Economy
Money lenders not the only people who get rich at the expense of those who labour
Ann Pettifor, in her Search Foundation sponsored speaking tour of several Australian states in early September 2011, raised several vitally important matters that require more hard thinking and discussion. The Search Foundation and the several other organizations that helped to support Ann Pettifor’s speaking tour and appearances on ABC Programs are to be congratulated for their contribution to opening up wider discussion of the deadly serious problems that corporation controlled globalization confronts us with.
I am however concerned to argue that the problem that Ann Pettifor focuses on, namely, the mismanagement of financial matters, whilst real, immediate and very serious fails to confront the complexity of reasons for our current woes. There is more to the current set of crises than the mismanagement of financial issues.
To her considerable credit in her 2006 book “The Coming First World Debt Crises” (Pub. Palgrave Macmillan) in chapter titled “Costless Money and Costly Credit”, Pettifor uncovers some of the machinations and racketeering that corporation controlled globalization is built on.
Before detailing some of her points on the debt and other issues— on page 171 Pettifor (above) quotes an ‘Anon’ poem that sums up, perhaps more comprehensively than some parts of her earlier pages ,today’s world and the function of capitalist law. The first verse of the poem reads:
“The law locks up the man or woman
Who steals the goose from off the common
But leaves the greater villain loose
Who steals the common off the goose”
Of the several telling points in Pettifor’s above mentioned chapter two come sharply to mind: (1) the quote from the American industrialist Henry Ford on page 61: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning”; and (2) Pettifor’s explanation on pages 63-64 of how money is created by a mere entry in a ledger by banks, and how on a loan of £6,600 the commercial bank will pay interest on £300 (the amount of new money it actually gets from the central bank) however the commercial bank is able to charge interest on £6,600.
On page 65, as well as quoting Keynes 1930 questioning of why banks should charge a fee for money that costs them “little or nothing” Pettifor quotes J.C. Stamp – The President of the Bank of England in the 1920’s: “The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of slight-of-hand that was ever invented.”
Pettifor (2006, p.p.50-55) argues that: “…loose regulation of capital flows ensures that capital flight takes place.”, and she advocates low rates of interest. She lists effects of globalization as including “…The poor are getting poorer, and the rich richer. Worse, the poor are becoming more indebted ….manufacturing is failing, and shrinking as a share of GDP in a number of OECD countries.” Additionally Pettifor points out that: “Real unemployment is as high in parts of the rich world as it was in the 1930’s;” and is “far worse “in many developing countries. And: “…giant oligopolies now control our market places.”
The outstanding, English speaking, economist of the twentieth Century, namely J.K. Galbraith, indicated the hard reality of corporation power over what governments actually decide. Explaining the problems being experienced, in the early 1970’s Galbraith wrote: “Neo classical or neo-Keynesian economics, though providing unlimited opportunity for demanding refinement, has a decisive flaw. It offers no useful handle for grasping the economic problems that now beset modern society”. He drew attention, particularly to the power of corporations to control public perceptions and opinion, governments and top public servants.
For example, in discussing the view that military expenditure cannot sensibly continue for economic and other reasons Galbraith describes how powerful lobby groups representing the corporations involved in arms production are able to ensure the continuance of massive sums of public money coming their way. (Galbraith 1977 )
Further Galbraith (1994) makes the point about the ending of the 1930’s economic depression that in the mid and later 1930’s – to quote ” …the depression was still the urgent issue. All economics was reduced to a discussion of its cause and cure. As in the United States, recovery in Britain would await the real lift that would be given by arms expenditure, mobilisation and war.”
Our current set of crises started much earlier than many economists are prepared to admit. An Australian Broadcasting Commission publication “Political Economy of Development” published by in 1977 reports The United Nations reveals that in the mid 1970’s: “half the world’s population is suffering from starvation or malnutrition.” For more on the above aspects and the serious limitations of Roosevelt’s New Deal see my article “From Fracturing to Free Not Fair Trade – its about Corporation Power.” Pub September 2011. and my article “Corporation Power causing Problems” pub. Mid August 2011. (see footnote (1) below)
Taking a rather different view of the role of war and destruction in maintaining capitalism, and crediting Keynes’ policies Pettifor (2006) on page 74, argues that: “The Bank of England and the Treasury adopted Keynes policies and largely as a result, Britain was able to begin the recovery from the devastating crisis of the 1930s and then to finance and produce the armaments, food and …”
Despite this highly questionable assessment of what actually ended the 1930’s crises Pettifor’s contribution to understanding the substantial role finance plays in today’s societies is a valuable and very necessary, if only partial, positive input.
As I see it, the primary issues are the sustainable production and equitable distribution of the necessities and ecologically permissible luxuries that can make life more pleasant . Vital to all of this is the skill and personal development of the producers of life’s necessities. Current deskilling of workers and focus on management control, and the skills of money gaining focused entrepreneurs are both undemocratic and, in the longer run, counter productive. (For more on deskilling see Braverman (1974)
I agree with Pettifor’s argument for immediate action to put a stop to debt invoking financial approaches. However, we also need to recognise that built in inequity that is endemic to a system ruled by those who have accumulated massive amounts of capital denies equal opportunity. The historical reality is that in the late 1960’s and early 1970’s Keynesian economic approaches in Western Countries were failing hence the deregulation madness and the reliance on debt to support a continuation of consumerism and this allowed an obsolete system to continue to work after a fashion. We are now reaping the catastrophic debt crises this piece of greed and power lust madness has resulted in.
The prolonged boom and semi booms that were a feature of the 1950’and early 1960’s were driven by a variety of factors including the reconstruction works made necessary by the terrible destruction caused by the 2nd World War’ and the fact that the political left and Trade Union Movements in Capitalist Countries exercised some power over economic events. This allowed the workers, who produce the wealth the capitalists control, to receive a greater share of the wealth they create than is currently the case and this factor helped enabled consumerism to increase and the capitalist system to grow. The onslaught on nature generated by capitalist growth of course was a substantial factor in creating our current set of ecological crises. For some important theoretical aspects that link to these questions see my footnote (2) below.
Further capitalist greed and their drive to break the power of the Unions via the transfer of manufacture to undeveloped cheap labour countries, where local dictators used military and police forces helped along by the CIA to limit the power of trade unions, caused serious economic problems. Another substantial cause of the capitalist economic break down was/is the way in which technological innovations were/are used, to displace labour and massively increase profits instead of shortening the working week. It was not only short sighted greed that drove this quite stupid process. There was/is also a recognition, by some influential ideologues of capitalism, that the more secure workers felt and the more time they had to think and to develop their social and cultural potential the greater the danger to the continuance of capitalist rule. Our problems are indeed about much more than financial policy.
That said, there are important aspects of the current economic situation that Keynes ideas can help to modify in the short term.— I refer in particular to Keynes’ ideas that goods should, wherever possible, be home spun (produced in the country that the goods are consumed in) and that finance should be national and again that there is need for rules and government regulation of aspects of economic decision making and practices.
We need to take to account Galbraith’s explanations and investigate in depth why it is possible for the current policy settings to have replaced Keynesian approaches. There is need to be critical in evaluating the ideas of Keynes and to sort the positive aspects of his theories from those quite large aspects of same that are designed to preserve the inequities endemic to any form of capitalism. In the mean time we need to keep in mind that the financial controls advocated by Ann Pettifor are an essential early step towards correcting our current ills.
As I argued in my article “Wealth Creation surface appearance and reality” (pub. late August 2011), money is a convenient measure of value and medium for exchange. And while possession of money and the use of credit can in some circumstances stimulate an economy and facilitate further accumulations of wealth, money is not, of itself, a creator of wealth.
Money itself cannot be eaten or drank, nor can it keep out the winter cold. Without the existence of natures resources and the life sustaining and other products, or commodities, produced by human labour interacting with the resources provided by nature, there is no useful role for money to play. This is a hard aspect of reality that too many economists try to ignore. If we are to understand how wealth is actually created and how society actually functions we have to come to grips with what actually happens in the process of the production and distribution of food shelter and other items used by human beings. We also need to grasp the fact that the rules and norms of human societies are human constructs created by human beings, not god-given.
As I see it, one only has to go shopping at Coles or Woolworths, look at their profit figures and consider the human activities that were necessary to the products appearing on the supermarket shelves to get evidence that the money lenders are not the only rip off merchants operating in modern capitalist societies. That is to say nothing about the role of the producers of pharmaceuticals and of the weapons of war.
As a person who grew up in a coal mining family and learnt in my teens the hard way, what it is like to work in a small low seam coal mine I am very pleased to find a point of agreement with Tony Maher, President of the CFMEU Mining & Energy Division, who as reported by Leila Barretto, in SEARCH NEWS September 2011: “strongly agreed with Ann Pettifor’s views, but begged to differ on who the real bastards are. He put in a bid that the mining bosses were worse than the finance bosses.” My view is that mine owners, large retail corporations and financiers have different ways of living off the labour of others, but they all share an essentially parasitical role.
Of course it is true that the financiers are able to rip off small scale business and no doubt even get a part of what large producers, including large mine owners and major retailers, rake in. It is also true that the money used in speculation and takeovers has increased exponentially, rather than being invested in productive enterprise . But to suggest , as I read Pettifor as doing, that it is unusual to create saleable products and that individuals controlling corporations like Coles, Woolworths, mining corporations and others. might be “heroic” appears to me as an unfortunate departure from reality in her, in many respects, very important and useful writing, speaking and organizing inputs.
Pettifor goes on to argue that this ‘false economy’(my words) that allows money to be made from money “that often causes entrepreneurs and industrialists to give up productivity”. Further on she makes the valid point that: “By assuming this blood sucker role, the finance sector acts, ultimately, against its own interest.” I agree they are, to return for a moment to the goose analogy, in fact killing the goose that lays golden eggs for them.
Footnote (1) My articles as referred to in the above have been published on www.oldtt.pixelkey.biz/ and on www.search.org.au under economics. Several are probably easiest to access by putting Max Bound in Google and selecting www.nwtptas.org.au \ My articles published, respectively 12 and 10 years ago “Critics from Within and the Left” and How Difficult the Future contain several currently still relevant references—Note–My articles since mid August 2011 are on Tim’s blog http://www.nowwethepeopletas.bigblog.com.au/index.do
Footnote (2) On page 69, Pettifor refers to Marx as having the following view: “ “the development of the credit system takes place as a reaction against usury … robs usurer’s capital of its monopoly by concentrating all fallow money reserves and throwing them on the money market …(Marx,1894)” unquote My observation is that this partial use of Marx has the effect of missing, even perhaps hiding, the full explanation made by Marx. For example in his Chapter XX1V of Volume 3 of Capital titled ‘Externalisation of the Relations of Capital in The Form of Interest –Bearing Capital, Marx relates several actual historical incidents and views of various persons.
Marx’s final sentence in this Chapter reads—“We Know, however, that in reality the preservation, and to that extent the reproduction of the value of past labour is only the result of their contact with living labour; and secondly, that the domination of the product of past labour over living surplus-labour lasts only as long as the relations of capital, which rests on those particular social relations in which past labour independently and overwhelmingly dominates over living labour.” In other words it is human labour interacting with the raw materials provided by nature that produces new wealth and it is the social conditions in which the capitalists appropriate and control the wealth produced by working people that make it possible for money to produce more money and give off the appearance –not the reality—of having created new wealth.
In Chapter XXX111 of Vol.1 of Capital Marx explains how without the availability of the labour of human beings deprived of ownership or control of the means of producing the means of life money including in capital form cannot function. It is the capacity of capitalists to purchase the labour of workers and legally acquire ownership of the products produced by this labour that makes capitalists able to function and brings money capital to life. Capital is the dead labour that has in the past produced wealth in return for wages that equalled only part of the value that the Labour concerned produced. The surplus value gained was then able to quite legally, in terms of capitalist law, be appropriated and accumulated by capitalists. As Marx put it “… capital is not a thing but a social relationship between persons established by the instrumentality of things.” The owner of “property in money, means of subsistence, machines, and other means of production” on the one hand. And on the other hand “ …the existence of the wage worker, the other man who is compelled to sell himself of his own free will.” That is the reality of capital as a social relationship as explained by Marx.
On page 18 of her 2006 book Pettifor argues that; “It is … debt not structural rigidities that stands in the way of productive activity “ .– Pettifor’s argument is an important and timely contribution towards understanding some serious issues. But it fails to engage with how the right of a wealthy few to accumulate the wealth created by the productive workers in our societies has, since the birth of capitalism, created periodic and increasingly serious economic and social crises. The fact is that there are very important economic social/cultural structural issues involved including the need for democratic rights for people without capital in deciding economic policies and practices.
It is true that financial manipulation is having serious negative consequences but that is only part of the story. As Galbraith so aptly put it “When the modern corporation acquires power over markets, power in the community, power over the state, power over belief, it is a political instrument, different in form and degree but not in kind from the state itself.”( John Kenneth Galbraith, in his Presidential address to the American Economic Association on Dec. 29th 1972.)
The central issues in ecological, social and economic terms are about social/cultural and economic equity, including ordinary people’s rights to have an informed input into decisions as to what is produced and how it is produced and distributed.
References:
Braverman, Harry (1974) “Labor and Monopoly Capital—The degradation of work in the Twentieth Century” Monthly Review Press
Galbraith J.K. (1977) “The Age of Uncertainty” Published by the BBC, p. 255.
Galbraith, J.K. (1994) “The World Economy since the Wars” Sinclair -Stevenson p. 117
Pettifor, Ann (2006) “The Coming First World Debt Crises.” Palgrave Macmillan, New York