From Marx to Goldman Sachs: The Fictions of Fictitious Capital

•2014 10 30 • Leave a Comment

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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.

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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

•2014 10 24 • Leave a Comment

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.

* * *
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.

* * *
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/

Why “Real” Capitalism Can Never Exist

•2014 10 15 • Leave a Comment

ancap symbol

Introduction

We’ve often heard the phrase “that’s not real capitalism” used as a denial for all the undemocratic, horrible, inhuman things capitalism does. Anytime capitalism does something horrible the excuse is made that a “real” free market wouldn’t have done it. This is usually accompanied by all manner of false claims about how the government is actually responsible. After that the usual prefect knowledge fallacy is used to claim that people would by subjective preference not allow it to repeat. In truth these horrible things are the very essence of capital itself and how it operates. Capital cannot be separated from how it functions. This dishonestly comes from “anarcho”-capitalists and sometimes conservatives.

To explain why “real” capitalism can never exist I will be using Marxist economics. The reason being there is a phenomenon, the nature of capital itself, which bourgeois economics doesn’t acknowledge the existence of. The reason why is because it has no way of analyzing it. In the makeup of bourgeois economic theory there is no tool available to explain such phenomenon because capital (in their view) rest on particular preconceived notions about capital itself. One of those is assuming that capital has no particular features to it, that it merely functions as the market dictates.

In bringing this to you I’ve chosen the basis for my argument four contradictions of capital. Having just recently read “17 Contradictions and the End of Capitalism” by David Harvey, there is a ton of valuable information regarding it. These four contradictions are all that is needed to show that this utopian notion of a pure “real” capitalism espoused by Austrian economics is nothing but a fantasy.

Contradiction 1: Use-Value and Exchange-Value

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.

The exchange-value does not dominate, but can affect the creation of use-values. David Harvey uses the example of a house. We want to have a particular experience with a house, but we may not have all the money needed to have everything we want in it. That money (exchange-value) is made up of labour costs, raw materials, constant capital, and a portion for profit. The exchange-value of the house has affected our ability to create a use-value.

Houses are created for their exchange-value; the only thing the creator is interested in is what exchange-value he can get for it. The actual creation of a use-value is a means to that end. The builders are looking for a potential exchange-value not to fulfill a desired use-value. Exchange-value takes the driver’s seat in the creation of housing, a human need.

During the housing boom people could not get a hold of the use-value of a home without taking on a huge debt. Once the housing bubble popped those houses became worth less than the amount of money that was paid out to obtain them. This is called a mortgage being ‘underwater’ and a lot of houses are this way right now as a result. Many of those people could no longer afford their homes, so they ended up losing them when payments were not made. The reckless pursuit of exchange-value eventually destroyed the ability of people to obtain and then eventually maintain the ownership of the home’s use-value. When we take into consideration the phenomenon of housing speculation we begin to see how far the exchange-value of a house gets from its use-value, and how much it comes into contradiction with it.

The house is no longer about the use it has or the need it can fulfill, it’s about how much exchange value can be obtained for it.

Contradiction 2: The Social Value of Labour and Its Representation by Money

The exchange-value is a measure of value, the ‘how much’ it’s worth requires a measure. That measure is called money. Money serves several functions, as a measure of value, a store of value and as a means of commodity circulation. How does it proliferate in the political and economic sphere and how does it seem to make the economic world go round?

Money is the means by which someone can make the claim on the product of someone else’s labour which is used to produce the goods and services of society. Capitalism is a society in which we are heavily reliant on other people’s labour for the production of the things we need. All things in society are produced by someone somewhere where labour is exchanged for money. It is the social value of all that activity of all that labouring, that underpins what it is that money represents. Thus, ‘value’ is the social relations between all the labouring activities of the globe.

This social relation is ‘invisible’ to us because we don’t see each other, we see our products instead. This relation creates moral and ethical values that have real objective consequences. ‘Value’ is what makes some commodities cost more than others. These differences in values have nothing to do with their character as use-values (other than the fact that they must all be useful to someone somewhere). It does have everything to do with the social labour involved in their production.

This value is invisible, but it needs a physical existence in order to be used. That physical existence is money. Money is the material manifestation of value and is a representation of that value. In money there is a gap between its physical representation and the social value it represents. Harvey uses the example of a map. It can do a good job of encapsulating the relative value of social labour in some respects, but in others it fails to do so, even misrepresenting it. This is just like the map. It can show you the way through a mountain, but can never describe everything about the passage, or about how hard it is to climb. This disconnection between money and the value it represents is the second contradiction of capital we’re talking about.

Money is inseparable from, but distinct from the social value that makes up its value. Money hides the immaterial social labour (value) behind its material form. What we see is the representation of money and not the reality of that value which money represents. This causes us to end up interacting and believing in something that is false. Just as we can’t see social labour in a commodity we cannot see the nature of social labour in the money that represents it. It is important to note that money cannot be separated from the value it represents. Value cannot exist as an immaterial social relation without money, because the commodity exchanges it facilitates give it this power. This value cannot exist without the physical representation of it and the act of exchange. Money and value are in a dialectical relationship.

This contradiction in money spawns many more contradictions depending on what form that money takes. I will go into some examples of the contradictions in money.

Commodity money (like silver and gold) are rooted in objects with physical qualities. Coins, paper, fiat money and computer digits are merely symbols. The advent of credit money turned everything on its head. Credit money, or money capital, is as good as a capital and it has a use-value because it can be used to generate more value (profit or surplus-value). The exchange-value of money capital is the interest payments you get from it. In the end we get a value put on something that is supposed to measure value. This is what makes money so unique. You cannot do this with other standard measures. You can purchase a kilo of potatoes, but you cannot purchase a kilo itself. Money can be bought and sold itself as money capital, i.e. you can buy the use of $100 for a certain amount of time.

Money began as gold and silver. These precious metals were a good choice because they were desirable, their supply was limited and they didn’t perish via oxidization. The supply of the metals was inelastic which meant they retained their relative value against all other commodities over time (except in times like the California gold rush). Finally the properties of gold are known and can be calibrated. This keeps it stable as opposed to using some other commodity where consumer preference might interfere with it. The properties of gold are used to represent the immaterial value of social labour.

However it’s pretty inconvenient to use a money commodity on a daily basis for small transactions like purchasing a cup of coffee. Can you imagine what it would be like to dole out an exact amount of gold for a Star Bucks coffee? Eventually these were replaced by much more useful and flexible forms of token money like coins and currency notes. Now something important happened here. Money was supposed to give a physical form to the immaterial social labour, now it is represented by a symbol. Representations of money eventually ended up as numbers on a computer.

The elimination of the money commodity and the rise of the fiat money created a whole new set of circumstances. Commodity money was relatively scarce and had a relatively steady supply. Now that money was numbers on a computer, there is theoretically no limit to the amount of money that could be created. Except of course the limits placed by state regulation. The rise of moneys of account and credit moneys place the power of money creation in the hands of individuals and private banks rather than state institutions. State regulation on this is a desperate attempt to manage the money system.

All of these oddities arise because the three functions of money have different requirements if they are to be carried out. Commodity money is good as a store of value but it is highly inefficient for use in commodity circulation. Coins and paper money are good as a medium or means of payment, but they’re not great as stores of value long term. Fiat currency issued by the state with compulsory circulation via taxation, are made subject to monetary policy. These functions themselves are not consistent with each other, but they are also not independent. If money couldn’t store value even for a moment then it would be useless as a means of circulation. But if we’re only looking for a medium circulation, then fake money can do just as good a job as ‘real’ money like silver coins. This is the very reason why gold and silver (stores and measures of value) require coins, paper money and credit money if the circulation of commodities is to remain fluid. Thus we end up with representations of representations of social labour as the basis of the money form.

It is money that allows us to take a commodity to the market and label it with a price. This labeling comes with another set of contradictions. That asking price may or may not be realized depending on the conditions of supply and demand. There is not an immediate correspondence between the singular price and generality value. So what happens with price in real life? As the market determines the price, that price is able to diverge from the value of the commodity. Because of this capitalists try to take advantage of various fluctuations in the market (if not outright cause them), monopoly for example. This can make prices completely diverge from the unified standard of value in production. This quantitative divergence between prices and value presents a problem. Capitalists respond to prices and not values because in the market they only see prices and have no way of seeing the underlying value. As the prices diverge from value it sends misleading information about the commodity to the capitalist which he has to respond to as opposed to the underlying value.

You can put this price tag on anything anywhere whether or not it is a product of social labour. You can put it on a piece of land and extract a rent for its use. I can make all kinds of money via unethical and illegal acts. I can then take that money and use it to purchase a congressman legally through campaign donations like all other big businesses do. There isn’t just a quantitative, but a qualitative divergence between market prices and social values. You can create a ton of fictitious capital – money capital, for activities that generate no value at all, but they are extremely profitable via interest. State debt is used to fight wars funded through fictitious capital. People lend to the state and get a return through interest paid out of tax revenue even though no value was created. Quite the opposite it was destroyed.

Here we face another contradiction of money. Money is supposed to represent the social value of creative labour. This money takes on the form of fictitious capital that circulates eventually ending up in the pockets of financiers and bondholders via the extraction of wealth from all kinds on non-value creating activities. A prime example of this is the housing speculation that blew up in the market’s face in 2008.Betting on mortgages and creating collateralized debt obligations don’t create any value, yet there was an astronomical amount of fictitious capital created.

In money we take a particular use-value (the metal gold) and use it to represent exchange-value in commodity circulation. What we are doing is taking something that is inherently social (social value) and having it represented (in money) in a way that can be appropriated as social power by private persons. This ability to take social power and have it held by a private person is the driving force of all the horrible human behaviours of capitalism. The lust and greed for money power is inevitably the central feature of the body politic of capitalism. All the fetishistic behaviours and beliefs center on this. The desire for money as social power becomes an end in itself which is what warps the neat supply-demand relation of the money that would be required to simply facilitate exchange. This fact is what destroys the capitalist myth of the rational market. This is why there can never be a “truly free market” and why “real” capitalism has never and can never exist.

fraud

Contradiction 3: Private Property and the Capitalist State

Buyers and sells meet each other in the market to exchange money for commodities. This requires that both the commodities being sold and the money that is purchasing them be held by people who have the exclusive right to them. Exchange-value and money both presuppose the existence of individual property rights over both commodities and money.

To understand this contradiction we must first understand the difference between individual appropriation and private property. When you use a commodity you are appropriating it, you eat food, you ride a bike or you use a computer. The use of these things precludes anyone else from using them while you are. There are some things where the use is not exclusionary. A television show is a good example, you watching it does not prevent others from watching it. Then there are other goods called ‘public goods’ that are held and used in common, typically with some restrictions. A public road can be used by anyone, but there’s only a certain amount of people that can use it at a time, and there are limits to what you can do on it. For many processes and things, however, an exclusive relationship exists between the user(s) and the thing being used. This is not the same thing as private property.

Private property is the establishment of an exclusive ownership right to an object or a process whether or not it is being actively used. The very basis of commodity exchange is the presupposition that the commodity produced is not actively needed or wanted by the person who is offering it for trade. Marx defines a commodity as something which has no use-value for the person who produced it, but instead produced it for the purpose of exchange. It is produced for someone else to use. Private property rights are what give someone the right trade away that which is owned. The difference emerges from what are called usufructuary rights (rights that pertain to active use) and exclusionary permanent ownership rights.

To explain the difference Harvey goes into the history of colonial Whites and First Nations peoples. Before European colonization First Nations people were nomadic, they would follow animal herds or move from place to place as food was used up. This nomadic life was brought to an end by the colonizers. This land that was traditionally open for them to use was now the private property of someone who had an exclusive right to it whether they were using it or not. This was the death of the way for life for indigenous North Americans. We see the same thing happening in Africa today. People’s customary and collective resource rights are being converted into an exclusionary private property rights system which is being done via what many people believe to be fraudulent agreements. These agreements take place between village chiefs (who have customarily held the land in trust for their people) and foreign interests. We generally refer to this practice as a ‘land grab’ by capital and foreign interests with the purpose of gaining control of Africa’s land and resources.

Private property rights presuppose a social bond between something that is owned and a legally defined person who is the owner of that something. A newer advancement in this legal framework is the advent of corporations they are defined as legal persons who have the same right to own private property. This social bond is the basis for bourgeois constitutions and their ideas of individual human rights. The legal framework becomes the protection of those rights. This right to ‘private property ownership’ is the focal point of nearly all contractual theories of government.

What private property rights are depend on the particular state power and legal system that codifies, defines and enforces the contractual obligations attach to both private property rights and the rights of legal individuals. This is usually comes with compensation for this service via monetary taxation agreements. Now between the usufructuary and private property rights are several different degrees of mixture of the two which are defined in a social organization or law. This does not necessarily make them open to all people, but they do presuppose sharing and cooperative forms of governance between the members of the social organization. As these common ownership rights were eliminated in favour of a system of individualized private property rights backed by state power, it built the basis for a society based on exchange relations and trade. This is the form consistent with capital circulation and accumulation.

An individualized private property rights system is the very basis of what capital is all about. Capital, exchange-value, and money cannot exist without the legal infrastructure that is private property. This legal infrastructure is fraught with contradiction. This is so because the contradictions of use-value and exchange-value, money and social labour spill over into the individualized private property rights system.

The first contradiction should be the most obvious, the free use of private property as a right is sustained and given authority by the power of the state. This state provides the collective exercise of regulatory power to define, codify and give legal form to those rights and the social bond that holds it all together. Legal definitions of the individual and, hence, a culture of individualism arose with the proliferation of exchange relations, the rise of monetary forms and the evolution of the capitalist state. Some state power is needed to sustain those individualized property rights and laws that protect that individual liberty. This same state must also have a monopoly over the legitimate use of force to resist any opposition to individualized property rights or transgressions against said property. The centralized power of the state is used to protect a decentralized private property system. The advent of corporate personhood essentially takes private property and makes it collectively owned via the collective ownership of the corporation.

The society of market exchange is fraught with problems that require state intervention. There are problems with the provision of collective and public goods (such as highways, ports and harbours, water and waste disposal, education and public health). It also requires a state to not only administer but also secure these institutions via police and military forces funded through taxation.

Most importantly the state exists in order to organize the various social groups in society. Different interests, classes and all other manner of divisions exist in capitalist society. Many capitalist states present democratic institutions and mechanisms of governance to give the appearance of elicit consent as opposed to outright coercion and violence. Of course we know that any democracy under capitalism should be properly recognized as bourgeois democracy, a democracy for the capitalist class not the rest of us. It is however the most efficient and effective means of governance in capitalism. The problem is this leaves people with the false impression that there is an inherent bond between democracy and capital accumulation. The real genius of bourgeois democracy is how to bridge all the different tensions and social views to create a form of governance that protects the desire for individual liberty and freedom.

Market failures are another reason why states are useful. Externality effects are also a problem, the things the market does that causes negative results. The best example is pollution where firms and individuals do not pay for deleterious effects on air, water and land qualities through their actions. These require collective efforts to combat as opposed to individual action. Property is subject to externality effects, the exchange value of housing, for example, is captive to externality effects since investment or disinvestment in one house in a neighbourhood has an effect (either positive or negative) on the value of houses in the immediate vicinity. One form of state intervention designed to cope with problems of this sort is land-use zoning.

Most people agree that there should be some kind of state or other forms of collective action to control or regulate activities that cause great negative externality effects. In this case the state has to trespass onto private property rights in order to protect other private property rights. The question faced by every society of this type is: “How far should the state go and to what degree that encroachment might be based on coercion rather than the building of consent. In any case, the state has to have a monopoly over the legalized use of violence to exercise such functions.

Contradiction 4: Private Appropriation and Common Wealth

The common wealth created (use-values) appears in nearly infinite forms. Every commodity that exists from utensils to the buildings of cities, to food is commodities. The private appropriation and accumulation of this common wealth and the social labour contained in it occurs in two ways. The first is the extra legal activities like robbery, thievery, swindling, corruption, usury, predation, violence and coercion, and unethical practices in the market. The second is individual accumulation through legal measures of the ‘normally’ functioning capitalist system. In bourgeois theory the illegal acts, or black market, or even unethical practices in legal operations don’t count as ‘real capitalism’. Their premise is that these acts are external to private accumulation and thus ‘don’t count’.

This is of course completely false, all these illegal market transactions are the accumulation of social value just as legal transactions. How can this be denied when illegal arms and drug trafficking play such a huge part in the global economy? How can they even claim this when those unethical practices were such a huge part of the global collapse of capitalism in 2008?

Aside from this the very fact that an economy based on dispossession lies at the heart of what capital is foundationally about. The direct dispossession of the value that social labour produces at the point of production is but one (albeit major) strain of dispossession that feeds and sustains the appropriation and accumulation by private ‘persons’ (that is, legal entities including corporations) of large portions of the common wealth.

Bankers have no moral qualms about where their profits and bonuses come from. That money may come from lending money to landlords who carry exploitive rents, merchants who price gouge poor people for food, credit card companies, mortgage foreclosures, or deadly worker exploitation. Private appropriation is infinitely creative when it comes to collecting common wealth. The higher wages workers may get through class struggle in the workplace can all too easily be snatched back by the landlord, the credit card companies, the merchants, to say nothing of the taxman. Bankers use all manner of financial trickery to collect immense profits. Even when they get caught it is, for the most part, the bank (that is, the shareholders) who takes the hit and not the bankers themselves.

At the heart of this process of private appropriation of the common wealth lies the contradictory way in which, as we have seen, money represents and symbolizes social labour (value). The fact that money, as opposed to the social value it represents, is inherently appropriable by private persons means that money (provided it functions well as both a store and measure of value) can be accumulated without limit by private persons. And to the degree that money is a repository of social power, so its accumulation and centralization by a set of individuals become critical to both the social construction of personal greed and the formation of a more or less coherent capitalist class power.

The true ‘evil’ nature of capitalism, the one that religion speaks of can be found here where the distinction between value and price created a gap between the realities of social labour on the one hand and the ability to hang a fictional price label on anything, no matter whether it was a product of social labour or not. Anything can be sold for money even uncultivated land and conscience. The gap between values and price is not just quantitative (where the market affects price) but also qualitative (in that prices can be put on immaterial traits as honour, allegiances and loyalties). This gap has grown larger as capital has expanded in range and depth over time. This phenomenon was theorized by Karl Polanyi, an émigré Hungarian socialist economic historian and anthropologist. He wrote The Great Transformation in 1944 where he gave his ideas.

The markets for labour, land and money are, he pointed out, essential for the functioning of capital and the production of value but they are not commodities themselves. Labour is another word for human activity which goes with the phenomenon of life itself. It is not produced for sale, but for other reasons that cannot be detached from the rest of the life or be stored or mobilized. Land is another word for nature, which is not produced by man. Actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance. None of them is produced for sale. The commodity description of labor, land, and money is entirely fictitious.

Conclusion

As we can see the reason why “real” capitalism doesn’t function the way Austrian economics claims it does is due to the inherent contradictions within a system of capital accumulation itself. The inherent failing of Austrian economics is in its denial that the existence of money as a representation of social value allows that value to be perverted. Money as a representation of value means, value is no longer something that is created of human labour and creativity. It is a commodity itself, money capital, which turns the product of labour into something alien to its producer, a form that can and must be appropriated by others.

Breitbart Right Wing Victim Complex Exposes Own Hypocrisy

•2014 10 11 • Leave a Comment

rush-limbaugh

Sometimes hypocrisy is so glaring it can almost physically strike you. It is of course no surprise to any of us that right wing thought is predicated on hate and a self-victimization. The right wing prefers to define themselves by what they hate as oppose to what they support. Of course they support various things; it’s just that the support always takes a back seat to attacking things they hate. When you combine this with their never ending struggle to make White First World heterosexual males the world’s most oppressed group, you end of with an ideology that is blind to its own hypocrisy.

As some may know there has been a grass roots campaign to have the Rush Limbaugh show taken off the air for its racist, sexist, fascist, and homophobic content. It’s a small deal where activists call places saying they won’t listen to his show and tweet about him using the hashtag #StopRush. All of which is pretty mild typical weak liberal activism. The only problem is that it is beginning to work. The consequences for his show have been serious. In August he lost three radio stations in two weeks that were carrying his broadcast. Advertisers are dropping him as well. This is leaving a good deal of his operating budget coming from Koch Brother-owned organizations like FreedomWorks and Heritage Foundation. Over 3,000 advertisers have abandoned him via protests, boycotts, and petitions.

In an effort to defend Rush Limbaugh, Breitbart writer Ben Shaprio penned an article where he decries how an activist from the “Stop Rush” campaign has fantasized about torturing Rush Limbaugh. He points to a piece of fiction written by Matt Osborn a big name in the “Stop Rush” campaign. In it he details violent thoughts he’s had about torturing Rush Limbaugh. Here is the sample that Breitbart gave.

“(He) objected to our masked, armed entry, but was immediately subdued with the help of a taser. We gagged, hooded, and handcuffed the fat bastard before levering him into a wheelbarrow with scrap two-by-fours.”

“Underway, the three of us in back took turns kicking (him) in his stomach with our combat-booted feet (Top using only his solid prosthetic foot)…”

On the whole the work is quite odd even disturbing in some places. Regardless, it is only a work of fiction. I’m sure this bothered Limbaugh to some degree. Is this healthy? I doubt it. But who among us have not hated someone so much we’ve fantasized about torturing or killing them? Probably very few. Instead I’d like to look at the reality of torture as it exists in the real world, not in the works of an activist’s imagination. That reality is as follows, Rush Limbaugh has been a big supporter of using torture in the real world. You’re probably familiar with his ridiculous defense of such torture like the kind that took place in Abu Ghraib it back in 2004.

“Exactly my point. This is no different than what happens at the Skull and Bones initiation, and we’re going to ruin people’s lives over it, and we’re going to hamper our military effort, and then we are going to really hammer them because they had a good time. You know, these people are being fired at every day. I’m talking about people having a good time, these people. You ever heard of emotional release?”

Yes I’ve heard of emotional release, and for some people that is creative writing. The difference between the fictional torture of a person and the systemic actual torture based on religion and national origin for the purpose of false information gathering and pleasure should be obvious. One is a questionable emotional release while the other is a real life act of systemic oppression against a population for the purpose of plundering a countries’ wealth. If this difference is not visible to you, then perhaps it is you who needs to take a look at yourself.

In true right wing manner Breitbart has managed to take a man who has supported some of the most inhuman acts of the global War on “Terror” and make him into a victim of it, to a lesser degree, in a work of fiction. In a true pathological mentality they seek to make themselves the victims as justification for their continuous attacks upon minorities, women, and whoever else. Those who wield the most power in society must make themselves out to be the targets in order to justify their disregard of criticisms of their unjust power.

I’m sure in the mind of Ben Shaprio, Rush Limbaugh really is a victim. That alone says it all. It is only the First World mentality that could possibly see a White First World male millionaire as victim, not the innocent poor Third World people that Limbaugh championed the torture of.

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Sources:

‘Stop Rush’ Activist Fantasized about Torturing Limbaugh, Brietbart
http://www.breitbart.com/Big-Government/2014/10/07/Stop-Rush-campaign

Fading Rush Limbaugh Loses 4 Radio Stations In Three Weeks – Protest Movement Closing In, Daily KOS
http://www.dailykos.com/story/2014/08/22/1323651/-Another-One-Rush-Limbaugh-Loses-3-Radio-Stations-In-Two-Weeks-Boycotters-Closing-In

Are the Koch Brothers Funding Rush Limbaugh?, Daily KOS
http://www.dailykos.com/story/2012/03/01/1069875/-Are-the-Koch-Brothers-Funding-Rush-Limbaugh

Rush Limbaugh Must Be Terrified. He’s Now Releasing False ‘Secrets’ About StopRush & Protestors, Daily KOS
http://www.dailykos.com/story/2014/09/24/1331992/-Rush-Limbaugh-Must-Be-Terrified-He-s-Now-Releasing-False-Info-On-StopRush

Regarding the Torture of Others, New York Times
http://www.nytimes.com/2004/05/23/magazine/23PRISONS.html?pagewanted=3&ei=5007&en=a2cb6ea6bd297c8f&ex=1400644800&partner=USERLAND

Woman Sues Sperm Bank after Mixed-Race Child Birth

•2014 10 06 • Leave a Comment
The unhappy mother Jennifer Cramblett

The unhappy mother Jennifer Cramblett

A rather strange story is developing out of Ohio. A White lesbian couple has decided to make a legal filing after experiencing difficulty raising a biracial child which they had from donated sperm. The couple went to the Downers Grove-based Midwest Sperm Bank in 2011 seeking sperm for an artificial insemination. While the pregnancy took hold, it was discovered that the woman was given the wrong sperm. The incorrect sperm came from an African-American man when they had requested a White man. In 2012 the couple was made away of the mistake (which was apparently caused by faulty hand written labeling) but they only now have decided to file suit. The claim which be found here is for ‘wrongful birth’ and ‘breach of warranty’. They claim to have suffered emotional and economic losses.

The sperm bank acknowledged the error and refunded the money of the couple. The couple was aware of the biracial status of the baby, yet only now they have a problem with it. They claim they are ill equipped to raise a child who is mixed race. They cite difficulties with their neighbourhood, getting the child’s haircut, and ‘limited cultural competency relative to African Americans’ and is undergoing a ‘steep learning curve.’ This probably means they don’t know how to raise the baby as African-American.

They say they love the baby but the mother claims she ‘lives each day with fears, anxieties and uncertainty about her future and [the baby] Payton’s future.’ She doesn’t appear to have been too specific about what those uncertainties are.

I don’t believe for a second that this lawsuit is really about a mix up of sperm. The women have known since 2012 that the wrong sperm was used. If it wasn’t an issue for them back then, I don’t see what has changed in this regard now. She was aware of the mix up since before the child was born. If this was about the mix up they would have done it right from the beginning and not wait two years. I think what has happened is some lawyer or relative has gotten into the woman’s ear and convinced them to take it to court because they could score a lot of money.

In this case I definitely believe that the parents are racist. They cannot claim that this is not about race when race is entirely what their complaint is about. Their daughter was from donated sperm which was implanted into one of the women. The child is theirs; it’s not like a mix up at a hospital where the wrong child was taken. There are no known health problems, nothing inherently defective at all it’s merely about the child’s race. This is still biologically her child regardless of its skin colour.

I find their excuse for filing the lawsuit now to be entirely phony. While I’m sure the difficulties they claim may very well be true I sense some dishonesty. The parents claim they want money because it has been difficult to raise a biracial child in a predominantly White area. Essentially the area they live in is racist. I think this is what they are really saying. If this is a reason to need money then perhaps they should be suing the neighbourhood for being racist. The racist attitudes where they live are not the fault of the sperm bank. The woman complains that she has to take her daughter to a hair stylist far away to deal with her ‘unique’ hair. I think is probably isn’t true. If she wants specialized hairstyles that are not common to where she lives, then yes she should have to go somewhere to find people who know them.

This child will grow up feeling unloved knowing that her mothers didn’t really want her due to racism. We know the child will find out about this whole incident, it will be impossible to keep this information away from her. This child will one day know that its parents didn’t want her merely because of the race she had no choice over. What would it be like knowing your own parents were racist against you? How difficult will it be to live with the knowledge that your parents disliked the race you are? I see a lot of self-image problems coming for this kid in the future. This will definitely have a negative effect on its psychological and emotional health.

The mother’s statement about the fears, anxieties and uncertainty about the baby’s future makes me wonder what she was talking about. Is she referring to the systematic discrimination faced by African-Americans in job opportunities, education, police interaction, and social status? Would these be the same challenges that every African-American faces? It seems funny to me how racial inequality doesn’t seem to be ‘real’ or a ‘problem’ too many White people until they consider having to face it, or have a loved one face it. While we don’t know if there is no concern over racial inequality or not in this couple’s minds, we do however see it when this kind of incident occurs. People have adopted babies of colour only to find out how real racism really is. It makes me wonder if this is happening to them now, if it is even happening at all.

These concerns the mother’s have are probably the same concerns that all African-American mothers have. They worry about their child being 13% of the U.S. population and 14% of the monthly drug users, but 37% of the people arrested for drug-related offenses. Undue attention by the police like having 80% of the stops made are of blacks and Latinos, and 85% of those people were frisked, compared to a mere 8% of the white people stopped. There are countless statics I can pull up describing the unfair treatment of African Americans. What these mothers are saying is that these possibilities for their child are unacceptable. Meanwhile this is the day-to-day life of many African-Americans. What this White couple considers unacceptable, is the daily life of African-Americans. Think about that. Many White Americans claim there is no racism in the country, yet what they describe as unfair is the reality faced by racial minorities.

Again we don’t know what the views on race are of these women, but we do know that they find a mixed race baby something undesirable. The race of the baby is the centre of the complaint, the difficulties it will face.

Even with all the advantages this baby will have being born in the First World, the race of the child is unacceptable to them. The only hardship they truly face is race. This is infinitesimal compared to what mothers of children in the Third World worry about. They worry about not being able to find clean water, adequate housing, or access to any education. The fact that this baby was born mixed race shows that the difficulty it faces is the racism of the society in which it exists. Even with all the advantages of living the First World, the greatest difficulty, which can be considered unacceptable, is the race of a child.

The First World cannot see beyond its own petty racism which is right in their own faces. Now how can we expect them to see past their First World privilege, their theft of value from the Third World?

* * *

Sources:

Lesbian woman sues US sperm bank after giving birth to a mixed-race child, Gay Star News

http://www.gaystarnews.com/article/lesbian-woman-sues-us-sperm-bank-after-giving-birth-mixed-race-child021014

Originating Lawsuit

http://www.sun-sentinel.com/chi-pdf-read-the-lawsuit-against-downers-grove-sperm-bank-20140930-htmlstory.html

Quigley, Bill. “Fourteen Examples of Racism in Criminal Justice System.” The Huffington Post

http://www.huffingtonpost.com/bill-quigley/fourteen-examples-of-raci_b_658947.html.

U.S. Department of Justice. “The Reality of Racial Profiling.” The Leadership Conference on Civil and Human Rights

http://www.civilrights.org/publications/reports/racial-profiling2011/the-reality-of-racial.html

Is it Time to Legalize Murder?

•2014 10 01 • Leave a Comment

Murder needs to be legalized. Illegal murder only pushes it into the black market, where cartels of thugs can overcharge and abuse their position given a lack of competition. Making murder legal also allows it to be taxed and regulated, so that murderers can work in sanitary and humane conditions, and revenues can be used to lower the budget deficits or increase spending on social programs.

It would also allowed small businessmen to enter the market and provide innovate murder solutions, with a focus on quality and diversity, all the while improving efficiency in murder techniques and devices.

Some argue that this is what the ‘defense industry is for’. My point exactly. Illegal murder only strengthens large providers and stifles competition, leading to unnecessary wars and also making legitimate murder targets like an annoying neighbor or a dickhead at work immune from market forces.

You see, if murder wasn’t illegal, we could attempt to kill each other to settle our differences. Or even better, we could reduce our guilt and increase effectiveness by hiring a trained professional to do it.

There would no doubt also be an incentive for firms to offer complementary guilt reduction service for instance by reassuring us that the killing was quick and painless. Alternatively, there would be the option to also increase our thrill by saying and/or doing the opposite, ie. that the person suffered greatly and his family wept for weeks.

The market would make such choices available, such that killing could customized to better fit an individual’s preferences, compared to now were only a few crude and highly expensive services exist in black market.

Listen, murder was illegal in Maoist China, and yet they had famine that killed 100,000,000,000.000,000 people. If it hadn’t been, people could have attacked and eaten each other much easier, or better yet kill Mao and the regime and thus prevent the famine from ever being engineered in the first place.

How does this help? Because the government restricts the emergence of a properly functioning market. If murder were legalized it could be regulated like any other market service.

Indeed, competition would provide the perfect driver of better murder solutions, insuring that for instance bile and internal organs were cleaned and perhaps donated to a local hospital.

“When you buy MRN Murder Services (TM), whether you realize it or not, you are buying into something bigger then just killing someone: You are buying into a murder ethics. Through our MRN Industries Shared Plutonas Program, we donate more organs than any company in the world: Insuring that poor children who are suffering get the organs they need. Moreover, we invest in and improve murder practices and death worship communities around the globe. It’s a good murder karma! On top of all that, little bits that remain of the dilapidated corpses help decorate our offices & community centers, spreading cultural and artistic awareness.”

There is also the possibility of trading on prospective murders and the economic impact they will have on the certain markets.

Murder options, puts on assassination contracts and the ability to trade such probability estimates in the derivative market have to be a near future option for this potential industry.

We may need an International death regulation act with a regulatory body (Mortality Control Authority) at some stage but they should be limited in power so as to not unduly pinion the free market.

One must also consider the massive spin off effects of this new growth area on the arms industry, pharmaceuticals and chemical firms, tremendously boosting market inputs into all these sectors.

Regulation and licensing of murder through the MCA should recoup significant taxation for various states as well as their increased taxation/ royalties from associated industries in the military industrial complex.

In effect murder makes everyone (of consequence) a winner.

The free market solves everything with no negative effects… ever. Right?

 
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