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On the crisis of finance and financialisation

articles, papers, videos and lecture notes dealing with the specific issue of finance or financialisation.

  • Hecker: "Financial crisis – A lesson on the character, performance and power of finance capital" Financial crisis –A lesson on the character, performance and power of finance capitalfrom ruthless criticism[Translation of a lecture by Konrad Hecker in Frankfurt, January 23, 2008]1. Introduction ...
    Posted Sep 27, 2009, 11:56 PM by John Clegg
  • Bernardo: "Seven theses on the present crisis" Seven theses on the present crisisby João BernardoA survey of the financial crisis, systemic regulation problems for global capital, the economic growth of China, India and Brazil and ...
    Posted Mar 28, 2009, 1:14 PM by John Clegg
  • Free Association: "Speculating on the Crisis" 'We are an image from the future'(graffiti at the occupied University of Economics and Business inAthens, December 2008)When we wander the streets of Leeds, Mexico City, Mumbai ...
    Posted Jan 18, 2009, 12:31 PM by f tcm
  • Hudson: "Wealth Creation, or a Ponzi Scheme?" "Wealth Creation, or a Ponzi Scheme?" by Michael HudsonGlobal Research, December 23, 2008Hudson responds to the Madoff affair by interpreting the history of financialisation as a giant Ponzi ...
    Posted Jan 2, 2009, 7:22 AM by John Clegg
  • Ticktin: "The Implosion of Finance Capital-Depression and Deflation" The Implosion of Finance Capital-Depression and DeflationHillel TicktinIt is almost impossible to open a newspaper without some reference to the historically important nature of our times. It ...
    Posted Nov 22, 2008, 7:18 AM by John Clegg
  • Finance capital: Why financial capitalism is no more "fictitious" than any other kind The Platypus Historians Group October 2008 With the present financial melt-down in the U.S. throwing the global economy into question, many on the “Left” are wondering again about the nature of capitalism. While many ...
    Posted Oct 28, 2008, 1:57 PM by Pan Sloboda
  • ROBERT WADE (NLR): FINANCIAL REGIME CHANGE? Since the 1930s the non-communist world has experienced two shifts in international economic norms and rules substantial enough to be called ‘regime changes’. They were separated by an ...
    Posted Oct 27, 2008, 1:24 PM by Asher Dupuy-Spencer
  • The breakdown of a relationship? Reflections on the crisis (by Endnotes) The breakdown of a relationship? Reflections on the crisis The history of the capitalist mode of production is punctuated by crises. One could say that crisis is the modus operandi ...
    Posted Oct 21, 2008, 4:30 AM by sean rudi
  • GegenStandpunkt: "What the collapse of the financial system teaches about the wealth of capitalist nations" Criticizes the hypocrisy of anti-Wall Street populism by explaining the essential capitalist function of banking and the inevitability of crisis in this sector
    Posted Oct 16, 2008, 1:42 PM by John Clegg
  • Caffentzis: Notes on the "Bailout" Financial Crisis George Caffentzis  0. These notes on the political-financial crisis were written in the last month while many US financial corporations were, in effect, nationalized in response ...
    Posted Oct 12, 2008, 2:06 PM by John Clegg
  • Kliman: "A Crisis for the Centre of the System" Link. A good article on the finance crisis from a Marxian perspective that eschews long historical narratives and investigations of the complexity of contemporary finance in favor of clear description ...
    Posted Oct 11, 2008, 4:20 PM by John Clegg
  • John Eatwell lecture notes "Recent events in financial markets" notes by onto
    Posted Oct 8, 2008, 5:37 PM by John Clegg
  • Turbulence on the finance crisis Do You Remember the End of History?Global Capitalism: Futures and Options by Christian Frings The Measure of a Monster: Capital, Class, Competition and Finance by David Harviethree articles ...
    Posted Feb 18, 2009, 7:35 AM by John Clegg
  • Goldner on the debt crisis and the role of the dollar Loren Goldner '1973 Redux?: Continuity and Discontinuity in the Decline of Dollar-Centered World Accumulation' An article from 2006, explaining the role of the dollar and the deficit in the ...
    Posted Oct 10, 2008, 11:27 PM by John Clegg
  • Lapavistas on financialisation Lapavitsas, Costas, "Financialised Capitalism: Direct Exploitation and Periodic Bubbles"best marxian account of financialisation. includes: explanation of this crisis, all the different aspects of financialisation, the transformation of banking, finance ...
    Posted Oct 10, 2008, 11:22 PM by John Clegg
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Hecker: "Financial crisis – A lesson on the character, performance and power of finance capital"

posted Sep 27, 2009, 11:34 PM by John Clegg

Financial crisis –
A lesson on the character, performance and power of finance capital

from ruthless criticism

[Translation of a lecture by Konrad Hecker in Frankfurt, January 23, 2008]

1. Introduction

On the question what financial markets are and what do they deal with, one can say as a simple first formulation: on this market debts are traded and these debts have the peculiarity that they yield money for those who make them. Money loaned brings in money.

This is a very obvious relationship to everybody, it is a matter where everybody probably thinks: this is not worth a fuss, because it is surely clear that if someone lends money, they get it back again sometime with maybe something extra in the bargain. Legally the issue is also simple and also ok, it is all legally prescribed to run in this way, that someone who lends money to somebody else thereupon has a right to get it back in the promised time period and to collect interest on it. The circumstance that it is legal and therefore unobjectionable, and this is also familiar to everybody, does not yet answer the question what the logical basis for it is, why it is a simple fact that simply lending money results in more money. Where does the increased money come from? Because it is mandated by law does not identify the source. One can, of course, think in the same way: well, there are always people who need money, for whatever reason, and it is good if there is somebody who lends it to them. If somebody should think such a thing, virtually deriving the credit system from the lack of cash, then here in Frankfurt I need only to remind him of the size of the bank skyscrapers in order to make it plausible that even a big sum of cash lacked by people who for whatever reasons are in a bad jam, even such a huge accumulation of need for stopgaps, could never in itself develop into a trade that in all the statistics on advanced capitalist nations ranks as the biggest, second or no later than third largest industry of the whole nation. If money is to be earned on this grand scale with debts, thus with the loaning of money, then it is very clear that the basis for it is very solid, a very essential and continuous need in this society. Everybody who would like to buy something that he cannot afford may feel this need on the market. But this kind of reverse saving, borrowing money to buy something that otherwise one cannot afford and paying for it in installments, even if one took this need which is felt by all consumers together, it would still be a very narrow, insecure and ridiculous basis to erect these gigantic bank towers on. For loaned money to become more money, something must occur between the loan and its being paid back with interest, there must be a basis for it, a source for the monetary increase that happens between a loan and its being paid back, something more substantial than that what happens between a consumer buying a car and blowing the borrowed money, in fact, on a use value. What takes place in between is, actually, also no secret to anybody. What takes place in between is the action in which one “does business” in the so-called market economy and which always starts with the spending of money. In order to make more money from money, one cannot keep it but must spend it, but for something clever, not so that one has something to live on, but so that one buys means of production – one can do something with those. You do not need to think of big factories, but the means of production can also be a small pub in which one offers services. In any case, the money that one spends must be productively spent, in the sense that one produces something, a commodity, a service or whatever, the selling of which redeems more money than one had before; the logic of business is this simple. This is how one can correctly trace the spending of money that then becomes more money, not by itself, but because something is produced in between. What is behind the sale and what brings in more money than before, is the production of a commodity or a service.

Now you would not expect that here I reveal the elementary wisdom of classical political economy and of Marx and tell you that the production of money is ultimately based on this process. I say now, almost as simply as a telegram, that it depends on hard work and creating more commodities for sale, in value, than they cost. But I will come back later to the subject of work; now we take it as a first basis, that what is produced here – and it is a matter of producing – is something that has the goal of becoming money. In between, in what one calls the production process in the market economy, money is produced; money is plugged in and out of the production process, and this is the real and substantial source for the fact that money can be earned by lending money under the name: interest.

2. Credit: How banks make money into capital

It is now time for our question “what then is the source of this business sector?” This half answers itself by being denominated as a separate industry, namely: in that production is virtually framed by money. One can also say of this productive use of money: a sum of money becomes capital, and it becomes capital from a sum of money, just by being used productively. In money capital, which frames this process to a certain extent, there is a condition, a prerequisite, a means for it to become more, that just allows such a process and, as I said, this is the first half of the answer to the question about the origin. However, the second half is still missing, namely: the money owners, the banks, just dispose over money; dealers in loan capital can get rich this way, only they do not have to pre-finance a production process in advance and afterwards help themselves to its fruits, but, this is also clear, there must be on the other side an equally substantial need for it by those who initiate such business. Not just occasionally, but almost always, they need more money for their business activities than they themselves have. Because if it was only occasional, if the companies set things in motion by themselves and everybody manages, and only from time to time somebody lacks a little bit, this would be a stupid commercial basis for a big bank. The subsoil of Frankfurt could still be solid, but no big towers would be built on it. It also requires that there be quite substantial, permanent needs on the part of the business world, and by the business world I mean those who use the money to initiate something productive, who actually transform money point by point into capital, thus who organize a production process at the end of which money has been created, money has been earned, a product has been produced which pays off in additional money. There must be the need to apply for ever more money than one has.

In order to make clear the basis of this whole system once again, one should be reminded of two needs which are relevant here: one is the need of those who, in order to carry out a business that runs continuously, have everything possible that they would like to set aside for the business and transform from money into capital; that is the service that it always does for this business. Because it is indeed understood with such stupid profit seeking that one could produce wonderful goods, and then after one is finished with them, one now thinks the work is done, but then one must sometimes wait forever to bring in the thing it fetches. A product is produced, this is the first thing and then the businessman has done, actually, his service, or buys products to resell, then the merchant acts, he puts them out on display, and then he has the problem that he must wait for them to be bought. Then the sales period comes after the production period in which the man has invested his money as capital, the whole turnover period is a duration that is not at all foreseeable during production. One can make a plan for when one is ready to produce, but when one sells the thing is an open question. In order to continue the business, one must have at one’s disposal what one has put into the first sector of goods production virtually now anew, so that one can further pursue one’s business, and one has not at all earned the money that one has produced, actually, already in the form of these goods at all. This is the problem of the turnover, turnover speed, how fast the pace of selling is, and is based on the continuity of the process of earning money. The fact that one is not finished with the thing for which one invested money and one has not yet sold the thing and still has not received the money back with which one can continue the business.

This is the problem of capital turnover, and here already before the banks, the merchants who pursue this business come upon this bright idea; if we do it in an easier way: someone who has produced goods and has delivered them to a dealer already gets a voucher that he has delivered them. He gets a certificate from the merchant who writes on it that in 3 weeks he will have sold the thing, however long the time he gives himself, he promises to pay in three weeks. This voucher – payment in 3 weeks – is given to the one who has delivered the products – and this now is crucial – he can take this voucher to his own trader from whom he buys his means of production, so in case of a barkeeper he can go to his brewing company with this ticket and say: the next round is ordered, here you have my voucher, because the person who bought this from me pays in three weeks, and you can count on it just as well as me, so give me your beer, I’ll give you my voucher, and business continues. These vouchers are called bills of exchange because they are based on changing hands in this erratic way, going from one owner to the next, and there is a huge amount of legal regulations about this, and the problem of capital turnover is overcome with this type of commercial credit.

Of course, this commercial credit has a certain hook, because someone who gets this slip of paper never knows for sure whether the person who originally signed it is an honest person or a charlatan, and even if he is an honest charlatan it is not entirely clear yet whether he can really pay it, let alone in three weeks. That’s why the acceptance of such bills of exchange is vested by the state, because even with all the strictest possible regulations, the strictest rule is of no use if there is nothing to get. So anyone who receives such a bill of exchange has something in hand, and can also try on his part to pass along this bill of exchange, the only question remains: will this really be paid in three weeks. In this emergency situation, and this is a permanent thing, one notices this with every business, as soon as a turnover is initiated with capital, as soon as a sum of money should change into more money, this problem of capital turnover originates from the fact that the hard slog of producing and selling is always gone through. All the time the institution of the bill of exchange, thus early payment with a promise to pay, is taken up, and always creates anew the problem: what is my bill of exchange actually worth, can I use it really as freely as I would like, as a means of payment?

The use of a promise to pay as a means of payment is the first entry-level drug for bank capital, because the banks happily explain that they are willing to accept these bills of exchange, in the end, and to put down money for those who deliver them, thus to conclude the business for them, so they finally have real money in their hands. Of course, the bank does not do this out of friendliness, but because it promises to benefit from it. It draws off something extra for itself. “Drawing off” sounds better in Frankish Latin and is called a “discount.” This is not a discount store such as Aldi, but is the discounting of bills of exchange, retaining something from the promised sum, and not an arbitrary amount but – because banks are fair – a set percentage. This is the so-called discount rate, which the banks calculate for acceptance of the bills of exchange. The bank thereby makes itself the creditor of the bill of exchange debtor and releases whoever has taken the bill of exchange from it. This is one source, and indeed a source that never dries up, of the bank lending business, a kind of business whose concept would be: there is an already produced value, a finished product, which is already worth its money, thus also contains the sum of money for which money was extended as capital and so that the capital would grow, one calls this profit quite simple, it becomes a product that already in itself contains this profit and only still has to be sold, virtually anticipating its sale, i.e. its transformation into real money. Here crediting, the money lending of the banks, transforms an already existing additional value into money sooner than the market would otherwise do, for interest, because money is needed.

The other equally weighty, and to that extent just as large, branch of the bank's business takes up another problem of profiteering, namely: anyone who plans a business must first have the money to get on with it. Most do not have money, so one sometimes hears of someone who has some quite ingenious idea for the production of a website, but he has no money to market it to people, to explain to them what he has and they should order it from him please, he needs money that he does not have. That is the simplest form of profit seeking, by which money can earn more money, someone has a business idea, but lacks the quantity. However, this is considered only a subordinate problem at one bank, whether it should really give something to such an oddball, this also exists just as much at the top of the ladder and there the difficulty becomes much larger: namely, if a company like General Motors says it no longer actually stacks up as much as they originally intended in their plans, then one thing is clear even for the largest company: it suffers from competition. Its competitors offer goods in better versions, with more advertising, perhaps even cheaper than it does. Even if business is good in the competition against one’s peers, and from smallest up to the biggest company there is this incessant problem that it is not good enough. Or if it was good enough, then one wants to ensure in the future that it will continue as a good means of competition, that one must always hustle, beguile the public, make the goods cheaper, add new attributes in order to increase market value. What one needs it for is always one and the same thing, namely: more capital than one has already earned. Of course, big companies often get by with investing only from what they have already earned, sometimes they also have a damn lot left over and do not know what to do with it, because it might no longer be worthwhile to invest in their business. Only, sometimes the principle is envisaged: capitalist companies compete among themselves, so they always have the problem that they need something to win the competition, to grow. The stupid saying about this is “to stand still is a step backwards,” and anyone who is not growing has pretty much lost the competition. So where do the funds for growth come from? Again the bank is of service here and one has a commercial basis for the banking business, a basis in the small but noteworthy paradox: the means for capital to grow is size. Now I do not want to say much about this tragic complication, this is the suffering of all dwarfs who need something to grow that they do not yet have. But there is an aid for it: the money that the bank lends makes the amount already available today to the profit-seeker, which under assignment of this amount he will reach only in the future. This is the second long term solid basis for the banking business, which is why debt or granting credit, if seen from the other side, does not ensure the bank that the money it gives away will yield more money simply as a result of the bank giving it away for a certain period of time. The banking business is based on the fact that it frames an elementary need of normal profit making virtually in front and in back, that it activates business or only generally enables or promotes it, and rakes something off from the fruits of the promoted or increased business.

One can now, of course, ask how the banks finagle something like this, on the basis of what they actually do. I want to make only a brief comment on this, that it manages all the payment transactions that go through the hands of an enlightened modern society, that it administers virtually all the payment flows in society itself. Right down to the welfare recipient, everyone needs a bank account into which the employment office or the social agency or whatever transfers the check. Beggars still get cash, but otherwise everything takes place through the recording of entries and checking accounts. This is the end point of what started centuries ago on a simpler level, the banks handle for the business world and for the whole public of the business world, for the whole big community of consumers, the due payments. They take the money of the society, in fact at its source, to a certain extent in trust. They collect the money and cover the payments between everybody who has to pay each other. Then somebody who has delivered money to them has to be no further concerned than that the bank follows his instruction about whom it should pay and that his account is somehow covered. But this is the first and initial basis, virtually back in the age of dinosaurs, for the ability of the banks to do this kind of lending business that I have described: they dispose over the money of the society.

The banks have from the outset not been content to be the trustees of strangers’ money. But if someone has entrusted money to the bank for the payments he makes, then of course, the bank says “ok, done,” but the money the bank has received is of course much too pitiful to sit someplace cold. The bank knows what to do with it so that it can proliferate; namely: loan it out. So it takes the freedom of the money entrusted to it and uses it to organize loan transactions. Now one thinks, of course, what if now the account owner wants to pay for something, where does the bank get the money if it has already lent it? You can ask your bank where it has put the money that you have deposited in your account and it should then show you an attestation for 100 euros. They will show you any 100 euro notes, you are only sure: the money that you have deposited there or that your employer has transferred to the account, this is for the bank the material with which it manages its lending business. The bank takes the point of view towards the payments or money orders that are then entered: this is basically no problem because first: what is paid off from one angle flows back again with the money it gets in an account. The whole problem that it must take responsibility for payments, when it has already applied the underlying money actually in a completely different way, this is for the bank more or less a problem as it juggles the outflow and inflow of payments. It is true, of course, that if all the money is lent and then suddenly payments arise all at once on them, thus on the money so easily doubled, this does not make the best bank. But the trick it applies here is just what is called the art of settling outstanding balances, liquidity management, the hustling around of accounting digits within a bank. When the settlement takes place, only one book entry at the same bank really has to occur from one account to another and nobody even notices that this money does not actually flow at all, but was lent long ago.

This art of making use of deposited money as the material for a lending business changes the status of the bank in a crucial respect. From then on, it is no longer simply a trustee of the entrusted money, but the trustee relation (you give me money and I cover your payments and a tiny small fee for me) becomes a debt relation, which the bank enters towards their money depositors. It is no longer simply the promise “I will keep your money,” but the money that is entrusted to the bank becomes, from the point of view of the bank, a debt that it has with the money depositors. Thus, the banks become in some way, with their money collecting, universal debtors of their clientele, but this concerns only the status it has towards those who until now were called their money depositors. Now this gets the character of a claim which the money depositors have towards the bank and the bank itself owes on the basis of this legal relation; it is a debtor of its money depositors, it must promise repayment to them at any minute, it must operate with a promise to pay; this is how the bank gains the freedom to use the deposited money as loan capital in the sense just described. There are a lot of legal regulations about this at the moment, there is, for example, the golden rule: if somebody simply deposits his money at the bank, then the bank may not use all of it as loan capital, thus making use of it for their credit business, but it must keep some percentage which the government statistics office has determined as a cash reserve. It must set aside a certain amount in reserve funds from every deposit, a reserve fund it may not lend from and is still good if real payments have to be transacted that are not settled by account transfers, then they can fall back on money, on a percentage of their deposits which they have kept for themselves. There is the extra rule that not only the bank itself must maintain a cash reserve, but also must hold something like a minimum reserve with the central bank so that one can always collect from a reserve supply to a certain extent in money. This is also a very necessary rule because one thing is clear: the bank suffers from every euro they have deposited with them, for which they are virtually a debtor and which they cannot distribute, because then business escapes them; that is why it tries to hold this cash reserve as low as possible, which of course has its risks if they then must pay nevertheless.

Anyway, I want to get to something else, namely what the banking world actually has done. The technical aspect of this achievement consists in the money that the simple account owner thinks is his asset with the bank, that this is his claim and he can use it to pay for the checks he writes, the transfers that he signs for, with which he can take a credit card and give it to any credulous cashier who puts the card in the machine and already he can take the commodity home and is no longer a shoplifter. Everything that is booked there, the customer thinks is a sign of the money he has, a money sign. This is not true, because this is a sign – an accounting term is also to a certain extent a sign – the accounting process, the designation of a money transaction, is nothing but signs of transactions. With a check one still has a piece of paper in hand, but one knows in the Internet era that a flicker on a screen is also a sign for something, these all are signs, but now really strictly speaking, not for the money which one entrusts to the bank. These are signs for the money that one has entrusted to the bank and which the bank has in addition loaned; it is, strictly speaking, a sign for the credit that the bank has awarded, on the one hand, and for which it takes responsibility, on the other hand, towards its depositors, because it has promised to pay them. What was originally just a sign of money, and also still looks like a money sign, in the end one can even collect a voucher, a money voucher with it, this is actually a sign of the money continuously lent out by the bank, a credit sign.

But this is only the relatively boring, technical side for a larger economic advance or transition that the banking world manages with this type of credit lending, meaning: with their business activities the banks not only here and there transform a certain amount of money into capital by lending it. They transform it by their type of money management, and the banking business itself is based on this, they transform in principle all the money that is earned in this society, thus every sum that is realized in the value of a commodity or a service, all abstract wealth (abstract means that the value of a commodity or service is only expressed in money and is traded and paid somewhere into an account or in the end as a sum of cash notes). Every sum of money in the society that comes into existence and somewhere falls under the custody of the bank is capital. This is the performance of the bank. One not only needs to first use the money to initiate something grandiose, to not only open up a business with the money, produce something, exploit people with hard work, perpetually exploit people, then at the end there is a commodity, one must still sell it, one must hit customers over the head, and finally, one has transformed the money into capital because afterwards more money comes out. Money generally no longer needs to take this hard slog because every sum of money guaranteed by the bank is already thereby capital. The bank already possesses the wherewithal, it lends it, it collects interest, the whole hard slog in between in which the money is increased, in which more value than before is created and transformed into money, is smoothly cut out.

Through this service, the bank takes every sum of money that exists in the society and gives it a new use value. When one wonders what the use value of money is, one usually thinks at first simply that it can buy something. It is already absurd enough that one gets the power over the goods of society through a thing that one has in hand. Here Marx has a lot to say and every word is gold because he beautifully explains that it is, actually, a relation of the social division of labor and a way the society maintains itself when goods are produced and sold in the market. But the absurdity is that this relation of the division of labor is fixed in the ownership of an object; and this is money. And this money, which is no certification for a successful division of labor, is but a piece of power, a piece of access power to the goods, to the value, that money represents. The state in fact stands behind it: you must have three marks to give to the kebab shop to come out with the meat. This is, one thinks, the original use value of money, it is for accessing goods. Here Marx says: this is absurd, it is reminiscent of primitive people in the bush who believe in a fetish, who think if they worship a wooden pole they will soon win a war. But if one thinks this absurdity is at home only in the deepest bush, one has made a poor differentiation because, in the advanced bourgeois market-economy society, it is even much worse, because here one believes not only that the thing, the thing that one has in hand in the form of money, is ultimately merely an electronic accounting deed, but this thing gives power over the goods of this society on which work has been performed (and one is up to one’s neck in things), it is the means of command over social wealth and its producers, one can even buy labor power with it. But this kind of fetish is, to a certain extent, only the lowest and most rudimentary type of use value of money. If a whole functioning market economy and a banking industry has opened, then money gets still another use value, then every sum of money has a further use value, and one can buy this use value as a businessman. The businessman buys himself a sum of money, he buys it for what is then an absurd amount of money, one thinks at first he merely puts down the amount of money that he has. No, the use value of money is that it makes more money from this sum of money, that’s why the price of a sum of money also consists of the interest on this use value, which is that it increases, leaves something else, a sum called interest. And then one gets the sum of money, which is to increase, puts it to use, uses its use value, makes it increase, and then one returns this sum because it has done its service, one has earned more money with it and pays for the use value of the money.

The social performance of banking capital consists in the creation of a new use value of money. This point can be made simple, moreover, if you think of ads in the subway station for a savings bank that promise: while you wait there for the next train, more or less in vain, your money works with us. What is meant by this metaphor that money works? Exactly what I have said, as soon as one entrusts his money to a bank or to a thrift institution or to whichever loan capitalist, it takes this in fact to be the appointment of a guarantee that this sum of money functions as capital, that it spits out an additional amount. The bank even promises this to somebody who only puts money into a savings account: I will also make more money than before from your savings. It promises and makes true that the entrusted sum of money becomes capital, money capital, and that of course is based on every sum they get their hands on functioning as money capital, namely: it produces an increase in the form of interest.

That is the one thing I wanted to say on the general performance of this first department of the banking business, but I still want to point out two related social relations connected with it. One is: in this way, something like social capital becomes a reality. One can try as a government statistics office to add up the capital, thus all the sums of money that are employed in these capitalistic areas, and then one eventually has a gigantic sum and says: this is the social capital. But then this is only a sum that is added together from competing companies. If, however, the banks collect all the money from everyone who has leftover money, even from everyone who has outstanding payments, also from all the capitalists, be it the payments covered and their accounts maintained with the main bank, be it even more so that something is left over and the bank lays it out and collects interest on it, the bank collects all the capital of this society that is left over, that is not engaged in the production process. That is their great accomplishment. Everything that is outside the production process as money value somehow in motion, the bank world collects and makes in principle accessible with their loan business to each need. That is the sort of socialism that is true to capitalism. This is the socialization of capital that is thus collected and made available for the perpetual big money needs of capitalist business entities. And one immediately notices that this kind of collectivization of private property has the character of a pool of sharks, because the competition between those who borrow money does not end there by any means, and the relation of the banks to those granted the money for the continuity of their capitalist production process is also far from a friendly act between brothers, but is ruled by competition at every point.

Two important footnotes should be made about this competition. One is: someone who goes to the bank and wants to have money is not automatically embraced by the bank according to the motto “at last, I have money I can lend, I already sit on so much, at last, somebody gets it,” but he who gets the money, unless he is very canny, must prove that his business is worthwhile. Then he must do what capitalists otherwise are terribly reluctant to do, namely open his books, give information about his business conduct, tell them what he wants to sell to whom and at what price and all his good prospects. Everything that they keep strictly secret and might not even inform the tax authorities they must disclose because of the bank examination, and the examination compares those to whom they give credit, how much, at what interest rate. The bank differentiates according to the extremely unfair motto, “who has the worst business must pay the highest interest rate.” There is no pity, “oh God your business is so bad, I’ll give you the money a little bit cheaper.” This would be among friends, among capitalists one says exactly the reverse: money loaned is always a risk and the bank enters the risk, even gladly, but they can defray it, then the interest is all the higher, the credit is all the more expensive the worse the business is. If one goes as a customer who wants money from the bank, and now I speak only of the commercial customers who request it for something capitalistic, one must compete for credit from the bank, one must conduct a fight for an advance; they reciprocally blackmail each other. Because it is really only a show of strength between these two parties that decides how much credit and on what terms one gets it. In this respect, this is the solidarity of the capitalists, their private property is thrown together so something is left in money form and it is lent to those who can and want to make more from it. This is the solidarity of the capitalists, but it happens as a new sort of competition, namely between lending capitalists and those who borrow. This is one footnote to the case of competition; this is how capitalists make common cause.

The other footnote is: whoever borrows money to continuously transact his business, to thereby transact it better, to have more money at his disposal than previously or to absolutely increase it, does this for reasons of competition, thus in the interest of standing better off as a competitor. This means, of course: the credit given away, precisely because it results from the needs of competition, has the effect that it heats up the competition between those who borrow money. And indeed it is not only because of this that a bigger wheel turns and throws more goods on a market that is already overcrowded and throws them mutually off the market. The second thing to be said about this intensified competition: the bank that lends money also sets on success in the competition. They anticipate the success of those they lend money to; they should already earn success in the competition beforehand. The future amount is anticipated; today’s funds anticipate that the capital will reach this future amount. Therefore the bank is also dictatorial about this success occurring. As if it was not enough that these crooks compete with each other like the devil, it becomes, through the patronage of the bank that lends them money for the competition, almost an objective constraint that they achieve competitive success. Here you have again a nice basic formula of capitalism, that for the capitalists the advancement of their business in their own interest becomes a constraint. From their interest in borrowing money and using it to help their business get ahead, the bank becomes as a result the promoter of a flat necessity, a practical constraint to achieve this competitive success, even up to the level that in failing the businessman can write off his interest along with the business and still look like he sold his jewelry and his house in order to at least get the bank its money back after his business is finished. So this is the humanizing, socializing effect of bank credit.

The second concerns the hot question: what does all this actually have to do with the people who do the work, those who in the production process are so wonderfully framed by finance capital, who are responsible for setting the production process and retail trade into motion so as to produce the commodities by which the surplus value is then made into money, thus increasing the money? In what relation stands the employees of the department stores, which have to bring these goods to people, so that money is released from the profit-expectant commodities, in what relation do they stand, ultimately, to finance? I have previously used the formula: if the entire circulation of money is in the hands of the banks, and they make credit from all the money, a credit sign in an accounting book from every payment, then its use value is to function in the increase of money capital as capital, virtually independently of whether a production process really takes place in between, in the nature of money capital this is abstracted from. A kind of abstraction exists when money lending is so properly developed, consisting in the fact that every Dick and Harry also gets lent money, something I just now ruled out as a real basis for money capital. But if one only wants it to sometimes get a commodity that he cannot afford at the moment, one can also get credit, and then must vouch with one’s income, with a teacher's salary or something, for the fact that the money that is borrowed will really become more money for the bank, thus become capital. The bank is so brazen and so free that money is also loaned out even if the production process that produces more money does not take place. Then instead of changing money into capital it compensates itself with the normal incomes of its customers. Earlier this used to be called usury; today interest rates of 15% on credit cards are, I believe, difficult to justify.

What the bank carries out, I remind again of the equation that money has the use value of increasing, and this is objectified in this whole enormous financial sector, it is in all seriousness the basis for the appearance that it is really a quality of money, that money possesses the power to grow from itself. A banker who is asked how he actually earns his money will never ever say: this is what I set aside for myself from the profit which the proles have created for the companies. He would never ever say it because he does not know it at all, because it is not his point of view. He is firmly of the point of view: his skillful handling of money that he lends to this and this and this and not to this other – and I have not talked about securities at all – his talent with lending capital and the correct bill discounting and always being solvent just at the right place and having kept the reserve fund small, this is the source of his profit and he has earned his money from it. Marx explained this well. On the one hand, the brutality of capitalist relations is so obvious here, the rule of property over work nowhere is so brutally striking as in interest-bearing capital, because here the equation becomes true that property is only a legal title to an appropriation from products produced by the labor of society. This fetishism of property, money as a means of access, and money not only as the access title to goods, but to more money, thus money as the progenitor of more money, the reason for property – Marx immediately says in addition – is to appropriate the work that others perform, not by purchase, but by access to the proceeds from the sale of their products, thus to be a means of enrichment. Pure property as a means of enrichment from the work that others perform is the brutal side of interest capital. In this brutal side is a certain truth about what's going on in capitalism, namely that property means access power, and in fact also to the work of those who are exploited in the production processes, which is in essence realized.

The other side means: the normal capitalist who creates jobs surely no longer wants to know that loan capital, interest-bearing capital, accesses labor as its source. The bank capitalist, or whoever shares his point of view, knows nothing more about it. Thus both score together, in interest-bearing bank capital the truth about capitalist relations of production – all power lies with property, all productive power, property is the means of disposal over all work – is realized on the one hand in essence, and, on the other hand, this basis, this source of the whole story, absolutely disappears in loan capital as such, in interest-bearing bank capital. This is this fetish from earlier, and this also is incidentally my explanation for how a given sum of money becomes a bigger one. This process is inherent in interest-bearing capital, and as I said, interest-bearing capital has the quality that every sum of money is on the one hand realized and on the other extinguished.

This has a few funny consequences, also rather unfunny ones, concerning the opinion this market-economy society has about itself. These are the points Marx developed in the trinity formula. To explain it in detail: there was a kind of theory in political economy about this market-economy circus, as many people asked the question: where does the wealth of the society actually come from? How does it happen that there are new products from year to year and also there is the tendency to always become wealthier. They asked the question, which includes the possibilities they allow, is it, for example, the state or the luxury spending of society that shoots out such uncanny wealth year after year anew. Then they came to the production process and broke apart its proceeds into components. There was the power of interest-bearing capital, money that is loaned to the productive capitalist that produces earned interest. This played quite a big role for the theory. Well, as you can see: a part of the social wealth that reproduces itself this way goes back to the fact that money is behind it, property, thus a part of the social product, the value of the product, arises from the fact that capital is in motion, which belongs to them, one sees this in interest-bearing capital. Another part belongs to the workers, one sees this in the fact that they get by on what they are paid; what they get is also their contribution to the whole. Then there are still those who bear the hardship of employing capital and labor, the productive capitalists, they also perform work to a certain extent. Their work, their entrepreneurial work, is somehow even a source of social wealth, one can say it is wage labor in that to a certain extent the capitalist is his own office worker, or nowadays these would be the managers, and if management wages were a little bit higher in those times, this was not disturbing at all. In any case, they were part of the side that does work and their salary was the value of their work. And if the work of management was worth a thousand times a wage, this was right. And as a third source, they had the landowners on which ground rent is paid. Keep in mind, with mortgage banks, rent to this day is a giant source of income.

However, all this does not matter, the essence of it is that this equation - money per se is capital - dominates social consciousness from the viewpoint that in our society anything might happen, except not exploitation. Exploitation might possibly exist when a john cheats a whore of her wage, then perhaps she has been exploited. Or, according to the conceptions of the left: if a worker gets less than a “living wage,” perhaps there is exploitation. But in the normal run of business, exploitation is nowhere to be seen, because when the capital that he owns is contributed, it is pure capital that he contributes, one sees that in the fact that it earns interest. This is even the point of view of the capitalist who employs it, he smoothly posts in the books “what this costs me.” Here Marx cannot calm down about the fact that a part of the profit is registered by the capitalist as an advance, because if he is loaned 1000 euros, and he must pay 50 euros a year for it in interest, then not only 1000 euros are shot for the capitalist for his business, but 1050. You can multiply this now a million times, and then you have the calculations of modern capitalists.

Also, this insane equation, this fetishism of money, that it is already capital, quite essentially belongs to the self-consciousness of the free market society. Nowadays, hardly anybody is interested in the actual reason, because the need to justify this economy has disappeared. Hardly anybody asks: how can it be justified that there are so many working poor, so many who are even poorer, and so few who are rich in this society. With the metaphor that these are scissors that somehow separate further, the thing is already checked off as a rule. I know hardly any public effort to justify the results of modern exploitation through a theory, much less an economic theory. Nowadays this is acquiesced to as self-evident, under the motto “everybody wants to complain that they are badly off, but they should be happy that nevertheless they actually have a job, and if they don’t, they know what a job is worth.” Nowadays, this passes for a justification, incidentally also in intellectual circles; if one tries to learn what economic research institutes have to say about the wage question, one notices also from beginning to end no justification is needed to argue that workers must, of course, become cheaper. And in this respect, any interest in explaining loan capital and to place it in relation to work is nowadays quite extinct. I do not know whether it is a joke to some researchers that I say one must investigate this economy, that this commits an injustice, but I contribute no great enlightenment here if I call this insanity, the ideological consequences this apparent autonomy of loan capital has, just because nowadays the need for such justification has become extinct. Then most workers’ representatives find nothing to fault in the exploitation activity of their firm, because it at least creates jobs, or it is even admirable that it creates jobs, while between their own firm and the bank, the banking world, which has put money in this firm, a competitive situation exists. A competitive situation that can sometimes even lead to the failure of the business, to the bank switching off the juice to the firm, to giving them no more credit and the business grinding to a halt. Then, of course, the jobs also go away, then the exploitation stops, and with exploitation, of course, also the wages that people get in return for doing their service for the company.

If critical thinkers still perceive and accept a clash of interests in this society, then it is often enough not between the staff and the firm, but between the firm, including its staff with their wonderful jobs, and a bank which has only given a lot of credit and then maybe no longer gives it any more because business is bad. This is the swamp from which arises the idea that all the hardships of capitalist society are because of conflicts between money capital, which carries out its propagation without the production process, and the production process, which is responsible for such propagation. When all the hardships of the society lead back to this conflict, it is plain overlooked that it is nothing other than a conflict of interest between hostile brothers of the same class, and that it is precisely the wage laborers who are ripped off in the production process, who have generated more money than they cost, and then in the end it is also them who must answer for the payment of interest. Therefore, I have talked about banking capital, about loan capital, as a form of socialization of private property, just so that nobody makes a mistake, ever, about where the lines run in this society. With all the conflicts in this socialization of money, with all the conflicts of interest between bank and loan capital, on the one hand, and credit-taking global companies on the other, it is all a conflict of interest between capitalists, and it is on this basis that the type of money of the society is made available to everyone who wants to use it capitalistically. This is the basis of solidarity, if you will, for all the hostility, all the antagonisms between honest firms, middle class ones too, also with our hard cost-calculating, supervised by the SPD middle class, and the bad major banks. They all belong to one and the same class.

3. Securities: How banks make debts into capital

Following all these explanations about what drives finance capital, I will now identify what the banks organize with their lending and discounting businesses. They do this, of course, as capitalist enterprises, with the aim of enriching themselves. The banks pursue the same goal as every capitalist enterprise: to make more money from an initial sum of money by capitalistic use. Of course, the banks do not do this merely with each individual fund, but they pursue this as a concern of their entire corporation. Their enterprise wants to grow, and it not only wants to grow, but it also must grow because the banks are also in competition with each other. What I left aside earlier about competition now becomes interesting. The ideal of every bank is to become a monopolist of the social payments, to earn everything for itself that is to be earned through the discounting and lending of money, to capture others’ cash transactions. Therefore, a crucial new point is to be added to what has been said up to now about the business practices of the banking world, which also leads to a new level of the bank business. The banks do not simply wait around like the hairdresser on the corner for somebody to come along and let them lend them money, and they also simply do not wait for somebody to come along and entrust his money to them. They deal with this problem of wanting clientele for both sides, not simply by advertising, by big posters. They make themselves into activists, into active subjects of the lending business in which they earn money.

How does this go then? I have just broadly explained that the banking business is based on a perpetual need of productive capital: normal profit making. Yes, it is also based on this, but in being based on this, not everything is said. The banks are business ventures that make something out of this basis. On both sides, getting money deposits and granting credit, they know how to help themselves to something over and above their basis in the commercial business of other capitalists. The thing they invented for this purpose - the technical banking term for it doesn’t matter – has the label “securities.” What is this then, if we take first of all a bank that issues a security in the simple form of a bond? Bonds and shares are the two most important forms of securities with which the banking world goes on the offensive. What does it do when it creates a security? This consists first of all in nothing other than the promise of the bank to pay interest to somebody who hoards money. And this is not simply a promise which it writes on a poster and then waits for somebody to go past, but it writes this promise literally or ideally on a sheet of paper and explains that this paper, which contains nothing but its promise to pay interest - here stands a million with 5 per cent interest on it, due every year, to be repaid in 5 years – it has done nothing else, preserved no money, in printing such papers. And it does not call these papers only ideal securities, but it also vouches for them with all its power, which it has as an authority with the ability to dispose over the money of the society, to give them something like the character of a commodity, thus to be worth what it has written on it, this million, simply because it promises the payment of interest. It promises this on the basis of its business running, this is the basis for it. But from this, its business running, it derives the audacity to promise virtually a participation, a small, slight 5 percent participation in its business, to everybody who puts in money for the continuation and extension of this business, and the appointment of this promise to a really-existing property value exists before the sum is there. The bank acquires this sum by selling these things.

One can say, of course, this is ultimately no different than a loan business, someone buys this swindle, lends the bank money and gets interest for it; this is its trivial basis. But from the point of view of the bank that turns the activity to a certain extent, making itself the subject of the creation of a property asset by its promise to pay interest, when does this property value become genuine? When does it become real for the bank? Basically, it happens by the same act by which really produced honest commodities become money, namely at the moment when the thing is sold. The sale of a security is to a certain extent its own confirmation that the bank’s promise to pay interest is worth as much as it then gets for it. It creates a property value for sale and takes the overhead for itself. And this is better than maintaining checking accounts, than opening current accounts. Because that way, and this is crucial, the bank grabs itself the available money of the society and directs it into its balance sheets rather than letting it hang around in others’ current accounts. If it gets it from its own current account owners, it has at least obtained the crucial improvement that it not only uses the sum of money that the person has entrusted to it with leveraged credit, it also does not make the transition from trustee to debtor of the value, which moreover they incessantly do, always further. But if it requests in addition of their account holders, “buy my securities from me,” then it takes possession of this money for this period of time at a fixed interest rate and can proceed with it as if it is their own property. This is no longer others’ money that it has to somehow guard virtually in trust, but this is their maneuverable mass, for thus and so many years fixed with it, and anyone who tries such a thing as to prematurely cancel even only a savings book with a 3 year cancellation period is confronted by the bank with the information that he has to then kindly refund his interest. Also in accord with this point, the banks go on the offensive with the acquirers of money deposits through the creation of securities, open a business with securities as their products. As said, their promise to pay interest becomes a commodity for sale, namely a property value, available for purchase, marketable on this ominous thing called the financial market, for which they create the material with securities.

It gets even better with the second variant of the security, the share. What is this thing? Whoever buys a share stands on the fact that this is somehow the share capital of a firm, and that somehow what has been put down initially for the share has also flowed to a company and the company has economized with it. As with loan capital, a company needs money, borrows it, and gives in return a certificate of indebtedness. The IOU is in this case called a share. It simply has for the company the charm that it never again needs to pay this back, the share is already a kind of credit, but a credit without a date of repayment, actually without a date of payment perspective, the share is only given away money and a claim that one gets interest in the profits of the company, an interest over which ultimately this company decides. It is to a certain extent nothing other than a company’s promise to pay interest. All this is the other variant of stock, not only from the banks but ultimately also from the banks, these are the promises to pay interest of the joint stock company, and now not at a fixed interest rate, but share certificates. So what does this share certificate do? It is tradable, one can buy and sell it in the financial market as a true title to property, and with this relation - a sum of money becoming more money – it separates itself from the whole production process which takes place in between, on the one hand, and on the other, it incessantly becomes that portion of a property’s mirror image or a caricature of what happens in the company. The company knows it can economize all together with its financial means, its advance, its capital, that it gives nothing else than promises to pay interest, stock certificates that promise “who gives me money can participate in my success,” it puts nothing other than this out in the world and acquires money for it. And that someone who puts money down for it has not simply got rid of his money, but now just has a security, which, because the company’s promise to increase it stands on the fact that it can be traded, he can resell it if he needs the money, with which he might want to buy something new if he has a little left over. Whereupon here steps the famous beauty that the value of these securities is not simply calculated from the fixed interest rate, as with a bond – there an interest rate of 5% is put down and then that is the payment of interest on a million and if the interest rates fluctuate during these 5 years, then the paper is worth sometimes a little more and sometimes a little less – with a share it is clear from the outset what this paper as property asset is really worth, what it brings to whoever possesses it, thus how it realizes the transformation of money into money capital, in what proportions. This is daily ascertained according to the supply and demand of such papers on the stock exchange, someone can even suffer ruin if he has bought it too expensively and then wants to sell it and it is no longer as valuable, or even just half as much. Here the security, disconnected from the company that it stands for, works through its own value movement.

These are stocks and bonds, the stuff that the banks, and even joint stock companies, which in this respect act virtually like finance capitalists, set into the world. A company that issues a bond itself acts at this point like a finance capitalist who says, “I give a promise of interest payment, believe me and give me your money, I will pay it back to you with interest.” Thus a bond, even from Siemens or else another company, is a finance capitalist, virtually a bank capitalist, activity of such a company. The issuance of a share, the formation of a share company by the emission of new shares, is also a finance capitalist maneuver by the respective company, it provides itself, and indeed actively on its own, credit. A company that issues shares, which sends no well-dressed proxy and says “begging for credit,” the members of the small companies do this anyway and also, but a corporation that appears as a publicly traded company goes aggressively to the financial market, thus to all those who have money, and offers them a security which they themselves set into the world through their promise: you have a share in our profits. Here one already notices that in loan capital money becomes capital, the banks turn this, or the financial sector turns this slickly. It turns it upside down and says first is my promise, I spit out here an addition to a lent sum of money, and because my paper promises not just my payment, but my promise of repayment with interest, it is an asset value that should be bought from me. This is one side of the financial market, namely of the commodities that are traded there.

Who then are the buyers? Yes, Dick and Harry, we want to say at first. There are actually people who get together, maybe even honest workers who have otherwise nothing to do, who team up and buy shares. This attracted attention when they speculated and lost in the IT disaster and were driven into shit. Oh well, everyone can participate in this financial business and the banks and savings banks also go to all the hassle of doing something like re-attracting the simple saver with stock or equity funds. But, as we have noted, this is a sub-sub-division of what one calls the financial markets. The main actors on the financial market are none other than the banks themselves, the financial sector itself, which disposes over financial means, over financial funds, makes them available, so that everything they have collected in money is not bottled up somewhere, because they are eager to make more from it, and they are also not even content to just seek out productive capitalists who scheme something promising with it. With the creation of securities they go on the offense to the society, and they want more purchasing power, in any case, in excess of what is always deposited with them. And for the funds that they attract, they do not wait for people from outside the banking sector to come along and say, “We would like to lend something,” for securities are also not well suited at all for lending in this sense. The banking world finds in the securities it creates investment possibilities in their own right.

Now one can ask what is this insanity - to pay interest for securities, on the one hand, and to collect interest on the purchased securities, on the other. Yes, how do the banks add up in each case in their calculation, one may ask this quietly, but the phenomenon is simply that the banks, simply by performing this business, increase the extension of credit. With every security they create, they strengthen their power to grant credit to whoever it may be. With every security they buy, they elevate their asset base on which they can assign credit again. With both operations they leverage their credit power upwards. Then this still has subsections, which are known as intricate cross-sections or something like that. Companies' finance departments, or the banks themselves, mutually buy their shares, so that one company participates in the profit outlook of the other, thus buys its securities, simply to still participate in it. Clearly, a bank that creates securities and then buys the same itself would be a business swindle, where one should then ask would this swindle also be a good cause. But the crucial point is that they mutually buy their own products, and mutually strengthen themselves with it, to a certain extent they mutually corroborate themselves: yes - one could express it idealistically - we believe in it, we confirm you by the purchase of your security that your promised interest payment is in order. We make something real from the offer of these property title commodities, we realize its value when we buy it, and this helps the bank which it gets bought from, not simply by the fact that it has the sum of money, but that it is confirmed by it: by this the bank’s promise of interest payment is serious. In reverse, a bank that buys such a serious promise to pay interest has something in their property assets, a claim with which it is well off. This is a claim that it then considers bomb proof because a solid serious bank stands behind it. This is how the banks, through trading self-created promises of interest payments, pursue something not like a zero sum game, because they mutually pay interest to themselves, even if in individual cases it should sometimes be discontinued, the substance of the business is that in mutually generating their creditworthiness, also their power to lend capital and finance other firms, they mutually confirm their power and through the confirmation also enhance this power; they certify it in practice as respectable.

This means, of course, on the other side: the financial market, where banks are at the same time sellers and buyers, one sees nobody else on the stock exchange, yes there are the good representatives of small investors, which are all incorporated, there are the representatives of money collection centers of all sorts, from life insurance companies which want to invest the money which they collect from their customers so that it pays good interest, because they have promised to them when you are 80 you will have more than what you paid up, if all goes well. Yes, one also hears, now especially, that there are not only life insurance companies, but there are even credit insurers that insure banks against the depreciation of their investments. Something like this must also first be organized and is an honorable enterprise of finance capital. The financial market consists of figures that all belong in principle to this finance sphere and appear with the security product in all its facets, as sellers as well as buyers, and attain through trade one trinket, namely mutual certification as honorable creators of loan capital. They mutually believe in their wealth, which exists in nothing but debts, because again: nothing stands behind the security but the promise of the issuer to pay interest, and if it is bought from him, he has, actually, nothing else than debts with whoever has bought the security from him. This continues, no real wealth has been created, but only a debt instrument has been sold, only through the sale this debt instrument becomes to a certain extent a quite honorable property asset component, so approximately like one locomotive can pull railroad cars around the country, so such things can also balance.

The banks thus enrich themselves on the financial markets, only the stuff of enrichment consists strictly speaking in nothing other than the debts that they mutually make. Because if the bank appears sometimes as a buyer and sometimes as a seller of securities, the security itself is nothing more than a promise of interest, thus a debt which it has issued. But they thoroughly serve the stabilization, the augmentation of the credit power of the enterprise, they enable it to grant new credit, to get rich on other customers, or to participate in the profits of the bank from which they have bought a security, be it through stocks, through bonds, through whatever else. It also includes within it, of course: this financial market is a business that emancipates itself from what one in case of doubt calls the real economy, thus the process by which money is really produced, where commodities are produced that contain a surplus value portion, thus a profit portion that is then realized by sales; it emancipates itself from this process of profit production precisely because it deals in debts through which the banks mutually authenticate themselves and mutually participate in their profits. The profits themselves can by all means also be promises to pay interest in the future. The interest payments that are then disbursed do not have to exist at all in the money proceeds of this bank, in what it has skimmed from its other clientele. The normal basic form of the redemption of a bank’s promise to pay interest consists in presenting a new security. Here enrichment takes place in the form that the growing wealth actually consists of a growing sum of certificates of indebtedness. Promissory notes, which have however the power of authority, the credit power of the banks, have the character of tradable securities. You do not need to believe me, but you just have to consider what the financial businessmen really spend their day with. Not with the production of goods for sale, only this property which represents nothing else than the conversion of debts into tradable property titles. I have a practical proof for this kind of separation of finance capital from its basis and the production of property titles that actually have nothing other than debts for their content and that increase the credit power of the banks, and this just happens to be: the financial crisis.

4. Financial crisis

Before I examine the financial crisis, I return once again to something quite elementary. If the banks exercise their credit power in the way that I have just described, and pursue trade with such debt papers, and now and then something happens like, of course, somebody wants to get paid a little, and if it is a pension fund that sometimes must pay their customers a pension, they grind their teeth because they have to pay, the state stands behind it, the law ensures that this is paid. Also so many property titles are accumulated there that represent nothing but debts, they also absolutely have to be paid sometime. The bank must have obtained what I previously called the “original trust basis,” the deposits which the bank itself rests on, the earned money that represents what it has long ago lent, but in the end must also sometimes disburse. With the credit it assigns from the deposits, it must make sure that it has reserve funds to cope with the balancing of accounts. Reserve funds must be maintained by a bank not only for the normal, small-caliber credit business of the bank, but now these reserve funds become practically burdened with the task of being up to all the disbursement needs which can develop in connection with the accumulation and trade of securities. For the normal security trade every bank assumes that such an event never actually happens to any significant extent, but that if something happens, such as somebody wants to see the interest payment for the deposited capital now, then the interest payment takes place in the form of new securities, and both sides are satisfied when they get not simply cash, but if this earned money immediately again re-circulates in bonds, if it also remains money capital. Because this is the use value that all are keen on and this function of money capital in the form of securities fulfills debts wonderfully.

Even in the case of a genuine payment need, the reserve fund that a bank must set aside from its deposits would then, of course, barely stand up straight, and it is clear from the start this is absurd. If for all that finance capital accumulates in titles, even with grace periods and interest charging deadlines, something must be paid when it wants to hold all money ready, they would no longer come to dinner out of bitchiness, because then they would have to leave an enormous amount of money practically fallow, which would then be lost for every normal banking business. Also, the reserve funds which the banks must maintain for economic reasons and to still be legally secured are never enough and never for payments in the financial market. Only if sometimes disbursements become necessary in the financial market, then there must or would have to be sufficient reserve funds flat out, something it never has from the outset and is also usually not necessary. However, last summer it became necessary.

These are securities whose construction I do not want to make the subject now, which are, however, bank products in the long run. Such securities now become due, they should be paid back. The banks assumed their vehicles, with which they transacted business, could easily be repaid, because as soon as they were paid back, they threw new securities of the same size on the market, which were bought from them again and from which they obtained the ability to repay the old securities. A bombproof business: one has a bunch of securities, outstanding debts to pay interest on, promises to pay interest to a certain extent, confirmed by law, so totally ok with human dignity, this is then in the portfolio of these creatures that circulate securities, and every time when a portion of securities expires and the redemption is due, the redemption will be paid for by issuing new securities, and when it is the same customer it is so much the better, then one only needs to write a new date on the securities. This updating of falling due securities, and these were highfalutin products of this financial market, this caved in last summer in some corners. The cause for it was that the promises to pay interest, i.e. the securities scattered around in the portfolios of such issuers, became an actually diminishing fraction to the point it was doubtful whether they were still worth what they say, whether the interest shrinks from whose revenue stream these institutions’ own promises to pay interest in the form of securities – calling them “securities” is the ironic thing – were set into the world. So doubts arose that everything is still so tidy, that those liable can pay at all or jiggle out what they owe so that these vehicles’ promises to pay interest are still credible and these securities can be bought without closer inspection.

It is even the irony of the story that although these securities were not issued for some capitalistic venture, it has not yet become a doubt about the capitalist trend of business. These securities were attached to a quite poor clientele who should take responsibility for them with their wage income. So it is indeed no wonder that doubts arise when this financial market, this highfalutin affair, looks down into the abyss of poverty and says, yes humankind is our whole edifice, which is based of the extortion of impoverished people, and up till now they might have struggled bravely, but whether we should take this further is more than in question. And the banks, which originally lent the money, they of course set upon the fact that these real estate properties on which have been built these ramshackle wooden huts, that they will be worth even more after the umpteenth tornado than they are today. Only, whether this still goes well in the long term, with the poor people and the tornados and generally the trend of business, they no longer believe this so confidently. It is also irrelevant who first had this doubt; these were anyway financial managers who discontinued the passing on of these security issues. What happened? Now the reserve funds of the issuing banks were not yet drawn down, or were not drawn down insofar as these vehicles, those who issued these securities, had a bank guarantee on their side. Some had none and immediately ran into trouble, they had to get themselves credit to be able to take back the old securities and thereupon refurbish, ok this lasts a week or two, but then here we go again. They perceived the unsaleability of their securities as a stopgap problem and procured credit from the banks for it, or wanted to procure credit. Then these vehicles separated into those which already had a bank guarantee and those that have accessed the credit of the bank and have pissed off their bank because it has given them a credit guarantee - we are responsible for your securities - but of course with the obvious understanding that this liability is never taken up. Now, nevertheless, the eventuality has happened, and other such vehicles that had no bank guarantee have gone to them wanting to procure it for themselves, and then have been met by benevolent bankers who said: well, maybe, but this costs. Such a bad vehicle endowed with credit cannot at all capture so much interest that they can pay us ours. So far so good, the business has broken off, and for three months this demolition of the business has been treated by all those responsible as a temporary liquidity problem, as a liquidity jam. Which taken by itself is also not half bad, because in what is then called the liquidity jam, the correct amount of money must be earmarked for the payment of the creditors of these securities and all at once the reserve funds of the banks, the cash reserve of their depositors which they have lent beyond residuals, are for this reason strained. The fact that this has been overextended was also immediately clear as well. The first authorities to which this was clear were the issuing banks, which quickly brought to an end: ok, we'll loan you everything that you need.

The central banks to a certain extent function as the universal inexhaustible reserve fund of their banking sector, of those that have already strained their own reserve funds. This was in the news when the central banks were flooding the financial markets with liquidity; I have talked about what formed the basis for this. The reserve funds of the banks have been increased to a certain extent from the point of view that it bridges over a temporary squeeze before these papers are re-marketed. Now this squeeze continues, the bridge becomes longer and longer, the business has not jump started again. Why? Because those who pursued it before and have now discontinued it generally see no good reason to continue with it again. And the longer such a squeeze lasts, the more the point of view solidifies in the banking sector: this is not a good arrangement to reel in, one has no property title in hand that strengthens our credit power, if one reels these papers in nowadays, then one possibly posts a loss. If one then wants to have the redemption of the vehicle in three months, then it feeds one from the next paper or it reveals to one that they have nothing more. So the duration of this squeeze simply changes its character, then it is no longer simply the exhausted reserve funds which have led to the problems, and which have been overcome with stopgap measures, but the credit power of the banks themselves has been attacked, now they must not ignore that everything can be handled in such a temporizing way – ok, next week we will see what happens - but they must deal with write-offs, admitting that much of what they have credited to themselves in assets, these Asset Backed Securities, are worth nothing more, or only as half much. Or they can write off all their Asset Backed Securities and withdraw their claims and see what these claims are still really worth, how much they can still squeeze out of their mortgagers in the end. That this is not as much as the securities with which their vehicles have gone into debt was clear from the outset.

After the phase, which lasted two to three months when the whole thing was still being treated as a temporary liquidity squeeze, there was also the phase of the write-offs in the hope that if they wrote off the worst papers, then the subject is through, then at least the others will be solid. What is this in a financial market? Yes, the hope that if the bad apples are sorted out the healthy ones will stay healthy, and this has been the frame of mind up to the present. For example, the Frankfurter Allgemeine, the virus experts, commented on the matter. Their comment on the financial crisis lives off nothing other than a nurse's metaphor: “they are mutually infecting each other.” One takes hard cash for what they have marked down there today on their security paper, after that the diagnosis is finished, a propos a nurse, this whole financial industry is an open psychiatric ward. They give each other trust, on nothing, then they take it away from each other, also on nothing, and instead of noticing that their mistrust makes everything go kaput and again developing a little trust, they do not know what they do, according to today’s editorial. This is not in fact the truth of the matter, but if they themselves have such an opinion about their circus they should pack it in, but they do not. The truth of the matter is not that they have only become a little bit more suspicious, but it is always said now that if the banks no longer put out credit they could better overcome their liquidity problems, or they could then conceal their acknowledged losses in their balance books again, then if the bank cancels a property title it merely has less assets and then is just poorer and when it becomes liable to pay must in some way compensate through new credit.

Now it is always said that the banks mistrust each other, they no longer shake out their liquidity. This interpretation plays down the position of constraint into which the banks are gradually skidding, they simply do not have this stuff any more; their reserve funds, which are the rational expression for liquidity here, are exhausted. Indeed, they can borrow what they can from their central banks, but the interest must be paid, and then the interest grabs what in return they can borrow as a reserve fund for the balance of debts, this then takes away their business. Thus a settlement of arrears takes place instead of a credit power that they gain and increase through their trade with such securities. Every write-off they carry out puts no end to the misery, but alleviates the misery of the banks over these shares, every share of liquidity which they must borrow from the central bank only to plug a hole tears a hole in their commercial success because they must pay interest on it without having earned interest with this money, they must only balance a debt with it, they have to pay something, they have to make pay offs that were never intended with the production of such financial papers. And with every write off they make, their demand for unproductive credit grows, thus for money with which they just offset this squeeze instead initiating new lending business, and their power to dispose over property titles shrinks.

So this was the interim phase until Christmas, and what is now happening the last few days is nothing other than the stock market, the authorities which trade with the shares of such credit institutions, rendering accounts with themselves and with each other over the dwindled credit power of the banking sector. The fact that they no longer stand so firmly in the world with their credit power as before translates into a revaluation of the shares of these companies for the organizers of this trade. The fact that their credit power has shrunk is illustrated by the stock market in the form of falling share prices for these institutions. One can see this embodied when you look at the people blowing steam who perform it all, but they are the character masks of their absurd business. There you have the sequence, which has properly transpired so classically: a crisis starts within the finance sector as a liquidity crisis, necessitates write-offs, and when write-offs are in progress and at the same time the verdict is established that this is not finished at all yet, this depreciation, it flows into a lesser valuation of the financial power of the banks engaged there. And in their competition between themselves the banks also still need to reciprocally screw each other because they are involved in their reciprocal appraisal on the stock market.

Now one could think: Well, good then, they are just cut down a little bit once again, it is not so bad if the credit power of the banks sometimes shrinks a little. Only the joke is: the power of the credit industry over the whole social reproduction process. I said something earlier about this socialization of private property and the form of competition. That is the power of this sector over all production and consumption in this society, which just lies on their books, and not just on their books, but also through their credit conduct, by their discounting and money capital lending, and now they have reduced this money capital lending to a subdivision of their securities business and in this securities business something breaks down and this reduces their credit power. Yes, the power of these credit institutions over the rest of the capitalist world does not diminish at all. And the rest of the capitalist world has after all nothing less as its substance than the annual extended reproduction of this society, thus value production, buying and selling, making jobs, exploiting people, paying pensions and so on and so forth, in the end we have the national budget. That is the standpoint for the fears that are arranged under the caption: could the crisis in the financial markets overlap into the real economy? I think a more rational version of this concern exists in the finding: the credit power of the banking sector is depleted, its power over the social reproduction process in this country and elsewhere is not reduced at all, merely their power for bringing credit back into progress. Not only their mood and inclinations, but their power to do so is depleted. And now I come back to my opening statement: I do not make predictions about how this will unfold, these are only a few occasional remarks by which once could rationally explain this insanity of the current financial crisis.

5. The state and the crisis

Now one can say something about the state, how it reacts to it. Of course, it does not leave the whole circus to itself. And this is also quite interesting, this is like a confirmation of what was previously said about what the state undertakes. It first simply provided huge reserve funds for the banks that were in a liquidity fix. Thus always when something like this falls due on the payment deadline, the banks must then really buy it up and then on that date they have absolutely used so and so many billions. Then the central banks for this day and for the next night, and also sometimes for a week, put back properly fat amounts of liquidity and the banks borrow and it prevents liquidity bottlenecks, payment difficulties. But they have not at all prevented the depreciation of this substance, this pseudo-substance, these securities holdings of the banks. So what do the central banks do then? They have even occasionally realized these worthless securities, these unsellable things, accepted these Asset Backed Securities themselves short term, thus having to act as asset strippers or temporary money lenders on the basis of these papers. All still under the point of view: bridge over, bridge over until this business takes off again. At the same time, every day in the business newspapers: “the bankers are optimistic that this business will soon take off again.” Of course, it is not taking off again. Now they gradually make the transition to: obviously it is not accomplished by liquidity injections, actually one must help out the credit power of the banks.

How then does a central bank do this? It has precisely the means for it, namely the credit that the banks need, it can then make it cheaper, it can to a certain extent make deposits accessible instead of the securities which are all done away with. It can permit them to borrow money from it at relatively cheap prices, then the banks have debts to the central bank, but they have something in their hands for it, namely the money of the central bank that authorizes them to again assign credit. They can do this, as can the central banks. This has only one small hook: not only the power of the banks to give away credit has shrunk, but the other side, the power to create investment material has also gone on its ass. They would again have to set into the world new promises to pay interest as securities so that the cheap money of the central bank can again be cleverly invested with them, because it is not that now as substitutes for all these broken down finance capital investment opportunities suddenly noisy shoe makers and hairdressers stand on the carpet and say “Give us the money, give us the money,” and everything that can no longer be invested in such financial products is invested now in shoes and hairstyles and cars. Just as it is not that the banks could now earn in the real economy instead of in their financial market, so also the alleviation, this price reduction of access to means of credit, is very much a half measure, something a state central bank can come up with here because, as said, they can help out the banks with the business of granting credit again, but the necessary other side - the banks create investment possibilities - is not yet in order.

Then somebody has the same idea as the American president. He donates money to his society which, otherwise, the state would have collected, and then maybe this gets demand going, generates so much productive business that then the banks again have an address to which they could get rid of their credit and a new phase of growth takes off in America, which has cleansed itself. Only, the announcement of such an economic stimulus program by itself creates no demand, never mind a solvent one. And so as the financial markets are cobbled together, they also respond differently to it, inferring from the announcement of an economic stimulus program not that it will soon take off again, but that even the American President finds the situation very serious. And then they say, “Yes, this is what we have suspected for a long time,” and if the American president says this, even without being known as a financial genius, he is nonetheless the leader of the largest economic power in the world and he can spread the greatest stupidities, which are always announcements about what happens in his country, when he virtually says: the ruler over the largest economic power on earth expects that without government assistance it will go south, then the critical financial experts hear only “south, south,” and then distrust this wonderful financial assistance, which is anyway only on paper or in the planning. So much then for the state’s contribution to the financial crisis.

Bernardo: "Seven theses on the present crisis"

posted Mar 28, 2009, 1:13 PM by John Clegg

Seven theses on the present crisis

by João Bernardo

A survey of the financial crisis, systemic regulation problems for global capital, the economic growth of China, India and Brazil and its relation to the investment strategies of transnational capital.

"Contrary to what happened the 1930s, the economic and financial crisis which the United States is undergoing is not a world crisis but rather the strengthening of the development opportunities of huge areas of the globe."

The author asserts that the tension between nation states and transnational corporations, with neither at present in a position to oversee the interests of the global system as a whole, will be central to any resolution of the crisis.

With declining union membership ruling out the trade unions' earlier role within post-war Keynesianism of brokering higher productivity in return for rising living standards, Bernado sees credit expansion as having become the new disciplinary weapon of a, for the moment, fragmented labour force. But, with unions functioning now primarily as "holders of capital" this weakened labour representation contains its own potential problems for capital in controlling and integrating the working class.

Source; Revista Textos de Economia (vol. 11, nº 2, 2008), Departamento de Ciências Econômicas, Universidade Federal de Santa Catarina (Brazil)


As opposed to what left-wing Marxist economists and historians usually assert, I have, for many years, held the view that a theory of capitalist crisis was not possible. Each crisis is specific and results from the fact that the economic system, with the worsening of certain contradictions, is unable to overcome obstacles which in other circumstances would have been easily overcome. So it all depends then of knowing which contradictions worsen and this analysis changes from crisis to crisis. On this basis, to develop a theory of crises would be to fall into formalism and substitute an analyis of structure with descriptions of episodes.

On the other hand, sectoral crises have frequently been confused with global crises. When a given branch of activity is in decline there is always someone who anticipates a generalised catastrophe of this situation for all of the economy, forgetting that − which is simultaneously cause and effect − the decline of one branch brings about the rise or even the emergence of other branches. Even worse, the cyclical functioning of the economy is frequently mistaken for a crisis. Galbraith said, in a frequently quoted piece, that economists have predicted many more crises than those which really happened, and he is certainly referring to his own colleagues and not to Marxist leftists prone to write about the economy, since for these latter a new crisis is just around every corner. There is a lot of magic in such deliberations as though the mere fact of discussing crises could weaken capitalism. And those Marxists who believe that the basis of capitalism continues to be very solid and that its capacity for ample growth is not affected are looked upon with hatred by other enemies of capitalism, as though an analysis which they think wrong could breath new life into the system.

In truth, the anticapitalist left show their fundamental weakness on these occassions, hoping that they are able to achieve, thanks to the crisis in capital, what they haven’t achieved by the very force of the working class. The leading lights of the revolution haven’t yet decided whether capital will auto-destruct or whether it has to be the workers who destroy it. And as long as they waver in this indecision, the far-left will never have its own strategy, or if you like, never mature.

In my opinion, the present financial crisis, − because this is what, for the present, we are dealing with − is the result of various interlinked processes.


One of the factors in the present crisis is the long decline of the United States as an economic power. This decline has gotten worse in recent times and shows itself most flagrantly in Iraq where the strictly economic measures of imperialism were substituted by war measures. One of the most instructive and least used lessons of this deathly war is the fact that a North-American administration which carries out the wishes of the big oil companies, instead of taking over the Iraqian production of oil by using market forces and investment of capital, has instead tried to control it by warfare which has caused the destruction of a large part of its extraction and transportion capabilities. With incomparably higher costs, not to talk about the loss of human lives, North-American capitalism profits much less with Iraqian oil than it would have had, had it not invaded and destroyed Iraq. Compare this paradox with the behaviour of Chinese capitalists, whether private or State, which in recent years have had a huge but discreet presence in Africa just by using economic measures. Those who were once the masters of the international economy are now reduced to some sort of world police force.

In the short scope of these notes it is not my intention to outline, even in synthesis, the main aspects of the decline of the United States economy. But one figure seems to me to be expressive enough, when we know that in percentage of Gross Internal Product, North-Americam investment in material infrastructure of Communication and Transport is half (2.4%) that of the European Union (5%). Thus we are dealing with the deterioration of a general condition of production which affects all economic branches. The United States is not just going through a financial crisis, but over the last few decades has accumulated problems which affect the very heart of the productive process.


Closely related with what I outlined in the previous thesis, another of the factors in the crisis is the rebalancing of world powers. Typically between 2/3 and 3/4 of direct external investments − which here we can define in a simplified manner as those investments made by transnational companies − circulate between three poles: Europe, the USA-Canada taken together, and Japan. In the first half of the 1980s, developing countries received 25% of total external direct investments, this being reduced to 17% in the second half of the 1980s. In the years which followed, an increase was noted which caused some economists to reach hasty conclusions, given that in 1991, 26% of external direct investments were in developing countries and 35% in 1992. But this increase was due to the fact that some three dozen developing countries, including China and India, which up till them had been opposed to transnational investment, had opened up their borders. At the same time the wave of privatisation of publicly owned companies in developing countries increased the scope for opportunities for foreign investment. In 1995, this group of countries got 32% of external direct investment, although by 1999 this had declined to 25%.

Contrary to a deep-seated conviction held by the population of the poorer countries, the transnational companies don’t prefer to exploit cheap labour but qualified labour, because this is more productive. It wasn’t in Haiti or the Congo where capitalism prospered but in Sweden and Germany. What transnational investment is looking for are regions of greater productivity where the economy is developed and the work force is sophisticated. Certainly, if two work forces have the same levels of qualification, and in dollar terms one of them is worse paid than the other, the transnational investors would prefer it. But even in this case they would pay more attention to the material infrastructures of the country or the region and the lack of infrastructure might not compensate for the advantages of lower wage costs.

This same criterion governs the sharing out of direct external investments within the group of developing countries. The big transnational companies look out for countries with a more qualified work-force and with material infrastructures which can secure more potential for growth. Because of this, outside the three great poles, made up of the European Union, North America and Japan, the remainder of direct foreign investments has been focused preferentially in China, India and Brazil. In this way, while on the one hand we see the decline of the United States, on the other hand, we see a reorganisation which turns China into a new economic power and puts India and Brazil well on the way to becoming economic powers. Contrary to what happened in the 1930s, the economic and financial crisis which the United States is undergoing is not a world crisis but rather the strengthening of the development opportunities of huge areas of the globe.


This picture is made much more complex by the fact that in the last few decades, countries have stopped being truly economic entities and thus the national states and their respective governments have lost their supremacy. I have written widely on this topic and lots of other writers have done the same, each one with their perspective, but dealing with identical facts. What characterises the transnational flow of capital is the ability to overcome all custom controls, depriving governments of their own weapons.

To understand the ins and outs of this question we can start with a simple example. In the first half of the 80s, when the Reagan administration was concerned about the competitive edge of Japanese exports of cars, trucks and motorcycles they imposed increased import charges. But Japanese companies simply invested in the United States and began to manufacture their vehicles there, thus hastening even more the decline of the North American auto industry. In fact it was enough for the big Japanese companies to be apprehensive about the custom duties to begin manufacturing inside the United States, as also happened with machine-tool production. And the same happened in the second half of the 1980s with the production of computers. According to Dennis Encarnation, professor at the Harvard Business School, at the start of the 1990s, sales in the United States of factories and production outlets, set up in the US but owned by Japanese capital was double that of Japanese exports to the US. The same thing happened, in the opposite direction in the mid 80s when many Western companies in order to avoid protectionist measures by Japan, set up factories there rather than exporting their products.

Today, what most statistics show as a commercial flow between national economies, really happens within transnational corporations. According to a crucial study by DeAnne Julius, at the end of the 80s, business between companies and their overseas branches made up more than half of the total trade within the OECD countries. In the same years some 1/3 of North American exports were sent to foreign firms owned by companies with US headquarters and another 1/3 were made up of goods which foreign owned companies with branches in the US exported to those countries where they had the headquarters. In the opposite sense, in 1986, nearly 1/5 of imports to the US came from US owned companies situated in foreign countries and nearly 1/3 was composed of goods which foreign companies with branches in the US had gotten from the countries where they had the headquarters. If we take a global view, at the end of the 80s, the calculations of DeAnne Julius show that the total sales made by North American owned companies, whether headquarters or branches, to foreign owned companies were five times that of the value usually attributed to US exports. And at the same time foreign firms bought three times more than the volume of US imports. And at this time amongst the 12 main OECD countries, 11 had sold more in the US through north American branches of companies with headquarters in those countries than through direct export.

In a situation where only nationally based data is made public, and company statistics are confidential, these calculations are very difficult and only the rare economist would dare make them, but everything indicates that the values calculated for the second half of the 80s are even higher. Therefore, when the competitive nature of Chinese goods is mentioned, it is better not to forget that the greater part of Chinese export growth is due to Chinese branches of transnational companies. This shouldn’t surprise us because at the end of the 80s going into the 90s, Japanese branches set up within the US were the biggest exporter from this country to Japan.

In effect, the very fact that the only published statistics have a national basis feeds into the outdated nationalist vision of the economy. Instead of considering the existance of an organised plan of production and distribution inside the big transnational companies some sort of disorganised competition among national entities is envisaged.


A world economy in which the nation states and their respective governments lost their primacy and in which transnational companies are managed by a network of interlinking and always changing poles can no longer depend on national currencies.

In 1970, when North-American official institutions had nearly 24 billion dollars (109) abroad, individuals and firms had approximately 22 billion and this imbalance has grown since then. It means that in trying to set up a world currency, the North-American administration has lost control over this currency. This was the fundamental fact which led to the dismissing of Bretton Woods and to the Smithsonian Agreement at the end of 1971, one of the most important dates of this long process of economic reorganisation which still to this day remains to be completed.

But, in these days, it is not a question of dollars and a comparison between official and private deposits. With the present volume of financial transactions, which is far superior to any banking reserves, it is impossible for the Central Banks to control national currencies independently of the wishes of the transnational companies. Clear or implied agreements have to exist. No Central Bank can sustain its currency if there are systematic movements against that currency.


It is in this perspective that we should understand the changes in credit and the financial mechanisms which have taken place over the last few years. Much is spoken about “speculative capitalism”, apparently ignoring or forgetting that this was always one of the typical concepts of the fascist or proto-fascist extreme right during the 20s and 30s. Hitler’s National Socialism gave “speculative capitalism” a biological connotation, identifying it with Jews, in such a way that the gas chambers in the Third Reich and the Einsatzgruppen (Extermination Commandos) in the occupied Eastern territories were the final consequence of “speculative capitalism”.

There are many leftist Marxists today, who in all simplicity, reproduce this terminology and, even worse, these ideas. Under capitalism there is no collision between production and credit; actually it didn’t even exist in merchant times as least in regard to credit gotten by banking instruments. The function of credit is to enable production and when it reaches the present complexity, the financial mechanisms cannot but be very complex and above all diversified. Also in circumstances in which the national framework of economies is superseded and in which anyway the printing of national currencies is perfectly insufficient for its needs, the banks and other financial institutions see themselves as being oblidged to create other forms of banking money and doing it directly in the transnational scope in which they operate.

Obviously there are speculators in financial sectors but they always existed just like there are counterfeitors in industry and pickpockets in shopping malls. It is not in this way that we can understand how the economy works. It would be good, if sometimes, Marxists would follow Marx who in “Capital” proceeded to criticise capital not by its irregularities but by observing it normal functioning.


So there exists a new economic framework, there exists the means, there exists the tools but what is lacking is the coordination of them. The regulatory mechanisms are obviously inadequate for present day needs. With the decline of nations in the economic framework and likewise the decline of national governments, the institutions and interstate mechanisms are under pressure. Some of them survive as they were laid out in the Bretton Woods Agreement, others underwent changes which didn’t alter their substance, while big transnational capital overshot all of this by its development. On the other hand, however, the big transnational companies while they had shown themselves more or less able to regulate themselves, they seemed not to be able to regulate the system as a whole.

Really these big companies tried till now to get the best of both worlds, being public institutions in practise but still being private by law. In 1992, the World Bank adopted the Guidelines on the Treatment of Foreign Direct Investment, a document accepted by the World Bank and The International Monetary Fund after consulting interested governments, business groups and international legal associations. But although it was a assortment of voluntary recommendations, it’s aim was to regulate Government action rather than the transnationals. The World Bank on this occasion effectively declared that the Guidelines were “ useful parameters in the admission and treatment of private foreign investment in their territories, without prejudice to the binding rules of international law.” The secondary aspect has been in negotation for a long time within the framework of the United Nations Code of Conduct on Transnational Corporations, but after informal consultations in July, 1992, the delegates decided that any agreement was impossible and called a halt to all negotiations conducted over the previous 15 years. Thus a deliberate legal vacuum was created around the transnational companies, in such a way that one of the main ideological organs of these companies, the weekly magazine, The Economist, repeatedly insisted that there were no transnational companies but only the sum of national companies.

The present crisis seems to me to point the finger at this fallacy. Institutions which are restricted to a national orbit are overtaken, which undermine the basis for the survival of international organisations that are based on the model of an assembly of nations. The more practical alternative seems to lie in a new coming together of the transnational companies and new supernational institutions which will emmerge from the present international institutions already in existance. But the fact that the big transnational companies act as sovereign entities on the world scale without this sovereignty being recognised officially is one of the main obstacles, which make it difficult or even prevent the urgent reorganisation of economic regulation.

Finally, it remains to do on a world wide scale what China was able to do with its economy, juggling State capitalism with the big private companies into one decision making body, consecrated by the admission of private capitalists as members of a Party which continues obviously to call itself Communist. Thus it would seem that Chinese capitalism is showing the way forward.


The big difference between this hypothetical system of regulation which I refer to, or any other one like it, and the Keynesianism which was fostered as a consequence of the Second World War is in the integration of the workers. In the Keysenian model, in the way in which Social Democrats and Christian Democrats applied it, the rate of ecomic growth, the increase in monetary supply and the rate of growth of wages come about from tripartite agreements made by the employers organisations, government and trade unions. However for the trade-unions to be able to carry out this role of regulating the labour market it is necessary for them to have a good percentage of workers as members. However the trade-unions can no longer be considered as representatives of the workers given a situation in which the rates of union membership have dropped dramatically.

In Australia, where more than 50% of the work force were unionised in the 1970s, this percentage dropped to 25% in 2001. This trend was practically identical in the United Kingdom, dropping from almost 50% in the second half of the 70s to some 30% in 2006. Also in Italy, where in 1980, some 50% of the workers were unionised, now the rate is under 40%. In the US, 34% of the work force were unionised in 1965 and only 12% in 2006. In Germany, the rate of unionisation was greater than 30% during the 1990s but fell to 20% in 2003. And finally in France where the unions organised 20% of the population in the 1970s this had fallen to below 9% in 2006. Very few countries have escaped this tendency.

Today the unions do not exist as organisors of the labour market, a role they are unable to carry out. The unions today survive mainly as holders of capital. The mechanisms which have allowed the unions to appropriate large share holdings are complex and varied. They are beyond the scope of these notes and I have dealt with these questions in a recent book in partnership with Luciano Pereira. To show the size of the problem it is enough to say that in 2003, of the 17 trillion dollars (1012) which made up Pension Funds and Mutual Funds in the world, some 12 trillion had a trade union connection or involved some other representatives of the salaried people.

Under these conditions can capitalists control workers only by company discipline and the huge system of of electronic control set up outside the workplaces? Certainly today, credit has become one of the most powerful ways to control workers. In the more developed countries the generality of individual credit and electronic money has led to the disappearance of any demarcation between the amount of salary and the amount of debts and has placed most workers in a position like those of a previous time when they were in debt to the company owned store. They became prisoners of debt, as today is happening to all wage earners in the developed countries. Indeed the fact that the present crisis is happening on the level of credit could become a very serious factor in the domestication of workers. And capitalists will not hesitate to use all aspects of this weapon.

Despite this, are the present mechanisms of control sufficient? After destroying or marginalising the bureaucratic organs of representation and integration of the workers can the bosses on their own create new ways to regulate the economic system including the labour market? Today journalists and academics who accept lowering their standards prattle on about the free market and they do it precisely at a time when oligopolies and oligopsonies really control the market. But despite all the demagogy of this speech the common people see themselves in it because they experience the only free-competitive market, competition between workers. Until now this has been, in economic terms, the big factor in the undisputed supremacy of the bosses over the last two or three decades. The market is only freely competitive for the workers who compete amonst themselves. But this fragmentation of the workers from now on, cannot but raise serious problems for capitalism to globally regulate the system. This is the crucial question which social struggles will have to answer over the coming years. And on that will depend the evolution of the crisis and the manner in which it will be resolved.

Free Association: "Speculating on the Crisis"

posted Jan 18, 2009, 12:29 PM by f tcm

'We are an image from the future'
(graffiti at the occupied University of Economics and Business in
Athens, December 2008)

When we wander the streets of Leeds, Mexico City, Mumbai the wealth we
see seems somehow familiar, yet we wonder where it has come from. That
wealth is familiar because we produced it. But we feel disconnected
from it because it has come not from our past, but from our futures.
It is this problematic, this peculiar relationship between the past,
the present and the future, that offers one of the keys to
understanding the present crisis of capitalism.

The social relations and the processes that make up neo-liberalism
have been blown apart. And it's in times like this, when a system is
in far from equilibrium conditions, that it is easier to see what
these social relations and these processes are. Like an exploded
diagram helps us understand how an engine is assembled… except the
capitalist mode of production isn't an engine and this explosion was
neither small nor controlled.

Neo-liberalism meant deregulation, of labour markets and of trade. It
meant the removal of state-guaranteed protections for workers and the
environment, and attacks on trade unions. It meant the removal of
subsidies—e.g. for food staples—and the dismantling of public
provision of services, such as health and education. It meant greater
'fiscal discipline'—enforced on governments of the South, largely
flouted by the US government—and greater discipline on workers. It
meant new enclosures and the expansion of property- and
market-relations into ever wider areas of our lives. Globally,
neo-liberalism meant stagnant or declining real wages, a declining
'social wage', longer working hours, fewer employment rights and
'civil liberties', less job security and increased general precarious.
As a result of these shifts, profit rates have risen—almost
relentlessly since the late 1970s, in countries such as the United
States—and we have seen huge concentrations of wealth and dramatic
increases in inequality.

But neo-liberalism also involved an implicit or tacit deal, at least
for workers in many of the so-called advanced capitalist economies.
This deal was necessary for the 'resolution' of two problems that
neo-liberalism creates for capital. The first problem appears to be
'technical-economic', it's the problem of 'over-production'. Capital
is only capital when it is in the process of increasing itself,
increasing its own value; commodities are only commodities (and hence
capital) when they are being sold. But how can the increasing pile of
commodities be purchased if real wages aren't rising? Economists
describe this as the problem of 'effective demand', Marxists call it
the 'realisation problem'. The second problem is the danger that the
mass of people made poorer by neo-liberalism will revolt and reject
what is fundamentally an enormous transfer of wealth from workers,
peasants—the planet's 'commoners'—to the wealthy.

Capital's answer to both problems was to be found in the same
mechanism—plentiful access to cheap credit, which sustained a series
of asset bubbles, primarily a sustained bubble in house prices—the
so-called 'Greenspan put'. In fact increasing house prices have been
fundamental to the deal, making us appear wealthier and so disguising
the terms of the deal.

Credit—borrowing—and house price inflation have acted as the necessary
stimulus to growth. Or seen from our perspective, the whole world
economy has rested on our ever-increasing personal indebtedness:
"Between 2001 and 2007, homeowners withdrew almost $5 trillion in cash
from their houses, either by borrowing against their equity or
pocketing the proceeds of sales; such equity withdrawals, as they're
called, accounted for 30 percent of the growth in consumption over
that six-year period." In fact the current global meltdown began with
a credit crunch, provoked by the spread of bad debt: this crisis goes
straight to the heart of the neo-liberal deal.

Capitalism may be in crisis, neo-liberalism may be over, but that
doesn't mean we've won. Far from it. Crisis is inherent to capitalism.
Periodic crises allow capital to displace its limits, using them as
the basis for new phases of accumulation. In that respect, it's true
to say that capitalism works precisely by breaking down.

But this is only when it works: all of the above only appears to be
true when seen in hindsight—after the resolution of the crisis. In
fact crisis is mortally dangerous to capital. The word 'crisis' has
its origins in a medical term meaning turning point—the point in the
course of a serious disease where a decisive change occurs, leading
either to recovery or to death. This has been the case for every
capitalist crisis.

Take the example of the New Deal in the US in the 1930s, and the more
global Keynesian settlement of the post-war period. It's easy to see
this as the inevitable and sensible solution to secure full
employment, economic growth and prosperity for all. But there was
nothing inevitable about it. The poverty of the Great Depression was
only a problem for capital because we made it so. (Capitalists never
concerned themselves with poverty in the 19th century before workers
were organised.) In the 1920s and the 1930s the real threat was one of
global revolution, and capital's future was always in doubt. In fact
the New Deal never 'worked': it took the death of millions and the
destruction of half the world to establish a fully functioning

Just as the idea of a 'deal' only makes sense retrospectively, the
very terms we use to describe what's happening obscure the contingent
nature of crisis. When we talk about 'credit crunch', 'recession',
'deal', 'unemployment', or even 'financial crisis', we're framing the
problem in a way that pre-supposes a capitalist solution.

How can we think of this in a different way that reveals our own
power? One of the reasons we appear weak is because we don't
understand our own strength. Of course, when you're in the middle of a
shit-storm, it's impossible to make a hard-nosed assessment of the
situation: in the current global meltdown, the future is only certain
if we are written out of history. (And predictions risk dragging us
into a linear temporality, one where the past, present, future are
open to simple extrapolation.)

But tracing the lines of our power, and identifying the roots of the
current crisis in this power are also difficult because of the way
neo-liberalism has set out to displace antagonisms. Many of the
elements we associate with neo-liberalism have this as their main
aim—globalisation of production ('blame Mexican workers'),
sub-contracting ('blame the suppliers'), labour migration ('blame
immigrants'), expanding hierarchies ('blame your line manager') and so
on. The clash between worker and boss is shifted, sideways, into a
bitter struggle between worker and worker. These effects have been
amplified by the process of 'financialisation': our pensions, our
schools, our healthcare etc increasingly depend upon the 'performance'
(exploitation) of workers elsewhere. Generally our own reproduction is
so linked to capital's that worrying about 'the economy' has become

But neo-liberalism also depends on a temporal displacement of
antagonism, established through the mechanism of debt. As we said
above, part of the neo-liberal 'deal' involved cheap and plentiful
credit. For capital this solved the realisation problem; for us it
offered access to social wealth in spite of stagnant wages. Rather
than a struggle over social wealth in the here and now, it shifts this
antagonism into the future.

Capitalist social relations are based on a particular notion of time.
Capital itself is value in process: it has to move to remain as
capital (otherwise it's just money in the bank). That moving involves
a calculation of investment over time—an assessment of risk and a
projection from the present into the future. The interest rate, for
example, is the most obvious expression of this quantitative relation
between the past, the present and the future. It sets a benchmark for
the rate of exploitation, the rate at which our present doing—our
living labour—must be dominated by and subordinated to our past
doing—our dead labour. It's hard to over-state how corrosive this
notion of time is. It lies at the heart of capitalist valorisation,
the immense accumulation of things, but it also lies at the heart of
everyday life. "The rule of value is the rule of duration." Under
neo-liberalism, if you want a picture of the future, imagine a cash
till ringing up a sale, forever.

But the crisis has brought the future crashing into the present. Once
we take inflation into account, interest rates are now below zero. In
the relationship between capital and labour—or rather between
capital/labour, on the one hand, and humanity, on the other—we have
reached a singularity. We are at ZERO. Capital's temporality—one that
depends upon a positive rate of interest, along with a positive rate
of profit and a positive rate of exploitation—has collapsed. And the
debts are, quite literally, being called in.

It is not always obvious how the creditor/debtor antagonism maps on to
the antagonism between humanity and capital: it's an antagonism that
is refracted and distorted almost as soon as it appears. But the
everyday appearance of debt collectors and bailiffs underlines the
violence at the heart of the debt relation. In the words of a Swiss
central banker, in the relationship between debtor and creditor "the
strategic situation is as simple as it is explosive". Explosions are
decidedly non-linear events—they are a rapid expansion in all
directions. In the last few months, our relation to the present and to
capital's linear temporality has shattered, and multiple futures are
now more visible.

From capital's perspective, this crisis needs to be contained, that is
closed down. In these exceptional times, measures are rushed through
and solutions imposed because the priority is to re-affirm capital's
temporality and reinstate discipline. This will be the prime purpose
of the G20 summit in April (in the UK) and the G8 summit in July (in

It's important not to over-state the importance of summits—summits are
trying to ride a dynamic that they don't necessarily understand, and
one that they can't control. Capital's logic is as simple as its
metronomic beat—all it seeks is a chance to valorise itself. Like a
river flowing downhill, it will go around any obstacles put in its
way. Of course regimes of regulation can make this flow easier or
harder, but they can't stop it. But summits have in the past provided
a focus for our energies and desires. During these moments, against
one world of linear time, value and the present (the-world-as-it-is),
we have been able to construct many worlds, live other values, and
experience different temporalities.

But the United Nations Climate Change Conference (COP15) in Copenhagen
raises a new set of problems. It's a summit where institutional actors
could be forced to faced up to longer-term, structural contradictions,
and dwindling faith in market-based 'solutions'. Seen through the
prism of temporality, runaway climate change is a non-linear process
but capital's responses so far have been based on a linear timescale,
as if climate change is reversible at the same speed at which it
started. The problematic raised by COP15 is how a world of values and
non-linear time can relate to a world of value structured in a linear,
monomaniac fashion. One of the difficulties in working out our
relation to institutions lies precisely in the fact that movements
operate at different speeds and with a different temporality. It's
doubly problematic because while the crisis of our environment demands
that we act quickly, we also have to resist the pressure from
capital's planners for a quick fix. As soon as crises are 'solved',
our room for manoeuvre is diminished.

We find ourselves faced with different timescales of struggle. Fights
against job losses, wage cuts, house repossessions, rising prices and
old-fashioned austerity are the most immediate. We also have to keep
an eye on the G20, and then, in an even longer timescale, on COP15.
But events like the recent uprising in Greece and the 'anomalous wave'
movement in Italy can collapse all these timescales into one.

In Italy, the Gelmini educational reform law has provoked a
three-month long mobilisation, marked by sit-ins, occupations,
demonstrations and strikes. The movement started with high school
collectives but spread quickly to encompass students, researchers and
workers in education. The 'anomalous wave' has taken up the slogan 'we
won't pay for your crisis', which is fast becoming a NO! around which
heterogeneous movements are uniting. The 'anomalous wave' has been
able to address even wider themes of precarity, economic crisis and
neoliberalism's future. And another of its slogans expresses
participants' refusal to become subordinate to neo-liberalism's
universalising identities: 'We are students, we will never be

In Greece, a wave of anger over the shooting of a 15-year old has
snowballed into a 'non-electoral referendum' which has paralysed the
government and traditional institutions. Major riots have been
accompanied by mass assemblies, occupations of public buildings and
attempts to take over TV and radio stations. In some ways it marks the
return of 'youth' as a category in a way that's not been true for 30
years. Schoolchildren and students have led the first wave, and
commentators talk of a self-styled €700 generation' (a reference to
the wage they expect their degrees to get them). But the revolt has
been so ferocious and generalised because it has resonated with
thousands who feel hemmed in by the future. In the words of an
initiative from the occupation of the Athens University of Economics
and Business, 'Tomorrow dawns a day when nothing is certain. And what
could be more liberating than this after so many long years of
certainty? A bullet was able to interrupt the brutal sequence all
those identical days!'

As movements step outside capital's temporality, the categories of
'past', 'present' and 'future' stop making sense: actions in Greece
clearly draw on a history of resistance against the dictatorship, just
as the anomalous wave in Italy riffs on a whole period of Autonomia in
the 1970s. These movements may now spread to Sweden, Spain, France in
what is being described as 'contagion'. Our temporality is one of
loops and ruptures—violent breaks with the present that throw us
forward into many futures while breathing new life into a past. Even
President Sarkozy has acknowleged the danger (from his perspective) of
such a rupture: "The French love it when I'm in a carriage with Carla,
but at the same time they've guillotined a king." Of course, by
definition exceptional times can't be sustained. But while the world
is in a state of shock, it opens up the possibility for us to impose
our desires and reconfigure social relations.

As usual we've borrowed ideas from all over the place, but we should
make clearer a few sources of inspiration and quotations. The figures
on debt are from Doug Henwood's 'Crisis of a gilded age', in The
Nation, 24 September 2008. John Holloway offered some useful insights
as well as providing the line about the rule of value, from 'Drive
your cart and plough over the bones of the dead', Herramienta,
There's great material about Greece on, and we found the following two
pieces useful: George Caffentzis and Silvia Federici, 'Must the
molecules fear as the engine dies?', October 2008,, and George Caffentzis,
'Notes on the 'bailout' financial crisis', InterActivist Info
Exchange, posted 13.10.08.,

Hudson: "Wealth Creation, or a Ponzi Scheme?"

posted Jan 2, 2009, 7:17 AM by John Clegg

"Wealth Creation, or a Ponzi Scheme?" by Michael Hudson
Global Research, December 23, 2008

Hudson responds to the Madoff affair by interpreting the history of financialisation as a giant Ponzi scheme.

Ticktin: "The Implosion of Finance Capital-Depression and Deflation"

posted Nov 22, 2008, 7:14 AM by John Clegg

The Implosion of Finance Capital-Depression and Deflation

Hillel Ticktin

It is almost impossible to open a newspaper without some reference to the historically important nature of our times. It is clear that we are living through a period comparable to that of the Great Depression in its political economic importance, even though it is unlikely to reproduce its length, depth and misery. These same establishment newspapers and journals find it necessary to defend and justify capitalism as a system, when there is no important movement challenging it. Marx is frequently quoted, both to support and criticise capitalism.1 Nor is it only the media who are enamoured of Marx and gripped with self-doubt. Bankers and other establishment figures have excused themselves for not taking Marx seriously. Banks’ advice now includes the caution that Marx may be right about capitalism collapsing under the weight of its own contradictions.2 Although, we may assume that the authors are not entirely serious, it is nonetheless a sign of the times.

Karl Marx appears then to have made a return from the grave to which he had been assigned in the nineties. Marxism has been declared wrong, irrelevant and worse for one and half centuries, only to return with renewed force. The suddenness of the conversion was unexpected. After all, far-left parties are marginal at best and detested at worst. The economics profession is, as ever, pro-market. Why then has there been this criticism of capitalism itself?

It was almost an orthodoxy that capitalism could always re-invent itself. That has been repeated by the historian Tristram Hunt 3 He points out that Engels had repeatedly expected a crisis to crack the system. He derives his material from Engels’ letters to Marx and concludes that capitalism gets through its crises. There is no doubt that capitalism is not at an end not least because there is no working class movement for socialism. However, Tristram Hunt has missed the point. We are now living in a period of instability, and the instability is that of the system itself. When someone argues that capitalism has survived, the question is always by what means. After all, the system has survived through repression, imperialism, and war as well as through the welfare state. We have never had a peaceful capitalism in the developed countries, without exploiting peoples beyond its borders. In the third world, the situation was and remains dire, with certain exceptions.

It is not accidental that Marx can be quoted and that the system itself be questioned by those at the heart of the system. This is in part because those personages know the weaknesses of the system in some detail but it is also in part because the Cold War is over and Marx is no longer tarnished with the taint of Stalinism. It is of particular note that these writers and commentators see capitalism as a system even if they argue that there is no replacement. Once capitalism is perceived as a system, its limitations can also be discussed and then it is a short step to perceiving capitalism itself as in evolution from its birth to its dotage.


Defence of Capitalism in the Downturn

The wave of questioning has led to three lines of defence. We are told that in the end we will be back where we were before the downturn or perhaps before the speculative rise in asset prices from 2004. Simon Jenkins, a liberal commentator, has argued that all the discussion of the limits of capitalism is just hot air.4The failure lay in the regulators and the politicians who removed the regulation or who urged banks to extend their lending. Rationally considered, it can be argued that the financial crisis was an accident of history caused by the greed or incompetence of bankers or lack of regulation over a market which has to be regulated in order to function properly. In fact, there are three theses being put forward here.

Firstly, it is argued that capitalism is necessarily cyclical, but eternal, and hence the economy will recover and be better than ever, having learned its lesson. Secondly, it is maintained that the market requires regulation and regulation was systematically reduced over a period of more than twenty years, notably through the repeal of the Glass-Steagall Act in 1999 in the USA, allowing commercial banks to operate as investment entities as well as continue their everyday functions.5 Thirdly, it is held that things might not have gone awry had not a number of individuals been so greedy for ever higher rewards. A fourth thesis could also be put forward. The contradictions of capitalism are showing themselves but the system will continue as long as there is no political movement to replace it. The first view merges with the fourth. Much of the organised left effectively supports the last view, having given up on the idea of capitalism entering a systemic crisis. Tristram Hunt’s argument fits in here.

Clearly, none of these arguments says much for the capitalist system itself but then ‘the danger of meltdown’ has been a constant refrain in all the media. It would appear that both the capitalist class and those who manage their operations have been seriously frightened. Indeed, the two weeks that followed the nationalisation of the mortgage companies was described in graphic detail in the media, ‘Nightmare on Wall St’ being probably one of the best headline.

At the same time, although there is no organised left of any importance in the USA or Europe, the population is both worried and angry. It is one thing for a factory owner to receive a subsidy but another for bankers to be bailed out. Most people do not see bankers as anything but parasitic, receiving huge salaries for receiving other people’s money and lending that money out at exorbitant rates of interest. While financial capital is necessary for the capitalist system to function, the dominance of finance capital and the huge rewards it receives are a function of the present stage of capitalism itself and that view is widely held. Outside of the Anglo-Saxon countries, industrial capitalism plays a greater role and finance capital is often resented. As a result, Finance Capital and its functionaries see themselves as beleaguered, and in a fragile situation, both because of the threat to their ‘business’ and because of a possible systemic threat.


The Implosion of Finance Capital - A Turning Point in History

In these notes, we have made the point that we are living through a turning point in history6. Finance capital itself has imploded and as the USA is the heart of finance capitalism, the dominance of the USA as the controlling world power is in decline, without a successor. One author writes that it is “inevitable that the Anglo-Saxon model of unfettered capitalism that has dominated thinking for half a century will be much diminished. What will replace it is unclear, but it may well look more like a form of state capitalism - perhaps not full-blown, but something much closer to Chinese capitalism than would have seemed conceivable just a month ago.” 7 However, it is clear that that the USA will remain the dominant power and China will continue to be dependent on it for investment, for technology and for the market for its goods. Another writes:”The autumn of 2008 marks the end of an era............To invert Karl Marx, investment bankers may have nothing to gain but their chains”. 8

At this point, it is worth defining Finance Capital. Finance capital is a Marxist concept, which is often misunderstood and insufficiently theorised. It is defined as abstract capital: that is to say, abstracted from its conditions and locality and hence automatically global as opposed to industrial capital, which is confined to a locality or a number of localities. It is financial capital become independent and dominant over the process of accumulation. It is unproductive of value and so must extract it from the productive sector. It is predatory and parasitic in that it transfers capital from where it is originally accumulated to itself. It then invests where it can obtain the maximum return in as short a time as possible. It therefore invests in unproductive areas like property speculation, commodity speculation, equity and bond speculation as well in itself –in derivatives of all kinds. It invests in industry but in so doing it distorts the economy and industry in its own interests in order to obtain maximum returns as soon as possible. It therefore has every incentive to bend the rules, change accounting practices, and avoid tax. In the present period, it has extended the practice of asset stripping enterprises, the most obvious examples being given by private equity. It avoids investing in innovations that require long-term involvement, preferring industry that will give high returns quickly. Even where industry does not borrow capital, the norm is set by finance capital. In general, finance capital is global and so dominated by the major economic power-the USA, with the assistance of the UK, but not all countries conform to the same degree-witness Germany and France.

In the 1970s, finance capital returned to its former role, replacing industrial capital as the dominant sector of capital. The theory of monetarism was its economic policy while so-called ‘neo-liberalism’ was its political-economic strategy. This was a deliberate shift in order to contain the working class, who were demanding more control over production, higher wages and better conditions. Industrial growth shifted downwards, unemployment rose, the government found itself with a fiscal deficit and so reduced welfare and other government expenditures. The levels of unemployment were hidden by shifting the long-term unemployed onto new categories. For example, in the UK, they receive disability benefit, over fifties receive pensions and the young go onto various training schemes. The reality is that the number of economic inactive rose from around 1 per cent in 1970 to figures lying between 10 and 20 per cent, depending on the years involved. On the other hand, profits rose, and management incomes rose many times. As is well known, income distribution has never been so skewed since the Second World War. On the one hand, there were large sums of money to invest but on the other hand, there were limited investment opportunities. This was all the more so once the Cold War came to an end. Official military expenditure in the US budget as a percentage of GDP fell to well under half of what it had been in 1986 by 1997. The Iraq and Afghan wars have doubled the figure of military expenditure but the budgeted military expenditure as a percentage of GDP is still not much more than half of what it had been in 1986.

The point of the last two paragraphs is to provide the background to the current implosion. Apart from the flows of money coming from pension funds and insurance companies, the rich and seriously wealthy have had huge resources looking for an investment. The Swiss Bank UBS has the largest total of ‘Assets under Management’ of any bank- some 3.2 trillion Swiss francs. One estimate argues that there is over 500 billion dollars of money per annum, looking for investment coming from the third world, apart from official flows. While the Chinese and Japanese governments have accepted the need to put much their money into US government bonds, private investors prefer to get higher returns. The pressure, therefore, on the investment houses was enormous, given the competition, which exists among them. Capital, therefore, turned to investing in itself. We have given the figures in the previous Critique Notes,9 but it is enough to note that the total over the counter derivatives rose five times from 2001, while credit default swaps rose from almost 1 trillion dollars to 62 trillion dollars. The Dow Jones index of shares rose 7 times from 1987. There was a huge asset inflation during this period of revived finance capital. The house price rise in the USA and the UK was just one aspect of this asset inflation. At the same time, the rewards to finance capital soared: “As the financial industry prospered, its share of the American stock market climbed from 5.2% in 1980 to 23.5% last year”.10

Derivatives became an arcane way of extending credit on a huge scale, as banks could ‘securitize’ their loans and so extend new loans. Combined with the expansion induced by the Iraq War, there was a short-lived boom on a global scale. It was global because finance capital both invested capital in China, which then expanded industry on a vast scale, and vastly extended worldwide credit. The increasing US balance of payments deficit temporarily boosted third world balance sheets and so left the IMF with a weakened hand. The vast expansion of derivatives, particularly credit swaps, could only end in grief, given the limited base. Given the static nature of real incomes, demand for goods and services, and Chinese industrial goods in particular, could only reach a ceiling and go down. Without an extended war, the system had to crack. The fact that it did so over house prices was not coincidental since they embodied both the derivative expansion and the limit on workers’ incomes


The Current Crisis and Its Denouncment

The fall of commodity prices, including oil in particular, preceded the threat of meltdown. Oil had dropped by almost half from 147 US dollars in July to 70 dollars in October. We have asserted over a number of issues in these Notes that the impetus behind the rise in prices was the same as the reason for the credit crunch and overall downturn-the very- the large surplus of capital over areas of profitable investment. Finance capital has turned to derivatives, wherever it looked a possible haven, and so implicitly to loan packages of various kinds, as well. While the press has been divided between the viewpoint that shortages forced up the prices and the impact of speculation, it has become known that the Federal Reserve played a role in helping to bring down commodity prices11. It is, therefore, clear that speculation played a crucial role in the price rises, even if shortage had some part to play. The division between the West Europeans and the Anglo-Americans over the cause of the price rises ran exactly between those where finance capital was dominant and those whose economies remained primarily industrial.

It has to be said that there was every indication that the US government needed to intervene in the world economy in order to ensure its own stability both internally and internationally. So much for the market bringing order or stability. The nationalisation of Fannie Mae and Freddie Mac has made this point very clear. It seems that the Bush administration did not want to do it and so took longer than was wise to put the two firms into conservation, as it is put. The fact that a conservative administration has had to intervene in saving Bear Stearns and the two mortgage wholesale enterprises plus AIG has been justified by arguing that these are temporary measures. However, commentators, like Martin Wolff in the Financial Times, have pointed out that privatisation will take a long time and certainly not two years. 12

It is possible that the subsequent threat of meltdown would not have happened if the US Government had acted faster and had it also saved Lehman brothers. It is clear that market ideology prevented them acting until too late. In a sense, it was too late because the end result has been an extinction of the investments banks combined with the prospect of a tight regulatory regime, over partly or wholly nationalised banks. Finance Capital will not be able to play its previous role.

The subsequent passage of the Troubled Assets Relief Program (TARP) by Congress was assailed as being socialist by the right and the left has had much fun with the ultra-montane Congressmen, who saw freedom coming to an end with the advent of ‘socialist intervention’. There is, however, a serious side to their complaints, in that government intervention does limit the operation of the market and so the functioning of capital. It does lead to the growth of government and so of bureaucracy under capitalism. Without question, this is a far better solution than a deep downturn or a depression. At the same time, Congress and the capitalist class are faced with a choice of two evils, from the point of view of capitalism, but only seriously stupid or blinkered politicians could want to cut their noses off to spite their faces, and refuse to bail out the banking system, so precipitating a possible repeat of 1929.


The Effects of the Solution

There are two results that follow here. The first is the question of ideology. The doctrines propounded by finance capital going under the name of ‘neo-liberalism’ now look dated at best and a failure at worst. The market does not know best and in fact would collapse without government intervention. As the downturn is likely to last several years with further government intervention quite certain, these issues will continue to come to the fore. Governments have been pushed to intervene and will continue to be forced to intervene to help those evicted from their homes and those living in fuel poverty, while continuing to nationalise banks and probably industrial firms, as well as to prevent a systemic collapse. Countries, particularly those in the third world, will have to be helped to survive both for their own sake and in order to avoid a domino effect.

Commentators talk of the socialisation of risk and the privatisation of profit. In fact, this has always been the case, but the absurdity of the Thatcherite claim that you cannot buck the markets has brought reality to the fore. As the downturn continues, we might expect ‘market fundamentalism’ and even the concept of ‘lassiez faire’ to lose their dominance. Keynesianism has returned, at least in name. Sam Brittan, a deputy editor of the Financial Times announced that:

There will be no “glad confident morning” for free-market principles for a long time to come.”13

The second question concerns the extreme nature of the dangers facing the capitalist system. Again, it is clear that without the nationalisation of the two mortgage companies and AIG there was a risk that many non-US banks, who had invested in these companies, would be in grave trouble. Given the fact that banks, like the Swiss bank, UBS, had already suffered huge losses this could tip them over the edge. This situation would apply to hedge funds and other financial institutions. The danger to the system as a whole was considerable and had to be quickly dealt with. In fact, it took some time for the government to make up its mind, and for Congress to pass the administration’s preferred bill, so prolonging the risks and the agony. The nationalisations combined with the proposed government purchase of ‘toxic debt’, supply of money to the money markets and further purchase of shares in troubled banks have steadied the world monetary and credit system for the time being. If the US government had followed the advice of its right wing and let the market take over, then the crash of 1929 would have looked like a picnic. Engels dictum that every crisis is worse than the last would have been proven. The failure to pass the initial bill had led to precisely such fears: “Terrified of a catastrophic Wall Street meltdown, the House Friday approved an unprecedented $700 billion bailout bill - and President Bush quickly signed it into law”. 14


Keynesianism and Social Democracy

While commentators may accept criticisms of capitalism, they remain bound to the system itself. Will Hutton speaks for them when he argues that the issue is not capitalism itself but the necessity of a fairer and more redistributive form.15 However, the capitalist class will not willingly return to the social democratic form of the immediate post-war period, as it would be far too dangerous to the system itself. Full employment, a high rate of growth, a rising standard of living, free health and education and affordable housing provide a springboard for the working class to demand greater control over its own life, better working conditions and higher wages. In Marxist terms, the abolition of the reserve army of labour and the removal of the fetishism of the commodity leaves the system without control over labour. It only worked in that period because the working class had come through a much worse period of fascism, depression and war and was still contained within a Cold War.

The frequent references to ‘moral hazard’ indicate that that the ideology of the market remains. The fact that dithering over nationalisations due to worries around the ‘moral hazard’ involved has receded shows that market ideology is losing some of its hold.

The strategy of Finance Capital has gone into meltdown and there is no replacement. We are at the end of the beginning of this downturn. The next phase involves declines in industrial production, and overall profits and a large rise in unemployment. Governments are talking of investment in infrastructure. Will Hutton points out that it makes sense to raise unemployment benefit.16 At the same time, contemporary economic ideology dictates a balanced budget or at least the lowest possible deficit. There is no question that governments could pour money into the economy, nationalising failed concerns where necessary and so limit the downturn. However, the concept of workers’ wages being raised in order to increasing spending power is unlikely to be endorsed, as it would obviously reduce profits not just immediately but for some time in the future.


The Military Solution - A New Cold War?

The usual alternative of increasing military expenditure is not an option at this time because of the failure of Iraq war and the absence of a Cold War. It is possible that the sabre rattling over the Russian invasion of Georgia was seen as an alternative rallying point, raising the spectre of a new Cold War. However, the idea that modern Russia could conduct a Cold War is so absurd that one wonders whether the British and US foreign offices knew what they were doing. Russia today is a weak power. Its troops went into South Ossetia, in Georgia, in large part because of its weakness. Its Southern borders are permanently unstable. Chechnya remains under occupation there. The Russian elite took the opportunity to raise its standing among one section of the population in that area and warn off the rest. No doubt the Russian elite harbours expansionist tendencies but that does not mean that they are about to invade former Soviet countries. Russia’s military forces and thermo-nuclear weapons are not those of the USSR. They have been run down and the military personnel remain demoralised.

The strong stand taken against Russia directly conflicted with Western aims in the area of the former Soviet Union. Hitherto their aim has been one of helping to remove the remnants of Stalinist forms and replacing them with the market. Since that has turned out to be an elongated and possibly unsuccessful process, Western governments, or the capitalist class, have every interest in encouraging Russian governments to participate in global market forms. Instead, there were demands that Russia not be admitted to the World Trade Organisation. Since the dominant section of the Russian elite does not want to join the WTO, and is being pushed by the more liberal section of the Russian elite as well as by the West that demand seemed absurd.

The Western campaign did lead to a massive outflow of money from Russia. When the financial crisis emerged Russian finance capital was badly hit. With the continuing decline in prices of raw materials, the Russian economy will be in more trouble than most countries, other than Iceland, to which it is, paradoxically, giving a loan. There is every probability that at the end of the downturn Russia will have achieved a more substantial return to state control of the economy.


Depression or Recession

What the downturn will now be called is a question of economists’ vanity. For some time, downturn was used rather than recession. Then recession became acceptable. Today the question is whether one can call this downturn a depression. In any reasonable discussion, it would be called a depression, since the word recession was invented to avoid the odious associations of a depression, of unemployment, hunger and suicides but did not add any more meaning to the discussion. After all one can have a shallow depression and a deep depression. Today there are discussions whether the recession will be shallow or deep, with many opting for the latter. As Paul Krugman noted:

“ Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed's manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish - and long”17

One may add that the upturn, when it comes, is likely to weak.

As there is no comparison with any other downturn other than the 1929 depression it is clear that we are in a classic depression, with somewhat more spectacular fireworks but with much more government intervention. Whereas the downturns in the last century after the last World War were largely a result of anti-inflationary measures, the downturns of March 2000 and August 2007 are a result of surplus capital not finding a profitable outlet.



1 One of many instances is that of John Plender: "Shut Out" in the Financial Times, 18-10-2008, p.11, in which cites a very pertinent paragraph from Marx: "Karl Marx was wrong about many things, but in 1893 he provided as good an account of today's financial implosion as any living commentator. "To the possessor of money capital, the process of production appears merely as an unavoidable intermediate link, as a necessary evil for the sake of money- making. All nations with a capitalist mode of production are therefore seized periodically by a feverish attempt to make money without the intervention of the process of production."
That passage from Das Kapital is a fine description of the financialisation of the economies of the English-speaking countries in recent years and of the resulting credit bubble." Das Kapital first appeared in 1867, as is well known, and Marx died in 1883.
2 Eye on the Market - A commentary written for JPMorgan clients by its Global Chief Investment Officer Michael Cembalest and Private Wealth Management Chief Investment Officer Hans Olsen, New York: JPMorgan, 7 October 2008, Paragraph 6. "How will we ever get out of this mess?"
"Most of our professional careers were spent watching global central banks fight (and then win) a battle against inflation. The tragic irony is that if nothing is done to prevent this credit spiral, those inflation gains will be for naught, with economic activity crumbling in a deflationary spiral. The stakes are high, with each region having its own visceral memories of what it's like to get it wrong.  For the U.S., the Depression of the 1930's.  For Japan, the 15-year deflation of the 1990s. Instead of history, the greatest fear for Europe might be that Karl Marx was right: that capitalism is a system doomed to destroy itself through its own internal contradictions.  So to answer the question, I think that global consciousness has been rudely awakened: while the decision to build a market economy based on massive amounts of debt was left to the private sector (see second chart below), the consequences of unwinding it cannot be. The flurry of public sector activity in the last 12 months and 12 days suggests to me that by the end of the year, we will see more explicit plans to safeguard the surviving banks, which will mark the beginning of the long road back."
3 The Guardian, London, 20th September, 2008. Tristram Hunt. 
4 Simon Jenkins: "The end of capitalism? No, just another burst bubble.Those drooling over the free market's collapse are wrong: this passing crisis is down to lax regulation and craven ministers" Guardian, 15 October 2008, p.29. 
5 A short history of modern finance, Link by Link, Economist, 16 October 2008, p.96-98
6 Critique Notes, Critique 44, p;1-4.
7 Andrew Graham, 'If China spends its trillions, recession could be averted', Guardian, London, 15 October 2008, p.28: 
8 A short history of modern finance, Link by Link, Economist, 16 October 2008, p.96.
9 Critique Notes, Critique 45, p.172. 
10 A short history of modern finance: Link by Link, Economist, 16 October 2008, p. 97.
11 This report refers to the July 11th 2008 decision to support Fanny Mae and Freddy Mac.
According to Mr. Coxe, the Fed's ultimate goal was to trigger a rally in financial stocks, which would, in theory, help banks hammered by the credit crisis raise fresh capital and repair their balance sheets. To accomplish this, the decision to support Fannie and Freddie was deliberately announced on a Sunday, which had the effect of maximizing the reaction from thinly traded financial stocks on overseas markets.
Because many hedge funds were using massive leverage to short financials and go long on commodities, when North American markets opened and banks initially rallied, the funds were forced to cover their short positions.
At the same time, the U.S. dollar was rallying because the risk of holding Fannie and Freddie paper had diminished. The rising dollar, in turn, made commodities less attractive, giving funds that were already scrambling to cover their financial shorts another reason to dump oil, grains and other commodities.
The losses were swift and dramatic. On the Friday before the July 11 announcement, crude oil closed at $145.18 a barrel. Over the following five days, it plunged 11 percent. "Leverage was being unwound dramatically," Mr. Coxe said on a conference call last week. "We had a true panic."
As oil and other commodities were tumbling, fears about the slowing global economy were mounting, giving resources another push downhill. This was also in keeping with the Fed's wishes, because lower commodity prices would help quell fears about inflation. Accessed 11 September 2008. 
12 Martin Wolff: Financial Times10 September 2008, p.2. 
13 'Capitalism and the credit crunchBy Samuel Brittan, Financial Times, 11 September 2008 18:33, Last updated: September 11 2008 18:33 Accessed:
14New York Daily News , accessed 5 October 2008. 
15 Will Hutton, Observer, 19 October 2008, p. 29.
16 Op. Cit.
17 Paul Krugman: 'Let's Get Fiscal', New York Times, 17 October 2008.

Finance capital: Why financial capitalism is no more "fictitious" than any other kind The Platypus Historians Group October 2008

posted Oct 28, 2008, 1:55 PM by Pan Sloboda

With the present financial melt-down in the U.S. throwing the global economy into question, many on the “Left” are wondering again about the nature of capitalism. While many will be tempted to jump on the bandwagon of the “bailout” being floated by the Bush administration and the Congressional Democrats (including Obama), others will protest the “bailing out” of Wall Street.

The rhetoric of “Wall Street vs. Main Street,” between “hardworking America” and the “financial fat cats,” however, belies a more fundamental truth: the two are indissolubly linked and are in fact two sides of the same coin of capitalism.

It would be no less reactionary — that is, conservative of capitalism — to try to oppose “productive” industrial manufacturing or service sector capitalism to “parasitic” financial capitalism.

As Georg Lukács pointed out in his seminal essay “Reification and the Consciousness of the Proletariat” (1923), following Marx’s critique of “alienation” (in Das Capital, 1867) (and echoing the at-the-time yet-to-be discovered writings by Marx such as the 1844 Economic and Philosophic Manuscripts and the Grundrisse, 1858), modern society structured by the dynamic domination of capital gives rise to “necessary forms of appearance” that are symptomatic of capital.

These reified “forms of appearance” include not only forms of “exchange” such as monetary and financial systems, but also, more fundamentally, forms of wage labor and concrete forms of production, which are just as much a part of capital’s reproduction as a social system as are any conventions of exchange.

This means that one cannot oppose one side of capital to another, one cannot side with “productive labor” against “parasitic capital” without being one-sided and falling into a trap of advocating and participating in the reproduction of capital at a deeper level. Lukács recognized, following Marx, that capital as not merely a form of “economics” but a social system of (re)production.

But most varieties of “Marxism” have missed this very crucial point, and so take Marx to mean rather the opposite, that industrial production embodies what is true and good about capital, while exchange and money represents what is false and bad about it. Such pseudo-”Marxism” has falsely (and conservatively) vilified the supposedly “fictitious” nature of “finance capital.”

Following Marx, Lukács, through his concept of “reification,” sought to deepen the critical recognition of the social-historical problem of capital, to recognize that modern society as structured and dominated by capital exhibits specific symptoms of this domination. Such symptoms are the attempts by human beings individually and collectively to master, control and adjudicate the effects of the social dynamism that capital sets in motion.

However, in Marx’s phrase (from the 1848 Manifesto of the Communist Party), the dynamic of capital ensures that “all that is solid melts into air.” The modern society of capital is one in which all concrete ways of life, social organization and production, are subject to revolutionization through a cycle of “creative destruction.” But Marx did not simply bemoan this dynamism of capital that ends up making transient all human endeavors, mocking their futility.

Rather, Marx recognized this dynamism as an “alienated” form of social freedom. The creative destruction engendered by capital is the way capital reproduces its social logic, but it also gives rise to transformations of concrete ways of social life the world has never before seen, engendering new possibilities for humanity—the past 200 years of capitalism have seen more, and more profound changes, globally, than previous millennia saw. Unfortunately, the reproduction of capital also means undermining such new human potentialities (for instance, new forms of gender and sexual relations) as soon as they are brought onto the ever-shifting horizon of possibility.

With the current financial collapse, the temptation will be to retreat to what many on the pseudo-”Left” have long advocated, a “new New Deal” of Keynesian Fordist and welfare-state social-security reforms. The temptation on the “Left” (as well as the Right) will be to see what some have called “saving capitalism from itself” as “progress.” But such attempts to master the dynamics of capital will not only fail to achieve their aims, but will also entail unexpected further consequences and problems no less potentially destructive for humanity than so-called “free-market” practices of capitalism.

If the neo-Keynesians as well as others, such as the more radical “socialists” on the “Left” are mistaken in their hopes for reformist solutions to the problems of capital, it is not least because they don’t recognize capitalism as a (alienated) form of (increasing the scope of) freedom. Rather, their nemeses among the “neo-liberals” such as Milton Friedman (in the 1962 book Capitalism and Freedom) and Friedrich Hayek (in his 1943 book The Road to Serfdom) have given expression to this liberal dimension of capital, which they opposed to what they took to be the worse authoritarianism of (nationalist) socialism.

Opposed to this have been thinkers such as Karl Polanyi (The Great Transformation, 1944) and John Kenneth Galbraith (The Affluent Society, 1958, which warned of the effects of private-sector capital outstripping the public sector). Polanyi, for instance, complained that capitalism commodified three things that supposedly cannot be commodities, labor, land and money itself. In such a one-sided opposition to capital, Polanyi neglected to realize that what makes modern society what it is, what distinguishes modern capitalism from earlier pre-modern forms of capital, is that it precisely entails subjecting these supposedly not “commodifiable” things to the commodity form. Modern capital is precisely about the radical revolutionizing of how we relate to forms of social intercourse, labor, and nature.

So no one should be fooled into thinking that supposedly better forms of politically managing (e.g., under the Democrats) the social investment in, and thus preserving the “value” and promoting the improvement of material production, infrastructure, or forms of knowledge represents any kind of sure “progress.”—No one should mistake for even a moment that such efforts will not be a windfall and lining the pockets of the capitalists (on “Main Street”) through upward income-redistribution schemes any less than “bailing out” Wall Street will be.

The presently bemoaned deregulation of financial institutions that occurred under Bill Clinton in the 1990s was not meant (merely) to enrich the rich further, but to open the way for new forms of economic and social relations, both locally and globally. Such “neo-liberal” reforms were meant to overcome, in Milton Friedman’s phrase, the “tyranny of the status quo”—a sentiment any emancipatory Left ought not to regard with excessive cynicism. For the neo-liberals found a hearing not only among the wealthy, but also among many left out of the prior Keynesian/Fordist arrangements—see, for instance, the 2006 Nobel Peace Prize winner Muhammad Yunus’s social activist work in “microfinance” in Bangladesh.

A Marxian approach to the problem of capital, as Lukács warned with his concept of “reification,” recognizes that “labor” and its forms of “production” are no less “reified” and “ideological” in their practices under capital, no less “unreal” and subject to de-realization, with destructive social consequences, than are the forms of “exchange,” monetization and finance.

An authentically Marxian Left should take no side in the present debates over the merits and pitfalls of the “bailout” of the financial system. One can and should critique this, of course, but nonetheless remain aware that this is no simple matter of opposing it. This side of revolutionary emancipation beyond capital, a Marxian politics would demand to better finance capital no less than to support labor. Finance capital is no less legitimate if also no less symptomatic of capital than any other phenomenon of modern life. So it deserves not to be vilified or denounced but understood as a way humanity has tried authentically to cope with the creative destruction of capital in modern social life.


posted Oct 27, 2008, 1:22 PM by Asher Dupuy-Spencer

Since the 1930s the non-communist world has experienced two shifts in international economic norms and rules substantial enough to be called ‘regime changes’. They were separated by an interval of roughly thirty years: the first regime, characterized by Keynesianism and governed by the international Bretton Woods arrangements, lasted from about 1945 to 1975; the second began after the breakdown of Bretton Woods, and prevailed until the First World debt crisis of 2007–08. This latter regime, known variously as neoliberalism, the Washington Consensus [1] or the globalization consensus, centred on the notion that all governments should liberalize, privatize, deregulate—prescriptions that have been so dominant at the level of global economic policy as to constitute, in John Stuart Mill’s phrase, ‘the deep slumber of a decided opinion’.

The two regimes differed in the role allotted to the state, in both developed and developing countries. The Bretton Woods regime favoured ‘embedded liberalism’, as it was later called, which sanctioned market allocation in much of the economy but constrained it within limits set through a political process. The successor neoliberal regime, particularly associated with Reagan and Thatcher, moved back towards the norms of laissez-faire embraced by classical liberalism, and hence prescribed a roll-back of state ‘intervention’ and an expansion of market allocation in economic life. But it gave more emphasis than classical liberalism to the idea that competition is not the ‘natural’ state of affairs, and that the market can produce sub-optimal results wherever producers have monopoly power (as in Adam Smith’s observation that ‘people of the same trade seldom meet together [without concocting] a conspiracy against the public’).

Neoliberalism accordingly sanctioned state intervention not only to supply a range of public goods that could not be provided through competitive profit-seeking (as did classical liberalism), but also to frame and enforce rules of competition, overriding private interests in order to do so; hence the ‘neo’. Its principal yardstick for judging business success was shareholder value, and its central notion of the national economic interest was efficiency as determined by competition in an economy fully open to world markets; there should be no ‘artificial’ barriers between national and world market prices, such as tariffs or subsidies to particular industries. Of course, at the level of policy, many tactical, pragmatic modifications were made to these principles, in order to subsidize corporations, channel more wealth to the rich, and stabilize the economy and society with covertly Keynesian policies. [2] But at the level of norms, the difference was clear.

In the realm of finance, neoliberal prescriptions were justified by the ‘efficient markets hypothesis’, which claimed that market prices convey all relevant information and that markets clear continuously—rendering sustained disequilibria, such as bubbles, unlikely; and making policy action to stop them inadvisable, since this would constitute ‘financial repression’. Milton Friedman and the Chicago School gave their name to this theory; but as Paul Samuelson said, ‘Chicago is not a place, it is a state of mind’, and it came to prevail in finance ministries, central banks and university economics departments around the non-communist world.

The shocks of the past year—another thirty years on from the last major shift—support the conjecture that we are witnessing a third regime change, propelled by a wholesale loss of confidence in the Anglo-American model of transactions-oriented capitalism and the neoliberal economics that legitimized it (and by the us’s loss of moral authority, now at rock bottom in much of the world). Governmental responses to the crisis further suggest that we have entered the second leg of Polanyi’s ‘double movement’, the recurrent pattern in capitalism whereby (to oversimplify) a regime of free markets and increasing commodification generates such suffering and displacement as to prompt attempts to impose closer regulation of markets and de-commodification (hence ‘embedded liberalism’). [3] The first leg of the current double movement was the long reign of neoliberalism and its globalization consensus. The second as yet has no name, and may turn out to be a period marked more by a lack of agreement than any new consensus.

Some caution is in order. There is a recurrent cycle of debate in the wake of financial crises, as an initial outpouring of radical proposals gives way to incremental muddling through, followed by resumption of normal business. Ten years ago the East Asian, Russian and Brazilian crises of 1997–98 struck panic in the High Command of world finance, and were followed by vigorous discussion around a ‘new international financial architecture’. But once it became clear that the Atlantic heartland would not be affected, the radical talk quickly subsided. The upshot was a raft of new or reinvigorated public and private international bodies tasked with formulating standards of good practice in corporate governance, bank supervision, financial accounting, data dissemination and the like. [4] Such efforts diverted attention from the issue of re-regulation, and the financial sector in the West was able to ensure that governmental initiatives did not include new constraints, such as limits on leverage or on new financial products. There was no change of norms regarding the desirability of lightly regulated finance.

Systemic tremors

When the Bank for International Settlements (bis) said in its June 2007 Annual Report that ‘years of loose monetary policy have fuelled a giant global credit bubble, leaving us vulnerable to another 1930s slump’, its analysis was largely ignored by firms and regulators, notwithstanding the bis’s reputation for caution. As recently as May 2008 some commentators were still arguing that the crisis was a blip, analogous to a muscle strain in a champion athlete which could be healed with some rest and physiotherapy—as opposed to a heart attack in a 60-a-day smoker whose cure would require surgery and major changes in lifestyle.

The events of September 2008, however, make it hard to avoid the conclusion that we have entered a new phase. Financial market conditions in much of the oecd have sunk to their lowest levels since the banking shut-down of 1932, which was the single most powerful factor in making the 1929 downturn and stock market crash become the Great Depression. (Some 11,000 national and state banks failed in the us between 1929 and 1933.) One bond trader described the current situation as ‘the financial equivalent of the Reign of Terror during the French Revolution’. [5] In these circumstances, the efficient markets hypothesis and the prescriptions derived from it have been thoroughly discredited.

In particular, the second fortnight of September of this year saw not one but three ‘game-changing’ convulsions in the world’s most sophisticated financial system. These do not include the nationalization of Freddie Mac and Fannie Mae: giant though they are, these ‘quasi-government institutions’ had an established claim to a public safety net. Rather, the first upheaval was the run on two more of the big five Wall Street-based broker-dealers or investment banks, following the earlier run on Bear Stearns—in each case followed by the banks’ demise. Only Morgan Stanley and Goldman Sachs remain standing—for the time being—and they have switched their legal status to that of bank holding companies, which means they will be subject to closer regulation than before. The bankruptcy of Lehman Brothers in mid-September trapped the funds of mega-investors, ratcheting up the panic throughout financial markets and shutting down credit flows even for normal business. It could have especially far-reaching consequences, since Lehman had a huge volume of derivative business, and there has never been a default of a counterparty to derivative contracts on anything like this scale.

The loss of three of the five giants fundamentally changes the politics of international finance, because these investment banks were immensely powerful actors in the political process—not only in the us but also in the eu. From their London bases, the us investment banks had a shaping influence on the content of eu financial legislation in Brussels. The upside of their disappearance, then, is that it weakens one major obstacle to financial re-regulation.

The second September game-changer was the us Treasury’s bail-out of aig for a promised $85 bn. aig was not just America’s but the world’s biggest insurer. Since it stood outside the banking system, its bail-out broke through the firewall separating financial intermediaries from the ‘real’ economy. The contagion is now likely to spread to other insurers, and to thousands of highly leveraged hedge funds, as lock-in periods expire at the end of the next two quarters and investors are able to withdraw their funds. The third great convulsion outdid even the second: in the most dramatic government rescue operation in history, the us Treasury announced a plan to buy up to $700 bn of toxic securities from troubled banks, at a price well above current market value. Remarkably, it was improvised almost on the spot—Secretary Paulson’s original proposal ran to only three typed pages—indicating that the Treasury had been convinced that it could muddle through without a contingency plan. As proposed, it would have given Wall Street almost unrestrained access to public revenues at little cost. At the end of September the bail-out was rejected by the House of Representatives, and subsequently modified by the Senate, both parts of Congress alarmed at the public’s fury in an election year. The version approved by Congress in early October promises to make a larger share of any subsequent profits into public revenues, but nonetheless uses tax revenues to socialize the losses of the finance sector—an unprecedented hand-out to those responsible for the crisis in the first place.


Falls in the us and uk property markets, meanwhile, continue to drive the downward spiral. The us futures market is estimating a 33 per cent drop in us prices from peak to trough (based on the Case-Shiller Home Price Index), with the trough still a year away. The uk, which since 2000 has had the second biggest property bubble after the Japanese land bubble of the 1980s, may experience a 50 per cent fall from peak to trough; but even this would leave house prices higher than in 1997 as a multiple of income. As the credit contraction spreads across sectors and across regions, the damage to the real economy is growing, as measured by rising unemployment—in the us, the jobless total has risen by 2.2 million in the last 12 months—and slowing consumption; though it is surprising how gradually this has taken place since mid-2007. As of early October 2008, the crisis has swept into many continental European banks, which had previously prided themselves on having escaped the turmoil.

So far, however, the crisis has remained centred on the Atlantic economy, and there has as yet been little blow-back from East Asia. Indeed, it is notable that extreme illiquidity in Western financial markets co-exists with overflowing savings and foreign exchange reserves in East Asia and the petro-economies of Russia and the Gulf. Yet another feature of the current crisis that makes it unprecedented is the fact that the West is pinning its hopes for recovery on fast growth in the developing world, especially East Asia—and that Western banks seeking to avoid bankruptcy are increasingly looking for capital injections from these countries, and from the sovereign wealth funds of such states as China, Dubai and Singapore, among others.

Japan, the world’s second largest economy, looks thus far to be relatively unscathed. There are few signs of a credit crunch, although growth stands almost at zero. The short explanation for this is that Japanese banks remained very cautious after the bitter experience of the 1990s, when they were obliged to clean up after the 1980s bubble. They have been criticized at home and abroad for holding too much cash and too little debt; a recent example from the International Herald Tribune makes plain the norms that have dominated Anglo-American and therefore ‘global’ economic policy over the past three decades:

The country has a $14 trillion pile of household savings . . . This blessing has also been a curse to investors . . . Japan’s wealth shields it from pressures to meet global standards of economic growth or corporate profitability. This is what allowed the country to accept near-zero growth rates in the 1990s and what allows the survival of Japanese corporate practices like valuing employees and clients over shareholders. [6]

China, however, is another story. Since 1980 it has experienced several booms followed by sharp slumps; despite the phenomenal improvement in its economic performance in the last decade, a further slump is quite possible. One potential source of trouble is the prc’s accumulation of vast quantities of us asset-backed securities whose value has fallen precipitously; in June 2007, us Treasury data estimated the value of these to be $217 bn. Another is the high ratio of non-performing loans in Chinese banking—more than 6 per cent in the last quarter of 2007, according to official data. A third is high inflation, especially in food prices. Other East and Southeast Asian investors are also thought to be holding large quantities of toxic securities. This suggests that there could sooner or later be a blow-back from East Asia into the us and Europe, generating another downward twist.

Causes of the crunch

If the wars in Iraq, Kosovo and Afghanistan were one expression of American post-Cold War triumphalism, globalized finance, launched during the Clinton Administration, was another. The mainstream press boasted that the us financial system had broken through the sound barrier and was now operating in a new dimension, as it undertook more and more dazzling gambles. They were right to emphasize the novelty of the way in which us finance operated in the 2000s, and the sense that it had no limits. The deeper causes, however, lay in economic developments. In much of the Western world the rate of profit of non-financial corporations fell steeply between 1950–73 and 2000–06—in the us, by roughly a quarter. In response, firms ‘invested’ increasingly in financial speculation, and the us government helped offset the resulting shortfall of non-residential private investment by boosting military spending (the Pentagon’s annual budget happens to be around the same as the figure put on the Treasury’s recent rescue plan).

In addition, foreign currency markets have since 2000 persistently driven exchange rates in the wrong direction, causing many economies running large external deficits to experience currency appreciation, and others running surpluses to experience depreciation or no change. External deficits and surpluses have grown, increasing the fragility of the global economy. However, commentators who insist that the present turmoil is simply the latest in a long line of crises driven by bubble dynamics miss the point that this time, the asset bubble was propagated across the world through securitization technology and the ‘originate and distribute’ model of banking, which only came to fruition in the 2000s. The model encouraged high leverage, complex financial instruments and opaque markets, all of which put this crisis in a league of its own.

Too much stress has been laid specifically on the housing bubble, as though it was a necessary and sufficient condition of the crisis. It was only one part of a much wider run-up of debt. Table 1, overleaf, shows the ratio of debt to gdp for the us economy as a whole, and for the two most indebted sectors—households and finance—for 1980 and 2007. The overall ratio more than doubled, and that for the financial sector increased more than fivefold.

The toxic combination of debt, asset bubble and securitization technology was itself enabled by lax regulation. The locus of the blow-up was not unregulated hedge funds, but supposedly regulated banks. Until recently it was acceptable in the eyes of the authorities for investment banks to operate with a debt to equity ratio of 30–35:1. It is no exaggeration to say that the crisis stems from the biggest regulatory failure in modern history. Many politicians and commentators are stressing that ‘we are all to blame’—the international economy, bankers, investors, ratings agencies, consumers. But this simply diverts attention from those whose job it was to regulate: the regulators and the political authorities who sanctioned them.

The uk’s role in the crisis deserves emphasis, because contrary to conventional wisdom, the dynamics at its heart started there. The Thatcher government set out to attract financial business from New York by advertising London as a place where us firms could escape onerous domestic regulation. The government of Tony Blair and Chancellor Gordon Brown continued the strategy, leading Brown to boast that the uk had ‘not only light but limited regulation’. In response, political momentum grew in the us over the course of the 1990s to repeal the Depression-era Glass–Steagall act, which separated commercial from investment banking. Its repeal in 1999 produced a de facto financial liberalization, by facilitating an unrestrained growth of the unregulated shadow-banking system of hedge funds, private equity funds, mortgage brokers and the like. This shadow system then undertook financial operations which tied in the banks, and it was these that eventually brought the banks’ downfall.

The striking thing about the uk Financial Services Authority, set up with great fanfare by Brown in 1997, at the same time as he granted the Bank of England semi-autonomy in monetary policy, is that it has sweeping jurisdiction over the British financial sector—in contrast to the us system of multiple and fragmented regulators. Yet it regulates diffidently, and was evidently intended as little more than window-dressing. Howard Davies, the fsa’s first chairman, described its guiding principle with striking candour: ‘The philosophy from when I set it up has been to say, “Consenting adults in private? That’s their problem, really.”’ [7] Hence the fsa, in its covert and successful bid to attract us companies to London, allowed banks and insurance companies operating from the City to do so with much less capital than similar organizations in New York. Its commitment to light and limited regulation meant that to deal with British financial markets one-third the size of those in the us, it had eleven times fewer enforcement agents than the Securities and Exchange Commission (sec)—98 as compared to 1,111.

It is ironic that the crisis may end up saving Brown from having to resign as prime minister. Yet it is now clear that his aversion to financial regulation, and his lack of concern about the housing bubble—which in the period since Labour came to power has made the uk’s economic performance look much better than it would otherwise have done—are deeply implicated in the build-up to the crisis. For a decade, the combined tails of the housing market and financial sector have wagged the dog of the British economy. As in the us, consumption grew much faster than gdp, financed by rising debt, thanks to booming house prices. A grateful electorate returned the Labour government to office twice in a row.

Governmental responses

The downward spiral of credit contraction is being driven by a pervasive collapse of trust in the entire structure of financial intermediation that underpins capitalist economies. With debt levels running high and the economic climate worsening, many enterprises in the real economy must be close to bankruptcy; hence lenders and equity buyers are staying out of the market. Governments have therefore moved to stabilize credit markets by taking steps to encourage buyers to re-enter the market for securities—most notably the us Treasury, with its $700 bn bail-out scheme. Several European states have moved to steady the banking sector, with Ireland, Greece, Germany, Austria and Denmark guaranteeing all savings deposits in early October 2008. Competition rules have been set aside, as governments foster mega-mergers. In the uk, the recent merger of hbos and Lloyds tsb creates a bank with a 30 per cent share of the retail market.

The sheer monopoly power of such new financial conglomerates is likely to prompt a stronger regulatory response. Another key area to watch in terms of gauging the robustness of governmental responses is the market for Over the Counter (otc) derivative contracts—which Warren Buffet famously described in 2003 as ‘financial weapons of mass destruction’. Buffet went on to say that, while the Federal Reserve system was created in part to prevent financial contagion, ‘there is no central bank assigned to the job of preventing the dominoes toppling in insurance or derivatives’. In the event that more regulation of the otc market is implemented—even in the minimal form of requiring the use of a standard contract format and registration of the details of each contract with a regulatory body—Brooksley Born will have some satisfaction. She was head of the Chicago Futures Trading Commission in the late 1990s, and proposed in a discussion paper that the otc market should come under some form of regulation. Alan Greenspan, sec Chairman Arthur Levitt and Treasury Secretary Robert Rubin were so angry at her for even raising such an idea that they sought Clinton’s permission to have her fired; in January 1999 she duly resigned for ‘family reasons’.

Beyond such immediate, fire-fighting responses, the crisis has also drawn attention to the matter of the system’s overall stability—and specifically to the impact of international financial standards on national systems. A furious debate has been under way in recent years about international accounting standards. Both the leading sets used by listed companies around the world—the us Generally Accepted Accounting Principles and the International Financial Reporting Standards (also known as ias)—require listed companies to ‘mark to market’; that is, frequently to revalue their assets at current market prices or, if the assets are illiquid and have no market price, to revalue them according to the cost of guaranteeing them. Defenders of this method—principally investors—tendentiously call it the ‘fair value’ standard (who could oppose ‘fair value’?), arguing that its adoption is crucial to maintaining investors’ confidence in firms’ published accounts. [8]

Critics, including the International Institute of Finance—the main lobbying group for bankers—counter that it amplifies booms and busts. During downswings ‘fair value’ accounting obliges banks to record a drop in asset value which may be unjustified by economic ‘fundamentals’. To maintain their solvency ratios they are then obliged to raise new capital at high cost or reduce lending. Upswings, meanwhile, permit banks to boost their balance sheets beyond levels justified by ‘fundamentals’. But the alternative methods of ‘mark to historical prices’ or ‘mark to model’, in which each firm uses its own model to estimate shadow prices, are in turn open to attack. Warren Buffet observed that ‘mark to model’ tends to degenerate into ‘mark to myth’, while Goldman Sachs in June 2008 resigned its membership of the iif in protest at the prospect of a move to what it called Alice in Wonderland accounting.

Critics of ‘mark to market’ tend to conflate the important distinction between accounting standards and prudential standards. The former are concerned with the information provided to shareholders and others about the ‘integrity’ of the market; their function is to ensure continuous and accurate information on the situation of companies as the basis for investment decisions. Prudential standards, on the other hand, focus on financial stability, and on preventing financial actors from behaving in ways that put stability at risk. Maintaining this distinction, and overhauling some prudential standards, is important in the current context.

Credit and credibility

One type of prudential standard ripe for revision concerns banks’ capital adequacy. The Basel II standard of capital adequacy, which came into force at the start of 2007 after some nine years of negotiation, marked a shift from the external regulation of Basel I to self-regulation—making it an invitation to careless behaviour and ‘moral hazard’ at a time when big banks are more confident than ever that they will be bailed out by the state. Basel II requires banks to use agencies’ ratings and their own internal risk-assessment models—both of which have been shown to be pro-cyclical and to have failed spectacularly in the run-up to the present crisis—while raising capital standards during periods of illiquidity, precisely when banks are less able to meet them. Moreover, experience of Basel I and simulation of the effects of Basel II suggest that both sets of rules tip capital flows from developed-country banks to the developing world in favour of short-term bank credit, the most dangerous kind. [9] Basel II also raises the cost of finance for banks in the global South relative to those in the developed world, cementing the competitive advantage of the latter. Incremental revision of Basel II will not address any of these issues; for that, wholesale renegotiation will be required.

Among the many victims of the crisis, then, is the dominant ‘global’ model of financial architecture of the last two decades, the credibility of which has been seriously damaged. All three of its main pillars malfunctioned in the run-up to the current crisis. Firstly, a financial services regulator is supposed to protect bank depositors and consumers from unsound behaviour by individual firms, such as holding inadequate reserves; as we have seen, however, regulation was lax in the extreme. Second, financial markets are meant independently to allocate investment capital and consumer credit between individuals, firms and states, with little influence from government; but the opacity created by leveraging and complex financial engineering resulted in market meltdown and eventual state rescue.

The third pillar is the maintenance of monetary stability—defined as keeping a tight lid on inflation—by the central bank. Focusing on the retail price index, central banks opted to keep interest rates very low and permit fast credit growth, lulled by low price inflation due to cheap imports from China. The rapid growth of credit blew out asset bubbles, especially in housing—which many central banks ignored, since their mandate was confined to consumer prices. Indeed, they and the politicians behind them applauded the housing boom because it propelled sharp increases in gdp. The new regime that emerges from the ongoing crisis, then, is likely to include attempts to revise the role of the third pillar by expanding the mandate of central banks, and ensuring they give more weight to asset prices. Since the interest rate is a very blunt instrument, central bankers and regulators will have to rely on an expanded set of prudential measures. Examples would include a requirement for new financial products to obtain regulatory approval, to ensure that their risk characteristics can be readily determined by a third party; or a demand that any organization that can expect a public safety net—and especially public deposit insurance—should submit to controls of its loan portfolio, so as to reduce credit to ‘overheating’ sectors. [10]

Demise of the consensus?

Neoliberal economics has powerful antibodies against evidence contrary to its way of seeing things. However, the current crisis may be severe enough to awaken economists from the ‘deep slumber of a decided opinion’, and render them more receptive to proof that the post-Cold War globalization consensus has strikingly weak empirical foundations. According to the conventional view, in the decades after 1945, governments routinely ‘intervened’ in the economy, especially in developing countries where import-substituting industrialization was the norm. While the developed world liberalized, the global South kept to isi and, consequently, its relative economic performance lagged. But as of around 1980, under encouragement from the World Bank, imf and the American and British governments, developing countries increasingly adopted the prescriptions of the globalization consensus and switched to a strategy of market-friendly, export-led growth and supply-side development. As a result, their performance improved relative not only to the past but also to that of the developed countries; they finally began to catch up. This empirical evidence in turn validated World Bank and imf pressure on their borrowers to adopt neoliberal policies.

The trouble with this story is that it is largely wrong. Figure 1 shows the average income of a number of regions relative to that of the North, expressed in purchasing power parity dollars (ppp$), from 1950 to 2001. Latin America and Africa display a relative decline both before and after 1980; Eastern Europe, not shown, tracks the Latin America line. China, at the bottom of the graph for most of the period, starts to rise in the 1980s and continues thereafter, reaching the average for the South by 2001; the Asia line rises a little, too, after a lag—but this also includes China, which accounts for a large part of its ascent.

Figure 2, opposite, shows the average income of the developing world, excluding the ‘transitional economies’ of the former Soviet bloc, as a proportion of that of the North, expressed in market exchange rates. The top line represents the whole of the global South, the bottom line the global South excluding China. In both cases, the trend from 1960 to 2008 is very different from that postulated by the globalization narrative. The ratio was higher in the period before 1980, fell steeply during the 1980s, flattened out at a low level during the 1990s, and had a small uptick after 2004 because of the commodity boom induced by rapid growth in the prc. With incomes expressed in terms of ppp, the trend line is consistent with the globalization narrative, turning upwards in the early 1980s and continuing to ascend thereafter; but exclude China and the trend is much the same as in Figure 2. [11]

The notion that globalization generates catch-up growth, then, rests principally on the rise of China. Yet the policies Beijing has pursued are far from identical to those endorsed by the Washington Consensus; it has followed the precepts of Friedrich List and of American policy-makers of the nineteenth century, during the us’s catch-up growth, more than those of Adam Smith or latter-day neoliberals. The state has been an integral promoter of development, and has adopted targeted protection measures as part of a wider strategy for nurturing new industries and technologies; it is now investing heavily in information systems to help Chinese firms engineer their way around Western patents.

The American Economic Association carried out surveys of its members’ opinions in 1980, 1990 and 2000. [12] The results indicate a broad consensus on propositions about the desirable effects of openness and the harmful effects of price controls. For example, in all three surveys the proposition that ‘tariffs and import controls lower economic welfare’ elicited very high agreement; in 1980, 79 per cent of us economists said they ‘agree’ with the statement, as distinct from ‘agree with qualifications’ or ‘disagree’. (Economists in four continental European countries were also surveyed in 1980; only 27 per cent of French economists said they agreed with the same statement.) It seems a safe bet that the 2010 survey will report significantly less agreement about the desirability of free trade, free capital movements and other forms of economic openness—providing concrete evidence of a weakening of the globalization consensus among us economists, and further support for the conjecture that we have entered a new regime.

Rethinking the model

In times of crisis, arguments that had previously been on the margins can gain greater currency. If the disappearance of three out of five big investment banks indicates the seriousness of the present turmoil, it also provides an opportunity to broaden the range of possibilities for an overhaul of the way global finance operates; the fall in pension funds and declining house prices should also enlarge the constituency for major reform. Scholars today face the challenge of rethinking some of the basic intellectual models that have legitimized policy over the past three decades. The fallout from complex, opaque financial products may persuade many of the benefits of a substantially smaller financial sector relative to the real one, and perhaps of a ‘mixed economy’ in finance, where some firms would combine public and private purposes—operating more like utilities than profit maximizers.

But more fundamentally, the globalization model itself needs to be rethought. It over-emphasized capital accumulation or the supply side of the economy, to the detriment of the demand side (since the stress on export-led growth implied that demand was unlimited). [13] The failure of catch-up growth, seen in Figures 1 and 2, stems in part from neoliberalism’s lack of attention to domestic demand, reflecting the dominance of neoclassical economics and the marginalization of Keynesian approaches. Developing domestic and regional demand would involve greater efforts towards achieving equality in the distribution of income—and hence a larger role for labour standards, trade unions, the minimum wage and systems of social protection. It would also necessitate strategic management of trade, so as to curb the race-to-the-bottom effects of export-led growth, and foster domestic industry and services that would provide better livelihoods and incomes for the middle and working classes. Controls on cross-border flows of capital, so as to curb speculative surges, would be another key instrument of a demand-led development process, since they would give governments greater autonomy with regard to the exchange rate and in setting interest rates.

The recent strengthening of regional integration processes, meanwhile, should direct attention away from global standards and arrangements which, because of their maximal scope, are necessarily coarse-grained at best. Regional trade agreements between developing countries have distinct advantages over multilateral trade deals, whose terms often serve to break open economies of the global South while preserving intact protections for industry and agriculture in the North. Regional currencies—such as the Asian Currency Unit being discussed by East Asian states, based on a weighted average of key local currencies—could act as a benchmark independent of the us dollar, reducing vulnerability to market turbulence on Wall Street. [14]

Global economic regimes need above all to be rethought to allow a diversity of rules and standards, instead of imposing ever more uniformity. Rather than seeking, in Martin Wolf’s terms, to make the whole world attain the degree of economic integration found within the federal structure of the us, such that nation-states would have no more influence over cross-border flows than us states have over domestic transactions, [15] we might draw inspiration from an analogy with ‘middleware’. Designed to enable different families of software to communicate with each other, middleware offers large organizations an alternative to making one program span their entire structure; it allows more scope for a decentralized choice of programs. If the second leg of the present ‘double movement’ turns out to be a period from which consensus is largely absent, it may also provide space for a wider array of standards and institutions—economic and financial alternatives to the system-wide prescriptions of neoliberalism. This may give the new regime that emerges from the current upheavals greater stability than its predecessor. Whether it provides the basis for a more equitable world, however, will remain an open question—and an urgent challenge—for some time to come.

7 October 2008

[1] The term ‘Washington Consensus’, devised in 1989 by John Williamson to refer to a set of ten policy recommendations, came to be used in a much broader sense, encompassing financial deregulation, free capital mobility, unrestricted purchase of local companies by foreign companies, and unrestricted establishment of subsidiaries.

[2] Dean Baker, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, Washington, dc 2006.

[3] Karl Polanyi, The Great Transformation, Boston 2001 [1944].

[4] For further details see Robert Wade, ‘A New Global Financial Architecture?’, nlr 46, July–Aug 2007; and ‘Global Financial Regulation Versus the Engines of Financial Instability’, in Philip Arestis and John Eatwell, eds, Issues in Finance and Industry, Basingstoke, forthcoming.

[5] John Jansen, ‘America’s Reign of Terror’,, 2 October 2008.

[6] Martin Fackler, ‘Japan Mostly Unscathed by Global Credit Crisis’, International Herald Tribune, 22 September 2008.

[7] Jesse Eisinger, ‘London Banks, Falling Down’,, 13 August 2008.

[8] Nicolas Véron, Matthieu Autret and Alfred Galichon, Smoke & Mirrors, Inc.: Accounting for Capitalism, Ithaca, ny 2006.

[9] Jean-Marc Figuet and Delphine Lahet, ‘Les Accords de Bâle II: quelles conséquences pour le financement bancaire extérieur des pays émergents?’, Revue d’Economie du Développement, no. 1 (March 2007), pp. 47–67.

[10] Stephen Bell and John Quiggin, ‘Asset Price Instability and Policy Responses: The Legacy of Liberalization’, Journal of Economic Issues, vol. 40, no. 3 (September 2006), pp. 629–49.

[11] In his 2004 book Why Globalization Works, Martin Wolf does not present evidence of this kind. The nearest he comes is a table (8.1) giving growth rates for seven regions and several time periods from 1820 to 1998, which shows that six out of the seven regions had lower growth rates between 1973–98, the era of globalization and outward orientation, than between 1950–73, the previous era of state intervention and isi; but Wolf does not comment on this decline.

[12] Dan Fuller and Doris Geide-Stevenson, ‘Consensus among Economists: Revisited’, Journal of Economic Education, vol. 34, no. 4 (Fall 2003), pp. 369–87.

[13] Thomas Palley, ‘Developing the Domestic Market’, Challenge, vol. 49, no. 6 (November–December 2006), pp. 20–34.

[14] Wade, ‘The Case for a Global Currency’, iht, 4 August 2006.

[15] Wolf, Why Globalization Works, p. 4.

The breakdown of a relationship? Reflections on the crisis (by Endnotes)

posted Oct 21, 2008, 4:28 AM by sean rudi

The breakdown of a relationship? Reflections on the crisis

The history of the capitalist mode of production is punctuated by crises. One could say that crisis is the modus operandi of capital, or of the capital-labour relation. This is true insofar as capital, the self-valorisation of value, the self-expansion of abstract wealth, is at any given time a claim on future surplus-value extraction: the accumulation of capital today is a bet on tomorrow's exploitation of the proletariat.

The crisis today has taken the form of a financial crisis, while the prospect of a full-blown economic crisis looms ever larger. These two crises do not merely stand in a relation of cause and effect, however (whichever way one were to posit the relation). Rather they are the different manifestations of the same underlying crisis - the crisis of accumulation of capital, which is at the same time the crisis in the relation of exploitation between capital and proletariat.

Finance capital is the form of capital which most closely corresponds to its pure concept, in that the plethora of byzantine forms of finance capital can be reduced to the process whereby money begets more money or value begets more value. The relation between finance capital and productive capital, or between finance and the real economy, is marked, on the one hand, by the discipline which finance capital imposes on productive capital, and on the other, by the possibility and indeed tendency for finance capital to "run away with itself" - to run too far ahead of the possibilities of valorisation which are ultimately given by the profitable exploitation of labour-power in production.

This relation between finance and productive capital, or between finance and the real economy, while it has always existed in some form in the capitalist mode of production, has not remained unaltered. Since the global crisis of profitability of capital, or looked at another way since the crisis in the capitalist class relation in the late 60s and early 70s (marked by a wave of class struggle, industrial and social unrest), financialisation has been an integral element of the capitalist restructuring and counter-offensive - i.e. of the global restructuring of the relation between capital and proletariat. On the one hand, financialisation has been a vehicle by which the exploitation of labour-power has been integrated on a global scale (with the emergence and integration into the world economy of new poles of accumulation in the emerging "BRICS" economies - Brazil, Russia, India, China, South Africa etc); on the other, it has been a means by which the entrenched position of the high-wage proletariat in the advanced capitalist economies could be weakened. These two aspects of financialisation together correspond to the integration of the circuit of reproduction of labour-power with the circuit of reproduction of capital. With the increasing financialisation of the relation between capital and proletariat, workers' wages in the advanced economies have stagnated, and the reproduction of their labour-power has been increasingly mediated through finance (mortgages, loans, credit cards, and the investment of pension funds in the stock and money markets). This new configuration of the class relation has offered to many, but not all, strata of the proletariat in the advanced economies rising living standards, tied to asset-price inflation. The capitalist counter-attack and restructuring has involved fundamental alterations in the class relation through the defeat of the old workers' movement and the obsolescence of its institutions (trade unions and parties) which promoted the rising power of the proletariat within capitalist society; the new shape of the class relation and the financialisation of this relation depend ultimately on the ability of capital to extract sufficient surplus-value in the global economy (by increasing productivity and by the intensification of labour).

The present financial crisis has its roots partly in the subprime loans and mortgages which were predicated on the continual upward trend of the housing market, and the inflation of asset prices (after the collapse of the previous asset bubble - the boom), with vast amounts of fictitious capital being generated by the leveraging practised by financial institutions (banks, investment funds, private equity funds etc). The finance-led boom ultimately outran the ability of the real economy - i.e. productive capital - to extract surplus value through the exploitation of workers in production (whether this production is 'material' or 'immaterial'). As a consequence we are witnessing a massive 'correction' - the falling stock markets, housing market - in Marxian terms the devalorisation of capital (expressed in write-downs, defaults, bankruptcies, mergers and fire-sales of financial institutions, and now their part-nationalisation by capitalist states across the board).

Thus the pre-existing tendency towards the overaccumulation of capital (whether this tendency is to be understood as cyclical or secular), such that the productive investment of capital can no longer meet its valorisation requirements, is exacerbated by finance capital's penchant for generating fictitious capital (through leveraging, debt financing, futures, options, derivatives and an increasing plethora of complex and arcane financial instruments). Even though finance capital disciplines productive capital (and productive capital is increasingly financialised), the extraction of surplus value through the exploitation of the proletariat can not keep pace with the demands for valorisation which are made by finance capital.

Capital is in crisis. The crisis asserts itself as devalorisation. Devalorisation is the only way that capital can lay for itself the basis of a new round of accumulation, and involves the disciplining of the working-class to accept new terms of exploitation; however, this means that it also places the very reproduction of the capital-labour relation at stake. To avert the crisis, the nationalisation of the banks is not sufficient. The economy is facing recession or depression, and the spectre of deflation. The state managers of capital are caught in a double bind: with huge budget deficits increased by the financing of the bail-out of the financial system (through the purchase of toxic securities, the recapitalisation of banks and the guaranteeing of new loans), the deficit-spending that capitalist states would need to engage in to maintain levels of effective demand in the economy will be increasingly difficult to finance. The question of the credit-worthiness of banks now asserts itself at a higher level as the dubious credit-worthiness of capitalist states (central banks and state treasuries).

Capital might find a way out of the crisis: it will seek to maintain or increase profitability in the real economy through pressure on wages (although this will perversely have a deflationary effect) and the intensification of labour (the increased exploitation of workers) - i.e. strategies to increase both relative and absolute surplus value. The way out of the financial and economic crisis involves the intensification of exploitation on a planetary scale and a crisis of the relation between capital and proletariat. In the 19th and 20th centuries up to the capitalist restructuring of the 1970s and 80s, the proletariat could assert itself as a positive pole in the relation of exploitation. Now, as the reproduction of the proletariat is increasingly mediated through finance, and is thus immediately entwined with the reproduction of capital (with the effect that the reproduction of growing swathes of the proletariat is increasingly precarious, as shown by the current wave of foreclosures and repossessions), and financialisation enables the integration of the capitalist exploitation of labour-power on a planetary scale, the very means which on one level enable capital to fight its way out of crisis threaten crisis on a higher level - the level of the reproduction of the class relation itself.


see also

GegenStandpunkt: "What the collapse of the financial system teaches about the wealth of capitalist nations"

posted Oct 16, 2008, 1:33 PM by John Clegg
Criticizes the hypocrisy of anti-Wall Street populism by explaining the essential capitalist function of banking and the inevitability of crisis in this sector.

Caffentzis: Notes on the "Bailout" Financial Crisis

posted Oct 12, 2008, 12:04 PM by f tcm   [ updated Oct 12, 2008, 2:06 PM by John Clegg ]

George Caffentzis 

0. These notes on the political-financial crisis were written in the last month while many US financial corporations were, in effect, nationalized in response to the bankruptcy of several major investment and commercial banks. The notes have been prompted by the fact that there has been remarkably little political activity in the streets, union halls, retirement communities of the country demanding a resolution of the crisis in favor of the millions of workers who are now losing wages, houses and pensions.

Certainly not even the most compliant unions and the retirement associations were invited to participate in the negotiations that were carried on concerning the legislation.

      Is this lack of attention to workers' interests due to the "shock" tactics that the Bush Administration used to push the "bailout" legislation? Perhaps, but we also think that money and the financial sector of capitalism that deals directly with it have been inherently opaque to working class political analysis and action for more than a century. (The last time there was a self-conscious working class debate on a national level concerning the money form was the 1896 election when the fate of the gold standard hung in the balance.)

      The purpose of these notes is to present in outline a way of understanding this crisis as developing out of class struggles taking place in the US and internationally in the last decade. This can be useful, I believe, since if class struggles had the power to create the crisis, then understanding them might guide us to the path that would lead us out of the crisis with more power. 

1. Financial crises are difficult to understand from the point of view of class politics, for our model of class struggle to this day is still the factory where the workers' labor power is bought (through the payment of a wage) by capitalist firms and put to work along with machines and other inputs to produce a product that is sold for a profit. The workers are worked harder, longer, more dangerously and/or more productively in order to make a larger profit. They respond to this work regime by a combination of means, from compliance to a thousand and one ways of passive resistance to strikes to factory take-overs, while the capitalists devise strategies to resist this resistance. This struggle can take a myriad of forms (sometimes involving the most refined application of social and psychological sciences and sometimes the most brutal forms of assassination and torture), but the factory model is categorically straight forward: workers resist exploitation and capitalists resist their resistance; with profits and wages most often moving inversely. It is all apparently simple, but it can become complex because in a struggle there are many deceits and tricks each side plays both on each other and on observers (present and future).

      When it comes to money and the financial corporations that operate with it (banks, mortgage loan corporations, and other money market firms) this model of class struggle seems not to operate. Why? There are at least three primary reasons.

      First, money is quite a different "product" than either physical things like cars or services like massages. It is a bit mysterious. Words that combine the philosophical and necromantic like "magical," "abstract," "fetishistic," and "universal" are often used to describe money and to immediately give the impression that, compared to other commodities, the usual rules do not apply. For example, money is a unique kind of commodity, for it exchanges with all other commodities, a role that no other commodity plays.

      Second, while industrial or commercial firms require the production and sale of a non-monetary commodity in order to "make money," financial firms make "money from money." They seem to operate in an abstract realm without a spatial location.  This adds to the weirdness of the financial firms that during the history of capitalism have always attracted both fascination and hostility from other capitalists and workers.

      Third, they claim a different form of income than other capitalists and workers: Interest. When it comes to making money they make it in the form of interest on loans to capitalists (who pay interest out of their profits) and workers (who pay interest out of their wages). In other words, the money financial firms "make" is created "elsewhere" by workers working for non-financial capitalists. The workers of the financial firms themselves may be exploited--e.g., be forced to work long hours and get paid in worthless stock bonuses--but the income that the firms' owners receive does not derive from these employees' efforts in producing a product. It comes from the profits and wages of those who received loans who are, in most cases, not their employees.

      Where does the right to earn interest come from? How is it determined? These kinds of questions haunt our understanding of financial firms, since it appears that in a society where work is the source of value, interest appears to be like "creation out of nothing"! 

2. On each of these counts then, financial firms do not fit into the factory model of class struggle. There undoubtedly is a form of struggle that financial firms in their nature are involved in that has an ancient origin: the struggle of debtor versus creditor. For when a firm lends out money to a person or firm, the debtor makes a promise to repay this loan with interest at some time in the future. The failure to do so in ancient times often led to slavery or mutilation, i.e., the famous "pound of flesh" the creditor was allowed to cut from the body of the defaulting debtor. In contemporary capitalism, besides criminal sanctions in the most egregious cases, default on loans leads to bankruptcy for capitalist firms and liens on the property and future income for workers. This kind of struggle (to pay or not to pay the debt) is based upon the threat to violate contracts, not upon the fundamental nature of the wage contract itself in which is inherently exploitative.

      There is clearly a struggle going on in the US today concerning money and finance, but how best to understand it? Workers versus Capitalists, Debtors versus Creditors, or some new way? What are the political demands that are being voiced in this crisis? 

3. To answer these questions we must get back to the basics and how they apply to contemporary capitalism. Before examining the particular elements of the "bailout" legislation, however, let us look to the elements of capitalism that are involved: F, the financial sector; I, the industrial and commercial sector; and W, the working class. We recognize that this might look like dry stuff from the outside, but we have two things to say about our style: (1) however dry, the contents of this analysis concern the fate of millions of people, including our own, and (2) the pace of this analysis has been deliberately made to take one step at a time to slow down the speed of thought concerning this crisis in order to combat the artificial acceleration the Bush Administration and their allies have imbued it.

      There is, undoubtedly, a more fine-grained analysis in the future that will ultimately be required, recognizing that the working class has many divisions and hierarchies and that capitalist firms are not only divided into sectors but also in many different sizes and scales. Most important, we need to recognize that the workers involved in this story are not simply those in the territorial US.

      Given these elements, we will have to look at the relations and struggles between F-I, the finance sector and industrial and commercial sector; F-W, the finance sector and the working class; and, of course, W-I, the working class and the industrial and commercial sector. Thus there is an intra-class and well as an inter-class struggle, i.e., one between wages and profits and wages and interest, but also one between profits and interest. The entrance of wages into the class equation concerning finance is very important because there has been a profound shift in the 20th century concerning our notion of interest. (That is one reason why, although very important, Marx's work in Capital III is only of limited assistance in this period.) In the 19th century and before, workers were never important direct players in the financial world, since they had almost no property that could be used as collateral to take out loans from financial institutions and they had almost no savings to be used as deposits in banks. In fact, the many mutual aid and credit union organizations that sprang up in the 19th century were due to the fact that banks and other financial institutions considered themselves as having solely capitalists (large and small) as their customers or that workers were too suspicious hand over their hard earned savings into the hands of financial capital. This is no longer the case. Consequently, when we speak of financial crisis in the 21st century, we must speak of inter-class conflict as well as conflict between factions of capital. 

4. What is the source of the financial crisis and the "bailout"? At first, it appears like every other financial crisis in history: the inability of debtors to pay back old loans and the inability of financial firms to make new loans. Instead of money creating  money out of nothing, we now have money creating nothing.

      There are two reasons why this crisis is a contemporary one: (a) it has its roots in the condition of the US working class and (b) it has its roots in globalization of financial flows.

      The inability to pay back has much to do with working class home owners instead of capitalists not being able to sell their production for a profit large enough to pay the interest on their loans (which was the usual crisis scenario in the 19th century). In this case, the workers' wages were not large enough to pay the interest and principal on the loans they took out to purchase their homes. If workers over the last few years were receiving substantial wage increases, then there would not have been a financial crisis in the Fall of 2008. They would have been able to keep up with increasing payments required by the often bizarrely variable rate mortgage loans they negotiated. However, this was not the case. Indeed, there was a bout of real wage stagnation at the very moment when the housing market was booming and housing prices bubbled. So, in an important sense, the inability to sustain a successful wage struggle in the US of the 21st century is at the heart of the present financial crisis.

      The second aspect of the crisis is the restriction in the flow of new investment funds into the US financial system. It was through vast flows of capital into the financial sector (especially from China) that led to US financial firms to offer mortgages and extend credit to US capitalists and workers. And here the word "flow" is important, for as long as there is new capital coming into the sector, "bad" loans could be "rolled over," and payments delayed without any serious problem. However, when there are significant constraints in these flows the mechanisms of deferral cannot be used and loans are defaulted on while new loans cannot be transacted.

      I hypothesize that China was the major source of restriction of flows into the US for two reasons. The first is the recent reduction of the growth rate of the Chinese economy that indicates that there has been a decline in the average rate of profit in China. The second reason is that the Chinese workers have recently been able to dramatically increase their wages and better their working conditions. This has lead to increased Chinese investment within China itself and the cultivation of the domestic market in government planning. These trends have recently negatively affected the flows of Chinese foreign investment into the financial sector of the US and have been part of the reason why the US government has to make up for the short fall.

      Thus we see how the mortgage crisis in the US is the effect of two proletariats: (1) the US proletariat's inability to increase wages (there have been almost no strikes of significance in the US in the last few years) and workers’ reliance on credit and equity to satisfy their subsistence needs (traditionally the attributes of rentiers) and (2) the Chinese proletariat's success, thorough thousands of strikes and protests, in increasing wages and forcing more investment in its social reproduction.  

5. Given these causes rooted in class struggle, let us examine the "bailout" legislation as a set of "deals" between different elements of contemporary capitalism (coordinated by the state). By a "deal" we mean something like a tacit agreement that sometimes appears in but often underlies the official legislative formulation of a social contract. We use this language to indicate that the concept of a social contract is too formal and irenic (i.e., peaceful) a structure to capture the often unspoken aspects of these agreements to disagree that are dependent on the state of power relations and grow out of a protracted and open-ended struggle. Antagonists can agree on the rules of the struggle until the rules come up for struggle.

      Let us take each of these sectors and examine the deal that is being offered by the state to them in outline: 

F (the financial sector): This sector agrees to still-to-be announced government imposed open-ended restrictions on their freedom of action and government regulation of their money capital movements. It also agrees to at least temporary nationalization of certain branches of the industry. In exchange it will get a large-scale "socialization" of debt losses across the board (not just in so-called subprime mortgage loans). Implicitly there is an assumption that this socialization will not be adversarial (i.e., the personnel involved in choosing the debts to be purchased by the government will not be looking out only for the government's interest). 

I (industrial and commercial sector): This sector agrees to support the "rescue" of the financial sector in exchange for a government guarantee of a continuous access to credit (the end of the "credit crunch") and an implicit indication that the principle--"too big to crash"--that was used to judge which firms in the financial sector would be "bailed out" would also be applied to this sector. 

W (the working class): This class agrees to a dramatic wage decrease either through debt-inspired inflation and exchange rate devaluation or the theft of the Social Security Fund or both in exchange for a return to relatively full employment relatively quickly.  

      The configuration of the relations between F, I, W in the immediate future is described below: 

F-I (the relation between interest and profit and financial and industrial capitalists). This coming period will repose the eternal conflict between the financial sector (and its claim to interest) and the industrial and commercial sector (and their claim to "the profits of enterprise") after a period of hegemony of the financial sector. Economic rhetoric will be filled with snide remarks about pure money magicians and rocket scientists who land their projectiles in teacups and the need for "real" investments (especially in the energy sector). 

F-W (the relation between wages and interest or working class and financial capitalists). The coming period will be, on the one side, in the face of a tremendous downward pressure on wages, replete with demands for debt cancellation or Jubilee and, on the other, draconian sanctions for breaking loan agreements, for falling behind the mortgage schedule, and for sending money to cover the credit card statement TOO LATE.  

I-W (the relation between wages and profits, and between workers and industrial and commercial capital). The Bush Administration's "ownership" society will begin to look quaint. As a consequence, the efforts by workers to regain their previous levels of income will no longer rely on finding a "financial" exodus (through stock ownership or house purchasing) and will have to confront capital directly around wage struggle. 

      All classes and sectors, however, agree that much of the ideology and some of the practice of neoliberalism will be turned into relics. "Government" is now trumping "governance" on all levels of the economy (not, of course, that the state was ever aiming to wither away as some postmodern thinkers were led to believe during the last decade.) Just as developments after September 11 like the invasions of Afghanistan and Iraq showed that the centerless and "flat" world of globalization was more an advertising gimmick than a reality, just as the return of the surveillance state with the "war on terrorism" showed that the internet was no field of open communication, then so too events this September and early October have shown the era of the symbolic, future-centered economy operating at light speed has reached its limits in a meteor shower of falling stock prices, bankrupt investment houses, foreclosed homes and tent cities.

      It is also clear that the bailout deal is only as strong as the results it produces. There is no guarantee that either buying up hundreds of billion of dollars of “toxic” loans will be adequate to "restore" confidence in the financial sector, or that the credit flows will resume to the extent that will make an economic upturn possible, or that there will be a return to historically normal levels of employment after a period of "turbulence." Moreover, some parts of the system might eventually reject the deal previously accepted when confronted with demands that were merely implicit in the initial offering. For example, how will workers respond to the demand by the next administration that the Social Security fund be invested in stocks after just seeing the latest of a series of stock market crashes? Will the financial houses balk if they are regulated too stringently? Will the collapse of neoliberalism lead to a more powerful anti-capitalist movement in the US or something resembling what we would call "fascism"? These are the kind of questions that will be central to understand the class politics of capital's "exodus" from neoliberalism that is taking place now.  

6. Critics of neoliberal globalization might take a moment to gloat about the destiny of its antagonist...but only a moment, for the consequences of this "bailout" are momentous and need to be considered carefully from the point of view of the state and from the point of view of the proletariat.

      The great debate with China that the US government was engaged in for more than a decade concerning the role of the state in capitalism has been won by the Chinese (at least for this round). This is an important strategic outcome of the "bailout" and is often referred to when the international fall-out of the crisis is discussed. The bailout is an ideological blow of major proportions. How can the US government seriously push financial de-regulation at the very moment when it is practicing the exactly opposite policy? It is true that consistency is not to be expected in the world of power. After all, the US government has been preaching the abolition of agricultural subsidies to the governments of Africa at the very moment when it has substantially increased its subsides to its own farmers! But there are limits to political hypocrisy and, moreover, the countries like China that the US is preaching financial de-regulation to are exactly those who have the capacity to resist its embrace.

      On the contrary, the Chinese model of strong state control of the financial sector and the exchange rate has proven the winner in this period not only over the Russian transition from Communism to Capitalism but now, apparently, in the US transition from Neoliberalism to a form of Financial Socialism. But this victory also has consequences for the development of a full political economy.  What will the re-entrance of the state into the micro-organization of the economy mean for the whole system? Neoliberalism has been a political and a cultural paradigm as well as an economic one. It will require much research to anticipate how these areas of life will be affected by its collapse. How would a Chinese-like economic model bleed into US politics and culture?

      Finally, is the US working class ready to lead world society out of this cataclysm of neoliberalism? The electronic assault on the politicians in Washington via the internet and the telephone system that led to the first defeat of the bailout bill gave many around the world some hope, but it was not followed by a more sustained resistance and was defeated in one week. By the wavering political response to the Bush Administration's "blitz," then, the immediate answer must be "No." Talk radio and internet petitions were ultimately weak tokens in this particular struggle. Indeed, by taking "sub-prime" mortgages as the cause of the crisis, the working class demands for reliable housing and income security have been branded to be systematically “toxic” to the credit system (to use the reigning metaphor of our day). The blockage of the credit route out of the long-term stagnation of the wage will have major strategic consequences. Since capital will not allow the US working class to be a class of rentiers (living off the ever increasing value of their stocks and of the equity on their homes), workers must return to the hard terrain of the wage in the coming era, however unpropitious it appears.

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