What the World Economic Crisis Teaches About Capitalism
[Translation of a lecture by an editor of GegenStandpunkt, Germany 23 April 2009]
1st absurdity: cause and effect
Everybody can remember that it all started off when securitized mortgages of poor American homeowners turned out to be papers which were no longer saleable. What had happened? These papers were speculative businesses through which investment bankers created profits by selling the debts they owned within the financial sector. Banks have been treating mortgages, i.e., loans they had given, i.e., the money they no longer had, as assets because of the expected interest payment, selling them at a certain price, in most cases to their own conduits. The latter resold them at a profit within the financial sector. These businesses failed to a great extent, as is now known. The press then wrote that all of this was the deed of irresponsible speculators, of just a few hundred investment bankers who had turned the big wheel and burnt all the money. This was the cause: speculative businesses that up to now were completely unknown to everybody, business deals somewhere in the financial world, failed. Effect: 50 million people are going to die of hunger, so the newspapers write, because the speculation of some 100 investments bankers failed. In Germany, so say the same newspapers, there will be 5 million more unemployed this year, in the EU another 15 million. This year industrial production in Germany will be shrinking by 15%, exports by 25%, GNP by 5%; some states are going to fail, Iceland and Hungary have done so already, the Baltic States may follow suit.
How does this work? How are cause and effect related? How do some hundred investment bankers succeed in being the world’s undoing? Or the other way around: what kind of a world is that, if the entire material life process is cut down because investment bankers lost through speculation, if their failure in speculating brings about the breakdown of the material reproduction of entire continents? Material reproduction is an economic term which means: the material life process, in which work is done so that products come about, which can be consumed and consist in houses, cars, or trains, which then can be used – all that is brought to a halt now, even given up, only because some hundred investment bankers failed. What kind of business activities are these? They have at any rate nothing to do with the production of wheat or rice in which these bankers would have been engaged so that some further millions will have to starve only because they now retreat from business. They have never produced any wheat or rice. So what kind of business activities are they engaged in? Indeed, nobody understands what they do, not even the bankers themselves, as the newspapers write. And that’s being taken as completely normal. What they do is generate the capitalistic mystery itself: they make more money out of money. As Marx wrote it down: M-M’ – out of money, they make money with an increment; a mathematical formula for the same: they lend money and get back more for it. They own the debts of others and turn them into capital: by promising others profits on the debts they own, and on which they can expect earnings. Others buy these securities, in other words promises that the money they pay will be increased. The promise is 5% on 100 for getting 100 paid by somebody else; somebody pays these 100 for getting 5 more at the end of the year. They get 100 paid, and then they do exactly the same thing with the same 100: lending them for 5 or even 6%.What they do is – and this is the speculative element in it – turn future earnings into existing capital. This is what speculation means: making an asset out of an expectation. This is what they do, and it works. When the financial men are in the mood, i.e., when they trust in the owners of securities, they indeed compete for these papers, forcing up prices, as is done with shares on the stock markets. They simply trust the one who issued the securities will be able to pay back the promised sum. They don’t pose the question as to the source of this ability; they do not ask whether the issuer of this paper is able to pay. What they ask for is the financial power of the issuer of securities, but they don’t care for the source of these surpluses. If somebody can promise a plus, he has the power to generate capital by promising: give me 100 and you’ll get 5 at the end of each year. The one who buys the paper for 100 has a security afterwards. (And this is something other than what occurs between normal people: if you need money, and I lend you 100, I don’t have it any more but have to wait until you give me back this 100. This money only exists one time.) The money in the financial sector exists twice: the issuer of the security promises 5% and gets himself 100; the investor, i.e., the one who buys this paper, gives away this 100 and thus turns money into financial capital, i.e., his money into increasing money. And what he now has is a security, i.e., an asset that will be turned into 105 at the end of each year, and this can be used for business operations of all sorts: you can use it for getting a loan, you can sell it, you can even make purchases, if you need an amount to pay.
This miracle – they promise a plus, thus creating the capital out of which this plus will be paid – is a super business, given the investors’ trust. Together with the issuers of these papers, they then continuously accumulate capitalistic assets on and on. And, by the way, the last 15 years consisted in a permanent gigantic expansion of capitalistic assets. If, however, mistrust is coming up in judging these papers, the trend is reversed; and the daily judgment is the business of the financial sector – and nobody needs to tell these guys that their business is risky, this is what they themselves know very well. Day in day out, they assess anew whether they still can put trust into the promise of the issuer of the paper that it will increase in value. If they do, they buy another one, and if doubts come up, they sell their security. Every investor, even every small investor, but especially the large investors day in day out buy and sell investment bonds. Purchases and sales always are meant to increase the investor’s property: buying papers whose value will increase hopefully, selling those whose price will decrease in the foreseeable future. These assumptions take into account all possible indicators concerning the issuer, for instance the future of the firm that issued the paper he holds, say corporate bonds: How is its business running, can it pay a dividend next year, does it have good business expectations in the future? Then its bonds are bought; if not, they are sold. Are the balance sheets of a bank in order or not? If they’re positive, its papers are bought, if doubts come up, they are sold. And just as they permanently increase the amount of capitalistic assets in this sector to gigantic sums, they diminish them if doubts arise regarding the continuation of this sort of enrichment. Then everybody tries to rescue his property by parting with a doubtful paper. As long as there are others whose bets go into the opposite direction, buying the papers that are sold at a discount, all goes well. But if more or all try to get rid of these papers, the latter devalue just as quickly and easily as they had once gone up in value. Everybody knows this phenomenon from the stock market: if all investors try to sell the same shares, these papers are valueless. The same holds for securities: they increase in value – not so much in comparison – if there is enough confidence in future earnings, the investors even compete for buying them, pushing up the prices; in the reverse case everybody sells them off, in which case they are no longer worth anything.
If all this is over, as is the case now, the public – in hindsight – laments that these kinds of business models are sort of a “snowball system.” This is an image for the fact that this sphere of business really makes business by promising with its papers an increase in value today that is supposed to be paid out of the accumulation of capital in the meantime. If capital grows, if more and more is invested in this sphere of business, and prices go up, then it’s a piece of cake to pay out the promised sum to the holders of these papers. This business is indeed a speculation on the growth of capital in the course of time. If, however, it doesn’t function anymore, everybody realizes that it couldn’t function – unless capital would have gone on to grow. Then people are surprised what kind of dodgy speculators and gamblers had been at work all this time in the noblest bank towers. It is one thing to criticize the failure at this point – and this is what all the world does, namely reproaching the investment bankers they had taken too high a risk, had been involved in business activities which were too dodgy, had constructed fraudulent papers, papers which they themselves didn’t actually understand any more. This sort of criticism does not look at the kind of business that is at work there; but rather accuses the bankers of having done something that didn’t work out. What is interesting is that they wouldn’t have been criticized at all, if things had functioned, and they indeed weren’t accused as long as it functioned. So it is much better to take a look at the sort of business that is going on out there instead of reserving criticism for the accusation that they had incorrectly dealt with “our” money. They didn’t incorrectly deal with money: they dealt with it just in the way that is right and proper in their line of business. They have traded with capital. In their hands – and this is the riddle mentioned above – money per se is capital: this miracle, if somebody has money, he also has the right to have more of it tomorrow. Enrichment without further ado, enrichment as the quality of the dollar in your pocket. They simply administer this capitalistic miracle. What is the basis for making it possible? Does this work at all that money simply becomes more money?
This idea, how does it work that money becomes more money, was once old Marx’s lead-in to his analysis of the capitalistic process of production. He said that it simply can’t be that money downright becomes more money. That doesn’t work so easily. You can’t put a hundred bucks on your table and then wait a year: these hundred won’t become more. So how does it work that 100 become 110 within a year? That can only be explained, so he said, if we have a look at what is being done with this 100 in the course of the year. This only works, so was his response, if you invest the money into a capitalistic process of production, buying means of production and finding work for sale, people who work for money. These people have to be employed, made to work. And these people, who create new value while working, have to be made to work for themselves, but they have to be made to work longer than for what is necessary to acquire the wages they get. These people have to be made to hand in more value, surplus value, than what the expenses are for an entrepreneur to pay for their wages; only then there is a surplus produced that a capitalist is able to credit as the increase of his capital to his account at the end of a year. This is the only way in which it can be explained that money increases on the whole within a society – this being the other message in the first chapters of Marx’s book Capital. It is of course easy to cheat others by selling at a higher price: the seller then has made 10 more to his hundred but only at the price that the other has purchased a product that was only worth ninety. This is not how an increase of wealth comes about on the whole, this is not how an accumulation of money happens, if someone takes something away from another one. Growth in society can only be made by employing money for a capitalistic process of production – so runs the analysis of Marx in Capital I.
What is important now is that – once the capitalistic mode of production is complete, i.e., saleable work is available for everyone who has the money to buy and employ it – the making of profits for those who have money is only contingent on a sufficient amount of money. Then really, in the practical life of society – and that’s absurd – money is its own source. If you have money, you can make a surplus. If money is this power – and in fact money is nothing other than the power of property – if the power of property consists in the power to make the sources of increasing it available to oneself, then everybody who has money has the instrument for making more out of it, and anybody who can make this money available is in the possession of the source of more money, quite apart from whether he engages in the process of capitalistic production. He can make money available for those who use it, and because he makes it available he turns this money into capital for himself: he lends it, drawing interest on it. Once the capitalistic relations are complete, money quite practically is its own source. All this of course only exists on the basis that workers are being exploited, but this is of no concern for a banker, who never in his lifetime gets into contact with any workforce: only because he has money and can make money available, money is capital in his hands. So much so that it really plays no role for him what the one who gets a loan will do with it. It doesn’t matter to him what the borrower, who of course has to promise to pay back the sum plus interest, does with the loan, whether he turns it into the real source of making more out of money in a capitalistic process of production, or whether he is a poor consumer who bought a new washing machine on payment by installments. It doesn’t matter for the bank. In one case, money is capitalistically employed and really becomes the source of a plus; in the other case, a consumer who can’t afford his own consumption buys by taking out a loan, and he too pays back 110 to the bank for the hundred he got. For the bank, this money is capital, regardless of whether it really was used as capital. In the hands of a bank, it is capital. In the next moment, the banks lend money to the state, buying treasuries. This money isn’t used as capital at all but for financing state consumption. For the bank, it’s just the same: it now has capital, and in its hand, all money is capital. This is how the miracle can come about: the banks administer the power of money in capitalism, the power of making more money out of money, quite apart from the use of money as an advance of capital for a capitalistic process of production. And in the hands of banks, money is quite in of itself the source of more money. This miracle can only exist on the basis of a capitalistic production, but it exists alongside and apart from the capitalistic process of production. This mystery need not be the concern of the capitalistic process of production. That is why the bankers, the brokers, the investment funds, the hedge funds, and so on and so forth, then manage the right of money to become more money. And in their hands, each sum of money is capital and becomes more – except for the times when it doesn’t work out.
Thesis 1: cause and effect. It’s better not to get worried and excited about the fact that business failed, rather one should become upset about the kind of business that is being practiced all the time: the capitalistic miracle itself, namely that money becomes more all the time – without any intermediary step – simply by a legal act: I give you money and you give me back more, so that the growth of money appears as the quality and accomplishment of money and is managed in this way by the banks for their customers and for themselves. This was point the first point: what kind of business activities are these, which are nothing but fraud when they don’t work out; the riddle is that they function – and not that they don’t function.
2. The real economy becomes a “victim” of the collapse in the financial sector
We’re still dealing with the question of cause and effect: what has happened, when a few hundred investment bankers failed and the consequence is 50 million more dying of hunger and 15 million more unemployed in Europe alone. How does the cause effect all this? Here, too, all the world has a quick answer and understands immediately: if the banks don’t function, then the service that the banks provide is cut for the real economy and the economy can no longer “breathe.” “The bloodstream of the economy has come to a halt” is how the chancellor, Mrs. Merkel, has put it, and when this stream stops, nothing works anymore. An image settles every question. This is what this lecture will deal with now: what kind of a service that is. And the notion that banks are a kind of service will be refuted, banks are no service, especially not to the real economy. If at all, it is the other way around.
At the very least, everybody could notice that this is a peculiar kind of service. If a hairdresser is absent because he is on holiday, or if a train doesn’t run, everything doesn’t break down, the specific service is probably just dropped. And this is indeed no problem: then one walks around with uncut hair or takes the car instead of the train. The service of banks seems to be so essential that without it, nothing works. And another idea: when a service is dropped, maybe a hairdresser shuts down, then there is immediately a competitor who takes over the customers. Just witness Opel: when the firm is going to shut down, then there are others, like VW or Fiat, immediately prepared to take over the money that can be earned there. When banks fail, there is nobody to raise their hand and willing to take things over. What banks do seems to be something different, something more fundamental than just a service.
So, let’s have a look at the real economy, the capital engaged in industry and trade. They always use and need credit. For each capitalist, the capital he possesses is too small. Each of them prefers to employ more capital than he owns. Each of them wants to grow without having grown before. Each of them wants to grow without having produced the means yet that could be reinvested for further growth. Of course, capital that has been earned before is always reinvested, of course not all but most or parts of it, but that is never sufficient. They always want to grow quicker, quicker than they are able to grow by their own means. This shows that industrialists and traders just have the same aim as those investment bankers have: they always want to earn more than they can, they always want to move more capital than they themselves own. They deal with all the perils of their business by using credit. From the standpoint of an entrepreneur, the time that capital needs for its turnover is always too long: first it needs to be invested; once the means of production and work are bought, the working people have to be brought to work, then they are busy doing the necessary work; once the ready product exists, it needs to be stored for a while; then it is delivered to traders, where it lies around on shelves for a while; and some time or other, it reaches the consumer, and then money is earned – and all this time that is needed for capital to pass through its circuit before it returns to its investor so that he can reinvest it again is too long for every capitalist. Capitalists suffer because of the turnover: they say, shit, now capital is in transit instead of being returned. If it were back again, one could invest it again immediately, making much more profit with one and the same capital. What are they going to do therefore? They draw credit with their bank to overcome the limits of the turnover: hardly is the product under way, do they draw credit on their not yet completed product and restart the circuit of their capital, even though their product is not even half-way finished. And in addition: for selling the product – and each capitalist has to get rid of his product – he uses the ability to pay that one way or other exists in society The existing ability to pay, however, is nothing other than the money that business, i.e., the entrepreneurs as a whole, have provided in the hands of all others as an opportunity to earn money. The ability to pay in a capitalistic society is nothing other than what the entrepreneurs have brought into circulation as money. And this ability to pay is always too small for them, i.e., for the desire to sell that they have. They always want to sell more than what they provide with their own business. What are they going to do? They sell by giving loans. They offer their customers to lease a car instead of buying it, they offer their customers not to buy the car they want immediately but step by step. They foster and accelerate their own turnover by skipping and ignoring the limits of the existing ability to pay that they provide themselves. Instead of selling to the amount that ability to pay has been provided, they sell to the amount of their own need to sell and not to the amount that a demand for their products existed, i.e., a demand for their products that would be able to pay without credit. What do capitalists say in this way? They say: all the perils of my business, all the perils of my profit-making can be overcome. How? With capital. I only need to have access to capital. So they themselves say, in their practice: capital is the source of a plus. Once again, to repeat it so this absurd reversal is understood: that money can be its own source only exists on the basis of the capitalistic process of production. But within it, nobody says: oh yes, it is the worker who produces surplus value. Within it, within the daily practice of making profit, money is dealt with as the source of profit-making. And the capitalist says: I can overcome the limits of the turnover with additional capital, I can ignore the limits of demand – the customers don’t have enough money. How? With capital. My business succeeds once I have enough capital. People who talk like that profess that capital is the source of their plus.
Because it is so, the “real economy” is nothing other than part of capital as a whole. Now, in the crisis, “real” capital all of a sudden gets a bonus: there, real products are produced, useful things, products that the people live on. This would be, so to speak, the reasonable part of the economy – in contrast to the financial guys, who now get a minus: they are the speculative and unreliable guys, but only since the crisis, whereas before they had been the financial wonder boys who had been making such fabulous business deals, while the real economy simply existed, too. Now, the “real economy” gets a bonus, but what is this production in actual fact? It itself is nothing other than this plus-making. They invest, they produce for nothing other than the purpose of making more money out of money. They pursue the same purpose as the one that prevails in the banking sector. And for the same purpose, access to capital is the means. And because this is so, it is only one step for the capitalists to produce by drawing credit, “real” capital itself becomes a credit construction. For quite some time now, it’s no longer so that firms belong to a family, or if so, these are exceptions that more often than not are going to go under at the moment, but the so-called real capital itself is a financial construct. Each of the better companies nowadays are joint-stock companies. They are firms that offer themselves for speculation, as an object to speculate on. The first owner says: I will get much richer if I turn my factory into a joint-stock company, selling shares on my firm. My firm is worth 1 million, but if I issue bonds, then it is worth 800 million, and when I sell the shares, I will at least have 800 million. But this is not yet the point in question. The point is that capital itself then is a financial construction: its resources are the product of the speculation on its course of business. A firm has financial power when its shares run well, i.e., when its shares have such a price that the company can easily achieve an expansion of capital when it needs one. All the recent talk about “shareholder value” – just remember the erstwhile rumours that a company’s strategy would be too much of a subservience to the shareholders – is nothing but the confession that the real competitive power of a company is dependent on how easy it is for it to get access to the capital market. Then everything is turned around: then the means of success of a firm is its capital-market-worthiness. Then the purpose of a company is upholding the shareholder-value. Then the industrial profit, which they achieve by throwing their products on the market, selling them at a competitive price and ousting competitors, no longer is the ultimate purpose of a company; instead the industrial profit is an instrument to prove the creditworthiness of a company. So by no means is there on the one side an actually solid “real economy” existing; rather it is a sub-department of finance on the whole.
And if capital is the means of success in business, if the success of every company consists in having access to capital, then, of course, as soon as the financial power of the banks on the whole breaks down, when the banks crash because of their failed speculation, causing a chain reaction, so does the financial power of each firm whatsoever. (This is why Lehman was so “relevant to the system”: there it became apparent that all the assets around the world consisted in the debts others had. If one party can’t pay its debts back, the assets of the other party are eliminated, which had been the basis of a variety of other parties. The fact that the breakdown of Lehman was a disaster for banks all over the world proves that the assets of all of them consisted to a great part of debts that Lehman had. ) And as soon as this financial power also decreases, it becomes apparent – and this is absurd – that, in the face of what can be sold without that credit, a general overproduction has been taking place. If each business is based on credit, if each business is financed by anticipation on future successful business deals, and if these finances break down, it becomes apparent that for the amount of cars that can be sold without credit, way too many cars have been produced. For the amount of cars that can be sold without credit, way too many auto factories exist; all of a sudden, when credit crumbles – and by the way, it doesn’t crumble because auto factories wouldn’t have been able to sell their cars anymore; no, there is a breakdown in the financial sector for its own reasons, because their speculation failed – when the financial power in this sector diminishes, it becomes all of a sudden apparent that the entire economy has financed today’s businesses in anticipation of future successes. And then it becomes apparent that everything that exists in real capital is too much in every respect for what can be earned without credit. There is overproduction not because any overproduction in the real economy had become apparent, overproduction is revealed because credit breaks down. For that which can be earned, too much capital has been invested, too many commodities have been produced, too many people are prepared to work. The latter realize at the same time that their entire existence as workers who live on selling their labor and taking wages in return – just remember the riddle mentioned at the beginning: some 100 investment bankers fail, millions are going to become unemployed as a result – these people in actual fact realize that their entire existence is dependent on successful speculation, is an appendage of the flourishing of financial capital. There is a breakdown in the real economy, production is reduced and stopped because it is no longer worthwhile. And it becomes apparent – and this is important to notice – that all the production had only been taking place for being worthwhile. If the entire reproduction of society is cut back, and in many countries it is even deeply cut back, it becomes apparent that, once business calculation no longer works out, the entire material life process of this society, i.e., the production of all the means of living, had been good for nothing but for the purpose of making more money out of money. If it is no longer useful for this purpose, it is turned off, it gets what it deserves, so to say, it after all had not consisted in anything else. That others would like that it should consist in something else is their problem. If they in earnest mean would like that it should be useful for something else, then they have to overthrow the existing mode of calculating. But pretending that it should be useful for the life of society, and then wondering why production is stopped when it is no longer profitable, that doesn’t fit together.
“Service”: all the world says, and so does the chancellor and, by the way, all the left-wingers, the financial sector had to do a service to the real economy, and now the good service is dropped because they somehow failed there. A service – no way: in the financial sector, the actual power of capital to make more money out of money is administered as the quality of money, and for that – the real economy is one, but only one opportunity to invest money. So everything is turned around in this world: the real economy is an instrument of finance, and not the other way around: the financial sector would be something like a service, helping the real economy producing things. Even left-wingers say the financial sector had to finance industry and trade. As if this would be a matter of course. What does “financing” mean? Providing financial power – for what? For money to be turned into more money. That is the real meaning of financing – and all the world comes up with the tune that finance somehow had to provide the colors so that others have something to paint with.
3. The state is rescuing the banks
What has been noticed, even scared everybody, are the vast sums with which the banks are being rescued: numbers like 100 billion are nothing at all in the meantime; now we’re in the scope of trillions. Before talking about what the governments do there, just one conclusion. The governments thereby leave everything behind, what they’ve known as a solid money creation or solid national budget policy for decades. All of a sudden, there are several billions spent that never before in the last decades had been provided or would be provided for other purposes, except perhaps for a real large war. This fact alone, namely that the governments throw overboard any considerations of a solid budget policy, which they had given themselves, reveals something: how fundamentally important the power of finance is for a state. All the important states admit, so to speak, that the power of their banks is the kingpin for them. If they are unable to rescue the power of their banks, they may as well pack it all in. They risk everything to rescue this section of capital. We’re taught new phrases like “relevant to the system,” including the distinctions that are made: the life of those on benefits and of pensioners is of course not relevant to the system. That’s a matter of course, and nobody even has the idea that this would be relevant in any way. But even Opel is not relevant to the system: there are of course discussions going on about the conditions for rescuing it and the sums that could be provided; but the car-maker is not relevant to the system in the way the banks are. The banks, however, are “relevant to the system,” or at least the financial system is. All the might of a capitalistic nation, all that exists within it as economic power, all that exists within a nation as the potential to finance things, also in a political respect, up to the national and international usability of the money issued by the state, all that is contingent on the functioning of this sector of the economy that makes more money out of money without any intermediary stage. All this depends on this crazy point of the society: M-M’, without further ado. And the success of this ability to make more money out of money, thus maintaining the capitalistic assets that were generated in this way, is the most crucial thing of all for all the states, at least on the same level as maintaining their military might.
The states want to rescue the banks, and one thing is clear to them: rescuing the banks only works under their conditions. Maintaining their service for the entire nation only works out by maintaining their power. Rescuing the banks is something peculiar: there’s a lot of bitching about them going around, but in actual fact no consequences follow. Instead, there are offers made to the banks: would you be willing to take the state’s money. And strangely enough, the state more often than not notices that the answer is: no, not really. Just consider the absurdity as far as the case of Hypo Real Estate is concerned at the moment. This bank is bankrupt: it has debts that it can no longer vouch for. If the state had not given millions to it, it would have long since been insolvent; the assets of its shareholders are of course no longer worth a cent. Now the state steps in, saying that it mustn’t allow the bank to become insolvent because the assets of other banks are dependent on it, and a chain reaction has to be avoided. Now the shareholders, whose shares are no longer worth a cent, respond, saying that if the state is in need to rescue the bank, there’s the opportunity to speculate on this need: we don’t sell, rescue the bank and our assets. And there’s something peculiar going on in Germany. Now the state is in a fix, it doesn’t say, so if you don’t want to sell, we simply won’t rescue you and your assets will be annulled, and this will happen in an instance of time. In fact, if the state says it won’t provide a cent anymore, then the assets of JC Flowers [the US private equity firm that is the largest shareholder in Hypo Real Estate – ed.] and other investors will be gone. But the state says it must rescue the bank, and Flowers says: then just go ahead, which means rescuing our assets. And now the state indeed is looking for a compromise. And there is a reason for that. The state doesn’t want to eliminate the speculative financial power by replacing it with a sort of a state-controlled money-economy. The state in a way bets on the speculators’ getting in the mood again to speculate on money-promises being traded again like money so that each advance in money will be mobilized again as capital. The state doesn’t want to replace private money creation by a sovereign act of authority. Instead – and that’s absurd – the state intends to tempt the private credit economy, which at the moment is about to collapse, into speculating again. It wants to guarantee security for the banks so that the banks and investors conclude: well now, we dare to speculate again. The state doesn’t want a solid economy instead of speculation; it wants a functioning speculation. The state is indeed worried that if it nationalized the banks, investors might be horrified and shift their assets into foreign countries, out of Germany, and speculate more in foreign markets than in German ones. The dispute about nationalizing Hypo Real Estate is admittedly more of a joke, but it shows something. The state wants to rescue these fictitious assets, whatever the cost, so that they speculate again and accumulate. But it can’t achieve that by an act of sovereignty; it has to do it under the banks’ conditions: they have to be willing again to speculate. This has a consequence: what the state does and what it seeks to achieve are not the same things. What the state, which seeks to rescue the banks, wants to achieve is that the investors buy these securities again, maintaining by their purchases that these papers are worth something. In paying a price for them, they would maintain that they are worth something; at the moment, the problem is that nobody wants to buy them, so they are valueless. The state would like for these papers to be bought and traded again, then they would be worth something so that the banks would be enabled by the money coming in to service the interest payments to which they have been obligating themselves. This is the wish, but what can the state do? It can only provide liquidity to illiquid banks, and that is what it has been doing since more than half a year. Providing liquidity means giving money to banks whose created money capital, i.e. created securities, are no longer sought for, thus have lost the quality of money capital and thus have turned into bad debts, i.e. debts whose ability to be sold again is doubted. The problem at the moment is that money owners all over the world, and in particular in Germany, no longer have the standpoint that their money needs to be turned into financial capital, they no longer want to invest – instead they have the standpoint, it would be nice if my financial capital could become money again and doubt if this is feasible at all. They want to withdraw money, which doesn’t function because the banks are no longer able to pay. Now the state says, ok, if the banks are no longer able to pay, I can do something by giving them the money. This works, of course, the banks are saved from bankruptcy, as long as the state is always handing enough money over to them. But the transformation of bad debts into attractive financial capital, which everybody would like to purchase, this transformation that the papers issued by the banks are no longer bad debts for which everybody would prefer to have money, this transformation is nothing that the state can bring about by its subsidies. What the state is doing is giving money-presents to banks, but what the banks are doing is servicing the payment obligations they actually are unable to fulfill. They pay off their creditors who want to see money instead of holding securities. But the transformation that debts are financial capital, that holding debts is a source of wealth again, that all no longer want to own money but would like to give loans, i.e. have financial capital again, this transformation cannot be brought about by these measures. The state is financing the contraction of financial capital. But its measures can’t achieve the opposite, namely that instead of the contraction, there is a new growth of speculative financial values coming about again.
That’s why the rescuing of banks has an unambiguous tendency: from quarter to quarter, the money isn’t sufficient. From 100 billion to 600 billion, up to “bad banks” – every rescue measure is followed by another one because each of them doesn’t achieve what it is supposed to achieve. What is a bad bank? In short, leaving out all the complications that can be read in the newspapers: the state purchases the banks’ valueless securities, as if they still were worth something. Whatever all the tinkering might exactly consist in – leaving things lying about for a decade or so, giving guarantees, which then are something other than being liable for them, let’s just forget about all this nonsense – the simple truth is that the state gives money to banks for securities that are no longer worth any money.
By doing so, the state does something: in a situation in which it turned out that much too much credit had been created, in which it turned out that too many assets had been created for them to still be sustainable – they are after all annulled at the moment – in a situation in which it turned out that much too much credit had been created, the state helps out by creating much more credit – yet ultimately no credit that would have been generated out of an economic perspective for surpluses coming about, out of an expectation that growth would come about, on which loans are given. Instead, it is politically generated out of a situation in which precisely no anticipation of a future growth perspective would exist. This is of course delicate; an overabundance of credit – which has already collapsed, turned into thin air – is supposed to be cured by generating much more of the same. It’s ultimately no longer credit that would be generated in expectation of future profits, rather credit being circulated by the state as kind of a last resort because none of these perspectives are on the horizon.
Everyone knows that this is dangerous for money. The newspapers write that inflation is imminent, even a currency reform – where money is deleted after all. For rescuing the banks, money is deleted in the end. What does this once again reveal? Everyone knows that this is the most crazy money printing action that has ever been brought under way – and they all say at the same time that this is necessary. They say at the same time that an alternative would just be impossible. So they profess that finance is the true wealth of society: this stronghold of the equation that every piece of money is more money, which the banks administer, this power to draw advance of capital out of the sleeves, to create it, wherever there is an opportunity to make business, this power is the true wealth of capitalistic nations. This is what these nations depend on, or to say it in other words: with this radicalism, by which they now are rescuing their banks, the governments profess the reason of state prevailing here: they risk their own financial power in order to rescue the private one.
4. Imperialistic competition in a crisis
First again a public version to the fourth chapter; the public version runs like this: “When there is a global crisis, the states have to cooperate on a worldwide scale. Because – and this is what 1929 reminds us of – if states resort to economic nationalism, if every state seeks to rescue itself at the cost of others, then things are going to become worse and worse, and we all know from 1929 that it all ended up in World War II.” Foreign policy, i.e. monetary policy, takes place under the big headline that no state should be allowed to fail, and we all have to cooperate, cooperation is what we all need – but what is the content of it all? The content first of all has a material, a material that is not the deed of politics but an effect of the course of business.
Without the deed of states, the financial crisis first of all has an effect on the currencies and international business relations. Financial capitalist are seriously affected; their property depreciates; many of them get into financial difficulties and have to pay, withdrawing their funds from some places and putting them elsewhere, out of reasons that no longer have the quality of good business deals for which they would go there; they are withdrawing money, shifting it to places where they’ve run into financial difficulties. This has a peculiar effect: since half of a year, all this results in extremely erratic currency movements. Some currencies are devalued, others increase in value, but with an interesting content: precisely the states, of all states, where the financial crisis started off and is raging the most, are those whose currencies gain the most – relatively seen. And those states, mostly the so-called emerging markets, which the newspapers know had been least engaged in these wild speculations, these states have to realize that their national financial power, namely the currency and its value, are diminishing. Countries like the Czech Republic, Hungary, and Greece have not exactly been the great investors in ABS papers. But everything is turned around there: the big financial houses who had invested in foreign countries now withdraw their money, putting it there where they have obligations to pay, and this is the centre. All of a sudden, the centre makes gains, while other countries are failing that had nothing at all to do with these financial constructions. It’s as unjust as always: countries that haven’t been the culprits suffer from being nothing but investment sites of the centers. When there’s a catastrophe, investors withdraw their funds, putting it back into their home countries, where they all of a sudden need it, while those countries where good business deals had been taking place the last decade, all of a sudden are without any means. This was the riddle last fall, when the emerging markets, which first were supposed to withstand the crisis quite well, all of a sudden were affected much more than the others, because they were immediately affected in their national monies.
What does this mean for the main countries – for the main countries, which are not only rescuing their banks but attempting to maintain as much industrial production going on as possible, as many opportunities to earn money and pay taxes? Amidst a situation, when nothing is cleared out yet, when it is not even clear how things can be managed, and how things will stand after the crisis, in such a situation, the main countries are once again treating all this as an opportunity to increase their power. Mr. Steinbrück, Germany’s foreign minister came out with the cheeky remark: “After the crisis, nothing will be as before, and the American domination of the financial markets will be over.” Merkel, his chancellor, uses every opportunity to confirm this. “We’re going to come out of the crisis in a strengthened way, at least better than in the way we went into the crisis. We have the best opportunities for that.” They are already in an imperialistic competition of shaping the world for how it will look like after the crisis. On the one hand, this is sort of a madness because they don’t know yet how they will be positioned after the crisis, on the other hand, that’s quite realistic because in times of a crisis really big shifts take place as far as the financial power of nations and therefore their political power is concerned. And here, the normal observer can really see what kind of nation he lives in: the success of a nation’s own imperialistic financial power, of the power of its banks and its monetary power indeed is the true means of living of a capitalistic nation. The politicians do their job, they do the right thing for their power, for their reason of state when saying: now is the time to take up the fight for our position after the crisis.
In the European Union, it becomes apparent how this fight is fought: it is fought in such a way that the most powerful financial states, with Germany on top, France of course coming next, reject a common management of the crisis by the European Union. The first sentence of the German government is: simply no solidarity in paying for the crisis burdens; no European fund for rescuing the banks and no European fund for paying for financing industrial programs. The second sentence is: Let’s see how each state can cope with the crisis burdens that will appear. They already reckon with states that will have a hard time and run into difficulties, will be in need and are long since in need: Greece, Hungary, the Baltic States, Iceland, and so forth. They take it for granted that states will run into trouble, and they don’t say: we’ll prevent that. But they say, when states are near bankruptcy, we’ll see how to make use of the situation. Not in the sense – this being the other extreme – that the Euro zone will fall apart, that must not happen because the European financial power is to be preserved, but the member states in need are to be made to bend to German claims, to be instrumentalized in a new way. There will be loans available when the situation arises whether Hungary will have to announce insolvency or not – but not for helping Hungary but a) for giving proof to the European Union’s financial power and b) for making Hungary more obedient towards the claims of the dominant European powers. There’s an extortion taking place with the imminent insolvency and a struggle for the advance of the for decades not yet settled struggle over subordination versus dominance between nothing like equal states. And in this point, the Germans are of the opinion that the need of others can be an instrument for asserting Germany’s claims in Europe. To only mention Germany, first because we’re living there, second because it is the biggest financial power, but this isn’t to say that France would calculate differently from its standpoint.
And the really big question is the one which can now be read constantly in the newspapers, which the Chinese dare to discuss quite openly: can the dollar at last be replaced as world money? Cannot the crisis bring the United States into such troubles that it becomes prepared for a reform of the world currency system, which would settle once and for all that America won’t be once again the only beneficiary of all growth on the globe – a system that would make it clear that it won’t again be America that enjoys limitless credit with which to inflate its money, whereas others always have the trouble of not being able to inflate their money without consideration for the attractiveness of their respective national economic basis. The ultimate question of world power is raised: dethroning the dollar. And the Chinese make clear, in repeating that incessantly, without being penalized, that they would have the means in owning $1.5 trillion or more. If they were in the mood to get rid of them, the dollar will be done with. They immediately afterwards say that they of course wouldn’t think of that. But not without making it known first of all, thus claiming to change the entire global imperialist financial balance of power. We needn’t pursue this thought but can talk about that in a year or two, having a look at what kind of money will then no longer exist, perhaps the euro, or another one, and where the world will have landed then. But what kind of questions of power are raised, when in the crisis – because it is the opportunity to change the global balance of power – the big questions of national financial power are brought up, can be read from this stuff, taking a last summary: this global financial power, i.e. the potential of a nation to issue a money, creating it by fiat, that is value for the entire world, binding for all of them, one which can be created by oneself but needs to be earned by others – this is the true financial power of a nation. Small wonder that the nations risk everything for that.
Saying – in the face of all that – that things hopefully will go on, is really absurd, but this ultimately is the standpoint of the whole republic.