together and calling them "labor"?

Before addressing this question and pursuing this angle, recall what we emphasized in lesson number 1 regarding the preeminence of the law of cause and effect and the ecology of wealth. Already there, the maze of error that the superficial and ideological "labor" - "capital" division leads, was clear.

Nothing violates these principles more than the division of economy into capital and labor categories. Consider the following example:

You are employed at a school, and have a complex contract defining your rights and obligations.

You earn $40,000 per year. On average over the year, half of it in is in a bank account, earning 5% interest. You spend the other $20,000 in taxes and bills. You earn $1,000 in interest in the bank account, annually, meaning that you have $21,000 at the end of the year. You then take that $21,000 and invest it in the stock market in various stocks. You make a 100% profit after 12 months which means you have $42,000. You sell your stocks and are hit with a 20% capital gains tax. This leaves you with $31,600, which you place back in the bank.

Is it accurate to refer to you as a capitalist, when you earned $40,000 as a school teacher and $21,000 as an investor, before taxes? Are you a hybrid of some kind - part employee and part investor? How would the teacher's unions view you? How would the analysts on CNBC view you? How would politicians make appeals to you - as an employee or as a "rich capitalist"? Would you be totally disinterested in the capital gains tax rate of 20%? Would you vote for a politician that promised to leave your income tax rate unchanged while eliminating your capital gains taxes?

Would you vote for a politician who promised to raise teachers salaries by $5,000 per year and also raise income taxes by 5%? Is a school teacher who makes $40,000 per year in salary and $21,000 a year from his investments an "employee" (or "labor"), whereas a lawyer who makes $250,000 per year and has no investments, a capitalist? Is the reverse true? And what if the employees' pension funds were invested in equities, corporate bonds or real estate?

In the US all capital is related to labor and all labor is related to capital. They become each other in a never-ending cycle and are, at their essence one in the same.


Does an electorate that is disproportionately dependent upon partisanship for the source of its economic ideas, initiatives, programs, and agenda have the power to promote economic growth and wealth creation? What can be done to decrease the deferential disposition that Black leaders have toward establishment think tanks, political parties and outdated discredited, and fallacious economic theory?


Next week: Part Two - Four Factors Affecting The Black Capital To Labor Ratio in the United States and Why Blacks Will Never Achieve Economic Growth As Partisans.

Cedric Muhammad

Wednesday, February 19, 2003