Economics for Activists Week Five Limerick June 2012

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week five of economics for activists, Mechanics Institute Limerick

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Economics for Activists Week Five Limerick June 2012

  1. 1. Economics for ActivistsWeek Five – Credit and CapitalismMechanics Institute, LimerickJune 2013
  2. 2. Mary Mellor, The Nature of MoneyChapt.4 – Credit and CapitalismCredit is essential for contemporary capitalism because:1. Money is needed to enable the productive or trading process to start2. Customers also need credit to be able to purchase goods3. If capital is to accumulate there must always be new money coming into thesystem
  3. 3. “Marx, for example, emphasizes that all of these forms of capital –merchants‟ capital, money capital and rent on land – had an historicalexistence which stretches back well before the advent of industrial capital inthe modern sense.
  4. 4. “Marx, for example, emphasizes that all of these forms of capital –merchants‟ capital, money capital and rent on land – had an historicalexistence which stretches back well before the advent of industrial capital inthe modern sense.We therefore have to consider an historical process of transformation inwhich these separate and independently powerful forms of capital becameintegrated into a purely capitalist mode of production.
  5. 5. “Marx, for example, emphasizes that all of these forms of capital –merchants‟ capital, money capital and rent on land – had an historicalexistence which stretches back well before the advent of industrial capital inthe modern sense.We therefore have to consider an historical process of transformation inwhich these separate and independently powerful forms of capital becameintegrated into a purely capitalist mode of production.These different forms of capital had to be rendered subservient to acirculation process dominated by the production of surplus value by wagelabour.
  6. 6. “Marx, for example, emphasizes that all of these forms of capital –merchants‟ capital, money capital and rent on land – had an historicalexistence which stretches back well before the advent of industrial capital inthe modern sense.We therefore have to consider an historical process of transformation inwhich these separate and independently powerful forms of capital becameintegrated into a purely capitalist mode of production.These different forms of capital had to be rendered subservient to acirculation process dominated by the production of surplus value by wagelabour.The form and manner of this historical process must therefore be a focusof attention.”David Harvey, Limits to Capital (London: Verso, 2006), 73.
  7. 7. The purpose of capitalism is self-expansion – capital begets capital – and it does so by monetizingsocial value and human labour. This is a circuit of transformation.
  8. 8. The purpose of capitalism is self-expansion – capital begets capital – and it does so by monetizingsocial value and human labour. This is a circuit of transformation.“Historical capitalism involved therefore the widespread commodification of processes – notmerely exchange processes, but production processes, distribution processes, and investmentprocesses – that had previously been conducted other than via a „market‟. And, in the course ofseeking to accumulate more and more capital, capitalists have sought to commodify more and moreof these social processes in all spheres of economic life.”Immanuel Wallerstein, Historical Capitalism (London: Verso, 2011), 15.
  9. 9. 1. From finance capital to financialisationFinancialisation sees financial assets not as representingwealth in the „real‟ economy, but as wealth creatinginvestment in their own right. (p.85)Leverage became the most important tool of financialaccumulation… debt [or leverage] piled on a small amountof initial investment can vastly increase the profit made.The secret is access and banks were lending incrediblycheaper to speculative finance companies. (p.89)
  10. 10. 2. Credit and speculation: hedge funds andderivativesHedge funds – „betting syndicates for the very rich‟ (p.89)A major activity of hedge funds is derivative trading…Most hedge fund derivative activities are purely speculative,that is, there is no underlying exchange of goods orservices. They gamble on anything, shares, securities,futures, currencies. (p.90)On the margin – leveraging without borrowing money.(p.91)
  11. 11. 2. Credit and speculation: hedge funds andderivativesHedge funds are an emblem of the globalised casinoeconomy, with most of their funds held offshore to avoidtax. (p.93)
  12. 12. 6. The limits of financialisationThe two main aspects of capitalism, productive andfinancial, are inherently in conflict. Capitalism is dividedagainst itself. Finance seeks short term gain whileproductive capital needs long term investment.The financial sector is not just about the activities of afinancial market (intermediation between those with capitaland those who need capital), it is about the process offinancial accumulation. (p.102)
  13. 13. … the difference between capital in money or productiveform ultimately leads to the separation between interest onmoney capital and profit of enterprise.The distinction amounts to a division of the surplus in twodifferent forms, which may ultimately crystalize into adivision between money capitalists and producerentrepreneurs.Harvey, Limits to Capital, 72.
  14. 14. 7. Speculating with the People‟s moneyThe argument put forward in this book is that although the moneysystem is controlled by capitalist finance, it is still publicallyunderpinned by social trust and political authority. The moneysystem is backed by the capacity of the state to borrow money on thebasis of future taxation, or issue money that will be accepted as viablethrough the trust of the people.The money system therefore is only as strong as the solidarity of thesociety itself, and the capacity of the political authority to ensurepayment of taxes or access other forms of national income. (p,104)
  15. 15. The modern banking system evolved through a close link betweenthe needs of capitalism and the needs of the state.Financialised capitalism no longer wishes to keep its side of thebargain.While it will still supply the state with loans through the moneymarket, it is not willing to support the other important aspect of themoney system, taxation.Since it is taxation that is the ultimate source of high-powered moneywhich underpins all other aspects of the money system, globalisedmoney must be fragile. (106-7)

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