Exposing WHO Lies on the DPRK Suicide Rate

•2014 11 22 • Leave a Comment

00 preventing suicide

Recently I produced a video displaying a website that impersonates the Korean Central News Agency (KCNA the North Korean state media) where I predicted the site was going to be used to spread false information about the DPRK. I was correct, one of the first pieces of hollow propaganda is a link to a piece that makes the claim “North Korea’s suicide rate among worst in world, says WHO report.” Being such a rather extreme claim I certainly had to investigate it. I am also aware that the DPRK doesn’t publish such statistics, so it was interesting to find out where they would get such information from.

Clicking the on the link of the false KCNA website takes you to an article by The Guardian. There it repeats the claim in less dramatic wording:

“South Korea’s problem with suicide has been well documented. But a World Health Organisation report has found that the problem is even worse in its northerly neighbour, making the peninsula one of the most suicidal regions in the world.

“The report, entitled Preventing Suicide: A Global Imperative, estimates that in 2012, 9,790 suicides took place in North Korea, with roughly equal numbers of males and females killing themselves. The report acknowledged that acquiring data was difficult, and that it had arrived at its North Korean estimate by factoring in a range of statistically predictive factors.

“Analysts say North Koreans may be driven to suicide by poverty, and the psychological stress of living in a restrictive environment. “I heard economic hardship was the main reason, but really, for anyone who is gay or lesbian or has mental health issues, life in North Korea is really tough,” said Sandra Fahy, assistant professor at Sophia University in Tokyo and author of the forthcoming monogrpah Marching Through Suffering: Loss, Survival and North Korea.”

Obviously the first thing I did was check this study they cite. Preventing Suicide: A Global Imperative. This is what it claims for the suicide rate in the DPRK:

Fake DPRK Suicide Stats

These statistics show a grim picture that would suggest all kinds of nasty assumptions about life in the DPRK. However upon closer investigation we can clearly see the number 4 in brackets in the column marked with two asterisks which tells us there’s more information.

Fake DPRK Stats 2

At the bottom of the chart in the two asterisks section there is a fourth point which reads “No vital registration.” Vital registration is essentially a “vital record” which is the record that the government keeps of the life events of persons. These typically include birth certificates, marriage licenses, and death certificates. In some jurisdictions, vital records may also include records of civil unions or domestic partnerships. What the chart is saying is that it has no official sources of information regarding the suicide rate of DPRK citizens. Since this is so, where are they getting this information from? The answer is nowhere; there is no other mention of the DPRK in the document. This document has not other information pertaining to the DPRK. The suicide rate appears to have come from nowhere.

Back in the first paragraph of The Guardian quote it has a link to another article on global suicides which also makes reference to the DPRK. Going to that article, titled “Suicide kills one person worldwide every 40 seconds, WHO report finds”, its source for information on DPRK suicides links the same study I just went over. So thus far it appears as though there is no information for these supposed suicide rates at all.

Now you may have noticed that there is another column on the chart “Age-standardized suicide rates *** (per 100 000), 2012”. That column has three asterisks which lead to the words, “Standardized to the WHO World Standard Population”. In both articles there is mention of a 2012 world suicide report that is supposed to give the numbers for the DPRK. Of course neither article actually links to said report. The main source for these numbers and other information lead to a 2012 report on suicides globally by the WHO. The page does contain a graphic displaying suicide rates globally which does include the DPRK. You’ll note that they’ve listed the DPRK and the Republic of Korea in the same category.

Fake DPRK Stats 3

This chart is part of a section of the page titled, “WHO Global Health Estimates”. The section says, “The WHO Global Health Estimates provide a comprehensive and comparable assessment of mortality (including suicide) and loss of health due to diseases and injuries for all regions of the world. The latest WHO assessment of deaths by cause is for the years 2000–2012.” In addition it also links to a study called, “WHO methods and data sources for country-level causes of death 2000‐2012.” It also goes by the technical title, “Global Health Estimates Technical Paper WHO/HIS/HSI/GHE/2014.7”.

In this report it classifies the DPRK as a “D”, which means its data is collected from a document titled “UNPD’s World Population Prospects – the 2012 revision”. This document has nothing to do with suicides. It talks about life expectancies, fertility rates, and population numbers. I have scoured everything these papers link to and I cannot find anything that gives any source for information. There seems to be no source for this information available at all.

All of this nonexistent information regarding suicide rates is completely contradicted by a January 2013 report by the Unification Medical Ministry (UMM) at Seoul National University which says that suicides in the DPRK are rare. This study noticed the same thing that I did, that there was no source for the WHO claim which they heavily criticized.

“In the case of the DPRK, no such data was identified and the statistical estimates for suicide deaths by cause were based on regression models that predicted the levels of suicide based on data from surrounding countries (such as China, Republic of Korea and other Asian countries) adjusted according to levels of statistically predictive factors such as alcohol consumption, population density, average income per capita, average education levels, religion, etc.”

‘…the estimates based on what is expected in neighboring countries with totally different political, social, financial and value systems would be less than reliable and the quality of these stats will be highly variable’

Along with this there has been a longstanding anti-DPRK propaganda line that says anyone who commits suicide has their family killed, or jailed depending on which “defector” story is offered. There have been all kinds of unproven stories about fantastic and wild punishments for committing suicide. However one semi-legit source says that suicides seem on par with other countries.

“Felix Abt was managing director for the PyongSu Joint Venture Company, the first foreign-invested joint venture in the pharmaceutical field in the DPRK, from late 2005 to February 2009. Abt told NK News that while in the North he had enquired about mental illnesses associated with suicide, such as depression or anxiety.

““Although doctors saw patients with such symptoms or with a suicidal behavior the percentage did not seem higher in comparison to estimates I had from other developing countries,” he said.”

With all this having been said, there is absolutely no information showing that the DPRK has a high suicide rate. This study by the WHO, with regards to the DPRK is wholly without credibility. The truth on what the suicide rate is in the DPRK is unknown as the country does not publicly publish such information. As usual the bourgeois media accepted this baseless claim by the WHO without question showing what little credibility and honesty they have. Again we are left with nothing but the most insulting of imperialist claims that serve not the truth, but to forward the interests of imperialism in justifying the inhuman sanctions and military threats.

* * *

Sources:

Fake KCNA Website
http://www.kcna.co/

North Korea’s suicide rate among worst in world, says WHO report, The Guardian
http://www.theguardian.com/world/2014/sep/04/north-korea-suicide-rate-among-worst-world-who-report

Preventing suicide: A global imperative, WHO
http://www.who.int/mental_health/suicide-prevention/world_report_2014/en/

Suicide kills one person worldwide every 40 seconds, WHO report finds, The guardian
http://www.theguardian.com/society/2014/sep/04/suicide-kills-every-40-seconds-who

WHO Mental Health, Suicide Data
http://www.who.int/mental_health/prevention/suicide/suicideprevent/en/

WHO Suicide Date Chart 2012
http://gamapserver.who.int/mapLibrary/Files/Maps/Global_AS_suicide_rates_bothsexes_2012.png?ua=1

Health statistics and information systems,Completeness and coverage of death registration data, WHO
http://www.who.int/healthinfo/statistics/mortcoverage/en/

WHO methods and data sources for global causes of death 2000−2012. Global Health Estimates Technical Paper
WHO/HIS/HSI/GHE/2014.7. Geneva: World Health Organization; 2014.
http://www.who.int/healthinfo/statistics/GlobalCOD_method.pdf

World Population Prospects The 2012 Revision, UN Department of Economic
and Social Affairs Population Division

http://esa.un.org/wpp/documentation/pdf/WPP2012_%20KEY%20FINDINGS.pdf

Why North Korea has the lowest suicide rate in the world, Hanguk Story
http://hangukstory.blogspot.ca/2011/05/why-north-korea-has-lowest-suicide-rate.html

Suicide is not an option in N. Korea: report, Yonhap
http://english.yonhapnews.co.kr/search1/2603000000.html?cid=AEN20130110004200315

Suicide is not an option in N. Korea: report, Yonhap
http://english.yonhapnews.co.kr/northkorea/2013/01/10/46/0401000000AEN20130110004200315F.HTML

Experts criticize WHO’s North Korea suicide stats, NKNews.org
http://www.nknews.org/2014/10/experts-criticize-whos-north-korea-suicide-stats/

Poetry of a Foxconn Suicide Victim

•2014 11 14 • Leave a Comment

Xu Lizhi threw himself from a Foxconn workers’ dormitory building in Shenzhen on 30 September. He was 24 years old, a migrant worker and a poet: neither line of work looks promising in China at the moment.

Here is some of that poetry he wrote before he committed suicide:

    We ran along the railway,
    arriving in some place called ‘the City’
    where we trade in our youth, and our muscle.
    Finally we have nothing to trade, only a cough
    and a skeleton nobody cares about.
    ‘Sleepless’
    Midnight. Everyone is sleeping soundly,
    We keep our pair of young wounds open.
    These black eyes, can you really lead us to the light?
    ‘Night Shift’

His bitterness is clear in a poem penned in December 2013:

    I swallowed a moon made of iron
    They refer to it as a nail
    I swallowed this industrial sewage, these unemployment documents
    Youth stooped at machines die before their time
    I swallowed the hustle and the destitution
    Swallowed pedestrian bridges, life covered in rust
    I can’t swallow any more
    All that I’ve swallowed is now gushing out of my throat
    Unfurling on the land of my ancestors
    Into a disgraceful poem.

Re: Did Jason Unruhe Refute my Video?

•2014 11 07 • Leave a Comment

In my last blog post I laid out a refutation Josh Cardosi’s response to the women who walked for 10 hours in New York and catalogued the amount of times she was sexually harassed by men on the street. Since the post was made public Cardosi has offered a response that can be found here. Be warned it is an unnecessary 27 minutes long.

In my first post I systematically in point form laid out all of his claims and proceeded to prove each of them wrong. This largely stemmed from his seeming inexperience with sexual harassment. He dismisses what she suffers as insignificant and should therefore not be counted as harassment. In other instances he feels they are “not that bad”, which is a way of admitting it happened but is still negated being made meaningless. Thus we see his original intention was to claim that the video was wrong and that she was complaining over nothing. On top of this he compares statistics on suicide what has nothing to do with the content of the video. It is clear he set out to deny the video’s claims and then attempt to turn the tables and claim women are privileged by an ability to receive affection on command. Essentially his statement is to claim the harassment is nothing and doesn’t matter, then paint men as victims and falsely paint women as privileged while ignoring that the men were suffering from a man enforced system.

His response to my response was to say that he wasn’t trying to disprove anything and instead was “just trying to get people thinking”. His words now completely contradict his previous ones. His entire video was laid out as an attempt to minimize and dismiss everything that was presented in the recorded walk. There was no attempt to get people thinking. A presentation of evidence of both sides and balanced approach taking the woman’s presentation honestly would be “trying to get people to think”. His goal here is to avoid the criticism of his faulty arguments by claiming he never really made them when he certainly did.

In an astounding moment he claims that MRAs are not sexist. This alone says enough.

In a most clear way he is back peddling. My points about his argument remain.

On top of all of this I’d like add a real criticism of the “10 Hours of Walking in New York”. It has been reported that the footage has been edited to remove instances where White men harassed her. The creator admits to doing this. This act is clearly racist. In addition there is a claim of classism given the places where she walked, but I know little about that so I won’t bother commenting on it. These are real criticisms that could have been made but were not.

Cardosi’s reply contains nothing but rambling, going back and forth between points, and a general dodging of points. I find the thumbnail rather humorous as there is no vs., he was no opponent as he didn’t actuallt reply with anything.

* * *

Sources:

My first post: A Refutation of Josh Cardosi’s “10 Hours of Walking in NYC – Response”
http://maoistrebelnews.wordpress.com/2014/10/31/a-refutation-of-josh-cardosis-10-hours-of-walking-in-nyc-response/

The Problem With That Catcalling Video, Slate
http://www.slate.com/blogs/xx_factor/2014/10/29/catcalling_video_hollaback_s_look_at_street_harassment_in_nyc_edited_out.html

A Refutation of Josh Cardosi’s “10 Hours of Walking in NYC – Response”

•2014 10 31 • 1 Comment

We’re all familiar with the video of the woman walking for 10 hours in New York City cataloguing the harassment she received. Obviously MRAs, misogynists were quite upset at this video and made attempts to misrepresent it.

An “anarcho”-capitalist Josh Cardosi, made a response to the video where he essentially claims that he can disprove the video. Or at the very least he can demonstrate that the video was being dishonest. In his attempt to do so he makes a few illogical statements, some of which resort to typical misogynist thinking and behavior. After having watched it I made nine points which entirely refute the overall claim of the video, those being that it was not harassment and it wasn’t that bad.

1. He’s saying it should have been more if it was a problem, false.

2. He says it’s not that bad, according to the person who was not harassed. His idea of what harassment is not the same as those who are being harassed. He’s saying if it doesn’t bother him it doesn’t (or shouldn’t) bother the women. False, it occurs in an entirely different context.

3. These statements were not intended as “compliments” or being polite, they were intended to grab attention. I think you’ll find they wouldn’t have done that with less attractive women. He’s also implying that if they’re intended to be friendly they would be doing that with everyone else. Every walked in NYC? They’re not that friendly.

4. He claims without any way of demonstrating it; that her speaking to the guy who followed her was lead on causing him to stay. Her words did display disinterest, so he should have left anyway. This is victim blaming, he’s essentially saying she asked for it by negatively engaging.

5. He says if this is harassment then what would feminists classify salesmen? Well they’d classify it as selling something, a sales pitch, which isn’t the same is hitting on someone which is sexual in nature.

6. He falsely assumes that the 100+ incidents that were not placed in the video must have been less than the ones displayed. They were probably equal to them. He’s presupposing they’re not harassment and implying they must therefore not be harassment or that the incidents didn’t happen at all.

7. He follows up by saying the woman was harassed 10 minutes in 10 hours or 1/60th of the time so it’s not that much. Then he uses various ways of expressing it to make it look as minimal as possible. How about someone pick a fight with him for a minute every hour and then say that it’s “nothing”. He’s saying it’s not a lot so therefore it’s nothing.

8. In a ridiculous non-sequitur he goes on about statics regards to suicide which has nothing to do with street harassment. This is a further attempt to claim that the harassment she suffered was nothing or somehow irrelevant in comparison.

9. Finally he ends with complete ignorance comparing male-to-female suicide statics as though it’s somehow relevant when it’s not. His claim is that women have a privilege of being able to get affection on command. He ignores the fact that they don’t want this attention. Clearly he can’t tell the difference between someone caring about a person and someone just hitting on them with no intention other than sexual conduct.

This video demonstrates quite vividly the complete disconnection that misogynists have with the reality of what it is to be harassed as a woman.

From Marx to Goldman Sachs: The Fictions of Fictitious Capital

•2014 10 30 • Leave a Comment

goldmansachs

As published in Critique, based on a presentation given at the China Academy of Sciences, School of Marxist Studies in Beijing in November 2009, and at the Left Forum in New York City, March 20, 2010.

Classical economists developed the labor theory of value to isolate economic rent, which they defined as the excess of market price and income over the socially necessary cost of production (value ultimately reducible to the cost of labor). A free market was one free of such “unearned” income – a market in which prices reflected actual necessary costs of production or, in the case of public services and basic infrastructure, would be subsidized in order to make economies more competitive. Most reformers accordingly urged – and expected – land, monopolies and banking privileges to be nationalized, or at least to have their free-lunch income taxed away.

In keeping with his materialist view of history, Marx expected banking to be subordinated to the needs of industrial capitalism. Equity investment – followed by public ownership of the means of production under socialism – seemed likely to replace the interest-extracting “usury capital” inherited from antiquity and feudal times: debts mounting up at compound interest in excess of the means to pay, culminating in crises marked by bank runs and property foreclosures.

But as matters have turned out, the rentier interests mounted a Counter-Enlightenment to undermine the reforms that promised to liberate society from special privilege.

Instead of promoting capital investment in an alliance with industry and government, financial planners have sponsored a travesty of free markets. Realizing that income not taxed is free to be capitalized, bought and sold on credit, and paid out as interest, bankers have formed an alliance between finance, insurance and real estate (FIRE) to free land rent and monopoly rent (as well as debt-leveraged “capital” gains) from taxation.

The result is that today’s economy is burdened with property and financial claims that Marx and other critics deemed “fictitious” – a proliferation of financial overhead in the form of interest and dividends, fees and commissions, exorbitant management salaries, bonuses and stock options, and “capital” gains (mainly debt-leveraged land-price gains). And to cap matters, new financial modes of exploiting labor have been innovated, headed by pension-fund capitalism and privatization of Social Security. As economic planning has passed from government to the financial sector, the alternative to public price regulation and progressive taxation is debt peonage.

In his draft notes on “Interest-Bearing Capital and Commercial Capital in Relation to Industrial Capital” for what became Vol. III of Capital and Part III of Theories of Surplus Value, Marx wrote optimistically about how industrial capitalism would modernize banking and financial systems. Its historical task, he believed, was to rescue society from usurious money lending and asset stripping, replacing the age-old parasitic tendencies of banking by steering credit to finance productive investment.

The commercial and interest-bearing forms of capital are older than industrial capital, but … [i]n the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself. It encounters these older forms in the epoch of its formation and development. It encounters them as antecedents … not as forms of its own life-process. … Where capitalist production has developed all its manifold forms and has become the dominant mode of production, interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process. [2]

From antiquity through medieval times, investment was self-financed – and hence was undertaken mainly by large public institutions (temples and palaces) and by the well to do. It was the great achievement of industrial capitalism to mobilize credit to finance production, subordinating hitherto usurious interest-bearing capital to “the conditions and requirements of the capitalist mode of production.” [3] “What distinguishes the interest-bearing capital, so far as it is an essential element of the capitalist mode of production, from usurer’s capital,” Marx wrote, is “the altered conditions under which it operates, and consequently the totally changed character of the borrower …” [4]

Marx expected the Industrial Revolution’s upsweep to be strong enough to replace this system with one of productive credit, yet he certainly had no blind spot for financial parasitism. [5] Money-lending long preceded industrial capital and was external to it, he explained, existing in a symbiosis much like that between a parasite and its host. “Both usury and commerce exploit the various modes of production,” he wrote. “They do not create it, but attack it from the outside.” [6]

In contrast to industrial capital (tangible means of production), bank loans, stocks and bonds are legal claims on wealth. These financial claims do not create the surplus directly, but are like sponges absorbing the income and property of debtors – and expropriate this property when debtors (including governments) cannot pay. “Usury centralises money wealth,” Marx elaborated. “It does not alter the mode of production, but attaches itself to it as a parasite and makes it miserable. It sucks its blood, kills its nerve, and compels reproduction to proceed under even more disheartening conditions. … usurer’s capital does not confront the laborer as industrial capital,” but “impoverishes this mode of production, paralyzes the productive forces instead of developing them.” [7]

Engels noted that Marx would have emphasized how finance remained largely predatory had he lived to see France’s Second Empire and its “world-redeeming credit-phantasies” explode in “a swindle of a magnitude never witnessed before.” [8] But more than any other writer of his century, Marx described how periodic financial crises were caused by the tendency of debts to grow exponentially, without regard for growth in productive powers. His notes provide a compendium of writers who explained how impossible it was in practice to realize the purely mathematical “magic of compound interest”– interest-bearing debts in the form of bonds, mortgages and commercial paper growing independently of the economy’s ability to pay. [9]

This self-expanding growth of financial claims, Marx wrote, consists of “imaginary” and “fictitious” capital inasmuch as it cannot be realized over time. When fictitious financial gains are obliged to confront the impossibility of paying off the exponential growth in debt claims – that is, when scheduled debt service exceeds the ability to pay – breaks in the chain of payments cause crises. “The greater portion of the banking capital is, therefore, purely fictitious and consists of certificates of indebtedness (bills of exchange), government securities (which represent spent capital), and stocks (claims on future yields of production).” [10]

A point arrives at which bankers and investors recognize that no society’s productive powers can long support the growth of interest-bearing debt at compound rates. Seeing that the pretense must end, they call in their loans and foreclose on the property of debtors, forcing the sale of property under crisis conditions as the financial system collapses in a convulsion of bankruptcy.

To illustrate the inexorable force of usury capital unchecked, Marx poked fun at Richard Price’s calculations about the magical power of compound interest, noting that a penny saved at the birth of Jesus at 5% would have amounted by Price’s day to a solid sphere of gold extending from the sun out to the planet Jupiter. [11] “The good Price was simply dazzled by the enormous quantities resulting from geometrical progression of numbers. … he regards capital as a self-acting thing, without any regard to the conditions of reproduction of labour, as a mere self-increasing number,” subject to the growth formula Surplus = Capital (1 + interest rate)n, with n representing the number of years money is left to accrue interest.

The exponential all-devouring usury “assimilates all the surplus value with the exception of the share claimed by the state.” [12] That at least was the hope of the financial class: to capitalize the entire surplus into debt service. “Under the form of interest the whole of the surplus over the necessary means of subsistence (the amount of what becomes wages later on) of the producers may here be devoured by usury (this assumes later the form of profit and ground rent).”

Although high finance obviously has been shaped by the Industrial Revolution’s legacy of corporate finance, institutional investment such as pension fund saving as part of the industrial wage contract, mutual funds, and globalization along “financialized” lines, financial managers have taken over industrial companies to create what Hyman Minsky has called “money manager capitalism.” [13]

The last few decades have seen the banking and financial sector evolve beyond what Marx or any other 19th-century writer imagined. Corporate raiding, financial fraud, credit default swaps and other derivatives have led to de-industrialization and enormous taxpayer bailouts. And in the political sphere, finance has become the great defender of deregulating monopolies and “freeing” land rent and asset-price gains from taxation, translating its economic power and campaign contributions into the political power to capture control of public financial regulation. The question that needs to be raised today is therefore which dynamic will emerge dominant: that of industrial capital as Marx expected, or finance capital?

Marx’s optimism that industrial capital would subordinate finance capital to its own needs

Despite Marx’s explanation of how parasitic finance capital was in its manifestation as “usury capital,” he believed that its role as economic organizer would pave the way for a socialist organization of the economic surplus. Industrial capital would subordinate finance capital to serve its needs. No observer of his day was so pessimistic as to expect finance capitalism to overpower and dismantle industrial capitalism, engulfing economies in parasitic credit such as the world is seeing today. Believing that every mode of production was shaped by the technological, political and social needs of economies to advance, Marx expected banking and high finance to become subordinate to these dynamics, with governments accommodating forward planning and long-term investment, not asset-stripping.

“There is no doubt,” he wrote, “that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the production by means of associated labor; but only as one element in connection with other great organic revolutions of the mode of production itself.” [14] Governments for their part would become socialist, not be taken over by the financial sector’s lobbyists and proxies.

Discussing the 1857 financial crisis, Marx showed how unthinkable anything like the 2008-09 Bush-Obama bailout of financial speculators appeared in his day. “The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.” [15] Marx wrote this reductio ad absurdum not dreaming that it would come true in autumn 2008 as the U.S. Treasury paid off all of A.I.G.’s gambles and other counterparty “casino capitalist” losses at taxpayer expense, followed by the Federal Reserve buying junk mortgage packages at par.

Marx expected economies to act in their long-term interest to increase the means of production and avoid over-exploitation, under-consumption and debt deflation. Yet throughout his notes for what became Capital and Theories of Surplus Value, he described how finance capital took on a life of its own. Industrial capital makes profits by spending money to employ labor to produce commodities to sell at a markup, a process he summarized by the formula M-C-M’. Money (M) is invested to produce commodities (C) that sell for yet more money (M’). But usury capital seeks to make money in “sterile” ways, characterized by the disembodied (M-M’).

Growing independently from tangible production, financial claims for payment represent a financial overhead that eats into industrial profit and cash flow. Today’s financial engineering aims not at industrial engineering to increase output or cut the costs of production, but at the disembodied M-M’ – making money from money itself in a sterile “zero-sum” transfer payment.

As matters have turned out, the expansion of finance capital has taken the form mainly of what Marx called “usury capital”: mortgage lending, personal and credit card loans, government bond financing for war deficits, and debt-leveraged gambling. The development of such credit has added new terms to modern language: “financialization,” debt leveraging (or “gearing” as they say in Britain), corporate raiding, “shareholder activists,” junk bonds, government bailouts and “socialization of risk,” – as well as the “junk economics” that rationalizes debt-leveraged asset-price inflation as “wealth creation” Alan Greenspan-style.

Fictitious Capital

Bankers and other creditors produce interest-bearing debt. That is their commodity as it “appear[s] in the eyes of the banker,” Marx wrote. Little labor is involved. Calling money lent out at interest an “imaginary” or “void form of capital,” [16] Marx characterized high finance as based on “fictitious” claims for payment in the first place because it consists not of the means of production, but of bonds, mortgages, bank loans and other claims on the means of production. Instead of consisting of the tangible means of production on the asset side of the balance sheet, financial securities and bank loans are claims on output, appearing on the liabilities side. So instead of creating value, bank credit absorbs value produced outside of the rentier FIRE sector.

“The capital of the national debt appears as a minus, and interest-bearing capital generally is the mother of all crazy forms …” [17] What is “insane,” he explained, is that “instead of explaining the self-expansion of capital out of labor-power, the matter is reversed and the productivity of labor-power itself is this mystic thing, interest-bearing capital.” [18]

Financialized wealth represents the capitalization of income flows. If a borrower earns 50 pounds sterling a year, and the interest rate is 5%, this earning power is deemed to be “worth” Y/I, that is, income (Y) discounted at the going rate of interest (i): 1,000 pounds. A lower interest rate will increase the capitalization rate – the amount of debt that a given flow of income can carry. “The forming of a fictitious capital is called capitalising. Every periodically repeated income is capitalised by calculating it on the average rate of interest, as an income which would be realised by a capital at this rate of interest.” Thus, Marx concluded: “If the rate of interest falls from 5% to 2½%, then the same security will represent a capital of 2000 pounds sterling. Its value is always but its capitalised income, that is, its income calculated on a fictitious capital of so many pounds sterling at the prevailing rate of interest.”

Finance capital is fictitious in the second place because its demands for payment cannot be met as economy-wide savings and debts mount up exponentially. The “magic of compound interest” diverts income away from being spent on goods or services, capital equipment or taxes. “In all countries of capitalist production,” Marx wrote, the “accumulation of money-capital signifies to a large extent nothing else but an accumulation of such claims on production, an accumulation of the market-price, the illusory capital-value, of these claims.” Banks and investors hold these “certificates of indebtedness (bills of exchange), government securities (which represent spent capital), and stocks (claims on future yields of production)” whose face value is “purely fictitious.” [19] This means that the interest payments that savers hope to receive cannot be paid in practice, because they are based on fiction – junk economics and junk accounting, which are the logical complements to fictitious capital.

Finance capital sees any flow of revenue as economic prey – industrial profit, tax revenue, and disposable personal income over and above basic needs. The result is not unlike the “primitive accumulation” by armed conquest – land rent paid initially to warrior aristocracies. And much as the tribute taken by the military victors is limited only by the defeated population’s ability to produce an economic surplus, so the accrual of interest on savings and bank loans is constrained only by the ability of borrowers to pay the mounting interest charges on these debts.

The problem is that the financial system, like military victors from Assyria and Rome in antiquity down to those of today, destroys the host economy’s ability to pay.

The falling rate of profit (rising depreciation element of ebitda) as distinct from financial crises

Focusing on profit as reflecting the industrial exploitation of wage labor, many students of Marxism have read only Vol. I of Capital. Many make an unwarranted leap from his analysis of wage labor to assume that he was an underconsumptionist. The capitalist’s desire to pay employees as little as possible (so as to maximize the margin they would make by selling their products at a higher price) is taken as a proxy for the financial dynamics causing crises, discussed in Vol. III of Capital.

Marx’s analysis did note the problem of labor’s inability to buy what it produces. “Contradiction in the capitalist mode of production,” he wrote: “the labourers as buyers of commodities are important for the market. But as sellers of their own commodity – labour-power – capitalist society tends to keep them down to the minimum price.” [20]

To avoid a glut on the market, workers must buy what they produce (along with industrialists buying machinery and other inputs). Henry Ford quipped that he paid his workers the then-high wage of $5 per day so that they would have enough to buy the cars they produced. But most employers oppose higher wages, paying as little as possible and thus drying up the market for their products.

This was the major form of class warfare in Marx’s day, but it was not the cause of financial crises, which Marx saw as being caused by internal contradictions on the part of finance capital itself. Interest charges on rising debt levels absorb business and personal income, leaving less available to spend on goods and services. Economies shrink and profits fall, deterring new investment in plant and equipment. Financial “paper wealth” thus becomes increasingly antithetical to industrial capital, to the extent that it takes the predatory form of usury-capital – or its kindred outgrowth, financial speculation – rather than funding tangible capital formation.

In developing his model to analyze the flows of income and output among labor, capital and the rest of the economy, Marx’s starting point was the first great example of national income accounting: Francois Quesnay’s Tableau Économique (1758) describing the circulation of payments and output in France’s agricultural sector, labor, industry and the government. As a surgeon to the king, Quesnay saw this circulation of income as analogous to that of blood within the human body. However, his Tableau neglected the need to replenish stock – the seed and other output that needed to be set aside to plant the next season’s crop. Marx noted that much as rural cultivators needed to defray the cost of replenishing their seed-corn, industrialists needed to recover the cost of their capital investment in plant, equipment and kindred outlays, in addition to receiving profits.

This recovery of capital outlays is called depreciation and amortization. Marx expected it to rise relative to profits, in order to reimburse investment in capital equipment (and by logical extension, research and development). This is what he meant by the falling rate of profit. Just as bondholders recover their original capital principal (a return of financial capital) quite apart from the interest, so capitalists must recover the cost of their original investment.

Marx expected technology to become more capital-intensive in order to be more productive. His “falling rate of profit” referred to the rising depreciation return of capital to reflect this recovery of costs. Plant and equipment needed to be renewed as a result of wearing out or becoming technologically obsolete and hence needing to be scrapped even when it remains physically operative. As Joseph Schumpeter emphasized in his post-Marxist theory of innovation, technological progress obliges industrialists either to modernize or be undersold by rivals.

This rising capital-intensiveness is not a cause of crises. As Marx argued in Book II of Theories of Surplus Value against Ricardo’s views on the introduction of machinery, it creates a demand for more capital spending and hence employs more labor, averting an underconsumption crisis. However, financial crises still occur (Marx pointed to eleven-year intervals in his day) as a result of the interest-bearing savings of the wealthy lent out to government, business and (mainly since Marx’s day) real estate and individuals, erupting when debtors are unable to pay this self-expanding financial overhead of “anti-wealth.”

No concept has confused students of Marxism more than this seemingly straightforward idea. [21] At issue is the shifting composition of cash flow: earnings before interest, depreciation and amortization (ebitda). To the extent that depreciation and amortization rise (or as industry becomes more highly debt leveraged), less profit is reported to the tax authorities and recorded in the National Income and Product Accounts. Marxists who attribute a crisis of capitalism to declines in reported rates of profit overlook the fact that the real estate, mining and insurance sectors wring their hands all the way to the bank with tax-deductible cash flow counted as “depreciation.”

How real estate, mining and debt-leveraged business exemplify a pseudo-falling rate of profit

The largest sector in today’s economies remains real estate. Land is the single largest asset, and buildings report most depreciation. To be sure, this is a travesty of economic reality inasmuch as it reflects a distorted set of tax laws that permit absentee investors to depreciate buildings again and again, as if they wear out and lose value through lack of upkeep (despite landlords being legally required to maintain rental properties intact), or by obsolescence (even as construction standards cheapen). These depreciation writeoffs occur at rising prices each time a property is sold at a capital gain (most of which reflects the land’s rising site value).

This pretense – along with the tax deductibility of interest – has enabled real estate investors to declare virtually no taxable income for more than a half century since World War II. It is as if a bond- or stock-holder could avoid paying income tax on interest and dividends by getting a tax credit as if the bond or stock were becoming worthless – and for each new buyer to repeat this charge-off, as if the asset loses value with each sale even as its market price rises! To cap matters, “capital gains” (some 80 percent of which typically occur in the real estate sector) are taxed at only a fraction of the rate levied on “earned” income (wages and profits), and are not taxed if they are spent on buying yet more property.

These tax dodges benefit property owners – and behind them, bankers, because whatever the tax collector refrains from taking is “free” to be paid as interest for yet larger mortgage loans. This makes financial interests the ultimate beneficiaries of distorted tax accounting. Such tax favoritism for the FIRE sector is fictitious tax avoidance, capitalized into “capital” gains. This obviously is not what Marx meant by the falling rate of profit. In his day there was no income tax to inspire such “junk accounting.”

The aim of permitting buildings to be depreciated again and again is not to reflect economic reality but to save real estate investors from having to declare taxable earnings (“profit”). And thanks to the notorious depletion allowance, the oil and mining sectors likewise operated free of income taxation for many decades. Insurance and financial companies are permitted to treat the buildup of liquid reserves as an “expense” against hypothetical losses. The function of these giveaways is to shift the fiscal burden off land and minerals, oil and gas, real estate and debt-leveraged industry.

When an ostensibly empirical statistical map (or the economic theory behind it) diverges from reality, and a tax policy diverges from broad social objectives, one invariably finds a special interest at work subsidizing it. In this case the culprit is high finance as untaxed property revenue is free to be capitalized into larger debts. And as it has regressed to what Marx described as usury capital, it has allied itself with real estate and rent-extracting monopolies. Instead of nationalizing them or taxing their economic rent and “capital” gains, today’s tax system favors rentiers.

The financial and industrial antipathy to post-feudal rent-seekers

The financial sector’s alliance with manufacturing rather than real estate in David Ricardo’s day is rooted in medieval European banking as it emerged at the time of the Crusades. Christian sanctions against usury were broken down by a combination of the prestige of the major creditors – Church orders, followed by bankers tied to the papacy – and that of their leading borrowers: kings, to pay Peter’s Pence and other tribute to Rome, and increasingly to wage war.

As creditors, the Templars and Hospitallers pioneered the transfer of funds across Europe. Next to royal borrowing the major market for credit was foreign trade, which flowered with the revival of economic activity fueled largely by the gold and silver looted from Byzantium in 1204. This business prompted the Churchmen to define a fair price for bankers to charge for the international transfer of funds – agio. This became the major “loophole” in which money lending could occur, most notoriously in a fictitious “international” arrangement via the “dry exchange.” These financial practices – war lending to kings for spending abroad, and money changing as commercial activity revived – made banking cosmopolitan in outlook.

The Napoleonic Wars (1798-1815) impeded trade, and hence its import and export financing. France’s naval blockade had the effect of a protective tariff wall. Britain’s landlords increased crop production, albeit at a rising cost. Conversely, other countries built up their own manufacturing. Resumption of foreign trade after the Treaty of Ghent restored peace in 1815 caused economic crises for these newly vested interests. Imports threatened to undercut the prices that British landlords received, reducing their land rents, prompting them to press for agricultural tariffs – the Corn Laws. Meanwhile, British manufactures undersold foreign production, prompting American and French industrialists to press for tariff protection. Britain, the United States, France and Germany thus experienced a fight between free traders and protectionists.

Having grown wealthy during Britain’s rise as a manufacturing power, its bankers looked forward to a resumption of trade financing, with Britain serving as “workshop of the world” – and banker to it. David Ricardo, the leading advocate for Britain’s bankers, lobbied for free trade and an international specialization of production, not national self-reliance. The resulting tariff fight culminated in 1846 with repeal of the Corn Laws. Unless Britain imported low-priced crops, Ricardo argued, rising domestic food prices as a result of diminishing returns on Britain’s limited soil area would prevent British industry from exporting competitively – and hence, would not be able to expand trade financing from British banks. [22]

Debt appeared nowhere in Ricardo’s labor theory of value. He was silent when it came to the original analysis of cost value – the medieval Churchmen’s concept of Just Price with regard to agio charges. Adam Smith, Malachy Postlethwayt and other writers had focused on the extent to which the taxes levied to pay interest on the national debt increased the cost of living. James Steuart had pointed to the exchange rate problems caused by sending money abroad for debt service (mainly to the Dutch) or military spending and subsidies. Ricardo would have none of this. He insisted before Parliament that banking never could cause an economic problem! “Capital transfers” from military spending, debt service and international investment would be automatically self-financing.

This was the genesis of today’s “free market” deregulatory theory. Ignoring the debt dimension, Ricardo became the doctrinal ancestor of Milton Friedman’s Chicago School of monetarists. The difference is that whereas they insist that there is no such thing as a free lunch, he defined economic rent as unearned income. “Ricardian socialists” extended the concept of economic rent to a full-fledged attack on landlordism. The Ricardian journalist James Mill advocated Britain’s “original” Domesday Book principle that groundrent should be the tax base. His son, John Stuart Mill, became a leading advocate of nationalizing the economic rent that landlords made “in their sleep” and the “unearned increment” of rising land prices.

The drive to break the power of landed aristocracies in Britain, France and other countries became the major political fight from the century spanning 1815 and World War I. It was basically a class struggle between capital and landowners. The demand “that rent should be handed over to the state to serve in place of taxes,” Marx explained, “is a frank expression of the hatred the industrial capitalist bears towards the landed proprietor, who seems to him a useless thing, an excrescence upon the general body of bourgeois production.” [23] By taxing the land’s rental income and that of subsoil minerals provided freely by nature, industry could free itself from the sales and excise taxes that raised the cost of living and doing business.

Since the 13th century the labor theory of value had been refined as a tool to isolate the elements of “empty” pricing that had no counterpart cost of production. Rent and interest were a vestiges of medieval privilege from which industrial capitalism sought to purify itself. Its idea of free markets was to liberate society from the overhead of groundrent, monopoly rent and interest, bringing land and finance into the public domain – “socialize” them by transforming banking and finance capital to serve the needs of industrial capitalism.

Marx expected industrial capitalism to pave the way for socialism by freeing Europe (and in time, its colonies and the continents of Asia, Africa and Latin America) from the carry-over of land rent imposed originally by military force, and from financial usury capital. The tacit assumption was that industrial financial systems would play as progressive a role in these regions as they were expected to do in the core. The Communist Manifesto credited the bourgeois economics of land taxers and kindred reformers in France and Britain with seeking to move society beyond the feudal mode of production.

However, it criticized Europe’s revolutions of 1848 for stopping short of helping labor. The fight to tax the land’s rent – as the Physiocrats had sought to do with their Single Tax (L’Impôt Unique) and as Mill, Cherbuliez, Hilditch, Proudhon and other reformers advocated – was basically a fight by industry (and its financial backers) to minimize the cost of feeding labor, not to raise wages and living standards or improve working conditions. Most reformers left private property in place, limiting their aims to freeing markets from the rake-off of economic rent by landlords and monopoly privileges, and only secondarily from the interest charged by bankers and usurers.

Marxists accordingly criticized “utopian” socialists and anti-socialist individualists such as Henry George for dealing only with the land issue or naïve monetary reforms without addressing labor’s fight to improve its working conditions and ultimately to free itself from private property in the means of production. Arguing against followers of George, Louis Untermann noted that in Germany, Ferdinand Lassalle found in Ricardian economics an implicitly socialist program, but “never indulged in any illusions as to the efficacy of that Single Tax idea for the emancipation of the working class.” [24] This required a government that would play an active role promoting labor’s interests vis-à-vis industrial capital, not only through regulatory reforms but by outright state ownership of the means of production under working-class control.

The argument over how productive an industrial role high financial would play

The 1815-1914 century was relatively free of war. America’s Civil War was the most devastating. But instead of borrowing from bankers, the North issued its own greenback currency. This success prompted bankers throughout the world to redouble their propaganda for “hard money,” as if bank credit was inherently sounder than public money creation. Subsequent development does not support this claim.

The Franco-Prussian War saddled France with a reparations debt that it was able to finance without causing any great disturbance. Economists attributed the decline of interest rates over time to the world becoming more secure. Public spending was increasingly for infrastructure to support industrial progress. There was heavy arms spending, to be sure, especially on navies, but it aimed largely to build up industry in a three-way alliance between industry, government and high finance. Governments and the large banks were emerging as national planners via their allocation of credit and public spending.

The most productive industrial financing practice emerging on the European continent, especially in Germany where banking developed the closest linkages with the government and heavy industry. The relative absence of large fortunes made a virtue of necessity. Germany’s lag in industrial development obliged its banks and government agencies to take a long-term view based on building up strength over time.

Rather than following British and Dutch banks by making straight interest-bearing loans against collateral already in place, the Reichsbank and other large banks engaged in a broad range of activities (“mixed banking”), including equity cross-holdings with their major customers. (After World War II, Japan’s cash-starved economy and widespread destruction likewise led its banks to establish close debt-equity relationships with their customers in order to provide sufficient liquidity to build for the future.)

Germany’s rapid victories over France and Belgium after war broke out in 1914 were widely viewed as reflecting the superior efficiency of its banking system. To some observers the Great War appeared as a struggle between rival forms of financial organization, to decide not only who would rule Europe but also whether the continent would have laissez faire or a more state-socialist economy. I

n 1915, shortly after fighting broke out, the German Christian Socialist priest-politician Friedrich Naumann summarized the continental banking philosophy in Mitteleuropa. In England, Herbert Foxwell drew on Naumann’s arguments in two essays published in the Economic Journal in September and December 1917, [25] quoting with approval Naumann’s contention that “the old individualistic capitalism, of what he calls the English type, is giving way to the new, more impersonal, group form; to the discipline, scientific capitalism he claims as German.”

In the emerging tripartite integration of industry, banking and government, finance was “undoubtedly the main cause of the success of modern German enterprise.”

What is striking is how unlikely the prospect of corrosive and unproductive debt appeared a century ago. To be sure, Turkey and Egypt were ruined by foreign debt, and massive fraud and insider dealing occurred in ambitious projects such as the Panama and Suez Canals. But the logic of far-reaching financial reform was formulated with evangelical fervor, most notably in France. Count Claude-Henri de Saint-Simon’s Du Système Industriel (1821) inspired an ideology based on the perception that successful industrialization would require a shift away from interest-bearing debt to equity funding. Banks would be organized much like mutual funds.

Glorifying bankers as the future organizers of industry, the Saint-Simonians saw the Industrial Revolution as introducing the capitalist travailleur, a financial engineer judging where credit could best be applied. [26] Prominent Saint-Simonians included the social theorist Auguste Comte, the economist Michel Chevalier, the socialist Pierre Leroux, and the engineer Ferdinand Lesseps whose plans for canals elaborated ideas initiated by Saint-Simon. Outside of France their influence extended to Marx, John Stuart Mill and Christian Socialists in many countries. “Marx spoke only with admiration of the genius and encyclopedic brain of Saint-Simon,” noted Engels. [27]

In 1852, Emile Pereire and his younger brother Isaac formed the Société Génerale du Crédit Mobilier as a joint-stock bank. Their aim was to provide low-cost long-term equity financing for industrialists to expand production, replacing the Rothschilds and other banking families who had monopolized French finance by. However, as government insiders got into the game they corrupted the institution. The Austrian Credit Anstalt für Handel und Gewerbe became a more successful application of Credit Mobilier principles.

Banking in the English-speaking countries remained more in the character of what Marx described as usury capital. British and Dutch practice had long used debt leverage to establish royal monopolies, e.g., as when the Bank of England’s monopoly of money issue was obtained in exchange for payment in government bonds. (U.S. bankers do much the same to today’s debtor countries, threatening them with financial crisis if they do not relinquish financial control of the public domain to global banks.)

Based on capitalizing existing income streams as collateral, Anglo-Dutch banking seemed obliged either to modernize along more industrial lines or make its economies financially obsolete. Foxwell warned that British steel, automotives, capital equipment and other heavy industry was in danger of becoming obsolescent largely because the nation’s bankers failed to understand the need to extend longterm credit and promote equity investment to expand industrial production.

The problem had its roots in the conditions in which British banking took shape. At the time Adam Smith wrote The Wealth of Nations, neither his Scottish contemporary James Watt nor other inventors were able to obtain bank loans to introduce their discoveries. They had to rely on their own families and friends, as industrial credit had not yet developed. Banks issued bills of exchange to finance the shipment of goods once these were produced, but not their manufacture. Procedures were in place to discount bills for immediate payment, and to evaluate the borrowing capacity of enterprises whose assets could be quickly liquidated, or well attested income streams that could be capitalized to carry bank loans, as in the case with real property. The preferred collateral was real estate, along with railroads and public utilities with a stable income stream.

The Duke of Bridgewater ran up immense personal debts to finance his canals by 1762, to be sure, but these were secured by mortgages against his property. But early innovations such as the automobile had to wait over half a century to obtain financing. “The investment banking houses had little to do with the financing of corporations or with industrial undertakings. The great investment houses bitterly opposed the numerous corporate issues which were floated in 1824 and 1825,” summarizes one financial historian. “The investment houses for a long time refused to take part even in the financing of the British railways.” [28]

British bankers were prone to insist that companies they controlled pay out most of their earnings as dividends and remain highly liquid rather than providing enough financial leeway for them to pursue a long-term investment strategy. By contrast, the major German banks paid out dividends at only half the rate of British banks, retaining their earnings as a capital reserve invested largely in the stock of their industrial clients. Treating their borrowers as allies rather than merely trying to make a profit as quickly as possible, they expected their customers to invest their profits in expanding production rather than paying them out as dividends.

Britain’s bond and stockbrokers were no more up to the task of financing industrial innovation than were its banks. The fact that manufacturing companies could obtain significant funding only after they had grown fairly large prompted broad criticism of Britain’s joint-stock banks by the 1920s for their failure to finance industry and their favoritism toward international rather than domestic clients. [29]

Much as American “activist shareholders” do today after earning their commissions on an issue, they moved on to the next project without much concern for what happened to the investors who had bought the earlier securities. “As soon as he has contrived to get his issue quoted at a premium and his underwriters have unloaded at a profit,” complained Foxwell in 1917 (loc. cit.), “his enterprise ceases. ‘To him,’ as the Times says, ‘a successful flotation is of more importance than a sound venture.’”

Defeat of Germany and the Central Powers in 1917 paved the way for Anglo-Dutch banking principles to become ascendant. Wall Street from the outset had followed the practice of hit-and-run stock manipulations and short-term financial extraction of the sort that Marx and other Progressive Era writers believed was becoming a thing of the past. U.S. railroad barons and financial manipulators were notorious for issuing “watered stock” to themselves, “overfunding” companies with bond borrowings beyond their needs or capacity to carry. The directors of these corporations pocketed the difference – a practice that led much American industry to stay clear of banking and Wall Street out of self-protection.

Neither economists nor futurists anticipated that economic practices might regress. The working assumption is that a positive evolution would occur to more productive forms. But the banking practices of finance capitalism have regressed toward short-term predatory lending. Reversing an eight-century trend, financial laws have become more creditor-oriented. The tax system also has become regressive, reversing the Progressive Era’s financial-fiscal program by un-taxing property and wealth, shifting the fiscal burden onto labor and industry.

The symbiosis of finance capital with real estate and monopolies rather than industry

Marx expected industrial capital to use its rising power over governments to nationalize land and use its rent as the basic fiscal revenue. But it has been the banks that have obtained the lion’s share of land rent, capitalizing it into interest-bearing loans to new buyers.

Landed aristocracies no longer dominate the political system, yet fiscal favoritism for real estate has never been stronger, precisely because property ownership has been democratized – on credit. Real estate accounts for some 70 percent of bank lending in Britain and the United States, making it by far the major market for bank loans, not industry and commerce as anticipated a century ago. This explains why the financial sector now stands behind real estate interests as their major lobbyist for property tax cuts. Mortgage interest now absorbs most of the land’s “free” rental value, which is capitalized into debt overhead rather than serving as the tax base.

Voters have come to believe that their interest lies in lowering property taxes, not raising them. Homes are the major asset for most households, and real estate remains the economy’s largest asset. Land is still its largest component – and some 80 percent of “capital” gains in the U.S. economy are land-price gains Site values are increased by public investment in streets, water and sewer facilities and transportation hubs, in school systems, by zoning restrictions, by the general level of prosperity, and most of all, by whatever bankers will lend.

Six variables are at work: (1) lower interest rates for capitalizing land rent into mortgage loans, (2) lower down payments, (3) slower rates of amortization (that is, giving borrowers longer to pay off the mortgage), (4) “easier” credit terms, i.e., looser standards for “liar’s loans” and kindred, the more credit can be extended to bid up real estate prices.

Meanwhile, banks recycle their interest income into new loans – and also into campaign contributions to politicians who pledge to (5) lower property taxes, leaving more rental income to be paid to banks as interest to carry yet larger mortgage loans. Debt leveraging inflates property prices, creating (6) hopes for capital gains, prompting buyers to take on even more debt in the speculative hope that rising asset prices will more than cover the added interest, which is paid out of capital gains, not out of current income. [30]

Recent years are the first time in history that homeowners and indeed, entire economies have imagined that the way to get rich was to run deeper into debt, not to pay it down. Home ownership is the defining criterion for belonging to the middle class. Some two-thirds of the British and U.S. populations now own their own homes, and upward of 90 percent in Scandinavia. This diffusion of property ownership has enabled the propertied and financial interests to mobilize popular opposition to taxes on commercial and rental real estate as well as homes. (California’s Proposition 13 is the most notorious case in such demagogy.)

Government moves to check rentier interests are depicted as “the road to serfdom.” Yet untaxing property and finance obliges governments to make up these tax cuts by raising taxes that fall on consumers and non-FIRE-sector business. This shrinks the economy, lowering its ability to pay the rent needed to pay the bankers on their mortgage loans. So we are brought back to the problem of debt deflation and the capitalization of interest charges into higher prices.

An income profile for the typical U.S. wage earner shows the degree to which the cost of living now reflects FIRE sector costs more than prices for commodities produced by labor. Some 40 percent of blue-collar wage income in the United States typically is spent on housing. (Recent attempts by the Federal Deposit Insurance Corp. to reduce the proportion absorbed by mortgages to 32 percent have encountered strong bank opposition.) Another 15 percent or so is earmarked to pay other debts: student loans to get the education required for middle class employment, auto loans to drive to work (from the urban sprawl promoted by tax shifts favoring real estate “developers”), credit card debt, personal loans and retail credit. FICA paycheck withholding ostensibly for Social Security and Medicare (a euphemism for the tax shift off the higher income brackets) absorbs 11 percent of payroll costs, and income and sales taxes borne by labor add another 10 to 15 percent.

This leaves only a third of wage income available to spend on food and clothing, transportation, health care and other basic needs. This has transformed the character of global competition, yet it is cognitive dissonance as far as academic theories of international trade and investment are concerned. Economics theorizing remains shaped by Ricardo’s success at diverting attention away from the debt and financial overhead as a main economic problem.

This is not how matters were supposed to turn out for Progressive Era reforms of industrial capitalism. The fight to minimize rentier rake-offs in the form of economic rent from land, commercial monopolies, banking and kindred rent-seeking “tollbooth” privileges has failed. It has failed largely because of the symbiosis between the financial sector and the rent-seekers that have become its major customers as access to bank credit has been democratized.

On the broadest social level, the ostensible “free market” lobbying effort sponsored by banks to shift the property tax onto labor and industry has become a campaign against government itself. The aim is to shift planning – along with public enterprises and their revenue – out of the hands of public agencies to those of Wall Street in the United States, the City of London, the Paris Bourse, Frankfurt, Hong Kong, Tokyo and other financial centers.

The problem is that the vantage point of financial planners is more short-term than that of government. And being short-term, it is extractive, not productive.

Finance capital’s raid on industry

Marx defined “primitive accumulation” as the seizure of land and other communally held assets by raiders and the subsequent extraction of tribute or rent. Today’s financial analogue occurs when banks create credit freely and supply it to corporate raiders for leveraged buyouts or to buy the public domain being privatized. Just as the motto of real estate investors is “rent is for paying interest,” that of corporate raiders is “profit is for paying interest.” Takeover specialists and their investment bankers pore over balance sheets to find undervalued real estate and other assets, and to see how much cash flow is being invested in long-term research and development, depreciation and modernization that can be diverted to pay out as tax-deductible interest.

Whatever is paid out as income taxes and dividends likewise can be turned into tax-deductible interest payments. The plan is to capitalize the target’s cash flow (ebitda) into payments to the bankers and bondholders who advance the credit to buy out existing shareholders (or government agencies). For industrial firms such leveraged buyouts (LBOs) are called “taking a company private,” because its stock ownership is no longer publicly available.

Permitting interest to absorb the revenue hitherto paid out as taxes and (after-tax) dividends to stockholders is diametrically opposite to replacing debt with equity funding as Saint-Simon and subsequent reformers hoped to bring about. The logical end – and the dream of bank marketing departments – is for all cash flow – earnings before interest, taxes, depreciation and amortization – is to be paid out as interest, leaving nothing over for taxes, capital renewal and modernization to raise labor productivity and living standards. All land rent, corporate profit, tax revenue and personal income over and basic spending is to be pledged to banks and bondholders as interest.

Under such conditions fortunes are made most readily not by industrial capital formation but by indebting industry, real estate, labor and governments, siphoning off the economic surplus in interest, other financial fees, bonuses, and “capital” gains. Populations willingly go into debt as it appears that gains can be made most easily by buying real estate and other assets on credit – as long as asset prices rise at a pace higher than the rate of interest.

Today’s financial investors aim at “total returns,” defined as earnings plus capital gains – with increasing emphasis on the latter gains in real estate, stocks and bonds. Industrial companies increasingly are “financialized” to produce such gains for investors, not to increase tangible capital formation. The “bubble” or Ponzi phase of the financial cycle aims to create the financial equivalent of a perpetual motion machine, sustaining an exponential debt growth by creating enough new credit to inflate real estate, stock and bond prices at a rate that (at least for a while) enables debtors to cover the interest falling due. [31] As a recent popular phrase puts it, financial collapse is staved off by the indebted economy trying to “borrow its way out of debt.”

This asset-stripping dynamic, which Marx characterized as usury capital, is antithetical to that of industrial capital. Based on the liabilities side of the balance sheet, financial securities take the form of anti-wealth – legalized claims on the means of production and income earned productively. The underlying dynamic is fictitious, because it cannot remain viable for long. It sustains interest payments by stripping assets, leaving the economy with less ability to produce a surplus out of which to pay creditors. And indeed, the financial sector destroys life on a scale similar to military conquest. Birth rates fall, life spans shorten and emigration soars as economies polarize.

This is the “free market” alternative to Progressive Era and socialist reforms. It typifies the IMF austerity plans that epitomize centralized planning on behalf of the global financial sector. Yet pro-financial ideologues depict public ownership, regulation and taxation as the road to serfdom, as if the alternative endorsed by Frederick Hayek, Ayn Rand and Alan Greenspan were not a road to debt peonage. And the endgame of this dynamic is a financial crash, wiping out savings that have been lent out beyond the indebted economy’s ability to pay.

It is at this point that the financial sector wields its political power to demand public bailouts in a vain attempt to save the preserve the financial system’s ability to keep on expanding at compound interest. Much as environmental polluters seek to shift the cleanup costs onto the public sector, so the financial sector demands cleanup of its debt pollution at taxpayer expense.

The fact that this is now being done in the context of ostensibly democratic politics throws a leading assumption of political economy into doubt. If economies tend naturally to act in their self-interest, how did the financial sector gain such extractive power to raid and dismantle industry and shed its tax burden?

If Darwinian models of self-betterment are to explain the past century’s development, they must show how creditors have translated their financial power into political power in the face of democratic Parliamentary and Congressional reform.

How has planning become centralized in the hands of Wall Street and its global counterparts, not in the hands of government and industry as imagined almost universally a century ago? And why has Social Democratic, Labour and academic criticism become so silent in the face of this economic Counter-Enlightenment?

The answer is, by deception and covert ideological manipulation via “junk economics.” Financial lobbyists know what smart parasites know: The strategy is to take over the host’s brain, to make it believe that the free luncher is part of its own body. The FIRE sector is treated as part of the economy, not as draining the host’s nourishment. The host even goes so far as to protect the free rider, as in the 2008-09 bailouts of Wall Street and British banks at “taxpayer expense.”

When such growth culminates in financial wreckage, banks demand public bailouts. They claim that this is necessary to enable them to resume lending. But they will not lend more against property already so deeply indebted that it remains in negative equity. Hoping to turn the crisis into an opportunity for further financial incursions into the industrial economy, bank lobbyists propose that governments help indebted homeowners and real estate investors avoid default by cutting property taxes yet further – shifting the fiscal burden yet more onto labor and non-financial business.

Tax cuts on wealth are promoted as if they will be invested rather than used to pay the financial sector more interest or be gambled on currencies and exchange rates, interest rates, stock and bond prices, credit default swaps and kindred derivatives.

Economic evolution does not necessarily follow the path of greatest efficiency. The oligarchic, creditor-oriented Roman Empire collapsed into the Dark Age, after all. Financially destructive policies may overwhelm technological potential. Bubble-type prosperity is based on debt-leveraged asset-price gains at the expense of the economy at large. Rising housing prices raise the cost of living, while rising stock and bond prices increase the cost of buying a retirement income – leaving pension funds unable to make good on their promises.

Pension-fund capitalism and other financial modes of exploiting labor

Finance capital’s modes of exploiting labor go far beyond that of industrial capital employing it to sell its products at a profit, and even beyond simple usurious lending to labor (above all for housing). Most innovative has been the appropriation of labor’s savings via pension funds and mutual funds. In the 1950s, General Motors and other large companies offered to contribute to funds to pay pensions in exchange for slower growth in wages. This policy (which Peter Drucker patronizingly called “pension-fund socialism”) [32] turned over wage set-asides to professional money managers to buy stocks and junk bonds to make financial gains – but not in a manner that necessarily promotes industrial capitalism.

Money would grow through the proverbial “magic of compound interest,” making money purely from money (M-M’).

The dream is to manage labor’s savings on a commission basis, steering it to inflate stock and bond prices. And indeed, pension-fund savings did fuel a stock market run-up from the 1960s onward. In the process, they provided corporate raiders and other financial managers with funds to use against labor – and against industrial capital itself. Pension fund managers played a large role in the junk bonding of industry in the 1980s. And finding themselves graded on their performance every three months, fund managers back raiders who seek to gain by downsizing and outsourcing labor.

They typically find their fortune (and even job survival) to lie in using pension savings not in ways that increase employment, improve working conditions or invest in productive capital formation, but in making gains purely by financial means – corporate looting that strips assets to pay dividends and increase short-term stock prices, or simply to pay off creditors.

Meanwhile, the largest sellers of stocks have been managers and venture capitalists “cashing out” by selling into a market fueled mainly by labor’s wage set-asides. Pension funds thus turn out to play a key role in enabling finance capitalists to realize their gains – only to be their fate to be left holding an empty bag in the end. Selling off stocks to pay retirees creates an outflow of funds from the stock market that reverses the initial price run-up.

“Money manager” capitalism aims to financialize Social Security and Medicare along similar lines, sending a new tsunami of public funds into the stock market to produce capital gains. [33]A dress rehearsal for this plan was staged in Chile after its 1973 military coup. The Chicago Boys who advised the junta called it “labor capitalism,” a cynical Orwellian term that Margaret Thatcher adopted for her program of privatizing Britain’s public utilities. (The “labor” here represents the exploited party, not the beneficiary.) A slice of its wages is withheld and turned over to the employer’s financial affiliate (the banco for the Chilean grupos). When a high enough pension reserve is accumulated, the employer transfers it to the banco or kindred affiliate in an offshore banking center, leaving the industrial employer a bankrupt shell.

The actuarial fiction is that corporate, state and local pension funds (and Social Security) invested financially can grow exponentially by enough to pay for retirement and health care. This goal cannot be met in practice, because the “real” economy is unable to grow at a rate required to support the growth in debt service. Widespread awareness of this fact has led to the corporate ploy of threatening bankruptcy if unions do not agree to replace defined-benefit pensions with defined-contribution programs in which all that employees know is how much is docked from their paycheck, not what they will end up with. General Motors went bankrupt as a result of its inability to fund the pensions guaranteed by their defined-benefit plans.

Financial claims rise exponentially, beyond the economy’s ability to pay. Bubble economies try to postpone the inevitable crash by inflating prices for real estate, stocks and bonds by enough to enable debtors to take out higher loans against the property they pledge as collateral. Governments balance their budgets by privatizing public enterprises, selling “tollbooth” privileges on credit to buyers who bid up their prices by debt leveraging. Financial underwriters reap commissions and insiders making a killing as sales prices for stocks are underpriced to guarantee first-day price jumps. (Mrs. Thatcher perfected this ploy, making unprecedented fortunes for early players and underwriters in the privatization game.)

A crash occurs at the point where this disparity is widely recognized. To bankers, the antidote is to lend enough new credit to re-inflate prices real estate and other assets, enabling new buyers to borrow the credit to buy property from defaulters. Rather than scaling back the U.S. economy’s over-indebtedness, for instance, the Treasury and Federal Reserve have bailed out the banks to save them from taking a loss on debt write-downs. [34] The dream is to keep the compound interest scheme expanding ad infinitum. But the pretense that fictitious finance-capital claims can be paid must be dropped at the point where financial managers desert the sinking financial ship. Their last act before the bubble bursts is the time-honored practice of taking the money and running – paying themselves as large bonuses and salaries as corporate treasuries (and public bailouts) allow.

Conclusion

Finance capitalism has become a network of exponentially growing interest-bearing claims wrapped around the production economy. The internal contradiction is that its dynamic leads to debt deflation and asset stripping. The economy is turned into a Ponzi scheme by recycling debt service to make new loans to inflate property prices by enough to justify yet new lending. But a limit is imposed by the shrinking ability of surplus income to cover the debt service falling due. That is what the mathematics of compound interest are all about.

Borrowing to make speculative gains from asset-price inflation does not involve tangible investment in the means of production. It is based simply on M-M’, not M-C-M’. The debt overhead grows exponentially as banks and other creditors recycle their receipt of debt service into new (and riskier) loans, not productive credit.

Half a century of IMF austerity programs has demonstrated how destructive this usurious policy is, by limiting the economy’s ability to create a surplus. Yet economies throughout the world now base their pension planning, medical insurance, state and local finances on a faith in compound interest, without seeing the inner contradiction that debt deflation shrinks the domestic market and blocks economies from developing.

What is irrational in this policy is the impossibility of achieving compound interest in a “real” economy whose productivity is being eroded by the expanding financial overhead raking off a rising share. Meanwhile, a fiscal sleight-of-hand has taken Social Security and Medicare out of the general budget and treated them as “user fees” rather than entitlements.

This makes blue-collar wage earners pay a much higher tax rate than the FIRE sector and the upper income brackets. FICA paycheck withholding has become a forced “saving in advance,” ostensibly to be invested for future “entitlement” spending but in practice lent to the Treasury to enable it to cut taxes on the higher brackets. Instead of financing Social Security and Medicare out of progressive taxes levied on the highest income brackets – mainly the FIRE sector – the dream of privatizing these entitlement programs is to turn this tax surplus over to financial managers to bid up stock and bond prices, much as pension-fund capitalism did from the 1960s onward.

A century ago most economic futurists imagined that labor would earn higher wages and spend them on rising living standards. But for the past generation, labor has used its income simply to carry a higher debt burden. Income over and above basic needs has been “capitalized” into debt service on bank loans used to finance debt-leveraged housing, and to pay for education (originally expected to be paid out of the property tax) and other basic needs. Although debtors’ prisons are a thing of the past, a financial characteristic of our time is the “post-industrial” obligation to work a lifetime to pay off such debts.

Meanwhile, the FIRE sector now accounts for 40 percent of U.S. business profit, despite the tax-accounting fictions cited earlier.

Financial lobbyists have led a regressive about-face toward an economic Counter-Enlightenment. Reversing an eight-century tendency to favor debtors, the bankruptcy laws have been rewritten along creditor-oriented lines by banks, credit-card companies and other financial institutions, and put into the hands of politicians in what best may be called a financialized democracy – or as the ancients called it, oligarchy. Shifting the tax burden onto labor while using government revenue and new debt creation to bail out the banking sector has polarized the U.S. economy to the most extreme degree since statistics began to be collected.

The Progressive Era expected planning to pass into the hands of government, not those of a financial sector at odds with industrial capital formation and economic growth. Nearly everyone a century ago expected infrastructure to be developed in the public domain, in the form of public utilities whose services would be provided freely or at least at subsidized rates in order to lower the price of living and doing business. Instead, public enterprises since about 1980 have been privatized – on credit – and turned into tollbooth privileges to extract economic rent. Bankers capitalize these opportunities, which are sold on credit.

Little is left for the tax collector after charging off interest, depreciation and amortization, managerial salaries and stock options. The resulting tax squeeze impoverishes economies, obliging governments either to cut back their spending or shift the fiscal burden onto labor and non-financialized industry.

The resulting financial dynamic is more like what Marx described as usury-capital than industrial banking. In the spirit of the Saint-Simonians he believed industrial capitalism to direct credit into productive capital formation, he expected that financial planning would pave the way for a socialist reorganization of society. Instead, it is paving the road to neoserfdom. Financial operators are using credit as a weapon to strip corporate assets on behalf of bankers and bondholders.

Employees can afford homes and other property (and indeed, entire corporations) only by borrowing the purchase price – on terms that involve a lifetime of debt peonage, and indeed (in most countries) bearing personal liability for negative equity when housing prices plunge below mortgage levels. Government planning has become subordinate to the dictates of unelected central bankers and the International Monetary Fund imposing austerity programs rather than funding capital formation and rising living standards.

Having analyzed finance capital’s tendency to grow exponentially, Marx nonetheless believed that it would be subordinated to the dynamics of industrial capital. With an optimistic Darwinian ring he shared the tendency of his contemporaries to underestimate the ways in which the vested interests would fight back to preserve their privileges even in the face of democratic political reform. He expected industrial capitalism to mobilize finance capital to fund its expansion and indeed its evolution into socialism, plowing profits and financial returns into more capital formation.

It was the task of socialism to see more of this surplus spent on raising wages and living standards while improving the working conditions – and spent by government to freely provide an expanding range of basic needs, or at the very least at subsidized prices. Infrastructure spending and rising living standards thus would become the ultimate beneficiaries of capital formation, not landowners, monopolists or predatory finance.

This is not how matters have worked out. More of the economic surplus is being siphoned off as land rent and interest. Yet many of Marx’s followers conflate his analysis of industrial capital with the financial dynamic of “usurer’s capital.” The latter is not part of the industrial economy but grows autonomously by “purely mathematical” means, running ahead of the economy’s ability to produce a surplus large enough to pay the exponentially soaring financial overhead. [35] And in contrast to his analysis of industrial capital, Marx explained why the financial overgrowth – recycling savings into new loans rather than investing them productively in tangible capital – cannot be sustained:

The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but to interfere in actual in a most dangerous manner – and this gang knows nothing about production and has nothing to do with it. [36]

Society therefore faces a choice between (1) saving the economy, by writing down debts to the ability to carry without stripping the economy; and (2) saving the financial sector, trying to preserve the fiction that debts growing at compound interest can be paid. For pensions and other public programs, for example, this means a choice between (1) paying them on a pay-as-you-go basis, out of the “real” economic surplus; and (2) the fictitious assumption that funds can earn annual returns of 8 percent or more to provide for labor’s retirement by asset-price inflation fueled by debt leveraging and purely financial maneuvering (M-M’).

If economic evolution is to reflect the inner logic and requirements of society’s technological capabilities, then finance capital must be subordinated to serve the economy, not to be permitted to master and stifle it. That is what John Maynard Keynes meant by what he gently called “euthanasia of the rentier.” In practice it means that governments must prevent property rents and other returns to privilege from being capitalized into bank loans.

To save society, its victims must see that asset-price inflation fueled by debt leveraging makes them poorer, not richer, and that financialization is the destroyer and exploiter of industrial capital as well as of labor. The objective of classical political economy was to bring prices in line with socially necessary costs of production. This was to be achieved in large part by taxing away economic rent in order to prevent it from being capitalized into loans to new buyers. Buying rent-extracting opportunities on credit increases prices for basic needs, turning society into a “tollbooth economy.” It also forces governments to compensate by raising taxes on labor and tangible capital.

Many Social Democratic and Labour parties have jumped on the bandwagon of finance capital, not recognizing the need to rescue industrial capitalism from dependence on neofeudal finance capital before the older conflict between labor and industrial capital over wage levels and working conditions can be resumed. That is what happens when one reads only Volume I of Capital, neglecting the discussion of fictitious capital in Volumes II and III and Theories of Surplus Value.

* * *
Sources:

Footnotes

[1] A shorter version of this article was given in at the China Academy of Sciences, School of Marxist Studies in Beijing in November 2009, and at the Left Forum in New York City, March 20, 2010.

[2] Theories of Surplus Value, Part III (Moscow: Foreign Languages Publishing House, 1971), p. 468.

[3] Capital, Vol. III (Chicago: Charles H. Kerr, 1909), p. 710. All subsequent quotations from Capital are from this edition, unless specifically noted (as in footnotes 15 and 36).

[4] Ibid., p. 705.

[5] See for instance ibid., p. 700: ‘In place of the old exploiters, whose exploitation was more or less patriarchal because it was largely a means of political power, steps a hard money-mad parvenu.’

[6] Ibid., p. 716.

[7] Ibid., pp. 699f.

[8] Ibid., p. 711 fn. 116.

[9] It is only in the English-language translations of Marx’s Theories of Surplus Value III (1971, pp. 296f., 527-37) for instance, that one can find Martin Luther’s denunciation of usurers, not in Luther’s Works published by Fortress.

[10] Capital III, p. 552.

[11] In his Grundrisse notebooks, Karl Marx: Grundrisse, Penguin, London 1973, pp. 842f.) incorporated into Capital III (ch. xxiv), p. 463.

[12] Capital III, p. 699.

[13] ‘Capitalism in the United States is now in a new stage, money manager capitalism, in which the proximate owners of a vast proportion of financial instruments are mutual and pension funds. The total return on the portfolio is the only criteria used for judging the performance of the managers of these funds, which translates into an emphasis upon the bottom line in the management of business organizations.’ Hyman P. Minsky, ‘Uncertainty and the Institutional Structure of Capitalist Economies,’ Working Paper no. 155, Jerome Levy Economics Institute, April 1996, cited in L. Randall Wray, ‘The rise and fall of money manager capitalism: a Minskian approach,’ Cambridge Journal of Economics, Vol. 33 (2009), pp. 807-828, and also in Wray, ‘Minsky’s Money Manager Capitalism and the Global Financial Crisis,’ 2010, http://www.levyinstitute.org/pubs/conf_april10/19th_Minsky_PPTs/19th_Minsky_Wray.pdf.

[14] Capital III (Chicago, 1905), p. 713.

[15] Capital III (Moscow: Foreign Languages Publishing House, 1958), p. 479.

[16] Capital III, p. 461.

[17] Ibid., p. 547.

[18] Ibid., p. 548.

[19] Ibid., pp. 551f. (Ch. xxix: The Composition of Banking Capital). The term fictitious capital passed into general circulation. In the United States it meant capitalized unearned income (‘economic rent,’ income without cost-value, mainly in the forms of groundrent and monopoly rent as well as financial extraction of revenue). Henry George picked it up in The Condition of Labour – An Open Letter to Pope Leo XIII, (1891) Henry George Foundation of Great Britain, London, 1930, referring to the ‘fictitious capital that is really capitalized monopoly’ (in The Land Question and Related Writings, New York, Robert Schalkenbach Foundation, 1982), pp. 201f.). Book 3, Chapter 4 of George’s Progress and Poverty (1879), William Reeves, London, 1884.) is titled, ‘Of Spurious Capital And Of Profits Often Mistaken For Interest.’

[20] Capital II (Moscow: Foreign Languages Publishing House, 1957), p. 532.

[21] It often surprises both ends of the political spectrum to learn that it was Marx who firmly established depreciation as an element of value theory. As Terence McCarthy wrote in his initial English language translation of Marx’s Theories of Surplus Value (which he translated under the title of A History of Economic Doctrines, New York: Langland Press, 1952, p. xv): ‘As a logical consequence of his examination of Physiocracy, Marx was led to a study of the Economic Theory of Depreciation. So complete is his analysis of this aspect of income formation that, if Capital has been called the bible of the working class, the History might well be called the bible of the Society of Cost Accountants. . . . Over the whole society, failure to provide adequate depreciation reserves is, Marx implies, to negate economic progress and to begin consumption of that portion of the value of the product which Marx believes belongs neither to the labourers in industry, nor to their employers, but to the economy itself, as something which must be ‘restored’ to it if the economic process is to continue.’

[22] I discuss Ricardo’s views and the more advanced response of his contemporaries in Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy (2nd ed. ISLET 2010 [available on Amazon.com]; orig. pub. London: Pluto Press, 1992).

[23] The Poverty of Philosophy [1847] (Moscow, n.d.), p. 155. Theories of Surplus Value III, pp. 396-98 quoted Antoine Cherbuliez, Richesse ou pauvrete (Paris: 1841), p. 128, whose title and content seems to have inspired Henry George’s Progress and Poverty (1879): ‘Rent thus would replace all state revenues. Finally industry, liberated, released from all fetters, would take an unprecedented leap forward . . .’

[24] Socialism Vs. Single Tax. A Verbatim Report of a Debate held at Twelfth Street, Turner Hall, Chicago, December 20th, 1905. Chicago: Charles H. Kerr & Co., [1907], pp. 4f.

[25] H. S. Foxwell, ‘The Nature of the Industrial Struggle,’ Economic Journal 27, pp. 323-27, and ‘The Financing of Industry and Trade,’ ibid., pp. 502-15).

[26] Capital III, p. 714, quoting Religion saint-simonienne, Economie politique et Politique (Paris: 1831, p. 98 and 45). Marx cites the 1831 compilation Religion saint-simonienne describing banks as enabling ‘industrious people’ to obtain financing for their enterprise, and Charles Pecqueur, Theorie Nouvelle d’Economie Sociale et Politique (Paris 1842, p. 434) urging that production be ruled by what the Saint-Simonians called the Systeme general des banques.

[27] Capital III, p. 711 fn. 116. Saint-Simon’s weakness, according to Marx, was that of many land taxers, namely, his failure to see the antagonism between the bourgeoisie and the proletariat. He blamed this on the Fourierist desire to reconcile capital and labour, which Marx believed to be impossible.

[28] George W. Edwards, The Evolution of Finance Capitalism (1938), pp. 16f.

[29] Lloyd George called them ‘the stronghold of reaction’ (see Thomas Johnston, The Financiers and the Nation [London 1934, p. 138]). Ernest Bevin, G. D. H. Cole and other members of the British Labour Party criticized banks in The Crisis (London 1931). See also Cole, The Socialisation of Banking (London 1931), and John Wilmot, Labour’s Way to Control Banking and Finance (London 1935). The Labour Party’s proposed solution was to nationalize the Bank of England, and in 1933 to recommend socializing the joint stock banks as well. Keynes was sympathetic in ‘A New Economic Policy for England,’ Economic Forum, Winter 1932-33, pp.29-37.

[30] I chart these variables in Michael Hudson, ‘The New Road to Serfdom: An illustrated guide to the coming real estate collapse,’ Harpers, Vol. 312 (No. 1872), May 2006):39-46.

[31] Hyman P. Minsky accordingly called this the Ponzi phase of the financial cycle in ‘The Financial Instability Hypothesis,’ Levy Institute Working Paper No. 74, May 1992, and Stabilizing an Unstable Economy (New York: McGraw-Hill Professional, 1986).

[32] Peter Drucker, The Unseen Revolution: How Pension Fund Socialism Came to America (New York: Harper & Row, 1976). See also Drucker’s Post-Capitalist Society (New York: HarperBusiness, 1993), p. 77: ‘Pension fund capitalism is fundamentally as different from any earlier form of capitalism as it is from anything any socialist ever envisage as a socialist economy.’

[33] I trace this campaign in ‘The $4.7 trillion Pyramid: Why Social Security Won’t Be Enough to Save Wall Street,’ Harpers, Vol. 310 (No. 1859, April 2005), pp. 35-40.

[34] Since September 2008 the US Federal Reserve has engaged in ‘cash for trash’ swaps, accepting junk mortgages at their nominal ‘mark to model’ values. The Treasury has printed bonds for their these swaps, and taken Fannie Mae and Freddy Mac onto its own balance sheet, giving public guarantees that ‘taxpayers’ will make good on all losses.

[35] Capital III, p. 700

[36] Capital III (Moscow: Foreign Languages Publishing House, 1958), p. 532.

De-industrialisation and socialism and the leisure class

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I recently had a chance to read a post by Michael Roberts on the idea that the increasing automation of manufacturing (or at least heavy manufacturing) would not lead to a leisure society as depicted by Keynes, or perhaps to some degree by the Zeitgeist movement. The post was excellent but I had some thoughts on it I wanted to add.

I agree that a post-industrial society out of capitalism that will bring us minimal work and much leisure time is a fantasy. The reason I say that is because they’re claiming it will come from capitalism itself. This is all wrong. As we can see this is not happening, Keyes was absolutely incorrect in his assumption that “non-industrial society would be achieved gradually as capitalism expanded globally and technology replaced heavy industrial work and people worked less hours and could use their time for themselves.” In plain bold reality this is not happening, people in both the First and Third World are both working longer hours. The only real exception are those in Western Europe, particularly Sweden and Norway. Sweden has been flirting with the idea of a six hour work day.

If we accept this ‘post-industrial leisure society’ out of capitalism to be true, then I think we’re ignoring the source of the creation of value. For people to have a leisure society there must be a greater generation of value to make it so leisurely. As we’ve seen in the past there can only be a leisure class when there is another class working to reproduce it. Yet, with the mechanization of labour, less overall value is generated leading to a decline in the rate of profit. This why manufacturing has been moved to the Third World, they have all the benefits of labour generating value with less expenditure on variable capital. This is what has allowed our daily commodity consumption to increase, the decreased price of them. The labour necessary to create such abundance (and a corresponding access to such abundance) is still in existence. It exists in the Third World which is why there has been such a drive to industrialize it. Our material existence has increased at the cost of greater exploitation in the Third World. Clearly we can see there is no forming ‘leisure society’. We’ve merely shifted the industrial burden onto others.

We have created a partial leisure (abundant social programs) for ourselves at the expense of super-exploitation of Third World workers

I think the main point to make here about refuting the ‘post-capitalist leisure society’ coming out of capitalism, is that capitalism does not produce for luxury satisfaction (a use-value), it produces for what can be collected in exchange (exchange-value). Anything that is produced is done to make profits. Essentially the claim by Keynes is that the capitalist firm will start producing without profits in mind. If there is no profit motive then they’re not going to invest in production. This is simply the antithesis to capitalism itself. It would seem Keynes is making the argument that capitalism will simply ‘wither away’. We cannot expect such a thing given that we know that such reorganizations of society have occurred through class antagonisms. Capitalism came into existence by other throwing the feudal system via the conflict between the feudal lords and the capitalists. Using their power, the capitalist class seized the means of production from the feudal lords and the small producer.

Marx laid out exactly what technology does in capitalism, quite contradictory to what Keyes believed.

“Hand in hand with this centralisation, or this expropriation of many capitalists by few, other developments take place on an ever-increasing scale, such as the growth of the co-operative form of the labour process, the conscious technical application of science, the planned exploitation of the soil, the transformation of the means of labour into forms in which they can only be used in common, the economising of all means of production by their use as the means of production of combined, socialise labour, the entanglement of all peoples in the net of the world market, and, with this, the growth of the international character of the capitalist regime.”

- Karl Marx, Kapital vol.1, 1867

People with Keynes’ idea place all of their faith in technology to solve problems and bring about a better world. Technology alone cannot do this; the application of technology is limited by the social relations that wield them. Technology in the hands of the capitalist class is innovation and design only for profits. In other words, it is developed for its potential exchange-value creation not its use-value to satisfy human need. You cannot simply throw technology at a society or a problem and expect it to get better. There has to be a corresponding transformation of people as well in order to change society. You cannot drop a tribesman into Wall Street office and expect him to understand capitalism. Those same productive forces are now just causing poverty with crisis and rising inequality.

“In the development of productive forces there comes a stage when productive forces and means of intercourse are brought into being, which, under the existing relationships, only cause mischief, and are no longer productive but destructive forces (machinery and money); and connected with this a class is called forth, which has to bear all the burdens of society without enjoying its advantages, which, ousted from society, is forced into the most decided antagonism to all other classes; a class which forms the majority of all members of society, and from which emanates the consciousness of the necessity of a fundamental revolution, the communist consciousness, which may, of course, arise among the other classes too through the contemplation of the situation of this class.”

- Karl Marx, The German Ideology Part 1, 1845

The same would have to happen to achieve this new society. Since the capitalist only produces for exchange-value, to begin production for use-value solely for the wider mass of the population, the means of production would have to be seized from them and their profit motive. In each of these cases when a radical reorganization has taken place, one class has over thrown another. The reason is because it’s necessary. No class simply disappears of its own volition, neither will the capitalist class. So if someone has overthrow them, who? The working class of course.

However as we have already seen, this industrial base in the Third World is a benefit to the workers in the First World. We could only have these high living standards as long as they are based on the resource theft and inequality with the third world. This means they would then present an antagonism to the First world.

As the article correctly points out there has been no dramatic loss of poverty. Poverty has merely been shifted globally. As we afford more commodities at a cheaper cost, the cost of living for Third World people has increased. A dollar a day doesn’t purchase very much at all. There is very much a high cost of living in the Third World.

Despite what many First Worldists claim there is a transfer of value between the First and Third World, one that benefits First World people. We have a higher living standard because of our theft of value. There is a claim by First Worldists that the cost of living in the Third World is lower so therefore that $1 or $2 a day they get is enough to live off of because a dollar is worth more there than it is here. As we’ll quickly see this simply is not the case, the cost of living is actually higher. Now this data comes from the LLCO which has been and still is the leader in the Third Worldist theory. They did some calculations and came up with these interesting facts. Their article was written in response to someone who made this very claim.

“[…] I’ve converted them to U.S. dollars using the current rate of 1000 cedis = $0.11.

“First of all, the minimum wage is 13,500 cedis per day. That’s US$1.48. In hourly terms, that’s $0.19 an hour for an 8-hour day. Compare it to a minimum of $5.15 an hour (more in some cities and states) in the U.S..

“A live chicken (broiler) costs 60,000 cedis ($6.58). It would cost less in the U.S., where a processed chicken would be less than $5 (and even a roasted chicken wouldn’t be $6.58). The minimum-wage worker in the U.S. could buy that chicken in less than an hour. In Ghana, one would have to work for 4.5 days to buy it.

“A bottle of beer (”Club”), 1 liter, is about 8000 cedis ($0.88). A comparable product might be 3 times as much in the U.S.. But we’re comparing half an hour to five.

“…[for bread] The most recent price given at that site is 6,000-10,000 cedis in 2003, when the exchange rate was about 8500 cedis to the U.S. dollar. Suppose that a loaf of bread costs about the same, $1 (9100 cedis at current rates), today. In the U.S., it is about twice as much for bread of good quality. The U.S. worker earns 2.6 loaves in an hour. In Ghana, about 2/3 of a loaf in a day.

“This article claims that a decent lunch at a “chop bar” would cost 30,000 cedis ($3.30), which is more than twice the minimum wage for a whole day. It says that no one can afford to rent a room (not an apartment, a room) and eat on that low wage. The author calls for raising the minimum wage to 25,000 cedis per day, which still would not be enough for lunch at a chop bar. The U.S. worker could have an extremely nice dinner in an elegant restaurant for his day’s wages of $41.20.

“[…] A gallon of gas costs 30,000 cedis ($3.36). In the U.S. it was $2.25 (20,250 cedi), but I’m going to make that $2.70 (24,300 cedis) because Ghana uses imperial gallons, which are about 20% larger than U.S. gallons. A U.S. worker can buy that gallon of gas in half an hour. A Ghanaian worker would have to work for more than 2 days to buy it.

“… [another source claims] rent as being $7/month. Sounds cheap? It’s for one room in a run-down old building. The kitchen and the bathroom are communal. Often even the room itself is shared. Such housing can hardly be found in the U.S. (and I bet the condition of the building in Ghana would be enough to get it condemned in the U.S.), but let’s compare housing as a percentage of wages. That’s what a Ghanaian earning the average got for 30% of his or her salary. A U.S. worker spending 30% of the minimum wage on rent would have $265, which is enough to rent a decent apartment with roommates in many places.”

- The High cost of living in the Third World, LLCO

Clearly the rightist line that a dollar a day near slave labour is not a boon for the Third World. Is it bringing them out of poverty given the facts? This certainly indicates that there is a global class divide. By this we understand it in the classical Marxist sense laid out by the article itself.

“It does depend on the class struggle between labour and capital over the appropriation of the value created by the productivity of labour. And clearly labour has been losing that battle, particularly in recent decades, under the pressure of anti-trade union laws, ending of employment protection and tenure, the reduction of benefits, a growing reserve army of unemployed and underemployed and through the globalisation of manufacturing.

“According to the ILO report, in 16 developed economies, labour took a 75% share of national income in the mid-1970s, but this dropped to 65% in the years just before the economic crisis. It rose in 2008 and 2009 – but only because national income itself shrank in those years – before resuming its downward course. Even in China, where wages have tripled over the past decade, workers’ share of the national income has gone down. Indeed, this is exactly what Marx meant by the ‘immiseration of the working class’.”

- De-industrialisation and socialism, Michael Roberts

The author is describing a global class divide forming, but not the one Marx had originally envisioned. Even from his own writing it comes across clearly. It’s at times like tese we usually see First Worldists deny the global class divide. I am making no assumptions about the author as I cannot claim to know his view on the subject. But from his own words it would seem as though the ‘immiseration of the working class’ seems to be really occurring in the proletariat in the Third World. Marx stated that the workers had nothing to lose but their chains, a phrase that has been taken for granted by First Worldists. Today First World people have a lot more to lose. Very tangible things like the social democratic benefits they enjoy: social assistance, welfare, food stamps, subsidized housing, abundant cheap commodities, etc.. The proletariat in the Third World has only their chains to lose as we’ve seen from their cost of living and the conditions thereof.

These benefits are purchased with the wages of imperialism. In a global redistribution of wealth the First World would lose out significantly, a dramatic drop in their living standard. A new iPhone every year, a new television and other such luxury commodities would be lost in such a transfer of wealth. The average working class person, let alone the middle-class, would be aghast at their loss of value and privilege. All First Worldist groups platform on the idea that workers would gain more form revolution, a more equitable redistribution of wealth in society. In other words they act on the premise of appealing to material incentives. But in a global redistribution of wealth no such thing would take place. The First World would lose out tremendously. They claim however that global revolution would bring up the Third World to their level, this is however false. It is estimated that for the entire world to live at American middle-class level and its rate of consumption it would take three whole planet Earths of resources to sustain it. Obviously this cannot happen, a great deal of the world’s resource consumption would have to be redirected by to the Third World to those who need it, and most likely produced it.

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Sources:

De-industrialisation and socialism, Michael Roberts blog
http://thenextrecession.wordpress.com/2014/10/21/de-industrialisation-and-socialism/

Karl Marx, Kapital vol.1, 1867

Karl Marx, The German Ideology Part 1, 1845

The High cost of living in the Third World, LLCO
http://llco.org/the-high-cost-of-living-in-the-third-world/

The First World Self-Centeredness of the Ebola Crisis

•2014 10 18 • Leave a Comment

What happens when you combine American hyper-individualism with a lack of education and critical thinking skills? You get conspiracy theorists, a largely American phenomenon. It should by no means be considered limited to the United States the First World in general produces it. As the Third World suffers from the ongoing Ebola crisis First World peoples are finding ways to make themselves out to be the victims.

While travelling through the internet it’s hard not to come across conspiracy websites or their articles. This one I found spoke quite loudly, and prominently displayed the phenomenon I wish to discuss. “Ebo-Lie: Man Living In Ghana Confirms Ebola Is A Hoax” is an article by Truth Seeker Daily that claims there is no Ebola crisis based on the testimony by one man:

“People in the Western World need to know what’s happening here in West Africa. THEY ARE LYING!!! “Ebola” as a virus does NOT Exist and is NOT “Spread”. The Red Cross has brought a disease to 4 specific countries for 4 specific reasons and it is only contracted by those who receive treatments and injections from the Red Cross. That is why Liberians and Nigerians have begun kicking the Red Cross out of their countries and reporting in the news the truth. ”

The article goes on to describe why the Red Cross would deliberately infect people with such a contagion. Essentially with their argument, without even know it, is imperialism. Yes, they claim this ‘hoax’ of a disease in Nigeria, Liberia, and Sierra Leone is all for the purpose of stealing Nigerian oil and Sierra Leone’s diamonds. It goes on to specifically states: “For the past 4 months they have been on strike, refusing to provide diamonds due to horrible working conditions and slave pay. The West will not pay a fair wage for the resources because the idea is to keep these people surviving on rice bags and foreign aid so that they remain a source of cheap slave labor forever. A reason was also needed to get troops on the ground in Sierra Leone to force an end to the diamond miners strikes.”

This is imperialism; the article is almost giving the definition of it. But when they lack critical thinking skills they resort to terrible delusions of conspiracy rather than the simple economic profit motive. Why? Because in the minds of these people capitalism cannot do anything wrong, the freedom to buy things is what freedom really is. So since capitalism can’t do anything bad, it must be some kind of conspiracy by some party somewhere. Capitalism would never demand minimum expenditures for maximum profits right?

In order to justify this position they begin to nitpick for something that doesn’t make sense to them in order to find something to support their erratic view. Take for example this picture/video the article claims is proof that Ebola doesn’t exist as a crisis:

ebola tard

“Oops. Guess they forgot the cameras were rolling,” is what the article claims. If this was a real outbreak of a virus (in their view) then this guy would be nowhere near the victim. Of course what this author fails to understand is how Ebola is spread, through contact and bodily fluids. The victim is encased in enough protective gear that this guy is in no danger. Not to mention he doesn’t touch the victim or come less than a few feet from them. The author has zero ability to simply rationally look at the situation. They’ve built up these insane arguments, why? Lacking rational reasoning skills, they assume it all about them; this must be a plot against them.

The one thing this article speaks to the most is the narcissistic mentality of First Worlders, particularly the ultra-patriot conspiracy types. With this ongoing crisis in Africa where thousands have died from a disease, these conspiracy-minded individuals still find a way to make it all about themselves. This situation is about the insufficiently checked Ebola virus that is causing untold damage to economic and human life. This is about the failure to contain a serious illness that has the potential to kill many, many people. We are witnessing the truth behind capitalism and its failure to help the poor, its failure to develop a vaccine. Even in the bald faced of this reality First Worlders still find a way to make it about themselves rather than recognize the real problem.

Even as thousands die miserable deaths, the First World conspiracy mentality first asks the question: Is this about me somehow? Their immediate reaction is to think of some kind of plot where they can be seen as victims. Their first thought is not how to help people. All tragedies in the world must be related to them somehow; even if they happen in a far away land they can’t pronounce or even heard of before. It must always come back to them because of their self-centered individualist view. This kind of Randian-style individualism is a prime component in the production of this self-victimization. Ebola must be about them and not about the people who are suffering.

Don’t be fooled, this is by no means contained to the conspiracy crowd. Both Democrats and Republicans have taken this crisis and made it about themselves and their own ambitions. Republicans have taken to the media to claim this is all President Obama’s fault. Unceasingly they claim Obama has placed the nation at risk with the open boarders policy. The irony being that Americans citizens are the ones who have brought the illness to America. The outbreak has nothing to do with South American refugees and migrants, yet they use it to push their racist agenda. Meanwhile a few Democrats have attempted to blame Republicans for the outbreak by trying to link Republican demanded budget cuts. For them there is almost nothing beyond political point scoring among the competing interests of the capitalist class.

The fact these groups have twisted a real humanitarian crisis for their own need is reprehensible.

Here is a good example of the First Worldist mentality surrounding deaths from Ebola. How many people a year die from malaria? According to the World Health Organization, in 2012 there was “an estimated 207 million cases of malaria”. The number of people who have died is estimated to be about 627,000. This estimate has an uncertainty range of 473,000 to 789,000. This means there is a possibility of 800,000 people dying of malaria last year. The reason we don’t know for sure is because “90% of all malaria deaths occur in sub-Saharan Africa.” In addition, in 2012 “malaria killed an estimated 482 000 children under five years of age. That is 1300 children every day, or one child almost every minute.”

The deaths from Ebola have been relatively insignificant when compared to how many have died over decades from malaria. Yet there seems to be no such outrage against this disease which is far more common. The reason? In my opinion it is because malaria isn’t going to spread to the First World and kill hundreds of thousands. It affects “those people over there” not us here. Once that suffering, or at the very least some kind of threat has the potential of making it to First World people, then they get concerned. As long as what exists doesn’t affect their daily life they care nothing for the suffering that goes on. Once it merely has the potential to affect them that is the moment when we must run to the media and demand action.

Death and disease of this kind is expected to happen in these places. It is not expected to happen here. Stories and facts about disease, malnutrition, death in conflicts are the background noise of the First Worlder’s life. It’s something that happens like the weather, that’s “just what it’s like over there”. This is a reality they’ve come to expect as always being and always will happen. The suffering of fellow human beings in this part of the world is nothing more the “natural” way of things, it doesn’t even warrant any real intervention on. This is the real face of First Worlders, they care nothing for those they stand above in the capitalist-imperialist structure.

What happens when the media scare begins? The First World exercises its economic power to supply a portion of the social product to those who are trembling in a paranoid fear and not those actually suffering. First World people run out and buy all kinds of survival gear fearful of a moment that isn’t going to come. They buy all the chemical suits, masks, emergency food and all other manner of commodities. This happened with every single Chicken Little incident: swine flu, the millennium bug, SARS and countless others. Meanwhile those actually dying of Ebola can’t get access to all the equipment supplies and other commodities they need to help stem human suffering, and you know stopping the disease itself.

The market in its inhuman functioning of supply and demand determines that these products go to those who literally don’t need it instead of those who desperately do. Every commodity has a two-fold value contained in it. It has a use-value and an exchange value which are in contradiction with each other. Use-values vary wildly from commodity to commodity, while exchange-value is usually uniform and qualitatively identical. A commodities’ use -value is what you do with it, how you experience it. The exchange-value can be described as what you have to pay for it, so ‘how much’ is it? This ‘how much’ affects our ability to obtain and utilize the use-values we want or need to have.

contradiction

The exchange-value does not dominate, but can affect the creation and distribution of use-values. When we create commodities for the exchange-value, not their use-value we alienate those products from where they are needed to where they are profitable. The fact any of these use-values ends up where they are needed most is merely incidental. People of the First World exercise their economic power draining wealth and resources away from those who desperately need it most. Charities go out and beg for money to collect enough social value to get that social product to those who actually require their use-values. As the First World steals wealth from the Third World they steal their ability to help themselves. No good comes from First World theft and profits at the expense of Third World peoples.

This is prime reason why the poor of the Third World should never count on the support and assistance of First World people in their fight for liberation. The First World IS the problem.

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Sources:

Ebo-Lie: Man Living In Ghana Confirms Ebola Is A Hoax! , Truth Seeker Daily
http://truthseekerdaily.com/2014/10/ebo-lie-man-living-in-ghana-confirms-ebola-is-a-hoax/

Factsheet on the World Malaria Report 2013, World Health Organization
http://www.who.int/malaria/media/world_malaria_report_2013/en/

 
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