Capitalism was never designed for the majority. But in the midst of a crisis not seen since the 1930s or the 1910s, the majority is paying the price. The microeconomic free-market model is overruled by geopolitical factors at the scale of macroeconomics. But this hasn’t prevented its ‘holy-trinity’ of demand, supply and price, being promoted like a crypto-religious mantra. Led globally by USA, its ‘manifest destiny’ of imposing the American-way on the World has collapsed into instability ad war.
Money is the root
Person-hours are the ultimate measure of quantity of work in any society. So the basic functions of money will always be necessary. Goods and services will always need exchange values. But socialism will put all people before profit as a defining g feature. Money supply and money flows will be under democratic control. This will be designed to guarantee everyone the basics for a decent life. And no one will be allowed to exploit others in order to acquire the luxury, power and privilege of today’s ruling classes.
Magic money tree is real
A UK prime minister recently stated that there is no ‘magic money tree.’ But the way that money is conjured out of thin air by private banks and governments is not magic. Approximately $15 trillion was created globally to buy up bank debts in 2008-9. Since then, further quantitative easing (QE) has funded arms manufacture, war, the covid pandemic and government debt generally. There are two problems with this. Too much money has been created and it has been spent on the wrong things.
Credit money is just money
Government QE is not the way that most new money is created. When a lending bank agrees to a loan, it creates the money by typing it on a computer keyboard. Often called ‘credit money,’ it enters circulation like already existing money. The only difference is that it is balanced by the simultaneous creation of a debt account in the borrower’s name. For the bank, this debt is a capital asset that can be traded. Since repayment of the debt is in the future, there must always be a proportion that default.
Too much money = too much debt
Money derives all its value from work. It is also the means of exchange for the work done to produce goods and services. Consequently, money flows in the opposite direction to the physical movement of goods and services.
Alongside climate-change, excess money-creation lies at the heart of the polycrisis currently facing the whole of the capitalist system. This is because too much money means more debt that can ever be repaid.
Capitalism’s fundamental profit problem
As Marx discussed at length, the very fact of paying workers less than the sale value of their output tends to create inflation in the real economy. Over supply of money (not matched by productivity rises) can temporarily avoid causing general inflation by migrating into capital markets. But once created, money only ceases to exist when loans are repaid or written off. Wars, or the repeated production and scrapping of armaments, can also destroy capital and hence justify its inflated prices. But none of these processes can postpone economic crisis indefinitely.
Astronomical debt
Total global debt of governments, banks, other corporations and households is now approaching an astronomical US$1 quadrillion.* This is like a card-castle that must collapse eventually.
Capitalist polycrisis has no solution
Nine scenarios for capitalism:
- Years of economy-crippling bankruptcies
- A decade of double-digit inflation
- Phased write-off of major structural debts
- Periodic debt jubilees
- Capital destruction by wars
- Capital destruction by routine arms production
- Wild speculation on space travel, AI, fusion power, quantum computing and carbon capture and storage
- Widespread collapse of whole currencies
- Nationalisation of major banks
- Continue ‘kicking the can down the road’ – i.e. change nothing
None of the above, singly or in combination, result in growing prosperity for all countries and all social classes. None give any hope for realistic solutions to wars, poverty and climate disaster. It cannot be said that the end of capitalism is nigh, but it may be.
Cooperative work is the fundamental stuff of economics
Paid work is the only factor of production necessary for the creation of real economic value. For example, so long as gold remains underground it has no monetary value. It does have capital value. This is confusing because the same units are used by both (see below). Mineworkers and refinery workers are required to give gold actual monetary value. Likewise, rain has no actual price until it is appropriated by land owners and delivered to consumers by water-workers.
The death of economic theory
Paul Ormerod’s, The Death of Economics (1994), would have been better titled, The Death of Economic Theory. Complexity and chaos provide the perfect conditions for profiteering, speculation, fraud and money-laundering. The only rational solution is direct, democratic control of major flows of money and capital.
Tectonomics
As long ago as the 1840s, Karl Marx observed that economics could only be understood internationally. But capitalist macroeconomics is very quiet on the long-term features of global finance. The continuing transfer of wealth from wages to capital and from global south to global north, suggest terms like ‘seismic’ or ‘tectonomic.’
Capital represents the attempt to control the present by controlling the future
The possibility of inflation or default always introduces uncertainty. Hence real estate, shares, bonds, and so on, have capital value, not monetary value. Treating capital as money would be contradictory. Money is used to buy and sell capital, just as any other commodity.
Zombie debtors are everywhere
See pages on Ponzi schemes, speculation and derivatives.
References
Paul Ormerod, 1994, The Death of Economics, Faber and Faber.
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* A quadrillion is a thousand trillion (15 zeros). $20 bills (each 0.9mm thick) stacked from the Earth to the Moon, would go around the Moon, back to and under the Earth – nearly seven times over.
Note: this figure is greater than simply money plus capital. It includes financial contracts that will be hotly contested on default.
DPS
15 August 2024
928 words
One Past. Many Futures. We Choose. 