Marxist Moments

SPIVVY BANKS

 

          This blog picks up from the last one, ‘Owen Jones and Banks’.

          It’s derived in part from Observer financial columnist Phillip Inman (‘All hail British banks: self-absorbed, short-termist and spivvy’, Observer 29^th October 2017). Mr Inman draws from a new report issued by the IPPR Commission on Social Justice: ‘Financing investment: Reforming Finance Markets for the Long Term’. The Commission includes business leaders, people from the charity Citizens UK, the Archbishop of Canterbury and various academics. Let’s look at salient facts cited by Mr Inman:

          Loans to UK businesses account for just 5% of total UK bank assets (compared to 11% in France, 12% in Germany and a 14% average across the Eurozone).

          Property loans to businesses and individuals in the UK account for more than 78% of all loans to individuals and non-financial businesses.       Strip away real estate, and loans to UK businesses account for just 3% of all banking assets.

          Hedge funds are just as bad. These plus high-frequency traders collectively make up 72% of trades on the London market. The IPPR accuses them of ‘paying themselves on performance against rivals and over short time-scales, “not long-term value-creation”’.

          What is Inman’s context for this? ‘Britain is in the midst of an investment crisis, a productivity crisis, an income crisis and an inequality crisis – and all are so entrenched that they are beyond policies that tinker or No. 10’s “nudge unit”.’  So do something about it! Line all the bankers and hedge-funders up against the wall facing certain death by firing squad until they beef up their 'long-term value creation'!


          Alas, banks and hedgers do not create value. ‘Long-term’ value comes from workers in the employ of production bosses, not from the likes of these, who are only financial intermediaries. The financial sector functions (ideally) to circulate existing value more efficiently, not to make value abracadabra-style.  Bankers are likely to reply that business is not approaching them to any great extent, let alone an optimal one. Banks loan to those who borrow in order to make investments, but what happens if (outside of property) borrowing itself has fallen off? It’s not as if banks were inherently anti-business. But they can’t force businesses to borrow. As we know it is a sound principle that one never borrows from a bank if one cannot afford to. In contrast to smaller businesses (and ‘zombie’ ones) that may be staring at the possibility or likelihood of insolvency, larger corporations are sitting on piles of their own cash as it is. It would seem likely, on this account, that we are witnessing what JM Keynes long ago railed against as the enemy of any capitalist economy: hoarding.

          Here is a big problem with money: money is a circulating medium, to be sure, but due to its own fetishistic existence money can also be withdrawn from circulation altogether and still retain its fetish-value. If it is safer to hoard money than to invest it, this is what capitalists will do – as they did in the Great Depression of the 1930s. Indeed if they hoard enough cash less money will be in circulation, which neatly avoids hyper-inflation, since ‘too-much-money’ here isn’t doing anything! Capitalist economies that run out of things to invest in either safely or profitably or preferably both can revert to a kind of Aladdin’s Cave economics: but all they require, unlike the misers of old, is money itself, not necessarily  in the form of gold and precious jewels, though perhaps with the odd Rembrandt. Heavy taxation on hoarding will not de-fetishize money itself.

          So – hoarding works!

          But hoarding – as with its opposite, potential insolvency – is certainly the antithesis of banking, which is grounded in making profit through borrowing and lending for investment, i.e. the circulation of money as capital.

          The Right will chime in here to say that it is the fault of trade unions, red agitators, Remainers, Jeremy Corbyn & Co. who so disrupt business confidence that substantial business withdraws into its various Aladdin’s Caves. The true culprits in all this are not banks but red agitators (some in Remainer disguise) poisoning the minds of the populace! But decently-functioning capitalism is predicated upon endless investment, endless growth, regardless of either actual buying-power or a finite planetary environment. The Great Recession of 2007-08 was not caused by red agitators but by – and this is an invariable cause of crises – more and more money chasing fewer and fewer reliable or affordable prospects until it went for unreliable ones. Banks to be sure were heavily implicated for having spread the results of the disaster all around the world, but were not the root cause, which was a misfiring of investment in unreliable dealings. Banks facilitate deals but do not create growth of themselves. Banks certainly have not helped themselves in terms of exoneration, but this is fundamentally due to their essential powerlessness in given situations, for they are middlemen, not drivers. They do not make attractive martyrs and never have. But it turns out that lambasting banks – as lambasting red agitators – is an ideological safety-valve for the whole system. In the 1930s both financiers and reds were widely held to be to blame for the Depression, a unifying thesis then being an anti-Semitism that saw a world conspiracy hatched between them. (The anti-Semitism is not present in today’s scenario. In its place we have Muslims and immigrants in general, who are at least in position to be blamed for everyone else’s woes.)

          Let me wind up first with a quote from Istvan Meszaros’ seminal work Social Structure and Forms of Consciousness vol. I (p. 52):

          The only rationality that capital needs – and, of course, also dictates and successfully enforces – is precisely the “strictly economic” and operational rationality of the individuals engaged in the process of its enlarged reproduction regardless of the consequences.

Yet – amusingly enough, to some of us – our capitalists apparently these days don’t even stick to pure operational rationality in order that the whole system be reproductively enlarged. Let me quote again from Inman:

          This spivvy trading arena has the knock-on effect of making short-term demands on the boards of listed companies. Such is the pressure to avoid being caught in traders’ headlights that in a survey of more than 400 executives, some 75% said they “would sacrifice positive economic outcomes” if it helped smooth their profit figures from one quarter to the next.

This does not look like a banking problem – except in the sense that banks aren’t getting the business. And it looks less like capital’s operational rationality and more like a fish swallowing its own tail. Of course Meszaros’ fundamental contention – as opposed to the ‘laws’  of ‘marginal utility’ economics - is that the capital system as such is essentially irrational. This might equally be said of many if not all suicides.