Owen Jones and Banks

 

          Owen Jones is a passionately left-wing journalist, chiefly for the Guardian newspaper, who campaigns eloquently and honestly for the just causes, of which there are rather too many under this miserable Tory government, or excuse for a government. True, Owen was a little wobbly over Jeremy Corbyn at one time, but Jeremy’s success in getting votes for Labour has brought Owen into line, along with various erstwhile Blairites  who smell power in following Jeremy these days, together with increasing numbers of business interests gravitating towards Labour if only because they don’t hold out much hope of Tories winning the next election, whenever that may be. So Owen Jones is essentially a camp-follower, but a nice one.

          Owen writes, with his usual persuasiveness (Guardian 20^th October 2017) on the urgent necessity of nationalising the UK’s banking industry. According to a recent poll half of the electorate are in favour of this. The idea is that banks, ‘an essential public utility’, are doing much less for the economy and much more for their own shareholders than even a number of responsible economists would like to see. According to a think tank called the New Economics Foundation, the troubled Royal Bank of Scotland could be run by a management board, with ‘a board of trustees [to] ensure the bank was accountable to the broader economy and customers, not shareholders.’  Meanwhile, according to Owen, ‘Labour is right to call for a German-style public investment bank, backed up by similar publicly run local banks.’  In Germany, KFW, the government-owned development bank, ‘is crucial in developing national infrastructure as well as the renewable energy revolution.’

          I would sound a note or two of caution here. Britain is not Germany, which is already – and has been for a long time – an industrial powerhouse compared to Britain with the latter’s reliance on ‘invisible earnings’: i.e. FIRE – finance, insurance and real estate. In Germany, too, there persists a long-time economic ideology entirely different from the traditionally British laissez-faire approach: ordoliberalism, a theory and tradition of state management and promotion of private (and public) enterprise for the good of the nation. In the 19^th century Germany – in the earlier decades – was woefully backward compared to ‘the workshop of the world’ Great Britain and, as in France, the gradual consolidation of the state and state power both protected and promoted the rapid development of German (and French) industry and railways. By just past mid-century Germany had overtaken Britain in the production of chemicals, an overtaking industrial process that was to continue, indeed up to the present time.

          With help from the largest (poorly-paid) Turkish population outside Turkey, Germany continues to dominate the continent industrially and in general economically, though France is rapidly catching up.

          Meanwhile what do we have in Britain? The most spectacular failure of a bank in recent times was, in fact, the Co-operative Bank, which ended up on its knees after years of incompetent (or confused) management and is now in the hands of American financial interests who are running it like any other commercial bank – that is, not according to ‘co-operative’ principles and practices. This example shows in part that co-operative financial organisations are not easily able to compete and survive against a brace of aggressively capitalist ones.

          A bank is predicated on borrowing cheap and lending dear. That is its basis in profitmaking, its raison d’etre, in fact. Banks must be profitable, as embodied in returns to shareholders, so that others might also profit. And when they aren’t profitable, governments must step in to shore them up. It is a sound principle that one never goes to a bank to borrow money if one cannot afford to. Banks are the antithesis of charitable or non-profit organisations. You can be sure that the German banks are doing well enough out of their strategic lending, itself based on a situation much more favourable to ‘ordoliberal’ industry in the first instance than exists in Britain or is likely to for a long time to come, if ever.

          Owen Jones is quite accurate and right in his broad estimation of the economic basket case that is Britain today. But this is a process of decline that has been going on for more than a hundred years. It is not about to be positively transformed by benevolent and ‘co-operative’ banking: that is, in a situation where our financiers dominate the landscape anyhow whatever their involvement in a long death struggle. You don’t set up capital to run without a healthy profit, let alone at a loss: capital must always make a (good) profit or it is not capital at all. Banks, whoever runs them, must make a healthy profit or go under in time; banks are ‘capital’ organisations in the strict sense that ‘capital’ itself is their stock-in-trade. Only the abolition of the built-in contradiction of capital will render us the world we need, but I doubt if Owen Jones has the stomach for what that takes.

         

Look Familiar?

 

Paris, 1830 to 1848:

 

Under [King] Louis Philippe it was not the French bourgeoisie as a whole which ruled but only one fraction of it – bankers, stock market barons, railway barons, owners of coal and iron mines and forests, a section of landed proprietors who had joined their ranks – the so-called financial aristocracy.  It sat on the throne, it dictated laws in parliament and made official appointments from the ministries to the tobacco bureaux…

*

 

          As a result of its financial difficulties the July monarchy was from the very beginning dependent upon the big bourgeoisie, and this dependence became the inexhaustible source of increasing financial difficulties. It was impossible to subordinate the state administration to the interests of national production without balancing the budget, without balancing state expenditure and state revenue. And how was it to establish this balance without damaging interests which were, every one of them, pillars of the ruling system, and without organizing the redistribution of taxes, which meant shifting a considerable part of the tax burden on to the shoulders of the big bourgeoisie?...

 

*

 

…The fact that the state deficit served the direct interests of the ruling fraction of the bourgeoisie explains why the extraordinary state expenditure in the last years of Louis Philippe’s reign was more than double the extraordinary state expenditure under Napoleon [I], indeed almost reaching the annual sum of 400 million francs, while France’s total average exports rarely reached 750 million francs. The enormous sums of money which thus flowed through the hands of the state gave rise, moreover, to crooked delivery contracts, bribery, embezzlement and roguery of all kinds. The wholesale swindling of the state through loans was repeated on a retail basis in public works. The relationship between parliament and government was reproduced in the relationship between individual administrative departments and individual entrepreneurs.

          In the same way that it exploited government spending in general and government loans in particular, the ruling class exploited the construction of railways. Parliament heaped the main burdens on the state and secured the golden fruit for the speculating financial aristocracy. We recall the scandals in the Chamber of Deputies when by chance it came to light that all members of the majority, including a number of ministers, were stockholders in the same railway projects which, as legislators, they subsequently had carried out at state expense. ..

*

The July monarchy was nothing more than a joint-stock company for the exploitation of France’s national wealth, whose dividends were divided among ministers, parliament, 240,000 voters and their adherents…

*

          While the financial aristocracy made the laws, controlled the state administration, exercised authority in all public institutions and controlled public opinion by actual events and through the press, the same blatant swindling, the same mania for self-enrichment – not from production but by sleight-of-hand with other people’s wealth – was to be found in all spheres of society, from the Court to the Café Borgne [a synonym for the low dives of Paris]. The same unbridled assertion of unhealthy and vicious appetites broke forth, appetites which were in permanent conflict with the bourgeois law itself, and which were to be found particularly in the upper reaches of society, appetites in which the wealth created by financial gambles seeks its natural fulfilment, in which pleasure becomes crapuleux [debauched], in which money, filth and blood commingle. In the way it acquires wealth and enjoys it the financial aristocracy is nothing but the lumpenproletariat reborn at the pinnacle of bourgeois society.

 

Drawn from Karl Marx: The Class Struggles in France: 1848 to 1850

(Surveys from Exile: Political Writings vol. 2, Penguin 1973.)

Louis Philippe (1773-1850) was King of France from the July Revolution of 1830 to the February Revolution of 1848. His reign, succeeding the last Bourbon monarchy, of Charles X, ushered in the rule of France by the haute bourgeoisie, marking the emergence of capital as the dominant power for good and all.

Any resemblance between that reign and modern Great Britain in the 21^st century is purely coincidental…

 

 

 

• FICTITIOUS CAPITAL –
  How finance is appropriating our future
  by Cedric Durand  Transl. David Broder
  (Verso, London 2017)
   
   
            In a previous blog I quoted the Daily Telegraph’s Jeremy Warner as intimating that crisis may well be international finance’s permanent state. However, we got little in the way of explanatory analysis of this and needless to say any Marxian approach would have been shoved aside. You should read this book by Cedric Durand because it puts meat on the bones of the chaotic state of things without requiring any moralising on human greed. And, just as importantly, it is crucial to Marxists brought up on the fundamental Marxian view that profit derives from unpaid labour power worked on commodities that are sold in the marketplace. But how can this be so when we see gigantic profits being made by the so-called 1% from derivatives and all other sorts of fancy financial packages? What does this have to do with unpaid labour time?
            Reading this book we will soon learn that both have to do with what Durand has identified as fictitious capital: ‘Fictitious capital is an incarnation of that which tends to free itself from the process of valorisation-through-production.’
            Marxists have long suspected that capitalists would much rather simply turn money into more money, like the old usurers (M-M’) instead of going through the tedious and risky business of routing profit-making through commodity production as well (M-C-M’). With the ascendancy of fictitious capital this dream is being realised, on a grand scale. If once upon a time in capitalism the real money was in textiles, or railways, or (more recently) oil, today the ‘real’ money is in money.
            After World War II, the Bretton Woods agreement pegged the US dollar at $35 per gold ounce. As even then the dollar was the dominant world currency this continuance of the gold standard anchored all money to a universally-recognised value – that of gold. By the early 1970s the Americans, now horrified by the extent of the amount of US dollars held abroad (due, amongst other things, to the huge expenditures during the Vietnam War) were fearful that if other countries demanded gold for their dollars, the American gold reserves would soon drain away. President Nixon accordingly took the dollar off the gold standard, which meant that money no longer had any anchorage except in what Durand calls social acceptability, that is, with the breakdown of the Bretton Woods system. Other countries took this to mean that money could be printed willy-nilly, and in a short time, what with the early ‘70s oil crises as well, inflation went through the roof – as those of us who lived through the 1970s will recall. (See George Cooper: The Origin of Financial Crises, 2008.) This was only finally quelled by crushingly high interest rates imposed by the Federal Reserve Board until inflation was brought more or less under control by the mid-1980s. This freeing-up of money has over time ballooned one aspect of fictitious capital: ‘total credits to the non-financial sector,’ according to Durand.
            Another aspect of fictitious capital lies in the prodigious sale of derivatives which make claims on commodities that have not yet been produced. Thus the tenuous link with unpaid labour time, only the unpaid labour time has not yet come about. Since it may never come about in many cases, this form of investment is a major source of instability. But it makes claims on the future long before the future arrives. The future of the economy, in other words, is already mortgaged in advance. At least ten times’ more world capital is tied up in derivatives than in production.
            Economic reliance on both insurance and real estate is also a source of fictitious capital. While it may be a form of protection, insurance sells nothing at all. Housebuilding and property speculation may make fortunes for some, but houses and indeed skyscrapers (not to speak of land apart from its yield) can’t be exported - and so when financialised become a big drag on a nation’s ability to invest in the production of goods and services for sale including foreign sale. Houses belong – as they are a necessity – to the public sphere whether under socialism or capitalism.
            Another form of fictitious capital, already identified by Marx in Grundrisse (Penguin, p. 853) as worker ‘exploitation by capital without the mode of production of capital’ is debt interest. That is, profits upon alienation which now burden so many in our working populations as they seek credit – at ridiculous interest – to pay for necessities in lieu of adequate wages. This form is of course usurer’s capital, which pre-dates industrial capital by a long way and has once more become dominant in the formation of fictitious capital.
            Then there is interest drawn from surplus value – that is, dividends as deductions from surplus value.
            What with (a) the lowering of taxes on the rich, (b) the ‘tax-efficient’ convenience of low-tax ‘havens’ around the world, and (c) the enormous bailing-out of banking and other institutions by governments in the 2007-08 financial crisis (and is this to be repeated in the not-too-distant future?) public debt and the private claims upon it has spiralled upwards and is a fundamental aspect of fictitious capital. Its existence is why we shall not be saying goodbye to Austerity any time soon, since governments will continue in various ways to prioritise the shoring-up of the banking system. It might be worth noting in passing that the Fed is not a public institution but a private consortium of the leading US banks.
            Share price on the stock market is calculated on the basis of anticipated profits, and securities will be sold at a higher price than they cost to buy, in other words, capital gains, which are another aspect of fictitious capital. Durand adds that ‘quantitative easing’ by central banks pushes up the prices of asset purchases and – in addition – prompts investors to go for riskier and more remunerative asset classes. ‘This,’ says Durand, ‘allows the realisation of fictitious-capital gains that would otherwise not have existed.’
            Another aspect of fictitious capital is the profit made by financial institutions in the heavy fees charged (for example) on arranging mergers and company buy-outs.
            Meanwhile, prodded by ‘shareholder value’, companies buy back their own shares in the billions to up their share-value on the stock exchange, thus removing or scaling-down the funding that might otherwise have been available for productive development through structural investment.
            While salaries as such might not be considered capital, the size of the salaries of top executives works its way into the fictitious capital complex, though, as Durand says, this aspect is less easily documented than the others. I would say that as non-financial corporations become dominated by their own financial (as opposed to commercial and manufacturing) activities, this in effect turns their CEOs into financiers with a greater involvement in the financial running of the company than over what the company actually makes and sells. In my view this is a factor that has led over the years to the widening of the gap between the salaries of top executives of non-financial companies, so called, and the wages of their ordinary employees. The top men and women are essentially bankers in another guise. We will not see the lowering of their salaries, stock options and pension rights any time soon, either.
            Durand notes the payment of hugely remunerative legal fees for the protection of corporate ‘intellectual property rights’ which itself can stymie independent research and development. There is nothing productive in paying lawyers though the outcome be profitable when lawyers win cases in court (or reach out-of-court settlements).
            ‘The mass of accumulated fictitious capital can, then, assume proportions incompatible with the real potential of economies.’
            And so into a world dominated by state-dependent ‘phoney capitalism’, where productivity (the basis of real wealth) continues to wither – see recent reports. And in which ‘unemployment’ translates into zero-hour contracts, families living on ‘in-work benefits’ while the term ‘self-employment’ comes to mask de facto unemployment or certainly underemployment.
            Durand is clear that the much-vaunted ‘technological revolution’ by itself is not going to change all this for the better. In relation to the dominance today of fictitious capital advanced technology is something of an irrelevance. Irrelevant also are the arguments of neoliberals against Keynesians and bourgeois politicking generally.
            There is bound to be a reckoning sometime in the not-too-distant future, but whether it takes the form of a financial crash of incredible proportions, or the mass immiseration of most of us when governments have to step in to bail out the whole banking and financial system all over again, it is we who will be the real losers. That is, unless we seize the political initiative of expropriation – and seize it globally.  For, as Durand emphasises, fictitious capital must be seen in the context of globalisation.
            Durand presents his case clearly and with irrefutable statistical evidence. Readers may well find him a bit formidable in the magnitude of his scholarship, but bear with him: it is worth it. Reading it twice would not go amiss (it is only 164 pages). Read him, and prepare, as best you might.
   
   
   
   

PANGLOSS IS BACK – BLACK IS WHITE AND WHITE IS BLACK

 

          On the same morning I hear on the BBC from Theresa May that her internal struggle over Boris Johnson, her erstwhile Foreign Secretary, is an example of teamwork at its most successful and democratic, I read the following by Matthew Lynn in the Daily Telegraph (‘”Creative destruction” of Monarch shows that the system is working’, October 3^rd 2017) – re the collapse of Monarch Airlines this week:

The important point is this, however: companies get into trouble, and their fortunes rise and fall. They often go bust. It is a messy process. But that is not an argument against free markets. It is an illustration of why they work so well…

Sure, there will be some short-term disruption when any company goes bust. Customers will inevitably lose out, suppliers will suddenly find themselves in trouble, and staff will have to look for a new job.

But it is always important to remember that is how the system renews itself, and why it works so well. True, it might not be much of a consolation to a couple with a pair of toddlers stranded at an airport to know that they are taking part in a process by which the economy moves forward. But it happens to be true.

Dry your eyes, kids. No holiday now, but don’t you see that you are taking part in a process by which the economy moves forward? … Come off it, Spartacus! Don’t you realise how vital slavery is to the Roman economy?  … Bad luck they’ve decided to frack in your back yard, Jim, but remember that the compulsory purchase order was necessary if we are to keep up the momentum of a vibrant economy! … Come on, workers! Stagnating wages for thirty years shows how well the system works!

          On the same page the day before, chief investment booster Roger Bootle wrote of ‘Labour twaddle’. If twaddle, it gets a fair amount of competition from Matthew Lynn.

          ‘All is for the best in the best of all possible worlds!’ – As Dr Pangloss kept reminding Candide.