Economics As If People Really Mattered     Week Five – Credit and Capitalism
Mary Mellor, The Nature of Money     Chapt.4 – Credit and Capitalism Credit is essential for contemporary capitalism      ...
“Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had...
“Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had...
“Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had...
“Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had...
The purpose of capitalism is self-expansion – capital begets capital – and it does so by monetizingsocial value and human ...
The purpose of capitalism is self-expansion – capital begets capital – and it does so by monetizingsocial value and human ...
1. From finance capital to             financialisationFinancialisation sees financial assets not as    representing wealt...
2. Credit and speculation: hedge         funds and derivativesHedge funds – ‘betting syndicates for the veryrich’ (p.89)A ...
2. Credit and speculation: hedge         funds and derivativesHedge funds are an emblem of the globalisedcasino economy, w...
3. Credit-driven take-oversPrivate equity firms trade in companies, notfinancial assets and derivatives (p.94)Private equi...
4. Credit and privatisationHaving lost the ability to create its own money,the state has to get the private sector to crea...
5. From speculation to fraudRather than directly funnelling money to socialneeds, charities have to run the roller-coaster...
6. The limits of financialisationThe two main aspects of capitalism, productiveand financial, are inherently in conflict.C...
… the difference between capital in money orproductive form ultimately leads to theseparation between interest on money ca...
7. Speculating with the People’s                 moneyThe argument put forward in this book is that althoughthe money syst...
The modern banking system evolved through a close linkbetween the needs of capitalism and the needs of thestate.Financiali...
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
Economics as if People Really Mattered - Week Five - Galway
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Economics as if People Really Mattered - Week Five - Galway

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Credit and Capitalism (Chapter four of Mary Mellor, The Future of Money (London 2011)

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Economics as if People Really Mattered - Week Five - Galway

  1. 1. Economics As If People Really Mattered Week Five – Credit and Capitalism
  2. 2. Mary Mellor, The Nature of Money Chapt.4 – Credit and Capitalism Credit is essential for contemporary capitalism because:1.Money is needed to enable the productive or trading process tostart2.Customers also need credit to be able to purchase goods3.If capital is to accumulate there must always be new moneycoming into the system
  3. 3. “Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had an historical existence which stretches back well beforethe advent of industrial capital in the modern sense.
  4. 4. “Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had an historical existence which stretches back well beforethe advent of industrial capital in the modern sense.We therefore have to consider an historical process oftransformation in which these separate and independentlypowerful forms of capital became integrated into a purelycapitalist mode of production .
  5. 5. “Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had an historical existence which stretches back well beforethe advent of industrial capital in the modern sense.We therefore have to consider an historical process oftransformation in which these separate and independentlypowerful forms of capital became integrated into a purelycapitalist mode of production .These different forms of capital had to be renderedsubservient to a circulation process dominated by theproduction of surplus value by wage labour.
  6. 6. “Marx, for example, emphasizes that all of these forms ofcapital – merchants’ capital, money capital and rent on land –had an historical existence which stretches back well beforethe advent of industrial capital in the modern sense.We therefore have to consider an historical process oftransformation in which these separate and independentlypowerful forms of capital became integrated into a purelycapitalist mode of production .These different forms of capital had to be renderedsubservient to a circulation process dominated by theproduction of surplus value by wage labour.The form and manner of this historical process must thereforebe a focus of attention.”
  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 – not merelyexchange processes, but production processes, distribution processes, and investment processes –that had previously been conducted other than via a ‘market’. And, in the course of seeking toaccumulate more and more capital, capitalists have sought to commodify more and more of thesesocial 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 representing wealth in the ‘real’ economy, but as wealth creating investment in their own right. (p.85)Leverage became the most important tool of financial accumulation… debt [or leverage] piled on a small amount of initial investment can vastly increase the profit made.The secret is access and banks were lending
  10. 10. 2. Credit and speculation: hedge funds and derivativesHedge funds – ‘betting syndicates for the veryrich’ (p.89)A major activity of hedge funds is derivativetrading…Most hedge fund derivative activities are purelyspeculative, that is, there is no underlyingexchange of goods or services. They gamble onanything, shares, securities, futures, currencies.(p.90)
  11. 11. 2. Credit and speculation: hedge funds and derivativesHedge funds are an emblem of the globalisedcasino economy, with most of their funds heldoffshore to avoid tax. (p.93)
  12. 12. 3. Credit-driven take-oversPrivate equity firms trade in companies, notfinancial assets and derivatives (p.94)Private equity frms borrow extensively to buycompanies, with a high ratio of borrowing tomoney directly invested. The borrowed money isusually placed on the balance sheet of thecompany purchased, rather than on the balancesheet of the private equity company. (p.94)
  13. 13. 4. Credit and privatisationHaving lost the ability to create its own money,the state has to get the private sector to create itfor them by buying and trading in governmentbonds. (p.97)Private finance initiatives (PFIs) were firstintroduced under John Major in 1992 and weregreatly expanded when Labour cme to power in1997. By 2008 total investments had reachedover £60 billion. (p.98)
  14. 14. 5. From speculation to fraudRather than directly funnelling money to socialneeds, charities have to run the roller-coaster ofbull and bear markets in order to create financial‘wealth’. (p.100) Pensions, social security, health insurance
  15. 15. 6. The limits of financialisationThe two main aspects of capitalism, productiveand financial, are inherently in conflict.Capitalism is divided against itself. Finance seeksshort term gain while productive capital needslong term investment.The financial sector is not just about theactivities of a financial market (intermediationbetween those with capital and those who needcapital), it is about the process of financialaccumulation. (p.102)
  16. 16. … the difference between capital in money orproductive form ultimately leads to theseparation between interest on money capital andprofit of enterprise.The distinction amounts to a division of thesurplus in two different forms, which mayultimately crystalize into a division betweenmoney capitalists and producer entrepreneurs. Harvey, Limits to Capital , 72.
  17. 17. 7. Speculating with the People’s moneyThe argument put forward in this book is that althoughthe money system is controlled by capitalist finance, it isstill publically underpinned by social trust and politicalauthority. The money system is backed by the capacity ofthe state to borrow money on the basis of futuretaxation, or issue money that will be accepted as viablethrough the trust of the people.The money system therefore is only as strong as thesolidarity of the society itself, and the capacity of thepolitical authority to ensure payment of taxes or accessother forms of national income. (p,104)
  18. 18. The modern banking system evolved through a close linkbetween the needs of capitalism and the needs of thestate.Financialised capitalism no longer wishes to keep its sideof the bargain.While it will still supply the state with loans through themoney market, it is not willing to support the otherimportant aspect of the money system, taxation.Since it is taxation that is the ultimate source of high-powered money which underpins all other aspects of themoney system, globalised money must be fragile. (106-7)

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