I recently read a blog post analyzing various purported “socially responsible investing” (SRI) products and showing how they were anything but.

This kind of analysis is valuable for learning and empirical confirmation, but it can be predicted from certain general principles.

In this post, we will lay out some basic arguments explaining why advocating for capital to be reallocated to projects which are beneficial to human and non-human nature will not work.

This kind of advocacy is done through divestment pressure campaigns, creation of SRI investment products to entice investors to switch their money over, and surely other ways as well. The following analysis applies to all of them.

The argument at a high level

The argument is as follows:

1. Investor returns depend on the continuation of social process which we will call the “core circuit of capitalism”.

2. The core circuit of capitalism inherently has negative effects on human well-being and the stability of non-human nature.

3. Therefore, convincing investors to abandon socially and ecologically harmful practices is equivalent to convincing them to abandon their returns. Some may be convinced to do this, but because the class as a whole depends for its survival on these returns, the bulk of them will not do it.

The core circuit of capitalism and those who protect it

Per Marx, the core circuit of capitalism is

1. Start with some money.

2. Buy input commodities, including labor power.

3. Do production: combine the inputs and get output commodities.

4. Sell the output commodities for more money than you put in in step 1.

There are many financial abstractions on top of this, but this is still what capital looks like when production of physical goods takes place.

Those capitalists who own the productive apparatusses themselves – get paid with a portion of the increase in money between step 1 and step 4.

Finance capitalists get their cut of that increase from interest on money they’ve loaned, or from equity income due to their monetary investment in these productive enterprises.

In the end, we have a class of “investors” who in aggregate are dependent for their returns on the continuance of the above loop.

These investors will act however they can to ensure this loop continues to take place, and with as large a money delta (profit) as possible, because their own livelihood depends on it. For retail investors, this is by reallocating their investments towards those that make money and away from those that don’t, which is an indirect mechanism but in aggregate has the desired effect. For professionals like private equitiy firms, this may be by starting new productive enterprises or taking over existing ones and redirecting them towards profitability.

Capital’s antagonism with human and non-human nature

Now, as is well known, this loop has negative effects on human and non-human nature. To summarize:

1. Because labor is an cost for the capitalist, capitalists act to decrease the cost of labor (i.e., wages), which means immiseration for workers.

2. The input commodities consume resources from non-human nature without replenishing them, and production has by-products that affect ecosystems (e.g., greenhouse gases). Neither of these facts is taken into account by the logic of the loop and thus environmental damage is guaranteed.

3. The augmented money in step 4 is reinvested to continue the loop on a larger scale. Thus, the scale of the damage in (1) and (2) increases exponentially with time, assuming the production process is held constant.

Conclusions

Now we can finish the argument as described in the outline.

As a class, investors will act to preserve their returns, which means preserving the core loop of capitalism, which implies human and ecological devastation.

Some of them may act otherwise, but this loop cannot end without ending investors as a class since their existence depends on it.

So, we can have successful divestment campaigns and a small subset of investors who choose to act as morally as they can, but this kind of advocacy will never suffice as a strategy for ameliorating the harmful effects of capitalism generally.

As we have argued, that requires eliminating the position of investor itself, which is a much taller order. The advocacy approach assumes that we can get them to go gentle into that good night of their own accord, which if you believe that I have a bridge in Brooklyn you might be interested in buying.