Robespierre Richard
6th January 2012, 11:22
As much as it has the right idea it still has an air of "if we get rid of the federal reserve, capitalism is brilliant". Everyone seems to acknowledge debt slavery but not wage slavery..
Well, to quote Marzipan in Capital, Vol. 1, Ch. 3, Sec. 3, Part B
The character of creditor, or of debtor, results here from the simple circulation. The change in the form of that circulation stamps buyer and seller with this new die. At first, therefore, these new parts are just as transient and alternating as those of seller and buyer, and are in turns played by the same actors. But the opposition is not nearly so pleasant, and is far more capable of crystallisation. [47] The same characters can, however, be assumed independently of the circulation of commodities. The class-struggles of the ancient world took the form chiefly of a contest between debtors and creditors, which in Rome ended in the ruin of the plebeian debtors. They were displaced by slaves. In the middle ages the contest ended with the ruin of the feudal debtors, who lost their political power together with the economic basis on which it was established. Nevertheless, the money relation of debtor and creditor that existed at these two periods reflected only the deeper-lying antagonism between the general economic conditions of existence of the classes in question.
[...]
The function of money as the means of payment implies a contradiction without a terminus medius. In so far as the payments balance one another, money functions only ideally as money of account, as a measure of value. In so far as actual payments have to be made, money does not serve as a circulating medium, as a mere transient agent in the interchange of products, but as the individual incarnation of social labour, as the independent form of existence of exchange-value, as the universal commodity. This contradiction comes to a head in those phases of industrial and commercial crises which are known as monetary crises. [49] Such a crisis occurs only where the ever-lengthening chain of payments, and an artificial system of settling them, has been fully developed. Whenever there is a general and extensive disturbance of this mechanism, no matter what its cause, money becomes suddenly and immediately transformed, from its merely ideal shape of money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the presence of its own independent form. On the eve of the crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money. But now the cry is everywhere: money alone is a commodity! As the hart pants after fresh water, so pants his soul after money, the only wealth. [50] In a crisis, the antithesis between commodities and their value-form, money, becomes heightened into an absolute contradiction. Hence, in such events, the form under which money appears is of no importance. The money famine continues, whether payments have to be made in gold or in credit money such as bank-notes. [51]
He later goes back to this in Ch. 6
One consequence of the peculiar nature of labour-power as a commodity is, that its use-value does not, on the conclusion of the contract between the buyer and seller, immediately pass into the hands of the former. Its value, like that of every other commodity, is already fixed before it goes into circulation, since a definite quantity of social labour has been spent upon it; but its use-value consists in the subsequent exercise of its force. The alienation of labour-power and its actual appropriation by the buyer, its employment as a use-value, are separated by an interval of time. But in those cases in which the formal alienation by sale of the use-value of a commodity, is not simultaneous with its actual delivery to the buyer, the money of the latter usually functions as means of payment. [12] In every country in which the capitalist mode of production reigns, it is the custom not to pay for labour-power before it has been exercised for the period fixed by the contract, as for example, the end of each week. In all cases, therefore, the use-value of the labour-power is advanced to the capitalist: the labourer allows the buyer to consume it before he receives payment of the price; he everywhere gives credit to the capitalist. That this credit is no mere fiction, is shown not only by the occasional loss of wages on the bankruptcy of the capitalist, [13] but also by a series of more enduring consequences. [14] Nevertheless, whether money serves as a means of purchase or as a means of payment, this makes no alteration in the nature of the exchange of commodities. The price of the labour-power is fixed by the contract, although it is not realised till later, like the rent of a house. The labour-power is sold, although it is only paid for at a later period. It will, therefore, be useful, for a clear comprehension of the relation of the parties, to assume provisionally, that the possessor of labour-power, on the occasion of each sale, immediately receives the price stipulated to be paid for it.
Footnotes:
12. “All labour is paid after it has ceased.” (“An Inquiry into those Principles Respecting the Nature of Demand,” &c., p. 104.) Le crédit commercial a dû commencer au moment où l’ouvrier, premier artisan de la production, a pu, au moyen de ses économies, attendre le salaire de son travail jusqu’à la fin de la semaine, de la quinzaine, du mois, du trimestre, &c.” [“The system of commercial credit had to start at the moment when the labourer, the prime creator of products, could, thanks to his savings, wait for his wages until the end of the week.”] (Ch. Ganilh: “Des Systèmes d’Econ. Polit.” 2éme édit. Paris, 1821, t. II, p. 150.)
14. One example. In London there are two sorts of bakers, the “full priced,” who sell bread at its full value, and the “undersellers,” who sell it under its value. The latter class comprises more than three-fourths of the total number of bakers. (p. xxxii in the Report of H. S. Tremenheere, commissioner to examine into “the grievances complained of by the journeymen bakers,” &c., Lond. 1862.) The undersellers, almost without exception, sell bread adulterated with alum, soap, pearl ashes, chalk, Derbyshire stone-dust, and such like agreeable nourishing and wholesome ingredients. (See the above cited Blue book, as also the report of “the committee of 1855 on the adulteration of bread,” and Dr. Hassall’s “Adulterations Detected,” 2nd Ed. Lond. 1861.) Sir John Gordon stated before the committee of 1855, that “in consequence of these adulterations, the poor man, who lives on two pounds of bread a day, does not now get one fourth part of nourishing matter, let alone the deleterious effects on his health.” Tremenheere states (l.c., p. xlviii), as the reason, why a very large part of the working-class, although well aware of this adulteration, nevertheless accept the alum, stone-dust, &c., as part of their purchase: that it is for them “a matter of necessity to take from their baker or from the chandler’s shop, such bread as they choose to supply.” As they are not paid their wages before the end of the week, they in their turn are unable “to pay for the bread consumed by their families, during the week, before the end of the week,” and Tremenheere adds on the evidence of witnesses, “it is notorious that bread composed of those mixtures, is made expressly for sale in this manner.” In many English and still more Scotch agricultural districts, wages are paid fortnightly and even monthly; with such long intervals between the payments, the agricultural labourer is obliged to buy on credit.... He must pay higher prices, and is in fact tied to the shop which gives him credit. Thus at Horningham in Wilts, for example, where the wages are monthly, the same flour that he could buy elsewhere at ls 10d per stone, costs him 2s 4d per stone. (“Sixth Report” on “Public Health” by “The Medical Officer of the Privy Council, &c., 1864,” p.264.) “The block printers of Paisley and Kilmarnock enforced, by a strike, fortnightly, instead of monthly payment of wages.” (“Reports of the Inspectors of Factories for 31st Oct., 1853,” p. 34.) As a further pretty result of the credit given by the workmen to the capitalist, we may refer to the method current in many English coal mines, where the labourer is not paid till the end of the month, and in the meantime, receives sums on account from the capitalist, often in goods for which the miner is obliged to pay more than the market price (Truck-system). “It is a common practice with the coal masters to pay once a month, and advance cash to their workmen at the end of each intermediate week. The cash is given in the shop” (i.e., the Tommy shop which belongs to the master); “the men take it on one side and lay it out on the other.” (“Children’s Employment Commission, III. Report,” Lond. 1864, p. 38, n. 192.)
As such, credit is an irreplaceable part of the capitalist system by its very nature of paying for labor only after it has been spent, forcing the worker to go into debt, whether to the shops itself as happened in Marx's day, to a lender, or in our age to the credit system that has prevailed since the late 1980s and the elimination of savings among broad swathes of the population. However, this also has its own effect of creating crises as the laborer, paying off the credit a month later, as a result has interest compounded monthly as after paying off the debt, he has to buy the goods again. As such, the worker as the debtor eventually becomes insolvent, causing the entire system of production to collapse as he has neither the money to pay back the debt, nor the money to buy more goods, causing production to cease due to lack of demand and inability, on the part of the capitalist to pay his own debts for the cost of capital, going bankrupt together with the bank, and to worker being unemployed. After this happened, the cycle continued again, with the worker ending up poorer than before, unless a new source of labor-power was found, through expansion of labor power through either the creation of capitalist farms that brought cheaper food through cheaper labor, or later colonization and imperialism with almost free labor.
This whole system came to a standstill after WWI when Germany, in great debt after losing the war and owing reparations was unable to pay, due to simply having no means to, having lost both her colonies and much of her productive capacity, as a result, a cycle emerged where France and Britain lent Germany money so that Germany could pay it back. Eventually the whole process turned Germany insolvent, as with the worker-debtor and the capitalist-lender. At that stage Germany kept defaulting, leading to hyperinflation and later restructuring that reduced the total debt.
At the same time in the US there was a post-war boom caused by both massive government investments in defense and the debt that France and Britain paid back to both private lenders and the US govt in the form of bonds creating a lucrative investment market, so lucrative that it appeared that everyone could participate in it, creating a (once again) debt-fueled bubble that led to the great depression. As a result of that, Keynesian policies were implemented, which favored savings over debt for workers, as savings in the bank could be turned into investment. This, together with the creation of a new order of national capitalism after WWII, with the Bretton Woods system which pegged all currencies to the dollar, which itself Was still backed by gold.
By the 1970s this system was no longer sustainable as an economy fueled by investment rather than debt meant that workers got a return on their investment, both in interest and increased wages, thanks to empowered unions (see pressures of communism, labor struggle, AFL-CIO) and the savings themselves, which made people less dependent on the capitalist. However, as wages grew while output did not, this created crises of its own, as capitalists were no longer able to create as much profit for investors. This led to a debasement of the currency, to deflate the value of money that people held, which eventually, combined with the economic cycles turned to 'stagflation.'
This insolvency was only resolved around 1979 when the Fed raised interest rates to the rate of inflation, based on recommendations of one Milton Friedman. As a result, inflation stopped but the economy collapsed completely. The only way to resolve this was through the systematic destruction of labor rights as well as deregulation of anti-monopoly measures which allowed capital to become much more centralized and able to export capital to other countries where labor was much cheaper and currencies were no longer tied to the dollar, because the latter was no longer tied to gold, meaning that those countries' exports were even cheaper. This by itself created a crisis of its own, as American workers, whose incomes fell and who were moving more and more into the service sector were no longer able to buy the goods they did not make. This was however resolved by an expansion of credit that allowed everyone to buy more things, as savings that would otherwise have to be rebuilt after years of inflation, unfriendly financial regulation limiting return rates, and unemployment no longer mattered. This was also the beginning of the mortgage boom, fueled by the collapse of the Savings and Loan associations which were the main way people bought homes before, saving up for the 50% down payment and taking the rest out on loan, and cheap gasoline that allowed homes to be built further outwards. *
As unsustainable as this system was, it was further supported by financial deregulations in 1999 which allowed banks and investment funds to combine functions, becoming investment banks that could use their profits for investment in the stock market, the opposite of savings basically where people invested money that was used to loan out to businesses.
However, this did not help either, especially with the dot-com boom and bust where excessive IPOs or stock market entries where investors put a lot of money into new companies that were supposed to create a lot of profit out of nothing but didn't lost everyone a lot of money and led to a recession by 2001.
This is where the Fed comes in. Created in 1913 to stop insolvency crises of the type mentioned at the top, where debtors turned insolvent, causing everyone who had savings in a bank (or bank notes) to gave their banknotes become worthless after the bank went insolvent (bankrupt), creating a never-ending cycle of destruction. The Fed is basically the banks' bank, loaning money to banks at its own interest rates, the money backed by treasury securities that the govt paid interest for through the money that the banks paid back to the Fed. As a result, banks no longer went insolent as much and there were measures like overnight loans to prevent this.*
This did not have much of an effect on the economy, besides the slow debasement of the gold standard until it was completed by 1971. This is where the Fed became important though so listen up. In 2001, as the US was in a recession, planes hit the Twin Towers, the Pentagon, and a field in Pennsylvania, flown by Islamist hijackers. Knowing that this would lead to war, which by Keynesian philosophy was an economy booster, the Fed lowered interest rates to 2% and kept them there for about 5 years. At the same time, knowing that the service-oriented economy was fueled almost entirely by consumer spending, the government, in the face of president George W. Bush told Americans to spend more money as it is patriotic. Combined with low interest rates, this created an economic boom, which the Bush Administration tried to capitalize on in the 2004 elections with its Ownership Society slogan, where everyone would have a mortgaged home and stocks in companies through retirement funds (created after the collapse of unions, as companies stopped paying pensions and having retirement plans).*
However, this whole dream started collapsing in 2006 when the Fed, noticing that the low interest rates were leading to a credit bubble, raised interest rates. As a result, loan rates also went up, causing many with adjustable rate mortgages to experience significantly higher payments. Knowing that this would otherwise mean having to lower rates, banks began the fraudulent practice of foreclosure, where homes with lenders who seemed less able to repay (and in some cases 'subprime' and unable to repay) were repossessed. The banks themselves, however had nothing to lose from this, as the loans themselves were owned by investors and funds in the stock market, called mortgage-backed securities, with the banks only taking in the interest. However, the stock market suffered from this, and investment banks began collapsing as they were no longer able to loan money to mortgage institutions to create more mortgage-backed securities, leasing to them being bailed out and the situation that we have today. This is why the Fed is attacked pretty much.
Sorry that I had to pretty much tell you the whole history of the financial aspect of capitalism from Marx's day today, but that's the only real way to explain it without writing a long-ass book.
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