The Banking Sector : Rents, Returns, and Resistance

Here is an interesting article from The Economist concerning the banking sector. In short, this article is attempting to explain why the profits in the banking sector have been rising over the last 40 years to their current astronomical heights. It does so via the economic concept of rent.

In neo-classical economics "a rent" is a term used to explain excess profits. Excess profits being profits that can not be explained by the laws of competition and supply and demand. In this case, banks and the finance sector, due to their exclusive access to capital, are able to charge "a rent" to other economic actors and as such have been able to generate large profits

This is really no different to your landlord who, due to their (relatively) exclusive access to land, is able to charge you to live on it. While the article linked above is rife with neo-classical assumptions and offers little more than platitudes as a way of dealing with this problem it provides some wonderfully concrete examples of how the structure of the economy works to rob working people at the expensive of the already rich/powerful.

In the hyper-complex economy that we live in ownership and access to capital are no longer as simple as they once were. Corporations are not owned by a single individual but by a large number of investors, with managers responsible to a board of directors which seeks to maximize the share price/dividends. Facts like these are often used as a critique of Marxist economic interpretations, as ownership of the means of production is no longer the driving force behind capitalist exploitation. The question is asked how can we live in a class based society, if corporations are owned "collectively" in many cases financed by the pension funds/savings of regular working class people.

While, these new cooperate ownership models certainly need to be examined, and there has, perhaps, been a shift in the main locus of exploitation, from ownership of the means of production, to control of the means of production. What relevance do questions like these really have. The expansion of the banking sector, and the further encouragement of people to invest their money in stocks/mutual funds are a tool to free up capital markets and extract wealth from the savings of regular people. Saving our money with in the banking system only provides those with the ability to do so, greater access to the wealth we have created (through our labour).

When I place my money in the bank or purchase mutual funds with the promise of secure savings and future returns, really all I am doing is providing corporations with the capital they need to finance expansion and further profit generation. Additionally, a huge cut is being taken by the finance sector itself to line bankers pockets and purchase outrageous Manhattan real-estate. This makes the returns I expect to receive and security of my money little more than a farce, as many people have witness and are witnessing over the last number of years.

Even more remarkably, to properly function in society, I am all but forced to participate in this game. The speed and complexity of the economy means that if left alone any savings I do generate will be reduced by inflation. I must therefore invest my money, take bets on the economy along with everyone else, because if I don't I will certainly loose it. In this way, we are all trapped, both structurally and ideologically, to participate in a system that ultimately exploits us.

With this said, I think a clear understanding of this process can help us develop some modes of resistance to this all encompassing near monolithic force in our lives (money/the finance sector). Forgive me if some of these sound ridiculous (positing solutions/resistance by its very nature is ridiculous) but here are a few ideas that this line of thought has generated in my head for ways to stop/mitigate these processes and reduce the control of the banking/finance industry over our lives;

• Organized runs on the banks, exert control over our own resources. I imagine it would take a relatively small amount of people to withdraw all their money in the same day to cause a ruckus


• A revitalized radical and real credit union movement. (In short lend money to each other, rather than rely on the banking sector)

Alas I wish I had more, (world workers revolution?) but the ability to posit change or even point in the direction of change remains difficult in the world such as it is. What ever we do we need to create a world where the wealth we create is not run for and by banks and the finance sector but where the needs of people are placed at the centre of our economic system.

Living Breathing Commodities

As most of you are probably aware, a number of scientists in partnership with the pharmaceutical company Novartis, and the great philanthropists and contributors to human well being known as Exxon Mobil, have created the worlds very first, self-replicating, artificial life form.

Using artificial DNA and a "blank" living cell they created a bacteria that has no living ancestor. While the importance of these discoveries is always hard to gage at the time of their inception, it has already been described as a technological breakthrough akin to splitting the atom. Here is an article from the economist that explains the discovery in some detail.

Ignoring the quite profound metaphysical implications a discovery of this nature possess (metaphysics is boring), the potential impact to society this technology represents is immense.

Additionally, as the advancement of bio-technology involves the creation of physical things, rather than the circulation of ideas/information, I believe that bio-technology has a greater potential to truly change the means of production and their accompanying social relations, than the Internet or other forms of information technology currently so much in vogue. If the hype is true, and it very well may not be, the creative/destructive potential of truly synthetic biology is staggering.

Ridiculously, the biggest fear I have regarding this discovery is its potential capacity for surplus absorption. Biological technology is capitalism's current best bet against a falling profit rate. With the potential for new markets, products, and profit generating enterprises represented by bio-technology enormous.

The patent application for the bacteria is already underway, and it seems obvious given who is funding the research, that the goal is not overall human well being but private profit and market creation. My absurd prediction is that in 15 years, we will discuss the deflating of the Bio-Tech bubble much the same way we currently discuss the Dot-com bubble or the Housing bubble.

In short, while amazing, a discovery of this nature provides further evidence of our need to organize, and work to wards a society where new technology is used to meet human need and not just further capitalist accumulation.

More Talk about the Debt Crisis in Greece

Here is a blog post concerning the ongoing debt crisis in Greece, that everyone should read.

http://geostadia.blogspot.com/2010/03/greek-tragedy-of-olympic-proportions.html

In the current book that I am reading, Fredric Jameson argues that a key element of the current economic system (post-modernity/ late capitalism) is the primacy of the spacial over the temporal. The speed of communication, and the immense liquidity of the banking sector combine to erase time as a factor of analysis. In this sense history becomes meaningless with the only thing of any importance the further advancement of technological progress and capitalist growth. This is both a function of the current means of production ( re: economic structure) and an ideological construct designed to reproduce the social relations that currently allow capitalism to exist.

"Capitalism itself lives in a perpetual present; the human past seems to be a senseless accumulation of unsuccessful human efforts and intentions; yet the future of technology inspires blind and unshakable faith."(Jameson, 2009)

By eliminating our sense of history, we loose the ability to analyze problems in the world. We have nothing to compare them to, and no ability to connect the causes of the worlds problems with their effects.

The current situation in Greece provides a remarkable example of the ideological power of this concept at work. Six years ago, the Greek government was spending hand over fist to build Olympic venues that now sit empty. That same government is now being forced to cut social programs and decimate its public service to pay interest payments and keep the wheels of the global capital markets turning. Yet this analysis is nowhere to be found in even relatively intelligent media, instead the focus is on now,

How much profit was generate building those Olympic venues, and how much is currently being generated on interest payments and the short selling of Greek government debt. The same companies that encouraged the spectacular waste, and easily flow of money required to stage the Olympics, are now once again profiting from the increased interest rates thrust upon the Greek government. All of this represents a flow of resources away from public and towards private interests.

The borrowing for the 2004 Olympics in Athens represents about 10% of the total national debt in Greece. This represents billions of dollars of annual debt servicing payments (actually somewhere between 2-7 billion dollars per year depending on the term). Money the Greek people must now pay back, and that could be used to do productive/helpful things for society.

We tend to think of government debt the same way we think of personal debt. This is a mistake. Government debt is not a question of living beyond our means but rather the ultimate form of fictitious capital and speculation. It is quite literally money created out of nothing, its only "value" based only on the prospects it creates for future growth. Problems of government debt are problems of the structure of the world economy, global trade imbalances, and falling profit rates, not a problem of governments spending to much.

As the crisis in Greece spreads around the world, and the losses of the rich are increasingly visited on regular people. We must work to develop a sense of history and analytical prowess to see event as the are. It is not working people who must pay for the excesses and poor decisions of the wealthy and influential, although this is what is happening. Rather those in power who made the decisions should suffer the consequences of their actions.

Poverty is a fundamental aspect of the market economy

Poverty is a fundamental aspect of the market economy. This assertion is frightening if true, and seems to be at the core of all radical critiques of capitalism. Are the problems of poverty systemic, a feature of the economic system in which we live, or, are they the result of bad decisions, easily corrected without real systemic change.

In order for markets to operate, prices must be set. The common understanding of how prices are set is via the law of supply and demand. The assumptions outlined in this system appear simple to us, in that we experience them every day. We even utilize them ourselves in a rudimentary way when we sell things at a garage sale, or post concert tickets on Craigslist. The need for an item as well as its relative scarcity work together to generate a price that seems fair to all parties involved.

Scarcity plays a large part in this. The relative levels of scarcity on a given day and in a given market are one of the factors that allow items to be sold above their cost of production. This is one of the ways profit is generated, as the relative advantage of a given capitalist can be used to sell objects at a price higher than its value. In short nobody buys sand at a beach.

In this way, a segment of the population must go without in order for the market mechanism to operate. Scarcity, and its human consequence poverty, are a requirement of functioning capitalist markets. How can wages be set if there is not a group of people looking for work. Who would pay for food if everyone had enough to eat.

In this sense, scarcity is manufactured to allow markets to operate. It does not exist in an absolute sense. If we can look beyond the economic system in which we live, poverty is not a question of scarcity, but rather a problem of the distribution of abundant resources.

The answers to these questions seem simple enough, yet solutions prove remarkably difficult. The slogan of the World Social Forum "Another World is Possible" comes to mind, however the world around us works to make imagining this world as difficult as possible.

The Best things in Life are Free - By Andrew Harvey

There may be no truer statement.

Take our relationships with others, which outside of a few notable exceptions such as prostitution, have no monetary cost. The most rewarding things in this world come when we escape the nearly omnipresent grip of money. Take, for example, volunteering. When you freely give your own time, and have complete control of where you devote your efforts, the rewards far exceed anything money could offer you. The benefits of free giving between people is where the salvation of our world lies.

Every time you stop to hold the door for a stranger (or your best friend), pick up a piece of garbage, donate used clothing, time, or yes, even money, you are disproving all of the nay-sayers that say socialism cannot work. The biggest step in people acceptance that we can live in a world without money is convincing them that there is a possible alternative. Instead what we should do is to look at the many ways in which this world has existed without money since the least hairy of the apes stared walking together.

Of course there has been money, barter, or trade since we have started gathering in groups, but was this for the better? What about all the ways in which we never needed money? Family, community, and friends have always existed, usually managing to stay away from the divisive nature of money, and always for their detriment when they have failed to do so.

Sure we have had money for a long time, but who were the ones who decided we needed that? It was those who were in power. The ones who needed to create a monetary system in which they could measure and place an arbitrary value on everything. By measuring and assigning values to the things which we use, it removes the inherently communal nature of the world around us, by classifying items as “property”.

What I am getting at is that we are all in this together. This is another truism, which I have yet to hear a rational argument against. When it comes down to it, everyone, and everything in this world, are linked. Most places in this world have created a intricate series of classifications to divide us as people: governments, monetary systems, gender, class, religion and race (to name a few). When it comes down to it, these are all meaningless. They are imaginary social constructs that only have power because we continue to legitimize them by using them, and rigidly enforcing them in our social order. Our society (globally, and especially western-ly) continues to give these systems of exploitation and division power by ensuring that they persist.

Why? Money.

Money equals power in capitalism, and so long as 10% of the world controls 85% of it’s wealth, this will not change. The richest in our society have it in their (perceived) interests to maintain the status quo. Capitalism requires a perceived scarcity of resources to fuel the competition and inequality which it produces. When we are divided as people, in all the ways we are, we can perceive this inequality, and then seek to out-compete the “other”. This competition leads to an animal ferocity towards each other, and this world. We have been tricked by each other, and the media, into believing that our “needs” are not met. In western society we have more wealth than the other 70% of the world could ever imagine, but still feel the need to consume at ever-increasing rates. We work ourselves to the point of stress-induced illnesses, while keeping our neghibour, and fellow people across the world conditions we would never allow our $800 dog to live in. The perception of “need” in our society can include new game consoles every other year and new iPods every single year, while next door, across-town, or on the other side of the world “need” includes clean drinking water, and food that would cost what we tip our barista each morning.

This local, and global inequality is what leads to crime, national tensions, and the ravaging of the world, and the vast majority of it’s population for the benefit of the tiny minority.

Now that I have convinced you we should immediately abandon money, and embrace the glorious boosum of socialism, here is what we can do:

• Stop letting money come into our lives in whatever ways possible, stop paying prostitutes for company for one.
• Give yourself. In whatever ways you can think of. Volunteer your time, make sure you are there for friends and strangers when they need you.
• When you must use money, ensure that it goes somewhere where it will be more equitably distributed, i.e. fair trade. This also means DON’T GIVE MONEY TO BIG CORPORATIONS. Corporations are massive organizations of exploitation which use their size, and leverage to “outcompete”, and undercut smaller, more local, fairer companies which spread the money around more.
• Join a co-op. Any co-op you can. If one does not exist where you live, start one. Start on a small scale. I am not talking about the business designation the government has created necessarily, I mean starting with two families buying bulk rice together to save money. Any step we take together is a step in the right direction.
• BE NICE TO EACH OTHER. Stop acting like it is us versus “them”, whoever “them” might be. Smile at people, hold a door for someone, unplug your earbuds, and start a conversation on the bus with a stranger. You will find we all have a lot more in common than you think.

There are many other ways to do what I am talking about, but this is a good start.

I love you all people. Lets start fixing this world together.

More thoughts about Money

While the statement "Money is the root of all evil" has some truth. The current form that money takes under capitalism is very different from that which existed in pre-capitalist times. When people say we have always had money and always will, they are misinformed. Feudal society may of had money, but it was a minor factor in the overall economic system. Most economic relationships in feudal society where mediated by kinship bonds, religion, and other factors, rather than by the almighty dollar. Money was used by very few wealthy people and the vast majority of people would have little contact with it, day in and day out.

However, under our current economic system (capitalism) money, has become a means in and off itself. It is currently impossible to function successfully without money. The role that money plays as the "universal commodity" is a major factor in the daily exploration, human misery, and inequality we witness all around us.

What is the purpose of money under capitalism? One would imagine it is to purchase the goods/services you need to survive. You work a job, get paid, and then use the money to rent a house, buy groceries and live your life

While this may be true for the majority of us. If you are a business owner or investment banker (re: capitalist) this is not the case. People in these positions no longer need money to purchase things, but instead use things (commodities) to get money. As the universal store of value, money is better than things. Even with Hummers, Rocket Cars and Solid Gold Houses there is a natural limit on the amount of stuff that can be owned/used. However there is no limit to the amount of money one can have.

Additionally, money can be put to use to generate more wealth. Through the purchasing products for sale, investment in production, lending at interest, and the multitude of other methods which exist under capitalism to generate wealth, money is the ultimate factor in generating more money. In fact money must be used in this way, as, left to its own devices, it will loose value over time.

This never ending cycle is what drives the capitalist system. It creates the need for ever expanding compound growth. Additionally, it sets people against each other by creating an endless competition to generate the most money from the least amount of starting money.

This relationship leads directly to the explotation of working people. If the goal is to have more money at the end of the day then you did at the begining there are only a few ways to do this. The most classic method is to employe people to turn raw materials into more finished goods that you can sell at a profit. Even with all the technological wonders around us human labour remains the only way to add value to a given process. At some point people must work to turn raw materials, concepts, and technological processes into an object that can be sold for a price. By exploiting the ability of people to create things, selling them at a price higher than the cost to create them, capitalists extract value from working people. The cheaper this can be done, and the less you can pay people to do it, the more profit is to be gained, and the more efficient your process of transferring money, into commodities, and back into more money will be.

Money in its current form is both a biproduct of the current economic system and an essential element of its success, while doing all we can to minimize our reliance may be a useful symbolic gesture. They key remains to dismantle the system that relies on it and replace it with something that does not have the exploitation of working people at its base.

Greece, Ideology, and Social Power

Here is an interesting article from the Economist concerning Greece.

I have been following this situation fairly closely, and although you wouldn't know it from watching the news/or reading the local paper, this situation is one of the key economic problems facing the world today. I believe this situation provides a window into the future and depending on how this situation is dealt with the problems in Greece have the potential to spread rapidly, with (additional) disastrous consequences for poor/working class people around the globe.

The problems in Greece are two fold. Due to its high level of public debt, deficit spending, and a relatively weak economy, Greece is having trouble raising money on world capital markets. The fear is that Greece will be unable to service its debt in the future, leading to a default, and lost profits to all those capitalists/governments who lent Greece money in the first place. In short, Greece is not a good long term investment, and is increasingly unable to finance government operations.

This has lead the Greek government, under pressure from those same world markets as well as the EU, to introduce increasingly draconian measures to curb public spending, and reduce its need to borrow additional money. The list of these measures is quite extensive but it includes among other things huge cuts to the public service (including massive layoffs and in some case up to 25% wage reductions), increasing the retirement age, and significant tax increases. This has lead to both internal duress and mass protests on the part of the Greek people, in addition to endless debate among the EU about how best to deal with this situation, and wether or not to provide some sort of financial relief to the Greek government.

What makes the situation in Greece particularly interesting to me is that it provides an acute example of two of the big problems facing the world today. As well as a remarkably clear example of Capitalist ideology at work. The two problems that the situation in Greece demonstrates are;

1. The erosion of state power, and its ever weakening position visa vie world Capital Markets/Capitalist Power

2. Economic Fatalism, or, ignorance of the economy as a political and social process.

Upon first glance, it seems easy to criticize Greece. Even without employing ethnic stereotypes, and believe me this discourse does play a significant role in the media's coverage of these events, it would seem that comparatively Greece has a relatively developed welfare state and a large public sector, without the economy to back it up. In a sense Greece is living beyond its means. In this discourse these austerity measures are simply a correction. A time for the Greek government to come to its senses and start acting like the rest of us.

However, this "critique" is fundamentally ideologically. It only serves to engage regular people in a fight with each other over table scraps while the rich make 3.6 billion dollars a year to steal from people and drink martinis on Wall Street. Rather than focus on the true nature of the problem, global income disparity of epic proportions, we blame the lazy Greeks for their decadent lifestyle.

And here is the one of the true problems that the Greek situation exemplifies. The various financiers and stock traders of the world have been able to force Greece into enacting policies directly against the interests of their citizens. Greece has been placed in a situation where the interests of private profit and finance capital trump the interests of regular people. The state, maybe just the Greek state but maybe all states, no longer has the ability to govern. Government is now performed by the financial market.

Secondly, if the above quoted article is correct, 2/3rd's of the Greek population support the governments austerity measures. They have bought the line and believe that, as the market dictates, they must pull up their boot straps and soldier on to rebuild their economy, loose the benefits they fought and died for, in the hope that, one day they can once again have the lifestyles the so recently possessed.

The austerity measures being enacted are not the dictates of the market, but rather the direct workings of human beings. The economy is a social process run by, and one would imagine for, people. There is no invisible hand whisking money around by some mystical force but rather the conscious decisions of individuals.

In this case, the people in question are not working for the public good, but rather in the interests of private profit. Explicit in the idea of the economy functioning as a social process is the idea that we can change it. As its only actors, humanity must work to create an economy where the interests of human beings are placed above those of interests rates, and balance sheets.

We have allowed the world to become what it is, and we are the only people who can, working together, change it for the better.