Tag Archives: banks

Compensating the Crashers

Before moving on, it is important to address the key-terms discussed in this article. “Executive compensation” is going to be used as a rather broadly defined concept, including (but not limited to) bonuses, stock options, and even pensions. Their uniting feature is that the company rewards their executives in this way on the basis of company performance (in theory, at least). It is also pivotal to state clearly what I mean by “Board” and “executive”. The former is the body that the stockholders elect to guard their common interest. The latter is an individual chosen by the Board to carry out the day-to-day running of the company. Executives are not members of the Board, but rather their employees.

Executive compensation is of course a very important topic for Boards and the stockholders that they ideally represent. In light of recent events it has become clear that it is also an important topic for politicians and the voters that they ideally represent. The thought has been widespread that if the Board wants to pay their executives ridiculous super-salaries, then that is their prerogative. The shareholders have invested their own money, the Board is their duly elected agent, and if things turn sour it will be the shareholders who carry the loss. Everybody else should just mind their own business. But as we gaze upon the stage today and realize that in Iceland, as well as in many other countries, company ownership is strangely reminiscent of North Korea, then it becomes obvious that executive compensation is in no way a private affair for the Board. Increasingly companies must consider factors like fairness, moderation, and take notice of the interest of other workers, shareholders, and the general public.

Although popular in many other countries, executive super-salary is a concept that only recently invaded the Icelandic psyche. The underlying notion is that by linking the salaries of the executive with the performance of the company, the company is effectively being put on autopilot and the Board members can with good conscience withdraw to improve their golfing handicap. A somewhat perversely socialistic idea of rewarding those that create the wealth and not just those providing the capital (Torrington & Hall, 1998). The obvious difference between these groups of people is that owners and investors bring capital into the company and their gains are proportional to their investment. Executives on the other hand, wager nothing. They have nothing to lose. It does not take profound knowledge of human nature to see that this kind of mutant Marxism will stimulate risk-taking by executives, who have much to gain from the company growing fast, but nothing to lose if things get tough. Some companies have responded to this conundrum by having executives taking loans to buy shares, a practice that I will discuss later in more detail.

But can it really be so that if the company puts forth demanding goals for growth and promises of bountiful bonuses if they are achieved, then no further governance is required? Of course not. Things are much more complicated. The first issue to be resolved is the question: “Which are the appropriate goals?” As shareholders own shares, it might seem logical to tie the goals of the company to share-price. But that is not always the best indicator of a company’s performance. Often shares in riskier businesses rise much higher at a given period than others. And the stock market is not always very sensible. Its behaviour usually seems more related to the mentality of herds rather than the exercise of common sense. Also, in very large companies, it can be exceedingly difficult for executives to affect their actual workings with their contribution. The simplest way for an executive to raise share-price is simply to buy other companies. In its short-sightedness, the market usually always responds to such a measure in a favourable manner. Another short-sighted move the market favours is laying off people. Both of these steps by and large cause share-prices to rise in the short-term. A time period surprisingly often just long enough for the executives to cash in their bonuses. In the aftermath, we find companies that are larger and more complicated or with fewer people on the payroll. The net result of such exercises can be rather slender.

The rather problematic relationship between share-price and performance is well known and has been tackled by some companies by tying bonuses to more numerous and varied goals. However, research has shown that the more complicated the goals become, the easier it seems for the executives to attain them almost automatically without any additional effort. Complex goals show high correlation with the amount of bonuses being paid out, but no correlation with the actual performance of the company. The result is an uncoupling from the interest of shareholders, which has been clearly demonstrated by the fact that the companies that have required the most government assistance in the crisis, have at the same time been contractually obligated to pay out the highest bonuses.

A prime example of the insanity that this culture of executive pampering has led to, tells of a reputed British banker. The man in charge of the Royal Bank of Scotland, who filled the list of the worst bankers in history (a list all too familiar to Icelanders), retired at the tender age of 50 with an annual pension of £703 thousand for the remainder of his life. This sounds quite extraordinary given the fact that Sir Fred Goodwin was responsible for major catastrophes such as the acquisition of the ABN Amro bank that resulted in RBS posting the largest loss by any company in the history of Britain, a staggering £24 billion. Even for an Icelander, accustomed to our banking wizards losing hefty sums, Sir Fred’s capacities in annihilating the balance sheet seem almost perversely admirable. This generous pension scheme had been approved by the Board and was in fact irretrievable despite the obvious and grievous harm that Goodwin had caused.

The eminent Canadian economist John Kenneth Galbraith once said that “the salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself”. As much as I admire Galbraith, I have to disagree with him on this point. First of all, I do think the market determines executive pay and compensations. The problem is that the market is sometimes absolutely brainless. Secondly it is almost never within the power of the executive to decide upon his salaries, but rather it is the Board’s decision. And it is there that the problem lies, and there were improvements can be realized. Granted, the development over the last few years has not been very encouraging. The salaries of top executives in Britain for example, have grown from being 17-times higher than the average subordinate, to 75-times higher in only the last 20 years. And please note that I am talking about average, i.e. not minimum subordinate wages. At the heart of this problem lies the familiar principal-agent dilemma. In line with Galbraith, it is obvious to point out that the interests of the company are likely to be quite different from the interests of the executive. Performance-basing executive compensation should strive toward giving (all) the shareholders the highest return on their investment. That is why it is extremely important that the performance-measures used accurately reflect this. It is for example critical to factor in the time-issue. There is an inherent danger that the long-term interests of the shareholders will be forfeited in exchange for the short-term interest of the executives. One such problem of time is linking executive compensation with stock-price. The value of a stock is based on expectation of future performance of a publicly traded company. But creating expectation of performance is quite different from actually delivering performance.

In this context it becomes very interesting to look at the changes in the role of the executive during the past decade or so in Iceland. It has moved from simply being on top of the employee pecking-order, to becoming compensated as an owner or a risk-seeking investor. Malcolm Gladwell provided an excellent account of the collapse of Enron in an article in The New Yorker in 2002. To an Icelander his observations sound eerily familiar. He maintains that the interests of the shareholders had given way to the interests of the company stars; a culture driven by management consulting firms, whose employees often graduate to executive positions in other companies (including Icelandic ones). Traditional attributes such as experience, education and seniority were redundant at Enron and replaced by inordinately rewarding the company’s stars. All of this was also part of the mantra being repeated for the Icelandic public when it dared to question the raison d’être for the humongous compensations being awarded to our home-grown finance stars. Following extensive deregulation and privatization it took these financial super-beings six years to bankrupt the whole country (interesting for investors to note that crisis unusually often follows deregulation and privatization).
But what is the actual correlation between bonuses and company performance? If we give way to cynicism, we might claim it to be extraordinarily strong: the higher the bonuses, the more spectacular the bankruptcy! But if we are advisors in some company’s remuneration committee, which would be the proper advice regarding the adoption of bonuses? Well, we could state that research shows that there is a weak but positive correlation between bonuses and company performance. The correlation coefficient is between 0.09 and 0.11. But what really stands out when one reviews the literature on executive compensation is that scientific research in the field is almost non-existing. Given the cost that the companies incur, this comes as a surprise. The proponents of these compensation schemes (a position sure to be rewarded with a bounty of invited speaking opportunities at exotic locations) frequently claim that one needs only to look at the annual outcome of companies to see that the more successful ones pay out more bonuses and options. Of course to anyone with a modicum of sense the fact that more lucrative companies pay higher salaries says absolutely nothing else than that. There is nothing to indicate a causal relationship.

What about stock-option contracts in which the employees have to take loans to buy shares and are then stuck in a huge gamble with their private fortunes for two to three years or longer? This was a common practice within the Icelandic financial sector and landed several executives with personal debts worthy of a small country. The laws applying to companies serve to limit the responsibility of shareholders. So stock-option contracts that require executives to take on such personal risks, actually counter the law.

Even though the stated purpose of Boards putting forth bonuses is to make the executives think more like owners, reality may contradict this assumption. Basic theories in portfolio management suggest that it would be in the executives’ own best interest, when they receive additional shares in the company, to sell what they had before. By doing that they would minimize the risk that comes from having too much capital invested in a single company. The risk of this “single company exposure” has indeed more to do with share-owning executives than with other investors, since the executives’ employment status is also linked to the company performance. Accordingly, studies by Ofek and Yermack (2000) show that executives that own shares in their company, usually sell them upon receiving new stock options. That will of course reduce the anticipated incentive the Board has in mind when giving out additional options.

Bonuses have to be considered in lieu of co-workers and cooperation within the company. Bonuses are by definition assigned to individuals. Their role is to further individual performance. That is in itself a conundrum, since we all realize that an individual by himself will accomplish very little within a company. The entirety of his accomplishment is indeed based upon his opportunity to seek help from his co-workers. However, if my supervisor calls me day and night, holidays not excluded, and requires me to work far beyond my contractual obligations, then of course it will leave a sour taste to see him walk away at the end of the year with huge bonuses while I am left with huge black rings under my eyes. Bonuses have to be fair with regards to co-workers. This is evident to most companies and those that dish out the heftiest bonuses are in the habit of ensuring that some crumbs are left for the plebeians. The overall result is often that married with increased risk-seeking, the companies’ overall salaries swell. Unfair bonuses can actually demotivate and destroy morale. In that way they can actually counteract their initial purpose.

An important and largely ignored issue is that of repeated bonuses. There is no question that most people would work like mad and increase their performance, if offered to double their salaries. If offered such doubling again the following year, again most people would readily accept and some people might be able to muster a slightly better performance (not twofold though). The bonus offered in year number three is however, not likely to do anything to enhance your performance, and indeed it is very likely that performance will actually be dwindling, if not for other reasons then exhaustion. Also suffering from exhaustion will be your personal relationships, health and all the really important things. In these situations, bonuses only work in keeping people, but do not have any effect on performance. And this is a key issue. In fact executive bonuses have been intended more to keep them put, rather than increasing their performance. But why do Boards pump more and more money into executives when they know that their performance is unlikely to improve? At some level it is due to a common attribution-error that has permeated both popular and academic writings on the subject. We all have a tendency to take the credit for our successes, whilst blaming our failures on the environment. In the almost unprecedented bubble-atmosphere we have been experiencing in the last few years, where almost all shares increase logarithmically in value no matter what, the Board which actually might have very limited true knowledge of the workings of the company, tends to take immeasurable pride in how shrewd they were in bringing in and/or keeping their star management-team. And thereby completely overlooking the fact that the success is simply driven by an overabundance of cheap credit. It takes strong bones to survive good days and in such a favourable atmosphere it is pivotal that the Board stays grounded in its decisions on remunerations.

A reasonable person will determine a certain degree of fairness between efforts at the workplace and the pay received for those efforts. We instinctively know when we are being treated fairly in that respect. And if we feel underappreciated paywise, we tend to reduce the level of output. Similarly, if given a raise we are likely to contribute a little more. However, if we are receiving, say, 240 times the pay that our lowest-paid co-worker is taking home, then we experience something of a crisis, because we can no longer justify the amount that we get. Still, human beings are, most often regrettably, very well endowed with all sorts of ways to justify themselves. So if we are being overpaid, we tend to justify it by manipulating our own sense of fairness. Instead of focusing on the relationship between your own pay-cheque and your contribution, you start looking at your pay in relation to what others are being paid. Is anyone less competent than you being paid the same amount? Or is someone just as competent as you getting paid more? Since the links to performance have been effectively severed, the end result is just higher wages without any increase in output. This practice then rubs off on other companies that will experience mounting pressure from their executives to play along.

But what happens with executives with stock options and bonus-contracts if the company is doing poorly? Ideally, motivated by their own personal gain, they should increase their efforts. However, that rarely happens. They will experience more stress, but their performance will not improve. The time they spend ogling the falling share prices is not productive. This applies specifically to those executives that have taken loans to finance their stock option deals. If the company is not performing, these people are not looking at lost bonus opportunities but actual personal loss. This is a very dubious way of managing performance.

I suspect a lot of people had high hopes in the aftermath of the current crises, that the super-salaries of executives would become a thing of the past. These hopes are likely to be crushed. I refer you to the strongest laws of economic theory, the bounty of greed and stupidity. The present crisis is neither the first nor the last. The first thing that surfaced from underneath the rubble this time was greed. Bankers are presently waiting to lock in even higher bonuses and options than ever before. Courtesy of the common tax-payer. The reason for these monstrous salaries, is said to be that the banks are in dire need to compensate their best employees, otherwise they may seek employment elsewhere (although where exactly is not fully clear).

But performance-based pay is not altogether a bad concept. It works well in various factories, for skilled workers and even among us lazy, no-good academics. However, I think it is pivotal to rein in the madness that has been going on amongst executives. This is the responsibility of the Board. But since it is the shareholders that select the Board, the ultimate responsibility lies with them. It is in fact noticeable how easily the Boards of many companies have been able to face public outcry.

It is absolutely necessary to keep in mind when deciding upon bonuses, that they should have a predetermined range. For example, that nothing is paid out before 80% of the goals are reached, increasing gradually until nothing extra is paid if 120% of the goals are reached. A part of the problem with bonuses has been a lack of cap. Share prices for example have no upper limit, and I think it really tests the individual to have his/her performance linked to that sort of compensation.

Executive bonuses should also extend longer into the future, even years after the person has given up his/her job. This might better guard against executives cashing out from decaying companies. In the case of stock options, it may prove valuable to put more consideration on the buying price for the executive. Some companies have supplied their executives with stocks below market value, which effectively generates profit immediately. Others have been supplied on the value that they were on the contract day. But isn’t in fact more proper to offer stock to executives at a price that is higher than the market is paying on the contract day? That would most likely guarantee that the executive would need to perform better.

The trading of company stocks is based on trust. The whole crisis for that matter is simply a case of sudden depletion of this most precious asset. People buying stocks must be able to absolutely trust that executives, Board members and accountants do their best to look after the interest of all shareholders. This is especially relevant for small investors since they often do not have the resources or the knowledge to pour over company statistics. Since portfolio theory would recommend the small investor to diversify, it places him in even more problems with monitoring his investment.

In Iceland there has lately been a lot of interest in calling to the table psychologists and psychiatrists to share their insights into sociopathic personalities. This in my view can only serve to muddle the discussion and divert it in unproductive directions. True, mental professionals have long since known that the ratio of sociopathic personalities in the top layers of business is much higher than in the general population, although the exact numbers are a matter of some debate. But if one looks at the definition of such individuals, for example in Cangemi (2010), it is not difficult to see how they become valuable in the environment of modern business. They are callous, focused, have a strong desire to destroy their competitors, delight in inflicting pain, and have remorseless willingness to do whatever it takes to reach their goals. However, I find the current obsession with sociopaths in business to miss the point. It was not that the ratio of these people had dramatically risen in the preamble to the crisis. And all the people that either partook in these dodgy dealings or failed to correctly signal what we were obviously heading toward, were not sociopaths. The cause of the crisis was not a personality issue, but rather one of politics and shoddy systems. And by focusing on personality we risk averting our eyes from, and neglect the real issues that need attention. Anyone who reads history knows that sociopaths have filled the top layer of society from its very beginning. So nothing new there. But focusing on the role of the sociopath in bringing about the crisis also alleviates responsibilities. It somehow brings the message that we have been attacked by criminals, instead of building up a failed system. Greed and stupidity are universal personality trends, not disorders of the few.

The principal-agent dilemma needs to be recognized as a problem of Boards of companies as well as their executives. The Board is the highest authority of the company excluding the shareholders themselves. It fails mainly due to two reasons. Firstly, the owners can be short-sighted and only on the lookout for quick and easy gain. In that case they will soon leave the company a hollow shell having stripped its assets or engaged in excessive borrowing. In Iceland this was a common practice leading up to the crash, and even glorified in the popular press as a part of the Icelandic business genius. Secondly, the Board may be representing the owners by proxy. This happens when the Board is comprised of representatives from pension funds, banks, hedge funds et cetera. Funnily enough, one of the most durable mantra of Capitalist thinking is that people take better care of their own money than other people’s. However, in practice this is rarely the case. Such arrangements really magnify the principal-agent dilemma, and are probably the most important issue to address if we are to regain an acceptable level of trust and sanity within the financial system.

In restructuring our system of finance, business and politics, we would be well advised to head the tried and tested adage; hope for the best but prepare for the worst. An executive will not think like an owner just because he’s being compensated as one. The most dramatic improvement to the financial system would be realized if we could get the owners to think like owners, i.e. to guard the interest of the company in a longer term. This is the really important principal-agent problem, because at the end of the day it’s the decisions made by the Boards, not executives that sink companies.

Conflict of interest

Dr. Arnarsson would like to state that he was himself a recipient of stock options in his former employment within international pharma.

References

Cangemi, J. P. (2010) Sociopaths In High Places. Organization Development Journal. 15 Feb, 2010. http://findarticles.com/p/articles/mi_qa5427/is_200907/ai_n32127546

Gladwell M. (2002). The Talent Myth – Are smart people overrated? The New Yorker, July 22, 2002

Ofek E. & Yermack D (2000). Taking stock: Equity-based compensation and the evolution of managerial ownership. Journal of Finance, 55, 1367-1384

Torrington D. & Hall L (1998). Human Resource Management 4. ed. Prentice Hall: London.

Eight Noble Opinions and the Economic Crisis: Four Literary-philosophical Sketches à la Eduardo Galeano

I.

Until control of the issue of currency and credit is restored to government and recognised as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile… Once a nation parts with control of its credit, it matters not who makes the nation’s laws… Usury once in control will wreck any nation.

            William Lyon Mackenzie King

Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development, economic science in its present state can throw little light on the socialist society of the future.

      Albert Einstein

Philosophers are often and rightly accused of dealing too much with the past, pondering endlessly upon origins, reasons and causes, and too little with the future, leaving hardly any room to proposals, solutions, or calls to arms. To prove myself capable of the latter kind of activity, and despite the unavoidably old noble opinions quoted above, I shall keep Minerva’s owl nailed to a perch. Though Pythonesque, this little cruelty should delay any backward-looking blathering of mine, which is to come eventually in the other sketches.

After all, we are facing a dramatic twofold crisis, ecological and economic, which even uninfluential public figures like the current UN Secretary and US President have acknowledged and denounced as deadly. As for the title under which I allow myself to do so, I shall be content with declaring myself a professor of philosophy who has studied value for some time, i.e. what is important and what is not. In this pursuit, which I regard as valuable, I have reached a fairly simple conclusion: that which keeps all of us and our descendants alive and well is very, very important indeed. Those who deny it or claim my claim to be unscientific can do so because they are tacitly doing all that is necessary in order to stay alive and well enough to be able to talk a lot of nonsense.

But let us dwell no further on this simple subject, about which I have written around fifteen complicated essays in the past ten years—I need another nail… Worthy of Epicurus, I can offer a tetrapharmakos to today’s world, confident to be received by no-one in useful time, for that seems to be the fate for all who dare criticise—as I am going to do—large-scale private banking, the profit motive as paramount,  the private ownership of strategic resources, deregulation, and the managerial mind. Some may even call me a “socialist”, as though it were a derogatory and disqualifying term, similar to “criminal”, “pervert” or “rascal”. Probably, given the notoriety of Italians and academics, “old pig” or “bore” would be more fitting insults. Politically, however, I would describe myself as “life-grounded”, not “socialist”. Still, I shall not mind and endure the epitaph with grace, even gratefulness. I shall keep company with Claude Henri de Rouvroy, Comte of Saint-Simon, Albert Einstein, and Bertrand Russell. An aristocrat, a physicist, and a logician…

(1)

First, fundamental medication, upon which all else depends: nations should establish, or in most cases re-establish, good public banks. Why? Well, here is something that should have become obvious to anyone who has eyes to see and a fat wallet. As stated by Russian President Vladimir Putin when speaking last year at the World Economic Forum in Davos, the economic crisis that we are witnessing today has destroyed, in about one year, approximately twenty-five years of pecuniary wealth, i.e. the sort of wealth that our intrepid yet “virtual” capitalists were aimed to produce in the first place. Private banks and financial institutions, left to their own devices by prolonged tidal waves of worldwide deregulation, brought themselves down and, with them, much of the world’s “real” economy. Do you remember the real economy? If it goes down, down go also the starving children of unemployed sub-Saharan family fathers. Down into the earth they go, whilst shareholders moan for lost profits and fire a few more people to ease their pain.

Clearly, many private banks cannot do their job unaided. As they were busy concocting mathematically byzantine derivatives and variously vehicled securisation packages in the deregulated shadow of global finance, they forgot about honest bookkeeping, sound reserves, mutual trust, and other basic old-fashioned principles of chronically anachronistic banking. They even forgot about that primitive slave invention, morality. Alas! Such is the genius of the invisible hand free from State direction or, as Icelandic philosopher Mikael Karlsson dubs it, “the invisible brain.” This is not meant to be an insult to anyone, unlike “socialist” or “pervert”. The so-called “Free Market” promoted by “deregulators” has no visible brain, insofar as State-centred social and public planning is regularly rejected as anathema. Still, who came to the rescue of self- (and other-) destructive private banks? The State.

Turned into the banks’ pork-barrel, the State has thrown trillions at the banks in order to keep them afloat—in the Land of the Free, in Great Britain, in Benelux. Was it necessary? No, for the State could have simply taken over the banks. Was it desirable? No, for public banks, still run in communist countries such as China and North Dakota, can spur development, employment, and take far fewer risks than private ones.

It must be emphasised that it is not enough for the State to own the banks; these must be run like public banks i.e. banks for the public good. Some morality is required in the process. Prudently restricted by various strings, these public banks can respond more easily to the needs and aims of actual populations, rather than to the whims and fancies of absentee owners or of their volatile servants, that is to say their bonus-benefitting managers.

What am I saying? Have public banks and run them as such. They must spur real development, not inflate bubbles that transfer wealth from the bottom to the top. Will it hurt the shareholders and wealthier customers of private banks? Certainly. They have already enjoyed the State’s helping hand; it may be time to repay the State with gratitude. Doesn’t anyone remember how to do it? Read history books, study the European Payments Union of the 1950s, ask retired Italian or French bank managers, use your imagination. A few rules of thumb may assist those who lack enough imagination:

(a)  Ban financial and currency speculation, at least within and via public banks: the casino belongs to “competitive” gamblers. Yes, people who used to claim that they would succeed or fail like Promethean heroes… Before they all asked for help to the Great Nanny, of course, lost as they were on their er-rand. And please, let the State never again salvage these hypocrites from their own myopic greed. They are now trying to wash their guilty conscience by returning one hundredth of what they have received from the public purse, whilst re-filling their pockets at the State’s expense, with fierce bearish appetite

(b)  Lubricate the real economy, if forward-looking, so as to launch much-needed public works, create long-term employment, and generate steady streams of income within the nation. Public banks can do so, at low interest rates: they must be profitable, but not at all costs

(c)  Monitor inbound and outbound capital flows, so as to direct investments to socially beneficial areas, and counter tax evasion as well as tax avoidance: far too much has been denied in the past to the very public purse that has then saved the incompetent affluent from themselves. And remember that a stable currency and genuine economic sovereignty can only be secured by abandoning the disastrous freedom of capital flows that has flooded the world with crisis upon crisis since the 1980s: tequila, vodka, whiskey or brennivín, ouzo, they all taste the same

(d)  Secure reserves by compelling the capitals of public bodies, pension and social security savings, and the revenues of public banks to be invested in the public banks themselves. The State must be as free as possible from the bondage and the blackmail of its current masters i.e. foreign direct investment and international bondholders

(e)  Pay bank managers State salaries comparable to those of other leading promoters of public wellbeing—surgeons, health-&-safety inspectors, judges—and avoid attracting the covetous, self-indulging, big-jet and big-penthouse penis-length-comparing “best and brightest” who plunged the world into a massive crisis. Communities need not such beastly best and brittle brightness. Forget them and their barbaric macho ethos—made of turrets of money, performance-enhancing bonuses (as though they alone were working), fee-demanding buddies-consultants, and PR companies using invariably words like “aggressively” and “targets”.

Finally, do not underestimate the fact that it is difficult to deal with cronyism by voting new governments into office. Yet it is much more difficult to do the same thing by waiting for anonymous and short-lived shareholders to reform their servants, who are so free from supervision as to jot down any number they like in the books without anyone finding out. As Adam Smith forewarned us some time ago, the corporation is amongst the least competitive and the most corruptible of human institutions, hence amongst the most damaging to the proper functioning of capitalism.

And inflation? Don’t worry. Nobody talks about it—a sudden silence. After all, common people are no longer able to buy anything, not even on credit. If anything, the real problem to come will be deflation. Besides, more than 90% of the money circulating around the globe is the result of financial leverage by private institutions. Still, old-fashioned, knee-jerk reactions may be reoccurring soon: pensions and salaries must not go up, for the poor must repay the money lost by the rich; States must rein in public expenditures, which they have been doing for thirty years, unless there was a war to be fought; public assets must be privatised, so as to further enrich the incompetent and further weaken their only saviour; cheap money must stop (now), lest we tax the wealthy to give some jobs to the restless youth, etc. By the way, how is it that bonuses for bank managers could always go up? It must be the same people who think that only private firms can be valid multipliers…

It is ironic that, after two decades during which we had been told that the State and, for that matter, its independent Central Banks could not issue money for schools, hospitals, public works and social projects, quite mysteriously they started printing so much money. Sure, they now tell us that we need private banks to keep credit flowing, for credit is the life-blood of the economy. Without it, there shall be no green-spanning across the meadows. And yet, enterprises and households worldwide are still struggling to get the credit that they need. In truth, the selectively generous Central Banks’ cheap money benefits financial speculation, which is where the trouble started in the first place. How could ever a heartless economy pump any actual life-blood?

Indeed, in California, the local government is at risk of being terminated by the refusal of private banks to subscribe local public bonds because “unsafe” i.e. the State of California could go bankrupt. “What a cheek!” my mother would say, and she has dealt with banks for most of her life. The banks refusing to purchase these sunny bonds today are the same banks that were saved by public money yesterday, when it was raining. But there is more.

Were even these banks to provide enterprises, households and public authorities with the credit they need, they would not do it for free, for the common good, or for a little interest; they would do it for profit, and for as much of it as they can get. Thus, things would be so arranged and, sadly enough, they are being so arranged, as to have public money given very prodigally to private banks, so that these banks may give it to the public far less prodigally.

What is more, in order to be worthy of the bailed-out banks’ money:

  • Enterprises have been reducing their workforce to be more “competitive”
  • Households have been returning their homes to banks that had sold highly reliable mortgages towards the purchase of… homes
  • The State has been thinning out its already skinny body in order to be attractive to the banks, which the State has just rescued from themselves

After decades of TINA-like reduction of all that is public, public money is being given to glaringly incompetent private banks so that their losses be made public and their profits, which were always private, recover and be still private. In the process, public money is not used to counter dwindling employment, secure houses, and, say, fund hospitals, schools, university research, care for the elderly and the mentally ill, public gardens, public football fields, archaeological preservation programmes, amelioration of penal institutions, better garbage collection, sanitation and, why not, aid to starving children. How many tramps will get trapped in the revolving doors of the wealthy’s tower?

That the State may have money for the bankrupt banks but not for its own social functions, it is something that defies imagination, morality, and even legal obligations. Many of them ratified the International Covenant on Economics, Social and Cultural Rights, didn’t they?

(2)

Second, life-saving medication: if you skip the middle man, operate good public banks, and have money to use for the common good, then launch a vast programme of green public works. More severe and threatening than the economic crisis itself is the ecological crisis. Ask the United Nations about that. The former crisis threatens fat wallets at the top and starving children at the bottom, yet at different degrees of dangerousness. The latter crisis threatens all equally with death. The grim reaper is the great leveller. Since so much private enterprise has caused the ecological crisis in the first place—the smoky days of the Industrial Revolution—and has continued it in the face of scientific alarm calls as old as Britney Spears, then it is advisable that the State be able and willing to step in and, both by regulation and by direct economic action, reverse the tide.

Forget speculative carbon emission quotas and reduce carbon emissions; ban outright or force rapid conversion of the most obvious forms of life-destructive economic activity; tax the remaining polluting activities and de-tax non- or less-polluting ones; have a major public company undertaking proper refitting of houses on a massive scale so as to make them less energy-consuming; create large public recycling facilities so as to counter illegal dumping of waste at large; found and fund new public research centres for the development of green technologies, free from the yoke of short-term corporate desiderata; ration carbon-based power and use it only for vital and life-enhancing activities…

There are so many tokens of environmentally constructive planning, yet so few that have not been resisted as “too costly”, “too rigid”, “too much for us, who have already done so much”, etc. Were only the people uttering such phrases to consider seriously the fact that they can be so garrulous because the environment is still, barely, able to support them, their bodies, their minds, and the natural and social infrastructures that have allowed them to grow, socialise and, limitedly, mature…

In addition to a life-enabling aim and a counter-cyclical alternative to depressing austerity, politics would also regain its dignity by having a green mission. Strangled by powerful yet incompetent lobbies, and fettered by incompetent yet powerful central banks, politics has been reduced for far too long a time to day-to-day management of production costs in the domestic market and salesmanship in the foreign ones.

(3)

Third, important medication: since some neighbours may not like your policies and your currency, then they might respect your resources. States should increase or secure public control of strategic assets: water, oil, gas, the knowledge of its own population—this knowledge having been fostered by public education, healthcare provision, and cultural activities.

Whether by safeguarding the revenues originating in natural resources that would otherwise enrich few and often foreign shareholders, or by reclaiming a knowledge-based industry that would otherwise be outsourced by corporate giants, the State must secure a steady source of income for itself and for the nation’s economy. This income alone should help democratic governments to respond to their constitutional sovereigns, not to rating agencies and “markets” whose lords regularly reside offshore.

As Norway’s long experience in State-run oil extraction and refining illustrates, it is the one and only “trickle-down” strategy that has produced tangible results for an entire nation. States’ assets are not a factor of market distortion, but a factor of production—and one that can help businesses to grow by providing cheap goods and services, as opposed to the endless and costly bloodsucking of postmodern privatised economies. Ideally, it would be good for States to regain control over money-creating central banks, but there are limits even to one’s dreams.

Incidentally, even the many wars paid by the American public purse to secure control over other nations’ oil, or at least force its trade in US dollars, indicate that the public control of strategic assets is not so foolish an idea. And yes, also that getting bombed may be a risk for the nations pursuing the path recommended hereby. Apart from the landowners, cunning agents and financial moguls who have charged prices well over any real cost of production, for all others there is no such thing as a free lunch—Miltons have always known the devil very well.

(4)

Fourth, integrative medication: since some powers-that-are may not be pleased with your plans, make sure you can deal with them. Create a just fiscal and regulatory framework, which empowers the population at large and weakens the usual lobbies: close tax loopholes and tax breaks for the usual lobbies; withdraw passports and freeze assets of tax fugitives; tax rents (land, inheritances, capital gains) and de-tax hard work, so as to reward merit and distinguish sharply between earned and unearned income; end subsidies, legal privileges (e.g. limited liability) and tax-breaks to private companies, lest they never compete in a truly free market; nationalise the companies that are too big to fail, as John Kenneth Galbraith advised us to do long ago; reclaim research and development grants and whichever other public credit given to private firms leaving the country; confiscate the assets of companies outsourcing to countries with lower labour and environmental standards; put regulatory agencies and grassroots associations on the boards of private and public companies to fight corruption; inspect constantly and reward those inspectors who discover illicit activities.

Taxes matter. Especially when there is an ever-richer tiny elite of super-rich whose fortune comes as a long free lunch over accumulated wealth, whether in property or capital. They hardly ever pay taxes. They pay fewer than most, since someone else paid taxes before them: those who actually earned that property or capital in the first place. In truth, they may quite simply avoid taxes by shoring their assets off to tiny islands or Alpine valleys. The members of this tiny elite are above and beyond the common citizen, whilst their trusted and highly paid managers rarely go to jail when guilty of fraud or cheating. Above-and-beyondness is a transferrable asset too. If and when hijacked by this elite, States are likely to commit suicide by taxing those who work instead. And if the people sweating and bleeding don’t have enough money, then State activities are to be reduced in the name of, say, the Big Society–of the hopeless and of their hopeless resilience.

In brief, internalise costs that have been externalised regularly and mercilessly at the expense of natural and societal well-being; and effectively re-regulate the disastrously de-regulated playground of the free enterprise–especially but not exclusively of the virtual type–whose only known freedom is that which cages every possible aspect of reality into the life-blind logic of profit-making.

Will anyone undergo this cure? History will tell. And history is full of surprises. Who would have ever thought, for example, that little furry animals could outlive giant dinosaurs and become the first species ever capable of destroying the ecological structures that allow them to live!

II.

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.

         John Maynard Keynes

There are two ways of conquering a foreign nation. One is to gain control of its people by force of arms. The other is to gain control of its economy by financial means.

       John Foster Dulles

In the year 2003 I published a review of Value Wars, written by Canada’s leading value theorist John McMurtry. In it I provided an account of the stunning whistle-blowing by World Bank Chief Economist Joseph Stiglitz vis-à-vis “deregulation” and “globalisation”, two terms that had been dominating economic and political discourse for some time. Quite unexpectedly, and rather shockingly, a well-connected, mainstream, Nobel-prize-winning economist denounced the World Bank and the International Monetary Fund for implementing over a period of at least twenty years a merciless four-step process of re-colonisation of independent nations by international private capital. This was the sort of suspicion that radicals like pop singer Bono Vox and Polish actor Karol Woitila, better known as Pope John Paul II, had been voicing for a long time. As for John McMurtry, he took due notice, since Stiglitz’s revelation was consistent with his own description of world affairs as directed by the profit-motive of the few versus the vital interests of all others. Preferring truth to originality, I endeavoured to spread this description of world affairs around me. In fact, I had given lectures about it, also in Iceland, before 2003.

Nobody seemed to care, however, at least here in the north. Stiglitz’s views were not widely discussed and even less were they taught at the university level, except by a few—sometimes foreign—eccentrics. McMurtry’s views, hadn’t it been for the same eccentrics, would have been left to gather dust in local libraries. Meanwhile, the policies of deregulation and enthusiastic participation in globalisation were not halted. On the contrary, in the year 2003, the three largest public banks were privatised. Immediately, they started to sail the seas of international speculation, never seen before in Icelandic history. “Carry trades” and “financial leverage” became mantras recited on the first page of all newspapers, whilst the businessmen who were dubbed the “new Vikings” set out to raid foreign banks, enterprises, supermarkets, and football clubs, with money that they did not have. But such is late- (or post-) modern capitalism, or “the Icelandic way of doing business”, as I was told back then. Besides, it would appear that only professional economists are entitled to teach about why they, unlike a mere philosopher like McMurtry, got it so wrong. And there’s so much to learn!

What did Stiglitz’s whistle-blowing describe? And how does it apply to the Icelandic case?

First, the permeability of the nation’s borders to private foreign capital is increased by deregulating capital trade and privatising strategic national assets. Barriers, bottlenecks, and “obsolete” protections are removed, whether material or immaterial. Nobody quite remembers why they were there, and even fewer wonder why. Above all else, money must flow. That’s the consensus, at least in the district of Columbia, which is obviously populated by zealous reformers. Their principles are crystal-clear: “public is bad, private is good.” They believe in “The Free Market”, whatever that may be thought to be; and they believe in it so ardently and unflinchingly that Stiglitz and others refer to them as “market fundamentalists.” They even set complicated rules at roundtables to force dissenting markets to be free. Anyhow, this very first step, which may take some time, is achieved by lubricating slow-moving and slow-thinking local politicians, business leaders, present and future ideologues with adequate amounts of grease. Grease, yes, such as co-opting these people into the international jet- and yacht-set, promising or securing that they will have their own golden toilets, washing their brains at spectacular conferences and exclusive think-tank meetings, baptising their best and brightest first-borns in the sacred founts at the sacred shrines, stirring their simmering jingoistic sentiments, or bribing them straightforwardly—indeed Stiglitz talks of this process as “briberization”.

Secondly, money flows into the country. A bubble ensues; in fact, a cyst. Depending on the country’s economic conditions, the cyst can take different forms, but all of them eventually become painful. In the case of a reasonably well-off country, glittering streams of foreign capital inundate the land, turning modest entrepreneurial fields into a glorious harvest of unprecedented projects. Thus refreshed, the local currency and the local shares pupate into surprisingly light-winged and seemingly fertile young fairies, whose well is said to be full of diamonds. Moreover, the nation’s financial institutions become large fountains that can quench the thirst of anyone who is eager to drink from them, including those who do not need it, but have the misfortune to possess a belly. New buildings spring up like mushrooms in the vast new wetlands, luxury and consumer spending—mostly dependent upon credit—fly high like gleaming droplets out of a geyser’s mouth. So mesmerising is this sight, that more permeability is actively sought.

Then, the cyst bursts. As swiftly as it flew in, so does the money flow out. A rumour, a token of gossip, an unfortunate diplomatic incident, a well-paid expert report, or a speculator’s premeditated signal to his colleagues rapidly reverses the tide. The flood ends. A drought follows. Projects—and buildings—remain unfinished, half-mast, like flags at a funeral. The wombs of local currency and local shares reveal themselves sterile; it was all make-up, they now say, even the wings; you should never trust the books. The well in the garden is dry, and full of stones. Moreover, the fountains are dry too. Around them, stunned, jobless, emaciated peons, indebted up to their eyeballs, drown into whirling sand clutching their plasma TV sets. And their TV heroes have not come to save them, be they crusading party leaders or Viking raiders. Who will?

Nobody is without friends, especially after having become part of the international jet- and yacht-set, educating his own children in the best schools, or attending eye-opening conferences and meetings. Not to mention those friends who have already proven so generous in the past. In truth, after having advised on how to render the country prosperous, they now spare no saliva explaining what can be done in order to rescue it from its unfortunate plight. Thus, money is poured back into the nation. High interest rates are, however, de rigueur. One does not give much to drink too easily to a friend who has already drunk too much. What kind of a friend would he be?

The third step is therefore to make up for the mistakes of the past and repay one’s generous friends. Whatever wealth remains must be scrupulously collected so as to honour the debt—or so as to secure further loans. Debt gives salvation from debt, as gamblers understand so well. Certainly, the wealth of the wealthy is better left untouched: they are the producers, the life-givers, blessed fountainheads of the nation’s wellbeing, which needs them so badly under the burning sun of the new sad day. They must be treated kindly, lest they or their wealth be forced to flee by too rapacious and visible a hand—some have already fled, they whisper. The wealth of the poor—or of the poor-to-be—is a better starting point. After all, they may have little, but there are many of them. Besides, since they have little, they cannot flee as easily as the rich, nor can their wealth flee. And whereas the wealthy can go bankrupt and be resurrected cleansed of their debt, like the imperishable Phoenix, ordinary mortals honour their debts, willingly or not. They may protest, but law and order are the last two public sectors whose resources are cut off, unless successful ways are found to privatise them too.

Finally, as the nation struggles in debt and turmoil, groaning so loudly as to disturb its neighbours, the generous friends come back to help. They cannot remain untouched in the face of so much poverty and violence. They have new “plans”, “strategies” and “packages” to sort things out. Yet, to implement them, national borders must be removed completely and an iron framework of conditions for investment and development must be imposed in order for the nation to become a proud participant in fully liberalised, multinational free trade. For example, its tax environment must be suited to foreign investors—may God bless them—and its population as flexible as unthinking reeds in gushing new brooks, to which they contribute sweat and tears.

By the way, where does Iceland stand now? Probably it stands at the threshold of deciding whether to plunge headlong into step three, with signs of the fourth step already lurking behind the waterfalls harnessed for hydropower.

III.

In all normal civilisations the trader existed and must exist. But in all normal civilisations the trader was the exception; certainly he was never the rule; and most certainly he was never the ruler. The predominance which he has gained in the modern world is the cause of all the disasters of the modern world.

  Gilbert Keith Chesterton

The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that.

  Lawrence “Larry” Summers

It has been long known that Europe catches a cold whenever the United States sneezes. Yet things get even worse when the immune system of rules and restrictions to international capital and currency trade has been removed altogether. Iceland and some young, yet already former, free-market miracles on the Baltic Sea did catch pneumonia this time. Ironic indeed, as they are just another group of market miracles turned into meltdowns—Asia had a few of them in the 1990s. Miracles seem short-lived these past few decades… Though if truth be told, even Lazarus died, after having been brought back to life.

Historians of the future, if there shall be any and if they will be honest, are going to wonder and ponder upon how such intelligent and highly educated “knowledge economies”, capable of the finest mathematical-financial wizardry via the fanciest computer technologies, could bestow upon themselves so much avoidable pain, destroying in the process not solely further scores of planetary life support systems, but also man-made social infrastructures that have generated, depending on the country, genuine welfare for up to three or four generations. These future historians will be at pains to conceive of powerful, well-off, democratically elected representatives who listened to foreign bankers, and not to their own citizens, rushing to implement, whenever they could, multilateral agreements on investment robbing their own cabinets of much of their power.

These future historians will probably fail to empathise with and understand such bizarre people, very much like Voltaire, who could not really explain why our forefathers were willing to slaughter one another over the correct interpretation of the Holy Trinity. After all, they had never seen it (or them?) and Jesus himself had never said anything clear, if anything, about it (or them?). Not to mention the centuries that humankind spent warring, raping, disembowelling, burning, maiming, chaining, flogging and excommunicating one another because of errors of interpretation. Obtuseness is incredibly resilient. And we are not so different today. Check the Athenian cradle of our civilisation if you don’t believe it.

Yes, embodied and expressed by the very same conventional people at the helm of the world’s public and private financial affairs, the wisdom arising from the ashes of the current crisis is astoundingly similar to the one that caused the crisis. Are you indebted? Take on another loan. The private banking sector has betrayed you? Restore it with public money and run it as before. The world’s economy is a gilded cage run on behest of under-taxed oligopolists, tax-evading rentiers and idle absentee owners that squeeze money out of the real economy through banking charges, debt repayments, service fees, monopoly and land rents? Keep it going and call it a “free market”. People are suffering, jobless, and with their tax money siphoned to the creditors that inflated the bubble? Show them tough love and deprive them of further healthcare, education, culture, wages, pensions, childcare, subsidised water and power. Austerity measures turn a crisis into a depression? Implement more of the same measures. The environment is running amok in the so-called free-market environment? The market will fix it; in the meantime, profit will keep being extracted from increased prices in oil, gas, polluting consumer goods, and cancer treatments due to the ecological collapse of the planet. Apparently, the only green rules acceptable are those that transfer further money from the public purse into private pockets. All others are resisted as “costly”, “distorting”, “rigidifying”, “liberticidal”, which may be true—and good. The one and only truly binding international environmental regulation that, so far, has saved us from extinction, preventing excessive UV-irradiation, was a top-down imposition from Montreal.

But life, not to mention a happy and healthy life, has never been the paramount goal of the pursuit of profit. War was and still is a major source of profit, towards which public subsidies to private firms are given generously… Well, they call them “research & development” grants or “national security” strategies… Disease-causing pollution has been mostly an externality that had nothing to do with profit, until pharmaceutical conglomerates found a way to exploit that too. Slaves and their children were most profitable for many, many centuries. Wage slaves… Oops! The flexible working poor and their children are very profitable today too.

And for what must all this wisdom be endured? To give money to people who have money. They have enough, one would believe. They should start communicating it to those who have nothing… little… less. Jesus and Aquinas regarded this as obvious. No, it is not obvious. Money is never enough, especially to those who need yet another fancy dress. But why are these people non-satiable? Why do they complain, lobby and shift electoral allegiance whenever taxation on capital gains is vented? Why do they transfer their fiscal residence to tax havens, whilst benefitting from handouts of the State they are deserting? Why do they outsource productive structures to countries squeezing labour out of turnips, if youngsters are not available? Why do they say that “they have already done enough” whenever life-saving regulation is discussed? Why do they care more about the interest rate they can get, than they care about how their money is invested? Why do they oppose healthcare, old-age pensions, education and culture for all, while they enjoy it for themselves?

It is competition, they answer. There isn’t enough around for all of us, only for the really tough ones, who can then live in much-deserved luxury. But why do people compete for having more for themselves, instead of, say, competing for beauty, generosity, selflessness, equal distribution, full employment? There can be so many different and more constructive competitive aims in life: just look around. Nuns, school teachers, barefoot physicians, rocket scientists, marine biologists, old fishermen, young artists… They may not all dislike some cash, but they do not live for it, or at least they try not to. Since Divine Will is out of fashion, and if you press them long enough, the luxury-deserving competitors are going to tell you, eventually, that we are cruel wolves. How naïve was I! I thought that they were cruel wolves… The world is a cruel place—those ferocious nuns… Nobody waits for those left behind—and they don’t. The market forces accept no barrier. As one of their fairest ideologues so frequently stated, there is no alternative; it is human nature. A hidden philosophical anthropology…

And yet, none less than their poorly understood hero Adam Smith taught us long ago something very different in the opening page of his greatest book, The Theory of Moral Sentiments:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.

This is certainly not the one and only betrayal of Smith by current capitalism. After all, his market was meant to be free from rentiers, who now run the show. Anyhow, why so much mercilessness, then? Have we become worse human beings? Have we lost our humanity? Have we found ways to outcruel the cruel, underfed, superstitious peasants, who, when not breaking skulls in the name of God or King or Country, killed and maimed animals on a farm? Well, as modern and proud of our science-technology as we can be… Well, yes… Overall, subtly, we have. The thinning of solidarity that embraces the whole humankind, which a German-sounding French warmonger studied in depth, is a weaker barrier to the undergoing evil drives.

Or, at least, we have done our best to train impressionable young minds to being ordinarily callous and participating in the most spectacularly life-destructive economic system ever seen on Earth—a system that, as denounced by the scientific community for the past thirty years, has turned the survival of our species into a big question mark. Much is done in this direction, routinely, thousands of times a day, so that our youth may become more beastly than ruffians and more abrasive than criminals. But how? Simple. We (mis-)educate them, and we have tools for (mis-)education that no emperor or church of old has ever owned or mastered. Only a couple of totalitarian dictators gave it a go or two in the blood-drenched century of Charlie Chaplin and Woody Allen… But how, where? Open your eyes. Watch.

Our TVs and media are replete with commercials. They are meant to accompany you from the cradle to the grave. Selectively and scientifically trained marketing strategists, creative psychologists and advertising gurus are paid to induce desires in the subtlest and most effective manners, starting with our children’s delicate souls. These desires will blossom into poisonous “new needs”, as these “experts” call them. These weed-like flowers being sheer wants perceived as genuine individual needs, the delayed satisfaction of which is to generate a sense of inadequacy, anguish, frustration, isolation, or envy towards those who do satisfy them. And these are the only flowers that must grow; hence they are everywhere. Children no longer need an imagination. Marketing strategists make sure that the only pictures that children can have in their mind are those that sell. They speak already like TVs: why shouldn’t they replicate TVs in their brain? Eventually, as grown-ups, these children will be branded, like slaves of old, or cattle still is today. Perhaps, like the slaves of old, they will enjoy freedom one day a year. Or maybe all the days will have been taken away by marketing strategists, who wish to celebrate the sales of Valentine’s Day, Mother’s day, Father’s Day, Marketing Strategist’s Day…

You don’t believe me? Go to any primary school and you will meet hordes of little creatures dressed according to the latest fashion code, or pestering their parents to be so dressed. Those who are not there, because they are busy sewing the actual fashion items, may well try to rob them from the horde one day. These little brats! They want and want and want scores of items that they do not need, the possession of which, moreover, does not grant happiness at all, despite the glittering promises. Were it so, no new purchase would be “needed”, and that would be bad for business. Certainly, one may learn to control such a powerful impetus, but it takes years of self-re-training. Not even hunger and utter destitution placate it. Not even the full awareness of not being able to afford those consumer goods. Nothing will ever erase the deep-rooted psychological mechanisms implanted into our souls when we were little. Is this enough? No, there is more to it.

Our TVs and media are replete with role models—and the medium is the message. Rich and wanna-be-rich people of all sorts shine even when performing the most ordinary activities, such as shaving or concealing their stench with perfume. From slutty heiresses to pimping rappers, from cosmetically mummified bad actors to ignorant footballers, from divorce-addict hair-died tycoons to soon-to-be-millionaires answering questions or showing their private parts in public—these are the saints and blessed inspirers of the modern secular creed. They may be confessing their own sins to a TV host, confident that their words will be forgotten. What remains, instead, is the scent of money that perspires through their placenta-creamed pores. A powerful aura.

The same aura surrounding the action hero, who fights, kills and kidnaps for the sake of justice, peace and freedom…  There he comes! Dressed in an Armani suit, he jumps out of a Mercedes, talking briefly on his Nokia. He checks his Rolex, then gets into a Ferrari and drives to Chez Maxim’s. There, he meets a beautiful young lady, whose Valentino dress will soon be ripped at the Hilton’s. And there he’ll kick the guts out of the villain, smashing his Patek Philippe and ruining forever his Dolce & Gabbana jacket… Justice is served. Peace is conquered. Freedom triumphs. That’s the message, isn’t it? And if not much of the beautiful young lady is shown, then children can watch too.

Poor people are less frequently shown. They don’t sell as well as our hero. Moreover, they don’t buy. There exist notable exceptions, though. Poor men and poor women are sometimes on display, like animals at the zoo, to be observed, mocked and, on Christmas day, to feel sorry for. Other times, they are actively humiliated on screen by policemen, judges and other masters of entertainment. Crime, ignorance, savagery: what a show! Once again, as long as it sells, keep it up. There, in the spotlight, for less than fifteen minutes and amidst commercial ads, the poor can shine like greasy piglets on spits, or like the tin their most unfortunate children collect in garbage dumps.

What is the result of this Blendungsroman? Go to any secondary school and you will meet cell-phone-talking walking replicas of the rich, parading themselves in the corridors. Give them an opportunity to put down a “loser”, and they will savour it like their own parents, whose SUVs and triple-mortgaged houses are punches into the Joneses’ stomachs. Even poverty is a risk worth taking to cast the rich’s aura.

The silent walking replicas of the poor are usually in other schools, unless they have dropped out of school already to find a job that will secure their poverty. Some are hiding in the toilets. They are poor and they know it. They look poor. It is not only their clothes that say it, but their bodies. They have bad teeth, small tits, big noses. Their parents have wrinkles. They can’t get fixed, like those people on TV, or their replicas and the replicas’ parents. To cope with this obvious inferiority, they breathe in. In Italy, they sniff cocaine to think that they too are rich. In Rumania, they sniff glue to think that they too are sniffing cocaine.

Either way, none of these kids must worry about being politically active. It is too dangerous. Yes, youngsters still remember how to bark: they haven’t been beaten up into silent submission, yet. Some will have to be locked up, so that trade be free. Don’t give them any wrong ideas. That’s socialism—or any bad “ism” of the day. Don’t give them hope. That’s socialism. Politics is best left to corporate employees, who siphon public money to their shareholders and, God be gracious, to their own bank accounts. That’s the free market. These employees alone are capable of understanding why unemployment is natural and inequality good. They’ve got talent. They’ve got the degrees that get you good jobs. Therefore, unless they are corporate employees, not even the kids’ parents have to worry about politics. Like these happy few, the kids’ parents can take happy pills too or, if pills are too expensive, drink themselves out blind.

Drunk, the poor parents can cope better with the trauma of seeing their children die. Each country has its own special way of sending new winged angels to God. In high-tech market-miracle India, they die of cholera in open-air sewers, where they were looking for edible scraps. In coup-idity-ruled Honduras they die poisoned by pesticides in a free-market plantation, so that the bananas people eat in Canada be not too pricy. In revolutionary France they die stabbed by an angry pusher in a dark alley, but they were not really French after all. In peace-loving America, they die fighting for human rights in another country, since their own country denied them a future. How was it possible? They had trained them at killing people since they were three, on a stolen X-box… Maybe they should have trained them at doing something else, but there is no videogame that teaches you how to free a political party from corporate diktats or join a trade union… Is this enough? No, there is more.

Our TVs and media are replete with experts telling us that greed is good. They are the most interviewed and consulted members of the intelligentsia of our community. Sometimes they even become our presidents, ministers, mayors and godfathers. Go to any university. Some of them feed on tenure and enjoy healthcare and pension benefits, whilst arguing that you shouldn’t have them. You will discover that there is an entire discipline built upon that notion.

If truth be told, a few of its adherents do remind their students, on leap years, that the profit-motive of the homunculus œconomicus is just one drive amongst many. This drive becomes one and insatiable for the sake of toying with mathematical formulae, not for the sake of describing reality, which never works quite like the models do. Facts can be so obstinate. Theory is much more flexible. Occasionally, on elective days, these beautiful souls mention even mysterious, metaphysical, unscientific words: “ethics”, “morality”, “duty”, “respect”, “goodness”, “virtue”, “governance”, “responsibility”… They don’t fully grasp them, though, for they slip out of books and balance sheets. Sometimes they even get their students to learn some history, thus half-stuttering what sort of devastation this homunculus and its leit-motive have caused. Still, these are exceptions, divagations, and the students, between the end of their studies and the beginning of their careers, know it very well.

Our MBAs and the many branches of science and engineering dependent upon private sponsors and future corporate employers are the convent-barracks where our crusading novices, more or less geeky and asocial, are told that only numbers really matter. The fate of a paterfamilias and of his family does not. They are told that persons are not persons: they are costs, opportunities, capital, markets… They are all sorts of things that can be converted into monetary units—numbers, in fact—though most definitively they are not persons. In fact, such things, be they free individuals or free communities, can turn into dependent variables. And if some of these things are laid off by a firm that rationalises an otherwise irrational workplace—what a madness it must have been!—then it may be time to invest money in that firm. If the right numbers go up, then things are just as they should be. If they don’t, they can be massaged. If they still don’t, they can be fixed. If they still refuse to go up, then a couple of hospitals plus half a university, as long as they are public, can be sacrificed to a return to growth.

In the streamlined world there can be recoveries without jobs, business opportunities in famines, increased flexibility via insecurity of employment and future bread, full employment at the natural unemployment rate, goods that do a lot of bad things, and market miracles that melt into destitution because of something bad but the pious market. What lesson is learnt? Everything in the world exists in order to maximise the money of investors and/or their managers. Even old, wrinkly countries must be attractive to such people or face their own demise. Make the rich richer. That is the one and paramount commandment. Such merciless homunculi are no fiction; they are science-fiction: they drive around in Dalek machines. Indeed, to those who do not simply rob and run, being merciless is a fiduciary duty. Apart from this, everything else goes.

Yes, everything else, unless you get caught and cannot pay the best lawyers—what a shame. Business words of the business world tell no lies: lack of scruples is “determination”, mercilessness is “having balls”, inhumanity is “being committed”, callousness is “professionalism”, locust-like behaviour is a “hedging”, stealing traditional knowledge is a “patent”, depriving people of knowledge is a “copyright”, poisoning the destitute is “mutually beneficial trade”, taking public-sector resources to guarantee private profits is “hard work”, threatening employees with unemployment is “personnel management”, gambling is “trading futures” and other cabalistic formulae “over the counter”, oligopolies are “economies of scale” and cartels are “free markets”, sending knowingly drivers to die because of a few faulty cars is a “cost-saving measure”, sending knowingly air passengers to die because of reduced safety controls is a “cost-saving measure”, corruption of inspectors is a “cost-saving measure”, corruption of politicians is “lobbying”, and rent-exacting parasites are “the productive class”. The list goes on and on. Read the news and enjoy the game: destroying peoples is “restructuring”, keeping them poor is “preventing inflation”, colonising a nation is “opening markets”, withdrawing rights is “reform”… By the end of it, you almost believe what they say.

Has any student still doubts or feels uneasy? Then he is told that all is well, for all ends well. Yes, those things that we unscientifically call “people” may seem to be suffering, poor things. And the others, crony criminals who have nothing to do with the free market, are the exception, though the rule just wants to be like them. After all, those exceptional exceptions were on the cover of glossy magazines like Capital, the Cosmopolitan of people who “have balls”… Don’t worry. Everything will be alright. Just wait—that’s what my old priest and the party commissar would say… The invisible hand of the self-regulating market is going to look after all of them. Free from State intervention and from trade unions—for only capitals may associate and go on strike if they don’t like a government—the invisible hand is to generate endless bounty for all—the invisible bounty? Most of the world’s trade is virtual, after all…

Such is orthodoxy today, for which even a Pope’s distribution chests are heresy, utter hilaireous bellocs… If you claim that small is beautiful, the giants get angry: go make your shoes elsewhere! Today, you no longer need to be red to be a danger. It is enough to be as white as a dove. The Market God likes hawks, whose endless preying is the source of all that is good. His transparent hand turns into water all the blood that these hawks spill. As to the tallest shrines, they are no longer erected for the glory of the Sun, Athena or Almighty God, but for the likes of Morgan Stanley. Behind all this, a hidden theology… Maybe Divine Will should be in fashion again.

IV.

The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

   Franklin Delano Roosevelt

 To avoid glaring inequality or widespread misery I am ready to sacrifice some, or all, of my freedom… I should be guilt-stricken, and rightly so, if I were not.

Isaiah Berlin

 

The child empathises with the dying bird. The adult empathises with the starving child. The nurse attempts to ease the pain of the terminal patient. The teacher smiles patiently at the pupils playing in the courtyard. The schoolmaster hides his unease as the ancient oak is felled. The gardener watches wildlife documentaries on the TV. The mayor goes on holyday to his cottage on the lakeside. None of them likes to be ill. All of them fear death. All of them experienced curiosity or elation as they held a newborn creature in their arms. All of them have been compassionate at some point. All religions have praised divinity as the fountainhead of all that is. Whether physically, emotionally or mentally, all of the above have exemplified the ultimate source of all values.

Years of research about value have led me to conclude that nothing is more valuable than that which allows value itself to emerge: life. Without life—biological, emotional and mental—there can be no value, whether ethical, aesthetic, economic or political. Those that deem life’s value instrumental acknowledge its value nevertheless. Besides, none of them seems likely to prefer beauty or other values to eating every day and being in good health: take away their bread, and they will sell their dearest painting… Of all crazy philosophers ever alive, only a handful rejected life as a value and one alone behaved in a way that denounced actual indifference to life: Pyrrho the sceptic, whom his friends prevented from walking under carts and falling off cliffs. One. As for the few who told us that life is a valley of tears and an endless stream of horrors, none of them ever stopped eating, drinking, and philosophising, i.e. one of the activities that they clearly enjoyed the most. But what can the lives of crazy philosophers teach us about economic matters?

As usual, philosophy can reveal the heart of an issue. If life is so crucial, indeed the source of all values, then it can be inferred that a successful economic system provides universal access to vital goods across generations. Economic efficiency means that the lives of all benefit from it and nothing is spoiled to the point that those who come after us may not benefit too: resources are left for others the way in which we would like to have them left for us, if not better. Improvement is a possibility. An economic system that achieves its vital aims more effectively, thus opening the door to a richer fulfilment of planetary and human potential, is yet a better system. On the contrary, an economic system that does not fulfil its vital aims, either because access is limited to few or some, past or present, or because it delivers goods that are deadly, detrimental to life or irrelevant to life needs, whilst leaving some of these needs unanswered, is a failure.

The current economic system is a failure. As repeatedly denounced by the international scientific community at its highest and most representative levels, human civilisation has become for the first time in its history a threat to the planetary environment that allows for humanity’s own existence. There is no aspect of the Earth’s environment that has not been depleted in the three centuries that have seen the affirmation of capitalism worldwide: the biosphere-protecting Ozone-layer, breathable-air-producing and reproducing pluvial forests and oceanic life-systems, self-regenerating water aquifers, nourishing-food-producing arable spaces, and natural-equilibrium-maintaining and science- and technology-inspiring biodiversity. The continuation of life as we know and enjoy it is at risk.

Much has already been destroyed beyond repair, to the point that bioengineering is being discussed as a tool to cope with the most tragic consequences of “development” awaiting us. Emblematically, one nation of the world is planning already the purchase of land in India in order to transfer its entire population there upon the day when the ocean will have swallowed their ancestral islands. And yet, in the face of current profit losses, all this is treated as secondary. Just read the news and you shall see that the focus of collective action is upon a “return to growth”, as though the sad and deadly harvest of greed were not still vivid before our eyes.

What is more, the mantra of competition goes on unchallenged. But competition for what? To generate profits? And why? Why should rich people become richer? There’s more than enough to go around. Even more ludicrous is the idea that schools, healthcare, free time, old-age security, peace of mind and all those gains for life that people acquired in decades of blood and humanity should be dismantled so that competition be won. By whom? What sort of victory is the augmentation of the money heaps of people who already have it, whilst the quality of life and the living conditions of most are worsened?

F.D. Roosevelt told us seventy years ago that greed is not only bad morals, it is also bad business. When business’ sole purpose is to make as much money as possible as soon as possible, then the somewhat constructive role that business may play in society disappears altogether. It doesn’t matter if any private business actually makes a lot more money, gets bigger internationally or pervades even more diffusely the lives of millions: the standards of evaluation and appreciation for the constructive role of private business belong to the sphere of public wellbeing. And public wellbeing cares about long-term indicators: happy workers retiring in good health, healthy mothers making plans for their children’s education, educated youngsters looking forward to playing on the beach with their grandchildren. If this horizon disappears, then you’d better start to worry. Private business is known to have played far too often a destructive role, as everything, the long-term survival of private business included, can be sacrificed to man-eating Baal.

Short-termism, combined with the relentless pursuit of profit, characterised roaming Goths, wooden-legged pirates and cigar-loving gangsters. The entrepreneur, the glorious creation of modern capitalism, has always been expected to be something different. Restrained by family and personal pride, religious morals, annual dividends, trade unions and other 20th-century legal suasions, his horizon has been defined as a somewhat distant future, his playground the real world of flesh-and-bone persons like him, his reward the admiration of affluent or fully employed fellow citizens that participate in and benefit from his endeavours.

As long as alternative economic systems were either widely discussed or experimented with, the entrepreneur had to justify his existence by creating some tangible, albeit sometimes debatable, token of social worth, such as employment, community networks, or nice new gadgets. Only the speculator, hardly distinguishable from fraudsters, trotted relentlessly upon a different path. But speculators were said to be the exception, not the rule…

Yet the day came when Gordon Gekko and his friends got to control more than three quarters of what is still incautiously dubbed “world trade”. The decades of my life, infested by Maggies, yuppies and wall-less oligarchs, launched “The Financial Revolution”, a pivotal process in contemporary history that no historian has yet so baptised: let this label be my grand legacy to international scholarship.

An equally bombastic historian used this term in the 1960s to describe the emergence of public creditors in 18th-century England… It doesn’t quite compare, I’m sorry. We’ve just witnessed thirty long years of national barriers coming down—and how long it took for both nations and their barriers to come into existence!—so as to allow for a gigantic flood of miraculously leveraged liquidity springing out of… books and vast pools of capital formed by privatising public money in all of its shapes, squeezing profit from de-unionised workforces threatened by—what a coincidence!—unbarred international competition, and such ingenious tokens of financial engineering that only professional mathematicians could make sense of them. All this money travelling much faster than any good or service ever before: computers have replaced the pens and ink of old. The world of Gekko and other reptilian inhabitants of city hedges and wall streets is indeed a very bizarre world.

Originally, these creatures were meant to trade pieces of paper granting a share of the profits made by fairly large private companies. It is something that had begun in Genoa a long time ago and that their trading partners, the Dutch, had brought to the North Sea around the year 1600, sailing thence to the New World, another Genoese discovery… But a share of the profits may be less remunerative than profiting from shares. Gekko’s forefathers started betting on rises and falls in the price of those pieces of paper, sometimes causing them by moving massive amounts of money or dropping a few words into the nearest ear…

In the days of poor old Nixon, in the Big Apple, they traded about 20 million stocks every day. Today they trade 1600 million or so—and there’s more fruit in the basket than just a big apple. Also, as of Nixon’s time, they started playing games with the world’s currencies, namely the money with which common people buy their bread. Again, they started slowly, about 20 billion USD a day, but now, after “freeing” trade worldwide, they are up to 2 trillion. It is by far the largest chunk of trade in the world and it has one severe drawback: it makes the form of trade that normal people think of when they hear the world “trade”—buying and selling bananas, timber, cars, computers, etc.—much more complicated. Not to mention buying bread. But the reptiles don’t worry: they own the future. They buy and sell it.

Actually, they take bets—only a tiny fraction of trade in existing “futures” fulfils the official excuse that these are ways to hedge against risks on purchases of actual goods—on nearly anything that can be grown, mined or brought into existence, influencing the price of all sorts of goods, including the bread that common people wish to buy. Still, since even this casino was not big enough, the reptiles added onto the table the so-called “derivatives”, which are pieces of paper whose value is derived—hence the name—from something else, whether another piece of paper or a price arising from combining a few of them. Anything goes. Also because you can buy or sell these pieces of paper any way you like—over the counter, under the counter, beside the counter… You can actually buy and sell the option to buy or sell them, for short-termism can be so short that, to spare time, it allows certain persons to sell what they don’t have.

Is this too complicated? Too silly? Well, today, around the globe, there’s an ocean of derivatives, for a value of about 500 trillion USD. It is a lot of money… Strangely enough, however, the reptiles that invented them also felt the need to insure themselves against any risk that may ensue from trading in… derivative paper. So they started buying “credit default swaps” from insurance companies and let their friends and colleagues, the bankers, pile them up as assets, claiming that these “swaps” were as sound and good as gold itself. Probably they would have started taking major bets on them as well, had the entire mathematically engineered and economic-science-backed system failed from collapsing under its own virtual weight. Too much genius had been spent for the business world to bear. Under so much talent and foresight, the reptiles’ joints felt suddenly empty of market force. Amazingly, the invisible hand was nowhere to be seen. Fortunately, the State ran to their rescue and gave them a visible, reinvigorating bailout with other people’s money, lest the bank’s own mouthpiece uttered “BBB” or some other silly rating. And that’s where we stand today. The real suffering surrounding us, from the unemployed Spanish worker to the starving Senegalese farmer, is due to a virtual catastrophe. And if the starving Senegalese farmer tries to move to Spain, he shall meet a wall and possibly drown in the sea, while frustrated unemployed Spaniards, trained by modern corporate journalists, will hate guts those that didn’t. Strangely enough, these migrants are to be loathed, not the freely migrating virtual capital that cannibalised both Senegal and Spain.

Like all human endeavours, business can be either good or bad. To know what makes it good or bad, what is nobler than money, means to know how to measure real growth, real development, real utility, real goodness. Who, though, after Pareto’s Protagorean reinvention of economics, is allowed to know what real value is? Certainly not serious economists, who can only acknowledge preferences… The Pope may know, perhaps. He claims to be right like no-one else and that’s maybe why so many people cannot stand him: who likes an old moralising grandpa, in an age in which we are told by our media gurus to give into any juvenile urge of ours that can make them a buck?

Or maybe any living creature knows: they’re all God’s creatures, after all. Yes, even by watching slugs and bugs we can evince something important, which degree-honoured geeks may have neglected while sitting in front of an inanimate computer screen. They are not forgivable, though: no matter how much you masturbate, avatars are not human beings. Here comes the slap; Zen masters should love it: entomology can rescue economics from its value slumber. Vade ad formicam. What a twist! Or maybe not. It all started with Mandeville’s bees, to be honest…

Let me be brief and clear on this. What consistent pattern of behaviour can be observed amongst slugs and bugs? Watch them in your garden, if you have one. Or go and watch them in a public garden, if it hasn’t been sold to developers. As small and allegedly stupid as they are believed to be, all invertebrates try to do their best to survive at all times. And when they take risks, it is because they either look for food, shelter, safety, or attempt to ensure the survival of their species. As economically irrational as animals can be, these small beings can even sacrifice individual utility—one’s safety, food or head—for the sake of keeping, indeed at times just making, their young. Future generations matter, to them. Some seem even to care for their fellows in the anthill, hive or nest in which they live… Life, in truth, matters to living creatures, and yet life can be sacrificed, for more life may thus ensue. The only higher value that life acknowledges is, in fact, life.

And yet, in today’s world, money is still prioritised over life. Listen to our leaders, and with the exception of a pair of Caribbean politicians that corporate media describe regularly as lunatics, what matters most to most who matter most is to keep “growth” going. Capitalism or the “free market”, as they like labelling it despite its dictatorial logic, must keep generating profit, free from State intervention, which does not serve that one paramount end. All this is held, despite the well-known biocide implications of such a process. Yes, capitalism is responsible for the ecological degradation that we are living in with, and leaving to, our children. Has nobody really put together the Industrial Revolution and the collapse of the planet’s life support systems?

I shall help you: the causal link between the pursuit of profit and environmental degradation becomes visible every time environmental regulation is resisted as “too costly” or by-passed by illicit behaviour or by off-sourcing to countries that have actually little such regulation or none at all. Unless business is forced forcefully to comply with existing regulation, which is much more difficult in a barrier-free worldwide market, common praxes show that the primacy of profit persists over, say, not killing other people by dumping toxic waste onto them.

Indeed, in economics, it is methodologically impossible to address the environmental preconditions that make life possible and can secure its long-term flourishing. To the eyes of the economic observer, bread is as much and legitimately a “good” as nuclear waste, as long as a lawful market exists for both of them. It is only through direct State intervention that a bad “good” becomes officially what it is: a bad—and that is just the first step, for enforcement is yet to be secured from lobbying and bribes.

States alone can ban slavery, organ trafficking, child labour, exploitation, air pollution or aquifer poisoning as the bads they are. States alone can make the real economy and earned income primary, and the virtual economy and unearned income secondary. There is nothing intrinsic to market mechanisms leading to that and we have known it for nearly two hundreds of years. Read Charles Dickens’ subversive novels to get a clearly bleak picture. Also, ecosystems are “externalities”, as the language of economics reveals, at least as long as they are not turned into a cost by environmental legislation, into a loss of profit by reduction in reputation and actual sales, or into a market opportunity by persistent spoliation of it—see the oxygen cans sold in the subway in Tokyo.

Protecting life and the environment is something that runs against the logic of profit, even if some business leaders may themselves desire it ardently. Profit can only relate to the value of life instrumentally: as a means to further profit. Money is a fetish, and one that eats living creatures and their dwelling spaces if that generates revenue. Nothing leads profit-driven “rational” agents to doing that which is necessary for planetary survival and, for that matter, for a decent social life on a vast scale. Even public health, the most obvious case of socially beneficial public agency, is opposed as unprofitable hence bad. Not to mention all the money that is made by “growth” via sales of carcinogenic “goods”.

As the world’s money is controlled by gargantuan private institutions and managed to enrich their rich shareholders, even if it means strangling debt-ridden public authorities and diverting resources from public sewers to private coffers, there is little hope that the dominating logic may change. Some used to argue that money should be controlled by public authorities and managed for the public good, as written in certain constitutions… But we have already talked about such a peculiar notion. For the moment, let’s see whether the Philosopher-Kings of Greece will crumble because of the Goths, after being failed by Chelsea-resident haven-seekers and the advice of Goldmen-sackers.

The Transcendental Character of Money: An Exposition of Marx’s Argument in the Grundrisse

Introduction

The recent economic crisis has certainly raised a number of questions about the conception of free markets and the neoconservative economic theories on which the capitalist nations have relied. Free marketeers like former Federal Reserve Chairman, Alan Greenspan, have acknowledged that unregulated markets have enormous costs and in the end could be damaging to the welfare of our citizens, the financial health of our economic institutions, and to the fiscal strength of our nation states.[1] In a National Public Radio interview, Greenspan even went so far as to call this crisis a “credit tsunami,” admitting that “the free market ideology may be flawed.”[2] Still, despite this painful admission, Greenspan had very few suggestions for regulating or correcting the failures of the free-market system.[3] Other observers of global capitalism have been concerned for some time about the boding dangers of the free market system. John McMurtry, for example, who locates the origins of capitalism in the work of John Locke and Adam Smith reminds us that both of these thinkers developed their economic theories out of their ethical philosophies. But how has economic thought moved so far from ethical and moral considerations? Presumably, the free market was justified because it led to human happiness. As Mary Rawson states in her review of McMurtry’s Unequal Freedoms: The Global Market as an Ethical System, the question is: “If the market system was to bring a better life to all, why can we find everywhere armaments, killing fields, malnutrition, brown water, and the disappearance of species? Why do we find, not life, but death?”[4] Citing Robert Lane’s The Loss of Happiness in Market Democracies, McMurtry argues that, although most current economic theory would not agree, “human satisfaction actually declines as income and commodity consumption rise beyond need.”[5] Furthermore, since our government leaders are tied to large corporate interests, the public interest is completely ignored.

As Governments decline into ‘the best democracies that money can buy’ there is no public authority left to protect the common interest. Our political leaders assume market growth is essential to society’s development. So public welfare is sacrificed to ‘more global market competiveness’ – and more life-system depredation. To name the causal links remains taboo.[6]

Additionally, recent economic theory has claimed that the market is “objective,” “value-free.” Some have complained that we have made the market into a god. As George Soros argues, however, “by claiming to be value free, market fundamentalism has actually undermined moral values.”[7]

In February, 2009, George Soros, founder of Soros Fund Management LLC and a philanthropist, claimed that the current global economic problems, sparked by the mortgage crisis, have “damaged the financial system itself.”[8] Extremely pessimistic about the success of the Obama administration’s attempts to respond to the crisis, by October, 2009, he cautioned his audience that the recovery from the current crisis “may run out of steam”; and he feared a “double-dip” in 2010 or 2011.[9] While he distinguishes the current crisis from the collapse of the Japanese economy because the current problems are not confined to one country, Soros distinguishes it from the “Great Depression” because the world economic system has not been allowed to collapse completely; it has been propped up by various national governments. Soros predicts that a “new world order … will eventually emerge” and it “will not be dominated by the United States to the same extent as the old one.”[10] Summing up his position, Soros maintains that “a global economy demands global regulations. … Regulations must be global in scope.” Echoing these concerns, Joseph Stiglitz asserts that “the truth is, most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal.”[11]

Obviously, those who have suffered from this crisis are angry; many want to know: Who is going to jail? For how long? And when? While those who have been personally affected by this recession have suffered loss of jobs and homes with foreclosures, taxpayers have been bailing out the large Western banks that, according to John Lanchester, have been allowed to become “Too Big to Fail.”[12] Indeed, this was “the most important lesson” of the failure of Lehman Brothers – these institutions are “Too Big to Fail.” Truly, we are living with a “monstrous hybrid,” Lanchester continues, “in which bank profits are privately owned, but are made possible thanks to an unlimited guarantee against losses, provided by the taxpayer.” He agrees with German Chancellor Angela Merkel, “No bank should be allowed to become so big that it can blackmail governments.”[13] If capitalism is about assuming risk, i.e., “about ‘creative destruction,’ and the freedom to fail,” then we no longer have free market capitalism, but an economy dominated by the “banksters”; or, to speak precisely, Lanchester concludes “the most accurate term would be ‘bankocracy.’”

Others argue that the recent crisis is not an exception to the rule, but that these kinds of crises are endemic to the nature of capitalism; they belong to the logic of the capitalist system because once a means of exchange, money, when it becomes capital, becomes an end in itself. In other words, the economic system no longer serves to produce various products required to make human beings happy, but the system serves to produce one commodity, i.e., capital, and the problem for the corporations and the banks is how to produce, control, and accumulate capital. There are two questions here. The first is the historical question: when in the development of the capitalist economic system was there a concentration of production and the emergence of monopolies that led to the enormous accumulation of capital in the hands of a few large banking concerns? Citing the German economist, Otto Jeidels’ Relation of the German Big Banks to Industry with Special Reference to the Iron Industry, (Leipzig, 1905), V. I. Lenin answers this question: “Thus, the twentieth century marks the turning-point from the old capitalism to the new, from the domination of capital in general to the domination of finance capital.”[14] Clearly others would answer this question differently; most would probably go back to the beginning of the twentieth century, but would look more specifically to contemporary problems relevant to the current capitalist system. This paper, however, is not concerned with these historical questions; rather, this essay is concerned with a second question: how, according to the logic of capitalism did money which served as a means of exchange become capital? My paper will address this question by examining Karl Marx’ argument in the Grundrisse.

Written during the winter of 1857-58, the Grundrisse[15] was authored by Karl Marx between the 1848 publication of the Manifesto of the Communist Party and the 1867 publication of the first volume of Capital. The text is a series of seven notebooks in which Marx strives to gain conceptual clarity on a number of fundamental economic concepts, including production, distribution, exchange, consumption, and money. Although the Grundrisse was not published during his own lifetime ? indeed, the work was not even published in the nineteenth century[16] ? this work is essential for our understanding of the nineteenth century, because in it Marx articulates one of the most important transitions for modern bourgeois capitalism, namely, the transition from money as a medium of exchange to money as a commodity. In this paper, I shall examine Marx’s argument for this transition under the heading of the transcendental character of money. To achieve this end, I have divided my discussion into three parts. The first part is a brief consideration of what Marx calls “the scientifically correct method” of political economy (Grundrisse 100). Before exploring the concept of production in general, I shall consider how Marx justifies beginning his reflection with this concept. Then, I shall reconstruct the way in which Marx understands the concepts of production, distribution, exchange, and consumption in his “Introduction” to the Grundrisse.[17] Finally, I intend to identify the conceptual moments of money as it moves from a mere medium of exchange to a commodity necessary for the productive process.

“The Method of Political Economy”[18]

Reflecting on the method of political economy, Marx distinguishes two approaches to this science: the historical method of the seventeenth century political economists and “the scientifically correct method,” i.e., “the theoretical method.” Marx criticizes seventeenth century political economists for beginning scientific reflection with an indeterminate abstraction like “population.” For if we begin with population, we must “move analytically towards ever more simple concepts [Begriff], from the imagined concrete towards ever thinner abstractions until [we reach] the simplest determinations.” In other words, if we begin with population, we shall have to consider the classes that constitute the given population. But according to Marx, the concept of “classes” has no content unless we understand “the elements on which they rest” such as “wage, labor, capital, etc.” And since “these concepts in turn presuppose exchange, division of labor, prices, etc.,” those political economists who start with the concept of “population,” make the mistake of beginning with “a chaotic conception [Vorstellung] of the whole.”

Rejecting this confused approach, Marx claims that “the scientifically correct method” of political economy is one that begins by sorting out “a small number of determinant, abstract, general relations” ? and here Marx is thinking of “labor, money, value, etc.” ? which he calls “the simplest determinations” (Grundrisse 100 and 101). These determinations, however, are not yet concrete. Once “these individual moments [have] been more or less firmly established and abstracted,” Marx writes, “there [begin] the economic systems, which [ascend] from the simple relations, such as labor, division of labor, need, exchange value, to the level of the state, exchange between nations and the world market” (Grundrisse 100-01). This is not the mistaken historical method of the seventeenth century political economists that begins with the “imagined concrete” (e.g., population); rather, according to the scientifically correct method, the concrete is something to be attained. “The concrete,” Marx argues,

is concrete because it is the concentration of many determinations, hence unity of the diverse. It appears in the process of thinking, therefore, as a process of concentration, as a result, not as a point of departure, even though it is the point of departure in reality and hence also the point of departure for observation [Anshauung] and conception.[19]

Reality is not transparent to the understanding; it is not immediately accessible to political economists. To attempt to comprehend reality in terms of the most immediate determinations only serves to confuse; reality is over-determined, i.e., as having so many determinations that we cannot sort them all out in theoretical discourse. Instead, reality must be understood. Beginning with the simplest determinations, the political economist brings to conceptual clarity chaotic conceptions by identifying “a small number of determinant, abstract, general relations” which “lead towards a reproduction of the concrete by way of thought” (Grundrisse 100 and 101). Hence, political economists do not produce reality as the product of thought; rather, they proceed correctly by conceptualizing reality in thought.

Reconstruction of Production, Distribution, Exchange, and Consumption

Production in General

Marx employs this scientifically correct method in his own work when he takes up the concept of “production” (Grundrisse 85-88). In any reflection on production, we always refer to “production at a definite stage of social development — production by social individuals” (Grundrisse 85). Because of this, Marx argues, there would seem to be two possible ways to speak of production. If we are to “talk about production at all we must either pursue the process of historic development through its different phases, or declare beforehand that we are dealing with a specific historic epoch such as[,] e.g.[,] modern bourgeois production.” But to start in this manner would once again lead us down the thorny path of the historical method; beginning with “the chaotic conception of the whole,” we would have to search for the simplest determinations that constitute production.

Alternatively, Marx suggests that we can begin with “a rational abstraction,” i.e., “production in general” because “all epochs of production have certain common traits, common characteristics.” The difficulty, however, is that production as it appears has many determinations. In fact, it could be characterized in its specificity as being over-determined. Furthermore, not all of these determinations belong to every epoch as identifiable moments. “Some determinations belong to all epochs, others only to a few. [Some] determinations will be shared by the most modern epoch and the most ancient.” If we are to develop this kind of theoretical discourse, Marx argues, we must allow certain determinations to be stripped away and removed from this process of abstraction, the residuum, albeit an abstraction will not be an indeterminate abstraction; rather, it will be a concrete abstraction. And the scientifically correct method demands that we begin our theoretical reflection with a concrete abstraction, i.e., a concept of production which includes just those clearly articulated, essential moments that all specific instances of production have in common. Consequently, we shall begin the present discussion with the concrete abstraction of production in general.

If we simply consider the concept of production in general, it appears in the first instance to be the making of products. In production, human beings appropriate nature “within and through a specific form of society” (Grundrisse 87).[20] Production in its immediacy, however, assumes the three following moments: 1) human activity, i.e., work; 2) the subject of the work, i.e., the material worked on, and 3) the instruments through which the work is accomplished, i.e., the instruments of production.[21] Moreover, the products of production belong to someone; they are property which fulfill human needs. “An appropriation which does not make something into property,” Marx writes, “is a contradictio in subjecto” (Grundrisse 88).[22] “In production the members of society appropriate (create, shape) the products of nature in accord with human needs”; Marx calls this “the obvious” or “trite notion” of production. Furthermore, “production, distribution, exchange, and consumption,” according to Marx, “form a regular syllogism: production is the generality, distribution and exchange the particularity, and consumption the singularity in which the whole is joined together” (Grundrisse 89). However, this does not mean that “production, distribution, exchange, and consumption are identical, but that they all form the members of a totality, distinctions within a unity. Production predominates not only over itself, in the antithetical definition of production, but over the other moments as well” (Grundrisse 99). What then is the relationship of each of these determinations ? distribution, exchange, and consumption ? to production?

“Consumption and Production”[23]

Marx distinguishes three “identities between consumption and production” (Grundrisse 92): (1) “Production is consumption, consumption is production.” And he calls this first identity “immediate identity”;[24] (2) Production “appears as a means for” consumption and consumption “appears as a means for” production. [25] (3) “Each of them … creates the other in completing itself, and creates itself as the other.” [26] Marx does not name the last two mentioned identities. In keeping with the Hegelian vocabulary he employs here, however, I shall refer to the second and third identities as mediate identity and self-mediated identity, respectively. Let us consider each of these identities in turn.

The Immediate Identity of Production and Consumption

“(1) Immediate identity: Production is consumption, consumption is production.”[27] Production which appears immediately as consumption, Marx maintains, is “twofold consumption”; it is both “subjective and objective” (Grundrisse 90). It is subjective because the producer “develops his abilities in production”; it is objective because the producer also “expends” these abilities ? “uses them up in the act of production.” In producing the product, “the means of production” are consumed; they “become worn out through use” in the productive process. To illustrate his point, Marx appeals to the image of combustion. While fire and heat are produced in combustion, the material that supports combustion is consumed. Similarly, in production “the raw material” surrenders “its natural form and composition by being used up.” “The act of production,” Marx argues, “is therefore in all its moments also an act of consumption. Production as directly identical with consumption, and consumption as directly coincident with production, is termed … productive consumption.”

At the same time, “consumption is also immediately production.” Drawing an image from nature, Marx argues that just as a plant produces itself by consuming certain nutriments, so too a “human being produces his [or her] own body” by consuming nourishment. And this, Marx continues, “is true of every kind of consumption which in one way or another produces human beings in some particular aspect” (Grundrisse 90-91). Consumption that is immediately production, according to Marx, is “consumptive production” (Grundrisse 91). Consumptive production, however, is “secondary” because it involves the “destruction of the prior product” in the productive process. In production, “the producer objectified himself”; in consumption “the object he created personifies itself.” Hence, productive consumption is to be distinguished from “production proper.” For although production is immediately consumption and consumption is immediately production, their “immediate duality” remains unaltered; each process retains its unique character and is independent of the other.

The Mediate Identity of Production and Consumption

“(2) [In the sense] that one appears as a means for the other, is mediated by the other.”[28] According to Marx, a “mediating movement” occurs between the two processes ? production and consumption. These two processes are “related to” and “indispensable to one another”; Marx insists on “their mutual dependence” that “still leaves them external to each other” (Grundrisse 93). Each process is “a means for the other” ? each “is mediated by the other.” “Consumption,” Marx argues, “mediates production” because “it alone creates for the products the subject for whom they are products” (Grundrisse 91). “Without production, no consumption; but also, without consumption, no production; since production would then be purposeless.” Indeed, “consumption,” Marx argues, produces production in two ways. First, consumption produces production because it is only by being consumed that a product “becomes a real product.” A product achieves its “‘last finish’ in consumption.” A product that is not consumed is not actually a product at all; it is only potentially a product. For example, “a railway on which no trains run, hence which is not used up, not consumed,” Marx insists, “is a railway only ??????? [potentially], and not in reality.” This means that a product is quite different from a natural object. While a natural object simply is what it is, the product “becomes a product only through consumption.” “Only by decomposing the product,” Marx maintains, “does consumption give the product the finishing touch; for the product is production not as objectified activity, but rather only as object for the active subject.”

Second, consumption produces production “because consumption creates the need for new production, that is it creates the ideal, internally impelling cause for production which is its presupposition.” In other words, consumption produces production by creating “need” that will be satisfied by production. As the object of production, however, need is not external to the productive process; rather, need is understood “as internal object of production, as aim”; the goal of production is to fulfill need created by consumption. Hence, according to Marx, consumption is understood as “the aim of production”; consumption motivates production by creating “the object which is active in production as its determinant aim” (Grundrisse 93 and 91). If it is true that production “offers consumption its external object,” then it is equally true, Marx contends

that consumption ideally posits the object of production as an internal image, as a need, as drive and as purpose. It creates the objects of production in a still subjective form. No production without a need. But consumption reproduces the need (Grundrisse 92).

At the same time, Marx identifies three ways that production mediates the process of consumption. First, production “produces the object of consumption.” In production, products are produced for no other reason than to be consumed; “production creates the material, as external object, for consumption” (Grundrisse 93). Without an object to be consumed, consumption would not be consumption at all. It is by supplying the material to be consumed that “production produces consumption” (Grundrisse 92).

Second, production produces “the manner of consumption.” Previously, we observed that only in consumption does the product achieve its final finish. Similarly, production does not merely create a product for consumption; rather, it “also gives consumption its specificity, its character, its finish.” Production does not create any object or “an object in general.” In the productive process, specific objects are produced. Because production produces the product, and because the product is the product that it is, i.e., a specific product, production also produces the way in which the product is to be consumed. Hence, “the object,” Marx argues, “is not an object in general, but a specific object which must be consumed in a specific manner.” Marx appeals to an example of satisfying one’s hunger. The need to gratify our hunger is the same in any context. After all, “hunger is hunger.” But there is a difference between our “bolt[ing] down raw meat with the aid of hand, nail, and tooth,” and our satisfying our hunger “by cooked meat eaten with a knife and fork.” Since production produces a specific product, and since production produces the manner in which the product is to be consumed, Marx argues that “production thus creates the consumer.”

Finally, production produces “the motive of consumption.” Motivated by need, production creates the material to satisfy need. But production also “supplies a need for the material.” As it first appears, consumption exists in its immediacy ? “a state of natural crudity.” However, consumption is “mediated as a need for the object” produced by production. Hence, production not only creates the material object for consumption, and it not only creates the manner in which the material object is to be consumed, but it also creates the need for the material object. In other words, production creates “the perception” of need. Borrowing an example from the arts, Marx maintains that in this there is no difference between an “object of art” and any other product. For just as an artifact produces “a public which is sensitive to art and enjoys beauty,” so too, in the creation of every other product, production produces a perceived need. “Production thus not only creates an object for the subject, but also a subject for the object,” i.e., the consumer.

The Self-Mediating Identity of Production and Consumption

In addition to the two previous identities ? the immediate identity of production and consumption and the mediate identity of production and consumption ? production produces consumption and consumption produces production, and in so doing “each of them … creates the other in completing itself as other” (Grundrisse 93). For its part, consumption creates production because in consumption the product is consumed. If the product were not consumed, it would not be what it is, namely, a product. In the activity of the product being consumed, consumption not only brings the product to completion, but it also produces the need for production and re-production. Insofar as the process of consumption brings the product to completion, and insofar as the process of consumption produces the inclination for production and reproduction, consumption completes the process of production by producing the producer. “Consumption,” Marx argues,

accomplishes the act of production only in completing the product as product by dissolving it, by consuming its independently material form, by raising the inclination developed in the first act of production, through the need for repetition, to its finished form; it is thus not only the concluding act which the product becomes product, but also that in which the producer becomes producer (Grundrisse 93).

Hence, consumption creates production by bringing itself to completion; and in this way consumption is distinguished from production.

For its part, production completes the productive process by producing consumption. Insofar as production produces both “an object for the subject” and “a subject for the object,” production creates consumption

(1) by creating the material for it; (2) by determining the manner of consumption; and (3) by creating the products initially posited by it as objects, in the form of a need felt by the consumer. It thus produces the object of consumption, the manner of consumption and the motive of consumption (Grundrisse 92).

Furthermore, besides producing the material or object, the manner, and the motive for consumption, “production produces consumption … by creating the stimulus of consumption, the ability to consume, as a need” (Grundrisse 93). In other words, when Marx writes that production produces the subject for the object of consumption (Grundrisse 92), he means that production not only produces the product that is to be consumed, but it also produces the consumer that needs the product (Grundrisse 92 and 93). Production thus creates consumption by bringing itself to completion; and in this way production is distinguished from consumption.

Marx, however, stresses that while each of these moments ? production and consumption ? “creates the other in completing itself, and creates itself as the other,” still the moments articulated here belong to production in general. Production and consumption “appear as moments of a single act” (Grundrisse 94). In other words, production must be understood as “one process” to which all of the identities and the moments constituting them belong. Hence, production in general is the “predominant moment.”

With a single subject, production and consumption appear as moments of a single act. The important thing to emphasize here is only that … they [production and consumption] appear in any case as moments of one process, in which production is the real point of departure and hence also the predominant moment. Consumption as urgency, as need, is itself an intrinsic moment of productive activity. But the latter is the point of departure for realization and hence also its predominant moment: it is the act through which the whole process again runs its course. The individual produces an object and, by consuming it, returns to himself, but returns as a productive and self-reproducing individual. Consumption thus appears as a moment of production. (Grundrisse, 94)

“Distribution and Production”[29]

Marx begins his discussion of distribution with the following question: “Does distribution stand at the side of and outside production as an autonomous sphere?” Although he will answer this question in the negative, by arguing that production does indeed include distribution, there are a number of reasons to think that distribution does not belong to the sphere of production. From the standpoint of the individual, distribution seems to be prior to production because it establishes his or her place in the process of production. According to this point of view, Marx writes, “distribution appears as a social law” because it fixes the individual’s place in the social system, i.e., “the system of production” (Grundrisse 96). Since the individual’s place within this system is determined prior to his or her participation in the process of production, it would stand to reason that distribution does not belong to the sphere of production; rather, distribution would seem to precede production. “To the single individual,” Marx argues,

distribution appears as a social law which determines his [or her] position within the system of production within which he [or she] produces, and which therefore precedes production. The individual comes into the world possessing neither capital nor land. Social distribution assigns him [or her] at birth to wage labor. But this situation of being assigned is itself a consequence of the existence of capital and landed property as independent agents of production (Grundrisse 96).

The individual comes into this world without capital or land; he or she possesses only his or her own body which may be sold in the form of the individual’s labor power for wages. But Marx emphasizes that it is the mode of production that determines the individual’s place in the system of production. Hence, distribution is not an autonomous sphere existing outside of production; rather, distribution belongs to the sphere of production.

From the standpoint of whole societies, Marx mentions four historical examples that provide reasons to think that distribution precedes production, i.e., “that distribution is not structured and determined by production, but rather the opposite, production by distribution.” When one nation or people, for example, conquers another and divides the land among themselves, they force a certain mode of “distribution and form of property in land” on those who have been defeated; thus, production would seem to be determined by distribution. Again, if a conquering nation enslaves those it has defeated, and if, as a result, production were founded on slave labor, distribution would appear to be both prior to production and to determine the mode of production. Or, in the case of a revolution when a people revolts against the land owners or the landed gentry and redistributes the land by dividing their holdings into smaller tracts of land, distribution would appear to change the features of production. Similarly, in a caste system in which a legal system distributes, as a result of “a hereditary privilege,” property to some, land to others, and still others are restricted to the caste of laborers, distribution would seem to be prior to production, to determine production, and, hence, to stand outside of production as an entirely autonomous sphere.

Marx, however, rejects the notion that distribution belongs to an autonomous sphere; rather, he argues that “in all cases, the mode of production … is decisive” (Grundrisse 97). While the process of production involves appropriation, i.e., involves making something into property, “the producer’s relation to the product, once the latter is finished, is an external one”; in other words, the producer does not take possession of the product immediately (Grundrisse 94). In production, the producer does not intend the immediate appropriation of the products; the producer does not produce products for his or her own personal consumption. Rather, the producer can only take possession of the product insofar as the product is distributed to others. Distribution depends on the producer’s relation to other individuals. Hence, distribution, Marx argues, like consumption, belongs to the sphere of production.

Distribution steps between the producers and the products, hence between production and consumption, to determine in accordance with social laws what the producers share will be in the world of products (Grundrisse 94).

At the most immediate level distribution and production appear independently of one another. Distribution seems to be the mere distribution of products according to certain social laws which first appear as natural laws. However, “this distribution of products” is a moment in production realized as:

  1. “the distribution of the instruments of production, and …
  2. “the distribution of members of society among the different kinds of production” (Grundrisse 96).

For its part, production produces distribution, and different modes of production require different forms of distribution. “The structure [Gliederung] of distribution,” Marx writes,

is completely determined by the structure of production. Distribution is itself a product of production, not only in its object, in that only the results of production can be distributed, but also in its form, in that the specific kind of participation in production determines specific forms of distribution, i.e., the pattern of participation in distribution (Grundrisse 95).

In other words, while the structure of distribution appears as the naturally determined distribution of products, actually, the distribution of products is the result of this structure of distribution which is in turn the result of production as it changes the natural determinants to “historic determinants.” “At the very beginning,” Marx continues,

these may appear as spontaneous, natural. But by the process of production itself they are transformed from natural into historic determinants, and if they appear to one epoch as natural presuppositions of production, they were its historic product for another (Grundrisse 97).

Thus, distribution, belongs to the sphere of production and Marx calls it “production-determined distribution”; as production-determined distribution, distribution appears as one moment of production.

“Exchange and Production” [30]

Exchange appears as a moment mediating “production with its production-determined distribution on one side and consumption on the other …” (Grundrisse 99). Because of this mediation, exchange makes a threefold appearance, each level of which is either determined by or appears in the sphere of production:

  1. It is within production “that exchange of activities and abilities [division of labour] takes place” (Grundrisse 99]. This moment of exchange is the essential constitutive moment of production.
  2. Exchange as the “means” of bringing a product to its concrete reality, i.e., exchange preparing the product for consumption, is also determined by production. It is exchange that brings the product to consumption wherein the product is completed. In other words, production determines the way in which consumption receives its object by means of exchange (Grundrisse 99).
  3. The form of exchange, i.e., the way in which exchange is organized “between dealers and dealers …,” is “itself a producing activity” while at the same time being “entirely determined by production …,” i.e., the mode of production (Grundrisse 99). In other words, the organization of exchange which is determined by production determines the intensity and extensity of exchange. And, only in this last instance “where the product is exchanged directly for consumption” does exchange begin to appear separately from production (Grundrisse 99).

Thus, exchange, like distribution and consumption, appears not as an autonomous activity, but “as either directly comprised in production or determined by it.” Each of these concepts: production, distribution, exchange, and consumption, exists as moments within a complex whole where each mediates and is mediated by the others, but the determinate concept is that of production in general. Thus, distribution, exchange, and consumption always return us to production.

The Transition of Money as Exchange to Money as Commodity

Thus far, I have sketched out the concepts Marx presents in the “Introduction” to the Grundrisse (85-100). The question that must now be answered is: what are the conceptual moments of money as it moves from a mere medium of exchange to a commodity necessary for the productive process? Marx provides us with a clue to answer this question when he writes “circulation itself [is] merely a specific moment of exchange, or [it is] also exchange regarded in its totality” (Grundrisse, 98). One of the specific moments of circulation, however, is money that in turn exists in its concreteness in so far as it is seen in its determinate nature, i.e., as having certain specifiable determinations. Money can be understood to have the four following moments:

The properties of money as (1) measure of commodity exchange; (2) medium of exchange; (3) representative of commodities (hence object of contracts); (4) general commodity alongside the particular commodities, all simply follow from its character as exchange value separated from commodities themselves and objectified (Grundrisse 146).

Money as the “measure of commodity exchange.” If commodity A and commodity B are to be exchanged, then there must be an existent measure or standard to which both A and B may be related or compared in order to determine the feasibility of exchanging A for B. This process of quantification takes place in thought as “both commodities to be exchanged are transformed … into exchange values and are thus reciprocally compared” (Grundrisse 144).

Money as the “medium of exchange” (Grundrisse 146). Money takes on a character of its own independent of the products to be exchanged. In other words, in order to obtain commodity B, we no longer need to exchange commodity A for commodity B. All that need be done is to exchange a socially determined representation, i.e., exchange value, which, as it is attached to commodities A and B, appears as the price of these commodities, for commodity B. This socially determined representation, i.e., symbol (money as it appears as coin or paper) of the price of commodity B, may be obtained by exchanging commodity A for money. Thus, at this moment money mediates exchange because money may be exchanged for commodities, or commodities may be exchanged for money.

Money as the “representative of commodities.” Money comes to represent commodities as it attains a character of its own. When this happens it is no longer necessary to think in terms of exchanging one commodity for another, i.e., exchanging commodity A for commodity B. At this moment it is simply possible to purchase either commodity A or commodity B, or both commodities A and B for that matter, with a socially determined amount of money. Or looking at this purchasing process from another point of view, it is possible to sell commodities A and B for a certain amount of money. Hence, commodities are said to have an exchange value that appears as a price in terms of a specific quantity of money. At the same time, money has an exchange value that appears as a price in terms of commodities. In short, a commodity is said to have a price that is attached to the commodity in terms of money.

Money as a “general commodity along side particular commodities” (Grundrisse 146). Thus, as money takes on a character of its own, it becomes an object, i.e., a thing-in-itself. It becomes completely separated from specific commodities while taking on the characteristics of a commodity. It is in its commodity character that money is borrowed and lent, and generates interest. Hence, money has the capacity to produce money and money qua commodity takes on the character of capital.

By virtue of its property as the general commodity in relation to all others, as the embodiment of the exchange value of the other commodities, money at the same time becomes the realized and always realizable form of capital; the form of capital’s appearance which is always valid (Grundrisse 146).

Therefore, money in its four moments appears as a process in which the exchange value of a product qua commodity “obtains a material existence separate from the commodity” and in so doing becomes a commodity itself (Grundrisse 145); money is produced not for its use value, but for its exchange value.

At the same time, certain contradictions corresponding to this fourfold development arise.

Firstly: The simple fact that the commodity exists doubly, in one aspect as a specific product whose natural form of existence ideally contains (latently contains) its exchange value, and in the other aspect as manifest exchange value (money), in which all connection with the natural form of the product is stripped away again – this double, differentiated existence must develop into a difference, and the difference into antithesis and contraction. The same contradiction between the particular nature of the commodity as product and its general nature as exchange value, which created the necessity of positing it doubly, as this particular commodity on one side and as money on the other – this contradiction between the commodity’s particular natural qualities and its general social qualities contains from the beginning the possibility that these two separated forms in which the commodity exists are not convertible into one another (Grundrisse 147).

In other words, the commodity exists qua commodity and qua money. In that money has now attained a character of its own, it exists independently of the commodity. At the same time the commodity exists independently of money. As money comes to exist independently of the commodity, the commodity is no longer necessarily exchangeable for money because, as Marx writes, “the exchangeability … is abandoned to the mercy of external conditions … which may or may not be present.” Thus, exchangeability becomes “something different from and alien to the commodity, with which it first has to be brought into equation, to which it is therefore at the beginning unequal; while the equation itself becomes dependent on external conditions, hence a matter of chance” (Grundrisse 148).

Secondly: Just as the exchange value of the commodity leads a double existence, as the particular commodity and as money, so does the act of exchange split into two mutually independent acts: exchange of commodities for money, exchange of money for commodities: purchase and sale (Grundrisse 148).

There is no necessary correspondence between purchase and sale which often appear “temporally and spatially separate” and for this reason their “immediate identity ceases.”

Thirdly: With the separation of purchase and sale, with the splitting of exchange into two spatially and temporally independent acts there further emerges another new relation.

Just as exchange itself splits apart into two mutually independent cts, so does the overall movement of exchange itself become separate from the exchanges, the producers of commodities. Exchange for the sake of exchange separates off from exchange for the sake of commodities (Grundrisse 148).

Exchange for the sake of exchange, according to Marx, is commerce. The purpose of exchange is the object for which the exchange exists, but “the purpose of commerce is not consumption, directly, but the gaining of money, of exchange values” (Grundrisse, 149).

Fourthly: Just as exchange value, in the form of money, takes its place as the general commodity alongside all particular commodities, so does exchange value as money therefore at the same time take its place as a particular commodity (since it has a particular existence) alongside all other commodities (Grundrisse 150).

In other words, money, as it comes to exist independently of commodities, becomes a commodity itself. On the one hand, money is a commodity just like any other commodity. But on the other hand, it is different from other commodities: “it is not only the general exchange value, but at the same time a particular exchange value alongside other exchange values” (Grundrisse 151). Therefore, money exists in contradiction with itself. But “money does not create these antitheses and contradictions; it is, rather, the development of these contradictions and antitheses which creates the seemingly transcendental power of money” (Grundrisse 146).

In conclusion, money is a specific moment of circulation which in turn is “a specific moment of exchange, or … exchange regarded in its totality” (Grundrisse 98). From the point of view of production, we see that production no longer produces products for consumption, i.e., products that are to be complete in consumption, but rather, production produces exchange values. Consumption seems to slide out of the picture. Production comes to be determined by exchange values as money which first appeared as a means of exchange comes to be the end of exchange (Grundrisse 146 and 151).




[1]See, for example, Edmund L. Andrews, “Greenspan Concedes Error on Regulation,” New York Times, , October 23, 2008 (http://www.nytimes.com/2008/10/24/business/economy/24panel.html).

Almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he [Greenspan] told the House Committee on Oversight and Government Reform.

[2] See Brian Naylor’s October 24, 2008 interview with Alan Greenspan, “Greenspan Admits Free Market Ideology Flawed,” in which Greenspan said, “We are in the midst of a once-in-century credit tsunami. Central banks and governments are being required to take unprecedented measures.” (Transcript at http://www.npr.org/templates/story/story.php?storyId=96070766).

[3] Edmund L. Andrews, notes “despite his [Greenspan’s] chagrin over the mortgage mess, the former Fed chairman proposed only one specific regulation: that companies selling mortgage-backed securities be required to hold a significant number themselves.” At the same time in the same article, Greenspan expresses his continued belief in the market: “Whatever regulatory changes are made, they will pale in comparison to the change already evident in today’s markets … . Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.” “Greenspan Concedes Error on Regulation,” New York Times, October 23, 2008 (http://www.nytimes.com/2008/10/24/business/economy/24panel.html).  

[4] Mary Rawson. “Review of Unequal Freedoms: The Global Market as an Ethical System, by John McMurtry, Toronto: Garamond Press, (1998). Peace Magazine 15, 3, p. 31 (http://www.peacemagazine.org/archive/v15n3;31.htm).

[5] John McMurtry. “Myths of the Global Market.” New Internationalist, issue 301 (June 2007) (http://www.newint.org/columns/essays/2007/06/01/essay/).

[6] John McMurtry. “Myths of the Global Market.” New Internationalist, issue 301 (June 2007) (http://www.newint.org/columns/essays/2007/06/01/essay/). One cannot help thinking of the recent United State Supreme Court ruling that gave corporations the right to contribute unlimited funds to political campaigns; thus the pseudo-democracy has officially become a plutocracy.

[7] George Soros. “The Way Forward,” Financial Times. October 30, 2009. (http://www.ft.com/cms/668e074a-bf24-11de-a696-00144feab49a.html?_i_referralObject=11135588&fromSearch=n).

[8] Walid el-Gabry. “Soros Says Crisis Signals End of a Free-Market Model (Update 2),” Bloomberg.com, (February 23, 2009). (http://www.bloomber.com/apps/news?pid=20670001&sid=aI1pruXkjr0s).

[9] George Soros. “The Way Forward,” Financial Times. October 30, 2009. (http://www.ft.com/cms/668e074a-bf24-11de-a696-00144feab49a.html?_i_referralObject=11135588&fromSearch=n). “I regret to tell you that the recovery is liable to run out of steam and may even be followed by a ‘double-dip’ although I am not sure whether it will occur in 2010 or 2011.”

[10] George Soros. “The Way Forward,” Financial Times. October 30, 2009. (http://www.ft.com/cms/668e074a-bf24-11de-a696-00144feab49a.html?_i_referralObject=11135588&fromSearch=n).

[11] Sean O’Grady. “The Money Man: Super-economist Joseph Stiglitz on How to Fix the Recession,” The Independent, (February 9, 2010) (Http://license.icopyright.net/user/viewFreeUse.act?fuid-NzA3MDM4NQ%3D%3D).

[12] John Lanchester, “Bankocracy,” London Review of Books, 31, 21 (November 5, 2009): 35-36. (http://www.lrb.co.uk/v31/n21/john-lanchester/bankocracy/print).

[13] John Lanchester, “Bankocracy,” London Review of Books, 31, 21 (November 5, 2009): 35-36. (http://www.lrb.co.uk/v31/n21/john-lanchester/bankocracy/print). Lanchester cites Merkel comments after her fall, 2009, meeting with the French president Nicolas Sarkozy.

[14] V. I. Lenin, Imperialism, the Highest Stage of Capitalism in: Selected Works, Moscow: Progress Publishers, 1963. (http://www.marxists.org/archive/lenin/works/1916/imp-hsc/).

[15]Karl Marx, 1973. Grundrisse: Foundations of the Critique of Political Economy, translated with a forward by Martin Nicolaus, New York: Vintage Books. For the particulars regarding the writing and publication of the Grundrisse, see Martin Nicolaus, “Forward,” 7-66.

[16]Martin Nicolaus, 1973. “Forward,” in: Karl Marx, Grundrisse, n. 1, p. 7. Nicolaus reports that a limited edition consisting of two volumes (one published in 1939, the other, in 1941) was published in the twentieth century.

[17]Marx, 1973. The General Relation of Production to Distribution, Exchange, Consumption. In Grundrisse, 88-100.

[18]Marx, 1973. The Method of Political Economy. In Grundrisse, 100?08.

[19]Marx, 1973. Grundrisse, 101.

[20]Marx, 1973. Grundrisse, 87. Compare Capital, I, pp. 177-78.

[21]Marx, 1973. Grundrisse, 87. In Capital, I, Marx calls these “the elementary factors of the labour process” (Capital, I, p. 178).

[22]Since production (i.e. bourgeois production) involves property, since property assumes a distinction between “mine” and “thine,” and since there is a need for a mechanism whereby “mine” can be made “thine,” according to Marx, bourgeois economists have assumed that the introduction of property demands certain specific legislative and juridical frameworks to protect private property. But “history,” Marx notes, “shows common property (e.g.[,] in India, among the Slavs, the early Celts, etc.) to be the more original form, a form which long continues to play a significant role in the shape of communal property” (Grundrisse, 88; italics added.) Furthermore, Marx argues, “every form of production creates its own legal relations, form of government, etc.” (Grundrisse, 88). “All the bourgeois economists are aware of,” he writes,

is that production can be carried on better under the modern police than[,] e.g.[,] on the principle of might makes right. They forget only that his principle is also a legal relation, and that the right of the stronger prevails in their “constitutional republics” as well, only in another form (Grundrisse, 88).

[23]Marx, 1973. Grundrisse, 90-94.

[24]Marx, 1973. Grundrisse, 93.

(1) Immediate identity: Production is consumption, consumption is production. Consumptive production. Productive consumption. The political economists call both productive consumption. But then make a further distinction. The first figures as reproduction, the second as productive consumption. All investigations into the first concern productive or unproductive labour; investigations into the second concern productive or non-productive consumption.

[25]Marx, 1973. Grundrisse, 93.

(2) [In the sense] that one appears as a means for the other, is mediated by the other: this is expressed as their mutual dependence; a movement which relates them to one another, makes them appear indispensable to one another, but still leaves them external to each other. Production creates the material, as external object, for consumption; consumption creates the need, as internal object, as aim, for production. Without production not consumption; without consumption no production. [This identity] figures in economics in many different forms.

[26]Marx, 1973. Grundrisse, 93.

(3) Not only is production immediately consumption and consumption immediately production, not only is production a means for consumption and consumption the aim of production, i.e. each supplies the other its object (production supplying the external object of consumption, consumption the conceived object of production); but also , each of them, apart from being immediately the other, and apart from mediating the other, in addition to this creates the other in completing itself, and creates itself as the other. Consumption accomplishes the act of production only in completing the product as product by dissolving it, by consuming its independently material form, by raising the inclination developed in the first act of production, through the need for repetition, to its finished form; it is thus not only the concluding act in which the product becomes product, but also production produces consumption by creating the specific manner of consumption; and, further, by creating the stimulus of consumption, the ability to consume, as a need. This last identity, as determined under (3), [is] frequently cited in economics in the relation of demand and supply, of objects and needs, of socially created and natural needs.

[27]Marx, 1973. Grundrisse, 93.

[28]Marx, 1973. Grundrisse, 93.

[29]Marx, 1973. Grundrisse, 94-98.

[30]Marx, 1973. Grundrisse, 98-100.