From Marx to Goldman Sachs: The Fictions of Fictitious Capital

Michael Hudson
Classical economists developed the labor theory of value to isolate economic rent,
which they defined as the excess of market price and income over the socially
necessary cost of production (value ultimately reducible to the cost of labor). A free
market was one free of such unearned! income " a market in which prices reflected
actual necessary costs of production or, in the case of public services and basic
infrastructure, would be subsidi#ed in order to make economies more competitive.
Most reformers accordin$ly ur$ed " and expected " land, monopolies and bankin$
privile$es to be nationali#ed, or at least to have their free%lunch income taxed away.
&n keepin$ with his materialist view of history, Marx expected bankin$ to be
subordinated to the needs of industrial capitalism. '(uity investment " followed by
public ownership of the means of production under socialism " seemed likely to
replace the interest%extractin$ usury capital! inherited from anti(uity and feudal
times) debts mountin$ up at compound interest in excess of the means to pay,
culminatin$ in crises marked by bank runs and property foreclosures.
*ut as matters have turned out, the rentier interests mounted a Counter%
'nli$htenment to undermine the reforms that promised to liberate society from
special privile$e.
&nstead of promotin$ capital investment in an alliance with industry and $overnment,
financial planners have sponsored a travesty of free markets. +eali#in$ that income
not taxed is free to be capitali#ed, bou$ht and sold on credit, and paid out as interest,
bankers have formed an alliance between finance, insurance and real estate (,&+')
to free land rent and monopoly rent (as well as debt%levera$ed capital! $ains) from
taxation.
-he result is that today.s economy is burdened with property and financial claims that
Marx and other critics deemed fictitious! " a proliferation of financial overhead in
the form of interest and dividends, fees and commissions, exorbitant mana$ement
salaries, bonuses and stock options, and capital! $ains (mainly debt%levera$ed
land%price $ains). And to cap matters, new financial modes of exploitin$ labor have
been innovated, headed by pension%fund capitalism and privati#ation of /ocial
/ecurity. As economic plannin$ has passed from $overnment to the financial sector,
the alternative to public price re$ulation and pro$ressive taxation is debt peona$e.
In his draft notes on Interest-Bearing Capital and Commercial Capital in Relation to
Industrial Capital for what became Vol. III of Capital and Part III of Theories of
urplus Value! "ar# wrote optimisticall$ about how industrial capitalism would
moderni%e ban&ing and financial s$stems. Its historical tas&! he belie'ed! was to
rescue societ$ from usurious mone$ lending and asset stripping! replacing the age-old
parasitic tendencies of ban&ing b$ steering credit to finance producti'e in'estment.
The commercial and interest-bearing forms of capital are older than industrial capital!
but ( )i*n the course of its e'olution! industrial capital must therefore sub+ugate these
forms and transform them into deri'ed or special functions of itself. It encounters
these older forms in the epoch of its formation and de'elopment. It encounters them
as antecedents ( not as forms of its own life-process. ( ,here capitalist production
has de'eloped all its manifold forms and has become the dominant mode of
production! interest-bearing capital is dominated b$ industrial capital! and commercial
capital becomes merel$ a form of industrial capital! deri'ed from the circulation
process. )-*
.rom anti/uit$ through medie'al times! in'estment was self-financed 0 and hence
was underta&en mainl$ b$ large public institutions 1temples and palaces2 and b$ the
well to do. It was the great achie'ement of industrial capitalism to mobili%e credit to
finance production! subordinating hitherto usurious interest-bearing capital to the
conditions and re/uirements of the capitalist mode of production. )3* ,hat
distinguishes the interest-bearing capital! so far as it is an essential element of the
capitalist mode of production! from usurer4s capital! "ar# wrote! is the altered
conditions under which it operates! and conse/uentl$ the totall$ changed character of
the borrower ( )5*
"ar# e#pected the Industrial Re'olution4s upsweep to be strong enough to replace
this s$stem with one of producti'e credit! $et he certainl$ had no blind spot for
financial parasitism. )6* "one$-lending long preceded industrial capital and was
e#ternal to it! he e#plained! e#isting in a s$mbiosis much li&e that between a parasite
and its host. Both usur$ and commerce e#ploit the 'arious modes of production! he
wrote. The$ do not create it! but attac& it from the outside. )7*
In contrast to industrial capital 1tangible means of production2! ban& loans! stoc&s and
bonds are legal claims on wealth. These financial claims do not create the surplus
directl$! but are li&e sponges absorbing the income and propert$ of debtors 0 and
e#propriate this propert$ when debtors 1including go'ernments2 cannot pa$. 8sur$
centralises mone$ wealth! "ar# elaborated. It does not alter the mode of
production! but attaches itself to it as a parasite and ma&es it miserable. It suc&s its
blood! &ills its ner'e! and compels reproduction to proceed under e'en more
disheartening conditions. ( usurer4s capital does not confront the laborer as industrial
capital! but impo'erishes this mode of production! paral$%es the producti'e forces
instead of de'eloping them. )9*
:ngels noted that "ar# would ha'e emphasi%ed how finance remained largel$
predator$ had he li'ed to see .rance4s econd :mpire and its world-redeeming
credit-phantasies e#plode in a swindle of a magnitude ne'er witnessed before. );*
But more than an$ other writer of his centur$! "ar# described how periodic financial
crises were caused b$ the tendenc$ of debts to grow e#ponentiall$! without regard for
growth in producti'e powers. <is notes pro'ide a compendium of writers who
e#plained how impossible it was in practice to reali%e the purel$ mathematical magic
of compound interest0 interest-bearing debts in the form of bonds! mortgages and
commercial paper growing independentl$ of the econom$4s abilit$ to pa$. )=*
This self-e#panding growth of financial claims! "ar# wrote! consists of imaginar$
and fictitious capital inasmuch as it cannot be reali%ed o'er time. ,hen fictitious
financial gains are obliged to confront the impossibilit$ of pa$ing off the e#ponential
growth in debt claims 0 that is! when scheduled debt ser'ice e#ceeds the abilit$ to pa$
0 brea&s in the chain of pa$ments cause crises. The greater portion of the ban&ing
capital is! therefore! purel$ fictitious and consists of certificates of indebtedness 1bills
of e#change2! go'ernment securities 1which represent spent capital2! and stoc&s
1claims on future $ields of production2. )>?*
@ point arri'es at which ban&ers and in'estors recogni%e that no societ$4s producti'e
powers can long support the growth of interest-bearing debt at compound rates.
eeing that the pretense must end! the$ call in their loans and foreclose on the
propert$ of debtors! forcing the sale of propert$ under crisis conditions as the
financial s$stem collapses in a con'ulsion of ban&ruptc$.
To illustrate the ine#orable force of usur$ capital unchec&ed! "ar# po&ed fun at
Richard Price4s calculations about the magical power of compound interest! noting
that a penn$ sa'ed at the birth of Aesus at 6B would ha'e amounted b$ Price4s da$ to
a solid sphere of gold e#tending from the sun out to the planet Aupiter. )>>* The good
Price was simpl$ da%%led b$ the enormous /uantities resulting from geometrical
progression of numbers. ( he regards capital as a self-acting thing! without an$
regard to the conditions of reproduction of labour! as a mere self-increasing number!
sub+ect to the growth formula urplus C Capital 1> D interest rate2n! with n
representing the number of $ears mone$ is left to accrue interest.
The e#ponential all-de'ouring usur$ assimilates all the surplus 'alue with the
e#ception of the share claimed b$ the state. )>-* That at least was the hope of the
financial classE to capitali%e the entire surplus into debt ser'ice. 8nder the form of
interest the whole of the surplus o'er the necessar$ means of subsistence 1the amount
of what becomes wages later on2 of the producers ma$ here be de'oured b$ usur$
1this assumes later the form of profit and ground rent2.
@lthough high finance ob'iousl$ has been shaped b$ the Industrial Re'olution4s
legac$ of corporate finance! institutional in'estment such as pension fund sa'ing as
part of the industrial wage contract! mutual funds! and globali%ation along
financiali%ed lines! financial managers ha'e ta&en o'er industrial companies to
create what <$man "ins&$ has called mone$ manager capitalism. )>3*
The last few decades ha'e seen the ban&ing and financial sector e'ol'e be$ond what
"ar# or an$ other >=th-centur$ writer imagined. Corporate raiding! financial fraud!
credit default swaps and other deri'ati'es ha'e led to de-industriali%ation and
enormous ta#pa$er bailouts. @nd in the political sphere! finance has become the great
defender of deregulating monopolies and freeing land rent and asset-price gains
from ta#ation! translating its economic power and campaign contributions into the
political power to capture control of public financial regulation. The /uestion that
needs to be raised toda$ is therefore which d$namic will emerge dominantE that of
industrial capital as "ar# e#pected! or finance capitalF
Marxs optimism that industrial capital would subordinate finance capital to its
own needs
Gespite "ar#4s e#planation of how parasitic finance capital was in its manifestation
as usur$ capital! he belie'ed that its role as economic organi%er would pa'e the wa$
for a socialist organi%ation of the economic surplus. Industrial capital would
subordinate finance capital to ser'e its needs. Ho obser'er of his da$ was so
pessimistic as to e#pect finance capitalism to o'erpower and dismantle industrial
capitalism! engulfing economies in parasitic credit such as the world is seeing toda$.
Belie'ing that e'er$ mode of production was shaped b$ the technological! political
and social needs of economies to ad'ance! "ar# e#pected ban&ing and high finance to
become subordinate to these d$namics! with go'ernments accommodating forward
planning and long-term in'estment! not asset-stripping.
There is no doubt! he wrote! that the credit s$stem will ser'e as a powerful le'er
during the transition from the capitalist mode of production to the production b$
means of associated laborI but onl$ as one element in connection with other great
organic re'olutions of the mode of production itself. )>5* Jo'ernments for their part
would become socialist! not be ta&en o'er b$ the financial sector4s lobb$ists and
pro#ies.
Giscussing the >;69 financial crisis! "ar# showed how unthin&able an$thing li&e the
-??;-?= Bush-Kbama bailout of financial speculators appeared in his da$. The entire
artificial s$stem of forced e#pansion of the reproduction process cannot! of course! be
remedied b$ ha'ing some ban&! li&e the Ban& of :ngland! gi'e to all the swindlers the
deficient capital b$ means of its paper and ha'ing it bu$ up all the depreciated
commodities at their old nominal 'alues. )>6* "ar# wrote this reductio ad absurdum
not dreaming that it would come true in autumn -??; as the 8.. Treasur$ paid off all
of @.I.J.4s gambles and other counterpart$ casino capitalist losses at ta#pa$er
e#pense! followed b$ the .ederal Reser'e bu$ing +un& mortgage pac&ages at par.
"ar# e#pected economies to act in their long-term interest to increase the means of
production and a'oid o'er-e#ploitation! under-consumption and debt deflation. Let
throughout his notes for what became Capital and Theories of urplus Value! he
described how finance capital too& on a life of its own. Industrial capital ma&es
profits b$ spending mone$ to emplo$ labor to produce commodities to sell at a
mar&up! a process he summari%ed b$ the formula "-C-"4. "one$ 1"2 is in'ested to
produce commodities 1C2 that sell for $et more mone$ 1"42. But usur$ capital see&s
to ma&e mone$ in sterile wa$s! characteri%ed b$ the disembodied 1"-"42.
Jrowing independentl$ from tangible production! financial claims for pa$ment
represent a financial o'erhead that eats into industrial profit and cash flow. Toda$4s
financial engineering aims not at industrial engineering to increase output or cut the
costs of production! but at the disembodied "-"4 0 ma&ing mone$ from mone$ itself
in a sterile %ero-sum transfer pa$ment.
@s matters ha'e turned out! the e#pansion of finance capital has ta&en the form
mainl$ of what "ar# called usur$ capitalE mortgage lending! personal and credit
card loans! go'ernment bond financing for war deficits! and debt-le'eraged gambling.
The de'elopment of such credit has added new terms to modern languageE
financiali%ation! debt le'eraging 1or gearing as the$ sa$ in Britain2! corporate
raiding! shareholder acti'ists! +un& bonds! go'ernment bailouts and sociali%ation of
ris&! 0 as well as the +un& economics that rationali%es debt-le'eraged asset-price
inflation as wealth creation @lan Jreenspan-st$le.
Fictitious Capital
Ban&ers and other creditors produce interest-bearing debt. That is their commodit$ as
it appear)s* in the e$es of the ban&er! "ar# wrote. Mittle labor is in'ol'ed. Calling
mone$ lent out at interest an imaginar$ or 'oid form of capital! )>7* "ar#
characteri%ed high finance as based on fictitious claims for pa$ment in the first
place because it consists not of the means of production! but of bonds! mortgages!
ban& loans and other claims on the means of production. Instead of consisting of the
tangible means of production on the asset side of the balance sheet! financial
securities and ban& loans are claims on output! appearing on the liabilities side. o
instead of creating 'alue! ban& credit absorbs 'alue produced outside of the rentier
.IR: sector.
The capital of the national debt appears as a minus! and interest-bearing capital
generall$ is the mother of all cra%$ forms ( )>9* ,hat is insane! he e#plained! is
that instead of e#plaining the self-e#pansion of capital out of labor-power! the matter
is re'ersed and the producti'it$ of labor-power itself is this m$stic thing! interest-
bearing capital. )>;*
.inanciali%ed wealth represents the capitali%ation of income flows. If a borrower earns
6? pounds sterling a $ear! and the interest rate is 6B! this earning power is deemed to
be worth LNI! that is! income 1L2 discounted at the going rate of interest 1i2E >!???
pounds. @ lower interest rate will increase the capitali%ation rate 0 the amount of debt
that a gi'en flow of income can carr$. The forming of a fictitious capital is called
capitalising. :'er$ periodicall$ repeated income is capitalised b$ calculating it on the
a'erage rate of interest! as an income which would be realised b$ a capital at this rate
of interest. Thus! "ar# concludedE If the rate of interest falls from 6B to -OB! then
the same securit$ will represent a capital of -??? pounds sterling. Its 'alue is alwa$s
but its capitalised income! that is! its income calculated on a fictitious capital of so
man$ pounds sterling at the pre'ailing rate of interest.
.inance capital is fictitious in the second place because its demands for pa$ment
cannot be met as econom$-wide sa'ings and debts mount up e#ponentiall$. The
magic of compound interest di'erts income awa$ from being spent on goods or
ser'ices! capital e/uipment or ta#es. In all countries of capitalist production! "ar#
wrote! the accumulation of mone$-capital signifies to a large e#tent nothing else but
an accumulation of such claims on production! an accumulation of the mar&et-price!
the illusor$ capital-'alue! of these claims. Ban&s and in'estors hold these
certificates of indebtedness 1bills of e#change2! go'ernment securities 1which
represent spent capital2! and stoc&s 1claims on future $ields of production2 whose
face 'alue is purel$ fictitious. )>=* This means that the interest pa$ments that sa'ers
hope to recei'e cannot be paid in practice! because the$ are based on fiction 0 +un&
economics and +un& accounting! which are the logical complements to fictitious
capital.
.inance capital sees an$ flow of re'enue as economic pre$ 0 industrial profit! ta#
re'enue! and disposable personal income o'er and abo'e basic needs. The result is not
unli&e the primiti'e accumulation b$ armed con/uest 0 land rent paid initiall$ to
warrior aristocracies. @nd much as the tribute ta&en b$ the militar$ 'ictors is limited
onl$ b$ the defeated population4s abilit$ to produce an economic surplus! so the
accrual of interest on sa'ings and ban& loans is constrained onl$ b$ the abilit$ of
borrowers to pa$ the mounting interest charges on these debts.
The problem is that the financial s$stem! li&e militar$ 'ictors from @ss$ria and Rome
in anti/uit$ down to those of toda$! destro$s the host econom$4s abilit$ to pa$.
The falling rate of profit (rising depreciation element of ebitda) as distinct from
financial crises
.ocusing on profit as reflecting the industrial e#ploitation of wage labor! man$
students of "ar#ism ha'e read onl$ Vol. I of Capital. "an$ ma&e an unwarranted
leap from his anal$sis of wage labor to assume that he was an underconsumptionist.
The capitalist4s desire to pa$ emplo$ees as little as possible 1so as to ma#imi%e the
margin the$ would ma&e b$ selling their products at a higher price2 is ta&en as a
pro#$ for the financial d$namics causing crises! discussed in Vol. III of Capital.
"ar#4s anal$sis did note the problem of labor4s inabilit$ to bu$ what it produces.
Contradiction in the capitalist mode of production! he wroteE the labourers as
bu$ers of commodities are important for the mar&et. But as sellers of their own
commodit$ 0 labour-power 0 capitalist societ$ tends to &eep them down to the
minimum price. )-?*
To a'oid a glut on the mar&et! wor&ers must bu$ what the$ produce 1along with
industrialists bu$ing machiner$ and other inputs2. <enr$ .ord /uipped that he paid his
wor&ers the then-high wage of P6 per da$ so that the$ would ha'e enough to bu$ the
cars the$ produced. But most emplo$ers oppose higher wages! pa$ing as little as
possible and thus dr$ing up the mar&et for their products.
This was the ma+or form of class warfare in "ar#4s da$! but it was not the cause of
financial crises! which "ar# saw as being caused b$ internal contradictions on the
part of finance capital itself. Interest charges on rising debt le'els absorb business and
personal income! lea'ing less a'ailable to spend on goods and ser'ices. :conomies
shrin& and profits fall! deterring new in'estment in plant and e/uipment. .inancial
paper wealth thus becomes increasingl$ antithetical to industrial capital! to the
e#tent that it ta&es the predator$ form of usur$-capital 0 or its &indred outgrowth!
financial speculation 0 rather than funding tangible capital formation.
In de'eloping his model to anal$%e the flows of income and output among labor!
capital and the rest of the econom$! "ar#4s starting point was the first great e#ample
of national income accountingE .rancois Quesna$4s Tableau Rconomi/ue 1>96;2
describing the circulation of pa$ments and output in .rance4s agricultural sector!
labor! industr$ and the go'ernment. @s a surgeon to the &ing! Quesna$ saw this
circulation of income as analogous to that of blood within the human bod$. <owe'er!
his Tableau neglected the need to replenish stoc& 0 the seed and other output that
needed to be set aside to plant the ne#t season4s crop. "ar# noted that much as rural
culti'ators needed to defra$ the cost of replenishing their seed-corn! industrialists
needed to reco'er the cost of their capital in'estment in plant! e/uipment and &indred
outla$s! in addition to recei'ing profits.
This reco'er$ of capital outla$s is called depreciation and amorti%ation. "ar#
e#pected it to rise relati'e to profits! in order to reimburse in'estment in capital
e/uipment 1and b$ logical e#tension! research and de'elopment2. This is what he
meant b$ the falling rate of profit. Aust as bondholders reco'er their original capital
principal 1a return of financial capital2 /uite apart from the interest! so capitalists must
reco'er the cost of their original in'estment.
"ar# e#pected technolog$ to become more capital-intensi'e in order to be more
producti'e. <is falling rate of profit referred to the rising depreciation return of
capital to reflect this reco'er$ of costs. Plant and e/uipment needed to be renewed as
a result of wearing out or becoming technologicall$ obsolete and hence needing to be
scrapped e'en when it remains ph$sicall$ operati'e. @s Aoseph chumpeter
emphasi%ed in his post-"ar#ist theor$ of inno'ation! technological progress obliges
industrialists either to moderni%e or be undersold b$ ri'als.
This rising capital-intensi'eness is not a cause of crises. @s "ar# argued in Boo& II of
Theories of urplus Value against Ricardo4s 'iews on the introduction of machiner$! it
creates a demand for more capital spending and hence emplo$s more labor! a'erting
an underconsumption crisis. <owe'er! financial crises still occur 1"ar# pointed to
ele'en-$ear inter'als in his da$2 as a result of the interest-bearing sa'ings of the
wealth$ lent out to go'ernment! business and 1mainl$ since "ar#4s da$2 real estate
and indi'iduals! erupting when debtors are unable to pa$ this self-e#panding financial
o'erhead of anti-wealth.
Ho concept has confused students of "ar#ism more than this seemingl$
straightforward idea. )->* @t issue is the shifting composition of cash flowE earnings
before interest! depreciation and amorti%ation 1ebitda2. To the e#tent that depreciation
and amorti%ation rise 1or as industr$ becomes more highl$ debt le'eraged2! less profit
is reported to the ta# authorities and recorded in the Hational Income and Product
@ccounts. "ar#ists who attribute a crisis of capitalism to declines in reported rates of
profit o'erloo& the fact that the real estate! mining and insurance sectors wring their
hands all the wa$ to the ban& with ta#-deductible cash flow counted as depreciation.
ow real estate! mining and debt"le#eraged business exemplif$ a pseudo"falling
rate of profit
The largest sector in toda$4s economies remains real estate. Mand is the single largest
asset! and buildings report most depreciation. To be sure! this is a tra'est$ of
economic realit$ inasmuch as it reflects a distorted set of ta# laws that permit absentee
in'estors to depreciate buildings again and again! as if the$ wear out and lose 'alue
through lac& of up&eep 1despite landlords being legall$ re/uired to maintain rental
properties intact2! or b$ obsolescence 1e'en as construction standards cheapen2. These
depreciation writeoffs occur at rising prices each time a propert$ is sold at a capital
gain 1most of which reflects the land4s rising site 'alue2.
This pretense 0 along with the ta# deductibilit$ of interest 0 has enabled real estate
in'estors to declare 'irtuall$ no ta#able income for more than a half centur$ since
,orld ,ar II. It is as if a bond- or stoc&-holder could a'oid pa$ing income ta# on
interest and di'idends b$ getting a ta# credit as if the bond or stoc& were becoming
worthless 0 and for each new bu$er to repeat this charge-off! as if the asset loses 'alue
with each sale e'en as its mar&et price risesS To cap matters! capital gains 1some ;?
percent of which t$picall$ occur in the real estate sector2 are ta#ed at onl$ a fraction
of the rate le'ied on earned income 1wages and profits2! and are not ta#ed if the$
are spent on bu$ing $et more propert$.
These ta# dodges benefit propert$ owners 0 and behind them! ban&ers! because
whate'er the ta# collector refrains from ta&ing is free to be paid as interest for $et
larger mortgage loans. This ma&es financial interests the ultimate beneficiaries of
distorted ta# accounting. uch ta# fa'oritism for the .IR: sector is fictitious ta#
a'oidance! capitali%ed into capital gains. This ob'iousl$ is not what "ar# meant b$
the falling rate of profit. In his da$ there was no income ta# to inspire such +un&
accounting.
The aim of permitting buildings to be depreciated again and again is not to reflect
economic realit$ but to sa'e real estate in'estors from ha'ing to declare ta#able
earnings 1profit2. @nd than&s to the notorious depletion allowance! the oil and
mining sectors li&ewise operated free of income ta#ation for man$ decades. Insurance
and financial companies are permitted to treat the buildup of li/uid reser'es as an
e#pense against h$pothetical losses. The function of these gi'eawa$s is to shift the
fiscal burden off land and minerals! oil and gas! real estate and debt-le'eraged
industr$.
,hen an ostensibl$ empirical statistical map 1or the economic theor$ behind it2
di'erges from realit$! and a ta# polic$ di'erges from broad social ob+ecti'es! one
in'ariabl$ finds a special interest at wor& subsidi%ing it. In this case the culprit is high
finance as unta#ed propert$ re'enue is free to be capitali%ed into larger debts. @nd as
it has regressed to what "ar# described as usur$ capital! it has allied itself with real
estate and rent-e#tracting monopolies. Instead of nationali%ing them or ta#ing their
economic rent and capital gains! toda$4s ta# s$stem fa'ors rentiers.
The financial and industrial antipath$ to post"feudal rent"see%ers
The financial sector4s alliance with manufacturing rather than real estate in Ga'id
Ricardo4s da$ is rooted in medie'al :uropean ban&ing as it emerged at the time of the
Crusades. Christian sanctions against usur$ were bro&en down b$ a combination of
the prestige of the ma+or creditors 0 Church orders! followed b$ ban&ers tied to the
papac$ 0 and that of their leading borrowersE &ings! to pa$ Peter4s Pence and other
tribute to Rome! and increasingl$ to wage war.
@s creditors! the Templars and <ospitallers pioneered the transfer of funds across
:urope. He#t to ro$al borrowing the ma+or mar&et for credit was foreign trade! which
flowered with the re'i'al of economic acti'it$ fueled largel$ b$ the gold and sil'er
looted from B$%antium in >-?5. This business prompted the Churchmen to define a
fair price for ban&ers to charge for the international transfer of funds 0 agio. This
became the ma+or loophole in which mone$ lending could occur! most notoriousl$
in a fictitious international arrangement 'ia the dr$ e#change. These financial
practices 0 war lending to &ings for spending abroad! and mone$ changing as
commercial acti'it$ re'i'ed 0 made ban&ing cosmopolitan in outloo&.
The Hapoleonic ,ars 1>9=;->;>62 impeded trade! and hence its import and e#port
financing. .rance4s na'al bloc&ade had the effect of a protecti'e tariff wall. Britain4s
landlords increased crop production! albeit at a rising cost. Con'ersel$! other countries
built up their own manufacturing. Resumption of foreign trade after the Treat$ of
Jhent restored peace in >;>6 caused economic crises for these newl$ 'ested interests.
Imports threatened to undercut the prices that British landlords recei'ed! reducing
their land rents! prompting them to press for agricultural tariffs 0 the Corn Maws.
"eanwhile! British manufactures undersold foreign production! prompting @merican
and .rench industrialists to press for tariff protection. Britain! the 8nited tates!
.rance and Jerman$ thus e#perienced a fight between free traders and protectionists.
<a'ing grown wealth$ during Britain4s rise as a manufacturing power! its ban&ers
loo&ed forward to a resumption of trade financing! with Britain ser'ing as wor&shop
of the world 0 and ban&er to it. Ga'id Ricardo! the leading ad'ocate for Britain4s
ban&ers! lobbied for free trade and an international speciali%ation of production! not
national self-reliance. The resulting tariff fight culminated in >;57 with repeal of the
Corn Maws. 8nless Britain imported low-priced crops! Ricardo argued! rising
domestic food prices as a result of diminishing returns on Britain4s limited soil area
would pre'ent British industr$ from e#porting competiti'el$ 0 and hence! would not
be able to e#pand trade financing from British ban&s. )--*
Gebt appeared nowhere in Ricardo4s labor theor$ of 'alue. <e was silent when it
came to the original anal$sis of cost 'alue 0 the medie'al Churchmen4s concept of
Aust Price with regard to agio charges. @dam mith! "alach$ Postlethwa$t and other
writers had focused on the e#tent to which the ta#es le'ied to pa$ interest on the
national debt increased the cost of li'ing. Aames teuart had pointed to the e#change
rate problems caused b$ sending mone$ abroad for debt ser'ice 1mainl$ to the Gutch2
or militar$ spending and subsidies. Ricardo would ha'e none of this. <e insisted
before Parliament that ban&ing ne'er could cause an economic problemS Capital
transfers from militar$ spending! debt ser'ice and international in'estment would be
automaticall$ self-financing.
This was the genesis of toda$4s free mar&et deregulator$ theor$. Ignoring the debt
dimension! Ricardo became the doctrinal ancestor of "ilton .riedman4s Chicago
chool of monetarists. The difference is that whereas the$ insist that there is no such
thing as a free lunch! he defined economic rent as unearned income. Ricardian
socialists e#tended the concept of economic rent to a full-fledged attac& on
landlordism. The Ricardian +ournalist Aames "ill ad'ocated Britain4s original
Gomesda$ Boo& principle that groundrent should be the ta# base. <is son! Aohn tuart
"ill! became a leading ad'ocate of nationali%ing the economic rent that landlords
made in their sleep and the unearned increment of rising land prices.
The dri'e to brea& the power of landed aristocracies in Britain! .rance and other
countries became the ma+or political fight from the centur$ spanning >;>6 and ,orld
,ar I. It was basicall$ a class struggle between capital and landowners. The demand
that rent should be handed o'er to the state to ser'e in place of ta#es! "ar#
e#plained! is a fran& e#pression of the hatred the industrial capitalist bears towards
the landed proprietor! who seems to him a useless thing! an e#crescence upon the
general bod$ of bourgeois production. )-3* B$ ta#ing the land4s rental income and
that of subsoil minerals pro'ided freel$ b$ nature! industr$ could free itself from the
sales and e#cise ta#es that raised the cost of li'ing and doing business.
ince the >3th centur$ the labor theor$ of 'alue had been refined as a tool to isolate
the elements of empt$ pricing that had no counterpart cost of production. Rent and
interest were a 'estiges of medie'al pri'ilege from which industrial capitalism sought
to purif$ itself. Its idea of free mar&ets was to liberate societ$ from the o'erhead of
groundrent! monopol$ rent and interest! bringing land and finance into the public
domain 0 sociali%e them b$ transforming ban&ing and finance capital to ser'e the
needs of industrial capitalism.
"ar# e#pected industrial capitalism to pa'e the wa$ for socialism b$ freeing :urope
1and in time! its colonies and the continents of @sia! @frica and Matin @merica2 from
the carr$-o'er of land rent imposed originall$ b$ militar$ force! and from financial
usur$ capital. The tacit assumption was that industrial financial s$stems would pla$ as
progressi'e a role in these regions as the$ were e#pected to do in the core. The
Communist "anifesto credited the bourgeois economics of land ta#ers and &indred
reformers in .rance and Britain with see&ing to mo'e societ$ be$ond the feudal mode
of production.
<owe'er! it critici%ed :urope4s re'olutions of >;5; for stopping short of helping
labor. The fight to ta# the land4s rent 0 as the Ph$siocrats had sought to do with their
ingle Ta# 1M4ImpTt 8ni/ue2 and as "ill! Cherbulie%! <ilditch! Proudhon and other
reformers ad'ocated 0 was basicall$ a fight b$ industr$ 1and its financial bac&ers2 to
minimi%e the cost of feeding labor! not to raise wages and li'ing standards or impro'e
wor&ing conditions. "ost reformers left pri'ate propert$ in place! limiting their aims
to freeing mar&ets from the ra&e-off of economic rent b$ landlords and monopol$
pri'ileges! and onl$ secondaril$ from the interest charged b$ ban&ers and usurers.
"ar#ists accordingl$ critici%ed utopian socialists and anti-socialist indi'idualists
such as <enr$ Jeorge for dealing onl$ with the land issue or naU'e monetar$ reforms
without addressing labor4s fight to impro'e its wor&ing conditions and ultimatel$ to
free itself from pri'ate propert$ in the means of production. @rguing against followers
of Jeorge! Mouis 8ntermann noted that in Jerman$! .erdinand Massalle found in
Ricardian economics an implicitl$ socialist program! but ne'er indulged in an$
illusions as to the efficac$ of that ingle Ta# idea for the emancipation of the wor&ing
class. )-5* This re/uired a go'ernment that would pla$ an acti'e role promoting
labor4s interests 'is-V-'is industrial capital! not onl$ through regulator$ reforms but
b$ outright state ownership of the means of production under wor&ing-class control.
The argument o#er how producti#e an industrial role high financial would pla$
The >;>6->=>5 centur$ was relati'el$ free of war. @merica4s Ci'il ,ar was the most
de'astating. But instead of borrowing from ban&ers! the Horth issued its own
greenbac& currenc$. This success prompted ban&ers throughout the world to redouble
their propaganda for hard mone$! as if ban& credit was inherentl$ sounder than
public mone$ creation. ubse/uent de'elopment does not support this claim.
The .ranco-Prussian ,ar saddled .rance with a reparations debt that it was able to
finance without causing an$ great disturbance. :conomists attributed the decline of
interest rates o'er time to the world becoming more secure. Public spending was
increasingl$ for infrastructure to support industrial progress. There was hea'$ arms
spending! to be sure! especiall$ on na'ies! but it aimed largel$ to build up industr$ in
a three-wa$ alliance between industr$! go'ernment and high finance. Jo'ernments
and the large ban&s were emerging as national planners 'ia their allocation of credit
and public spending.
The most producti'e industrial financing practice emerging on the :uropean
continent! especiall$ in Jerman$ where ban&ing de'eloped the closest lin&ages with
the go'ernment and hea'$ industr$. The relati'e absence of large fortunes made a
'irtue of necessit$. Jerman$4s lag in industrial de'elopment obliged its ban&s and
go'ernment agencies to ta&e a long-term 'iew based on building up strength o'er
time.
Rather than following British and Gutch ban&s b$ ma&ing straight interest-bearing
loans against collateral alread$ in place! the Reichsban& and other large ban&s
engaged in a broad range of acti'ities 1mi#ed ban&ing2! including e/uit$ cross-
holdings with their ma+or customers. 1@fter ,orld ,ar II! Aapan4s cash-star'ed
econom$ and widespread destruction li&ewise led its ban&s to establish close debt-
e/uit$ relationships with their customers in order to pro'ide sufficient li/uidit$ to
build for the future.2
Jerman$4s rapid 'ictories o'er .rance and Belgium after war bro&e out in >=>5 were
widel$ 'iewed as reflecting the superior efficienc$ of its ban&ing s$stem. To some
obser'ers the Jreat ,ar appeared as a struggle between ri'al forms of financial
organi%ation! to decide not onl$ who would rule :urope but also whether the
continent would ha'e laisse% faire or a more state-socialist econom$. I
n >=>6! shortl$ after fighting bro&e out! the Jerman Christian ocialist priest-
politician .riedrich Haumann summari%ed the continental ban&ing philosoph$ in
"itteleuropa. In :ngland! <erbert .o#well drew on Haumann4s arguments in two
essa$s published in the :conomic Aournal in eptember and Gecember >=>9! )-6*
/uoting with appro'al Haumann4s contention that the old indi'idualistic capitalism!
of what he calls the :nglish t$pe! is gi'ing wa$ to the new! more impersonal! group
formI to the discipline! scientific capitalism he claims as Jerman.
In the emerging tripartite integration of industr$! ban&ing and go'ernment! finance
was undoubtedl$ the main cause of the success of modern Jerman enterprise.
,hat is stri&ing is how unli&el$ the prospect of corrosi'e and unproducti'e debt
appeared a centur$ ago. To be sure! Tur&e$ and :g$pt were ruined b$ foreign debt!
and massi'e fraud and insider dealing occurred in ambitious pro+ects such as the
Panama and ue% Canals. But the logic of far-reaching financial reform was
formulated with e'angelical fer'or! most notabl$ in .rance. Count Claude-<enri de
aint-imon4s Gu $stWme Industriel 1>;->2 inspired an ideolog$ based on the
perception that successful industriali%ation would re/uire a shift awa$ from interest-
bearing debt to e/uit$ funding. Ban&s would be organi%ed much li&e mutual funds.
Jlorif$ing ban&ers as the future organi%ers of industr$! the aint-imonians saw the
Industrial Re'olution as introducing the capitalist tra'ailleur! a financial engineer
+udging where credit could best be applied. )-7* Prominent aint-imonians included
the social theorist @uguste Comte! the economist "ichel Che'alier! the socialist
Pierre Merou#! and the engineer .erdinand Messeps whose plans for canals elaborated
ideas initiated b$ aint-imon. Kutside of .rance their influence e#tended to "ar#!
Aohn tuart "ill and Christian ocialists in man$ countries. "ar# spo&e onl$ with
admiration of the genius and enc$clopedic brain of aint-imon! noted :ngels. )-9*
In >;6-! :mile Pereire and his $ounger brother Isaac formed the ociXtX JXnerale du
CrXdit "obilier as a +oint-stoc& ban&. Their aim was to pro'ide low-cost long-term
e/uit$ financing for industrialists to e#pand production! replacing the Rothschilds and
other ban&ing families who had monopoli%ed .rench finance b$. <owe'er! as
go'ernment insiders got into the game the$ corrupted the institution. The @ustrian
Credit @nstalt fYr <andel und Jewerbe became a more successful application of
Credit "obilier principles.
Ban&ing in the :nglish-spea&ing countries remained more in the character of what
"ar# described as usur$ capital. British and Gutch practice had long used debt
le'erage to establish ro$al monopolies! e.g.! as when the Ban& of :ngland4s monopol$
of mone$ issue was obtained in e#change for pa$ment in go'ernment bonds. 18..
ban&ers do much the same to toda$4s debtor countries! threatening them with financial
crisis if the$ do not relin/uish financial control of the public domain to global ban&s.2
Based on capitali%ing e#isting income streams as collateral! @nglo-Gutch ban&ing
seemed obliged either to moderni%e along more industrial lines or ma&e its economies
financiall$ obsolete. .o#well warned that British steel! automoti'es! capital
e/uipment and other hea'$ industr$ was in danger of becoming obsolescent largel$
because the nation4s ban&ers failed to understand the need to e#tend longterm credit
and promote e/uit$ in'estment to e#pand industrial production.
The problem had its roots in the conditions in which British ban&ing too& shape. @t
the time @dam mith wrote The ,ealth of Hations! neither his cottish contemporar$
Aames ,att nor other in'entors were able to obtain ban& loans to introduce their
disco'eries. The$ had to rel$ on their own families and friends! as industrial credit
had not $et de'eloped. Ban&s issued bills of e#change to finance the shipment of
goods once these were produced! but not their manufacture. Procedures were in place
to discount bills for immediate pa$ment! and to e'aluate the borrowing capacit$ of
enterprises whose assets could be /uic&l$ li/uidated! or well attested income streams
that could be capitali%ed to carr$ ban& loans! as in the case with real propert$. The
preferred collateral was real estate! along with railroads and public utilities with a
stable income stream.
The Gu&e of Bridgewater ran up immense personal debts to finance his canals b$
>97-! to be sure! but these were secured b$ mortgages against his propert$. But earl$
inno'ations such as the automobile had to wait o'er half a centur$ to obtain financing.
The in'estment ban&ing houses had little to do with the financing of corporations or
with industrial underta&ings. The great in'estment houses bitterl$ opposed the
numerous corporate issues which were floated in >;-5 and >;-6! summari%es one
financial historian. The in'estment houses for a long time refused to ta&e part e'en
in the financing of the British railwa$s. )-;*
British ban&ers were prone to insist that companies the$ controlled pa$ out most of
their earnings as di'idends and remain highl$ li/uid rather than pro'iding enough
financial leewa$ for them to pursue a long-term in'estment strateg$. B$ contrast! the
ma+or Jerman ban&s paid out di'idends at onl$ half the rate of British ban&s!
retaining their earnings as a capital reser'e in'ested largel$ in the stoc& of their
industrial clients. Treating their borrowers as allies rather than merel$ tr$ing to ma&e
a profit as /uic&l$ as possible! the$ e#pected their customers to in'est their profits in
e#panding production rather than pa$ing them out as di'idends.
Britain4s bond and stoc&bro&ers were no more up to the tas& of financing industrial
inno'ation than were its ban&s. The fact that manufacturing companies could obtain
significant funding onl$ after the$ had grown fairl$ large prompted broad criticism of
Britain4s +oint-stoc& ban&s b$ the >=-?s for their failure to finance industr$ and their
fa'oritism toward international rather than domestic clients. )-=*
"uch as @merican acti'ist shareholders do toda$ after earning their commissions
on an issue! the$ mo'ed on to the ne#t pro+ect without much concern for what
happened to the in'estors who had bought the earlier securities. @s soon as he has
contri'ed to get his issue /uoted at a premium and his underwriters ha'e unloaded at a
profit! complained .o#well in >=>9 1loc. cit.2! his enterprise ceases. ZTo him!4 as the
Times sa$s! Za successful flotation is of more importance than a sound 'enture.4
Gefeat of Jerman$ and the Central Powers in >=>9 pa'ed the wa$ for @nglo-Gutch
ban&ing principles to become ascendant. ,all treet from the outset had followed the
practice of hit-and-run stoc& manipulations and short-term financial e#traction of the
sort that "ar# and other Progressi'e :ra writers belie'ed was becoming a thing of the
past. 8.. railroad barons and financial manipulators were notorious for issuing
watered stoc& to themsel'es! o'erfunding companies with bond borrowings
be$ond their needs or capacit$ to carr$. The directors of these corporations poc&eted
the difference 0 a practice that led much @merican industr$ to sta$ clear of ban&ing
and ,all treet out of self-protection.
Heither economists nor futurists anticipated that economic practices might regress.
The wor&ing assumption is that a positi'e e'olution would occur to more producti'e
forms. But the ban&ing practices of finance capitalism ha'e regressed toward short-
term predator$ lending. Re'ersing an eight-centur$ trend! financial laws ha'e become
more creditor-oriented. The ta# s$stem also has become regressi'e! re'ersing the
Progressi'e :ra4s financial-fiscal program b$ un-ta#ing propert$ and wealth! shifting
the fiscal burden onto labor and industr$.
The s$mbiosis of finance capital with real estate and monopolies rather than
industr$
"ar# e#pected industrial capital to use its rising power o'er go'ernments to
nationali%e land and use its rent as the basic fiscal re'enue. But it has been the ban&s
that ha'e obtained the lion4s share of land rent! capitali%ing it into interest-bearing
loans to new bu$ers.
Manded aristocracies no longer dominate the political s$stem! $et fiscal fa'oritism for
real estate has ne'er been stronger! precisel$ because propert$ ownership has been
democrati%ed 0 on credit. Real estate accounts for some 9? percent of ban& lending in
Britain and the 8nited tates! ma&ing it b$ far the ma+or mar&et for ban& loans! not
industr$ and commerce as anticipated a centur$ ago. This e#plains wh$ the financial
sector now stands behind real estate interests as their ma+or lobb$ist for propert$ ta#
cuts. "ortgage interest now absorbs most of the land4s free rental 'alue! which is
capitali%ed into debt o'erhead rather than ser'ing as the ta# base.
Voters ha'e come to belie'e that their interest lies in lowering propert$ ta#es! not
raising them. <omes are the ma+or asset for most households! and real estate remains
the econom$4s largest asset. Mand is still its largest component 0 and some ;? percent
of capital gains in the 8.. econom$ are land-price gains ite 'alues are increased
b$ public in'estment in streets! water and sewer facilities and transportation hubs! in
school s$stems! b$ %oning restrictions! b$ the general le'el of prosperit$! and most of
all! b$ whate'er ban&ers will lend.
i# 'ariables are at wor&E 1>2 lower interest rates for capitali%ing land rent into
mortgage loans! 1-2 lower down pa$ments! 132 slower rates of amorti%ation 1that is!
gi'ing borrowers longer to pa$ off the mortgage2! 152 easier credit terms! i.e.! looser
standards for liar4s loans and &indred! the more credit can be e#tended to bid up real
estate prices.
"eanwhile! ban&s rec$cle their interest income into new loans 0 and also into
campaign contributions to politicians who pledge to 162 lower propert$ ta#es! lea'ing
more rental income to be paid to ban&s as interest to carr$ $et larger mortgage loans.
Gebt le'eraging inflates propert$ prices! creating 172 hopes for capital gains!
prompting bu$ers to ta&e on e'en more debt in the speculati'e hope that rising asset
prices will more than co'er the added interest! which is paid out of capital gains! not
out of current income. )3?*
Recent $ears are the first time in histor$ that homeowners and indeed! entire
economies ha'e imagined that the wa$ to get rich was to run deeper into debt! not to
pa$ it down. <ome ownership is the defining criterion for belonging to the middle
class. ome two-thirds of the British and 8.. populations now own their own homes!
and upward of =? percent in candina'ia. This diffusion of propert$ ownership has
enabled the propertied and financial interests to mobili%e popular opposition to ta#es
on commercial and rental real estate as well as homes. 1California4s Proposition>3 is
the most notorious case in such demagog$.2
Jo'ernment mo'es to chec& rentier interests are depicted as the road to serfdom.
Let unta#ing propert$ and finance obliges go'ernments to ma&e up these ta# cuts b$
raising ta#es that fall on consumers and non-.IR:-sector business. This shrin&s the
econom$! lowering its abilit$ to pa$ the rent needed to pa$ the ban&ers on their
mortgage loans. o we are brought bac& to the problem of debt deflation and the
capitali%ation of interest charges into higher prices.
@n income profile for the t$pical 8.. wage earner shows the degree to which the cost
of li'ing now reflects .IR: sector costs more than prices for commodities produced
b$ labor. ome 5? percent of blue-collar wage income in the 8nited tates t$picall$ is
spent on housing. 1Recent attempts b$ the .ederal Geposit Insurance Corp. to reduce
the proportion absorbed b$ mortgages to 3- percent ha'e encountered strong ban&
opposition.2 @nother >6 percent or so is earmar&ed to pa$ other debtsE student loans to
get the education re/uired for middle class emplo$ment! auto loans to dri'e to wor&
1from the urban sprawl promoted b$ ta# shifts fa'oring real estate de'elopers2!
credit card debt! personal loans and retail credit. .IC@ pa$chec& withholding
ostensibl$ for ocial ecurit$ and "edicare 1a euphemism for the ta# shift off the
higher income brac&ets2 absorbs >> percent of pa$roll costs! and income and sales
ta#es borne b$ labor add another >? to >6 percent.
This lea'es onl$ a third of wage income a'ailable to spend on food and clothing!
transportation! health care and other basic needs. This has transformed the character
of global competition! $et it is cogniti'e dissonance as far as academic theories of
international trade and in'estment are concerned. :conomics theori%ing remains
shaped b$ Ricardo4s success at di'erting attention awa$ from the debt and financial
o'erhead as a main economic problem.
This is not how matters were supposed to turn out for Progressi'e :ra reforms of
industrial capitalism. The fight to minimi%e rentier ra&e-offs in the form of economic
rent from land! commercial monopolies! ban&ing and &indred rent-see&ing tollbooth
pri'ileges has failed. It has failed largel$ because of the s$mbiosis between the
financial sector and the rent-see&ers that ha'e become its ma+or customers as access
to ban& credit has been democrati%ed.
Kn the broadest social le'el! the ostensible free mar&et lobb$ing effort sponsored b$
ban&s to shift the propert$ ta# onto labor and industr$ has become a campaign against
go'ernment itself. The aim is to shift planning 0 along with public enterprises and
their re'enue 0 out of the hands of public agencies to those of ,all treet in the
8nited tates! the Cit$ of Mondon! the Paris Bourse! .ran&furt! <ong [ong! To&$o
and other financial centers.
The problem is that the 'antage point of financial planners is more short-term than
that of go'ernment. @nd being short-term! it is e#tracti'e! not producti'e.
Finance capitals raid on industr$
"ar# defined primiti'e accumulation as the sei%ure of land and other communall$
held assets b$ raiders and the subse/uent e#traction of tribute or rent. Toda$4s
financial analogue occurs when ban&s create credit freel$ and suppl$ it to corporate
raiders for le'eraged bu$outs or to bu$ the public domain being pri'ati%ed. Aust as the
motto of real estate in'estors is rent is for pa$ing interest! that of corporate raiders
is profit is for pa$ing interest. Ta&eo'er specialists and their in'estment ban&ers
pore o'er balance sheets to find under'alued real estate and other assets! and to see
how much cash flow is being in'ested in long-term research and de'elopment!
depreciation and moderni%ation that can be di'erted to pa$ out as ta#-deductible
interest.
,hate'er is paid out as income ta#es and di'idends li&ewise can be turned into ta#-
deductible interest pa$ments. The plan is to capitali%e the target4s cash flow 1ebitda2
into pa$ments to the ban&ers and bondholders who ad'ance the credit to bu$ out
e#isting shareholders 1or go'ernment agencies2. .or industrial firms such le'eraged
bu$outs 1MBKs2 are called ta&ing a compan$ pri'ate! because its stoc& ownership is
no longer publicl$ a'ailable.
Permitting interest to absorb the re'enue hitherto paid out as ta#es and 1after-ta#2
di'idends to stoc&holders is diametricall$ opposite to replacing debt with e/uit$
funding as aint-imon and subse/uent reformers hoped to bring about. The logical
end 0 and the dream of ban& mar&eting departments 0 is for all cash flow 0 earnings
before interest! ta#es! depreciation and amorti%ation 0 is to be paid out as interest!
lea'ing nothing o'er for ta#es! capital renewal and moderni%ation to raise labor
producti'it$ and li'ing standards. @ll land rent! corporate profit! ta# re'enue and
personal income o'er and basic spending is to be pledged to ban&s and bondholders as
interest.
8nder such conditions fortunes are made most readil$ not b$ industrial capital
formation but b$ indebting industr$! real estate! labor and go'ernments! siphoning off
the economic surplus in interest! other financial fees! bonuses! and capital gains.
Populations willingl$ go into debt as it appears that gains can be made most easil$ b$
bu$ing real estate and other assets on credit 0 as long as asset prices rise at a pace
higher than the rate of interest.
Toda$4s financial in'estors aim at total returns! defined as earnings plus capital
gains 0 with increasing emphasis on the latter gains in real estate! stoc&s and bonds.
Industrial companies increasingl$ are financiali%ed to produce such gains for
in'estors! not to increase tangible capital formation. The bubble or Pon%i phase of
the financial c$cle aims to create the financial e/ui'alent of a perpetual motion
machine! sustaining an e#ponential debt growth b$ creating enough new credit to
inflate real estate! stoc& and bond prices at a rate that 1at least for a while2 enables
debtors to co'er the interest falling due. )3>* @s a recent popular phrase puts it!
financial collapse is sta'ed off b$ the indebted econom$ tr$ing to borrow its wa$ out
of debt.
This asset-stripping d$namic! which "ar# characteri%ed as usur$ capital! is
antithetical to that of industrial capital. Based on the liabilities side of the balance
sheet! financial securities ta&e the form of anti-wealth 0 legali%ed claims on the means
of production and income earned producti'el$. The underl$ing d$namic is fictitious!
because it cannot remain 'iable for long. It sustains interest pa$ments b$ stripping
assets! lea'ing the econom$ with less abilit$ to produce a surplus out of which to pa$
creditors. @nd indeed! the financial sector destro$s life on a scale similar to militar$
con/uest. Birth rates fall! life spans shorten and emigration soars as economies
polari%e.
This is the free mar&et alternati'e to Progressi'e :ra and socialist reforms. It
t$pifies the I". austerit$ plans that epitomi%e centrali%ed planning on behalf of the
global financial sector. Let pro-financial ideologues depict public ownership!
regulation and ta#ation as the road to serfdom! as if the alternati'e endorsed b$
.rederic& <a$e&! @$n Rand and @lan Jreenspan were not a road to debt peonage.
@nd the endgame of this d$namic is a financial crash! wiping out sa'ings that ha'e
been lent out be$ond the indebted econom$4s abilit$ to pa$.
It is at this point that the financial sector wields its political power to demand public
bailouts in a 'ain attempt to sa'e the preser'e the financial s$stem4s abilit$ to &eep on
e#panding at compound interest. "uch as en'ironmental polluters see& to shift the
cleanup costs onto the public sector! so the financial sector demands cleanup of its
debt pollution at ta#pa$er e#pense.
The fact that this is now being done in the conte#t of ostensibl$ democratic politics
throws a leading assumption of political econom$ into doubt. If economies tend
naturall$ to act in their self-interest! how did the financial sector gain such e#tracti'e
power to raid and dismantle industr$ and shed its ta# burdenF
If Garwinian models of self-betterment are to e#plain the past centur$4s de'elopment!
the$ must show how creditors ha'e translated their financial power into political
power in the face of democratic Parliamentar$ and Congressional reform.
<ow has planning become centrali%ed in the hands of ,all treet and its global
counterparts! not in the hands of go'ernment and industr$ as imagined almost
uni'ersall$ a centur$ agoF @nd wh$ has ocial Gemocratic! Mabour and academic
criticism become so silent in the face of this economic Counter-:nlightenmentF
The answer is! b$ deception and co'ert ideological manipulation 'ia +un&
economics. .inancial lobb$ists &now what smart parasites &nowE The strateg$ is to
ta&e o'er the host4s brain! to ma&e it belie'e that the free luncher is part of its own
bod$. The .IR: sector is treated as part of the econom$! not as draining the host4s
nourishment. The host e'en goes so far as to protect the free rider! as in the -??;-?=
bailouts of ,all treet and British ban&s at ta#pa$er e#pense.
,hen such growth culminates in financial wrec&age! ban&s demand public bailouts.
The$ claim that this is necessar$ to enable them to resume lending. But the$ will not
lend more against propert$ alread$ so deepl$ indebted that it remains in negati'e
e/uit$. <oping to turn the crisis into an opportunit$ for further financial incursions
into the industrial econom$! ban& lobb$ists propose that go'ernments help indebted
homeowners and real estate in'estors a'oid default b$ cutting propert$ ta#es $et
further 0 shifting the fiscal burden $et more onto labor and non-financial business.
Ta# cuts on wealth are promoted as if the$ will be in'ested rather than used to pa$ the
financial sector more interest or be gambled on currencies and e#change rates! interest
rates! stoc& and bond prices! credit default swaps and &indred deri'ati'es.
:conomic e'olution does not necessaril$ follow the path of greatest efficienc$. The
oligarchic! creditor-oriented Roman :mpire collapsed into the Gar& @ge! after all.
.inanciall$ destructi'e policies ma$ o'erwhelm technological potential. Bubble-t$pe
prosperit$ is based on debt-le'eraged asset-price gains at the e#pense of the econom$
at large. Rising housing prices raise the cost of li'ing! while rising stoc& and bond
prices increase the cost of bu$ing a retirement income 0 lea'ing pension funds unable
to ma&e good on their promises.
&ension"fund capitalism and other financial modes of exploiting labor
.inance capital4s modes of e#ploiting labor go far be$ond that of industrial capital
emplo$ing it to sell its products at a profit! and e'en be$ond simple usurious lending
to labor 1abo'e all for housing2. "ost inno'ati'e has been the appropriation of labor4s
sa'ings 'ia pension funds and mutual funds. In the >=6?s! Jeneral "otors and other
large companies offered to contribute to funds to pa$ pensions in e#change for slower
growth in wages. This polic$ 1which Peter Gruc&er patroni%ingl$ called pension-
fund socialism2 )3-* turned o'er wage set-asides to professional mone$ managers to
bu$ stoc&s and +un& bonds to ma&e financial gains 0 but not in a manner that
necessaril$ promotes industrial capitalism.
Mone$ would grow through the pro#erbial 'magic of compound interest!(
ma%ing mone$ purel$ from mone$ (M"M))
The dream is to manage labor4s sa'ings on a commission basis! steering it to inflate
stoc& and bond prices. @nd indeed! pension-fund sa'ings did fuel a stoc& mar&et run-
up from the >=7?s onward. In the process! the$ pro'ided corporate raiders and other
financial managers with funds to use against labor 0 and against industrial capital
itself. Pension fund managers pla$ed a large role in the +un& bonding of industr$ in
the >=;?s. @nd finding themsel'es graded on their performance e'er$ three months!
fund managers bac& raiders who see& to gain b$ downsi%ing and outsourcing labor.
The$ t$picall$ find their fortune 1and e'en +ob sur'i'al2 to lie in using pension
sa'ings not in wa$s that increase emplo$ment! impro'e wor&ing conditions or in'est
in producti'e capital formation! but in ma&ing gains purel$ b$ financial means 0
corporate looting that strips assets to pa$ di'idends and increase short-term stoc&
prices! or simpl$ to pa$ off creditors.
"eanwhile! the largest sellers of stoc&s ha'e been managers and 'enture capitalists
cashing out b$ selling into a mar&et fueled mainl$ b$ labor4s wage set-asides.
Pension funds thus turn out to pla$ a &e$ role in enabling finance capitalists to reali%e
their gains 0 onl$ to be their fate to be left holding an empt$ bag in the end. elling
off stoc&s to pa$ retirees creates an outflow of funds from the stoc& mar&et that
re'erses the initial price run-up.
"one$ manager capitalism aims to financiali%e ocial ecurit$ and "edicare along
similar lines! sending a new tsunami of public funds into the stoc& mar&et to produce
capital gains. )33*@ dress rehearsal for this plan was staged in Chile after its >=93
militar$ coup. The Chicago Bo$s who ad'ised the +unta called it labor capitalism! a
c$nical Krwellian term that "argaret Thatcher adopted for her program of pri'ati%ing
Britain4s public utilities. 1The labor here represents the e#ploited part$! not the
beneficiar$.2 @ slice of its wages is withheld and turned o'er to the emplo$er4s
financial affiliate 1the banco for the Chilean $rupos2. ,hen a high enough pension
reser'e is accumulated! the emplo$er transfers it to the banco or &indred affiliate in an
offshore ban&ing center! lea'ing the industrial emplo$er a ban&rupt shell.
The actuarial fiction is that corporate! state and local pension funds 1and ocial
ecurit$2 in'ested financiall$ can grow e#ponentiall$ b$ enough to pa$ for retirement
and health care. This goal cannot be met in practice! because the real econom$ is
unable to grow at a rate re/uired to support the growth in debt ser'ice. ,idespread
awareness of this fact has led to the corporate plo$ of threatening ban&ruptc$ if unions
do not agree to replace defined-benefit pensions with defined-contribution programs
in which all that emplo$ees &now is how much is doc&ed from their pa$chec&! not
what the$ will end up with. Jeneral "otors went ban&rupt as a result of its inabilit$
to fund the pensions guaranteed b$ their defined-benefit plans.
.inancial claims rise e#ponentiall$! be$ond the econom$4s abilit$ to pa$. Bubble
economies tr$ to postpone the ine'itable crash b$ inflating prices for real estate!
stoc&s and bonds b$ enough to enable debtors to ta&e out higher loans against the
propert$ the$ pledge as collateral. Jo'ernments balance their budgets b$ pri'ati%ing
public enterprises! selling tollbooth pri'ileges on credit to bu$ers who bid up their
prices b$ debt le'eraging. .inancial underwriters reap commissions and insiders
ma&ing a &illing as sales prices for stoc&s are underpriced to guarantee first-da$ price
+umps. 1"rs. Thatcher perfected this plo$! ma&ing unprecedented fortunes for earl$
pla$ers and underwriters in the pri'ati%ation game.2
@ crash occurs at the point where this disparit$ is widel$ recogni%ed. To ban&ers! the
antidote is to lend enough new credit to re-inflate prices real estate and other assets!
enabling new bu$ers to borrow the credit to bu$ propert$ from defaulters. Rather than
scaling bac& the 8.. econom$4s o'er-indebtedness! for instance! the Treasur$ and
.ederal Reser'e ha'e bailed out the ban&s to sa'e them from ta&ing a loss on debt
write-downs. )35* The dream is to &eep the compound interest scheme e#panding ad
infinitum. But the pretense that fictitious finance-capital claims can be paid must be
dropped at the point where financial managers desert the sin&ing financial ship. Their
last act before the bubble bursts is the time-honored practice of ta&ing the mone$ and
running 0 pa$ing themsel'es as large bonuses and salaries as corporate treasuries 1and
public bailouts2 allow.
Conclusion
.inance capitalism has become a networ& of e#ponentiall$ growing interest-bearing
claims wrapped around the production econom$. The internal contradiction is that its
d$namic leads to debt deflation and asset stripping. The econom$ is turned into a
Pon%i scheme b$ rec$cling debt ser'ice to ma&e new loans to inflate propert$ prices
b$ enough to +ustif$ $et new lending. But a limit is imposed b$ the shrin&ing abilit$
of surplus income to co'er the debt ser'ice falling due. That is what the mathematics
of compound interest are all about.
Borrowing to ma&e speculati'e gains from asset-price inflation does not in'ol'e
tangible in'estment in the means of production. It is based simpl$ on "-"4! not "-C-
"4. The debt o'erhead grows e#ponentiall$ as ban&s and other creditors rec$cle their
receipt of debt ser'ice into new 1and ris&ier2 loans! not producti'e credit.
<alf a centur$ of I". austerit$ programs has demonstrated how destructi'e this
usurious polic$ is! b$ limiting the econom$4s abilit$ to create a surplus. Let
economies throughout the world now base their pension planning! medical insurance!
state and local finances on a faith in compound interest! without seeing the inner
contradiction that debt deflation shrin&s the domestic mar&et and bloc&s economies
from de'eloping.
,hat is irrational in this polic$ is the impossibilit$ of achie'ing compound interest in
a real econom$ whose producti'it$ is being eroded b$ the e#panding financial
o'erhead ra&ing off a rising share. "eanwhile! a fiscal sleight-of-hand has ta&en
ocial ecurit$ and "edicare out of the general budget and treated them as user
fees rather than entitlements.
This ma&es blue-collar wage earners pa$ a much higher ta# rate than the .IR: sector
and the upper income brac&ets. .IC@ pa$chec& withholding has become a forced
sa'ing in ad'ance! ostensibl$ to be in'ested for future entitlement spending but in
practice lent to the Treasur$ to enable it to cut ta#es on the higher brac&ets. Instead of
financing ocial ecurit$ and "edicare out of progressi'e ta#es le'ied on the highest
income brac&ets 0 mainl$ the .IR: sector 0 the dream of pri'ati%ing these entitlement
programs is to turn this ta# surplus o'er to financial managers to bid up stoc& and
bond prices! much as pension-fund capitalism did from the >=7?s onward.
@ centur$ ago most economic futurists imagined that labor would earn higher wages
and spend them on rising li'ing standards. But for the past generation! labor has used
its income simpl$ to carr$ a higher debt burden. Income o'er and abo'e basic needs
has been capitali%ed into debt ser'ice on ban& loans used to finance debt-le'eraged
housing! and to pa$ for education 1originall$ e#pected to be paid out of the propert$
ta#2 and other basic needs. @lthough debtors4 prisons are a thing of the past! a
financial characteristic of our time is the post-industrial obligation to wor& a
lifetime to pa$ off such debts.
"eanwhile! the .IR: sector now accounts for 5? percent of 8.. business profit!
despite the ta#-accounting fictions cited earlier.
.inancial lobb$ists ha'e led a regressi'e about-face toward an economic Counter-
:nlightenment. Re'ersing an eight-centur$ tendenc$ to fa'or debtors! the ban&ruptc$
laws ha'e been rewritten along creditor-oriented lines b$ ban&s! credit-card
companies and other financial institutions! and put into the hands of politicians in
what best ma$ be called a financiali%ed democrac$ 0 or as the ancients called it!
oligarch$. hifting the ta# burden onto labor while using go'ernment re'enue and
new debt creation to bail out the ban&ing sector has polari%ed the 8.. econom$ to the
most e#treme degree since statistics began to be collected.
The Progressi'e :ra e#pected planning to pass into the hands of go'ernment! not
those of a financial sector at odds with industrial capital formation and economic
growth. Hearl$ e'er$one a centur$ ago e#pected infrastructure to be de'eloped in the
public domain! in the form of public utilities whose ser'ices would be pro'ided freel$
or at least at subsidi%ed rates in order to lower the price of li'ing and doing business.
Instead! public enterprises since about >=;? ha'e been pri'ati%ed 0 on credit 0 and
turned into tollbooth pri'ileges to e#tract economic rent. Ban&ers capitali%e these
opportunities! which are sold on credit.
Mittle is left for the ta# collector after charging off interest! depreciation and
amorti%ation! managerial salaries and stoc& options. The resulting ta# s/uee%e
impo'erishes economies! obliging go'ernments either to cut bac& their spending or
shift the fiscal burden onto labor and non-financiali%ed industr$.
The resulting financial d$namic is more li&e what "ar# described as usur$-capital
than industrial ban&ing. In the spirit of the aint-imonians he belie'ed industrial
capitalism to direct credit into producti'e capital formation! he e#pected that financial
planning would pa'e the wa$ for a socialist reorgani%ation of societ$. Instead! it is
pa'ing the road to neoserfdom. .inancial operators are using credit as a weapon to
strip corporate assets on behalf of ban&ers and bondholders.
:mplo$ees can afford homes and other propert$ 1and indeed! entire corporations2 onl$
b$ borrowing the purchase price 0 on terms that in'ol'e a lifetime of debt peonage!
and indeed 1in most countries2 bearing personal liabilit$ for negati'e e/uit$ when
housing prices plunge below mortgage le'els. Jo'ernment planning has become
subordinate to the dictates of unelected central ban&ers and the International
"onetar$ .und imposing austerit$ programs rather than funding capital formation and
rising li'ing standards.
<a'ing anal$%ed finance capital4s tendenc$ to grow e#ponentiall$! "ar# nonetheless
belie'ed that it would be subordinated to the d$namics of industrial capital. ,ith an
optimistic Garwinian ring he shared the tendenc$ of his contemporaries to
underestimate the wa$s in which the 'ested interests would fight bac& to preser'e
their pri'ileges e'en in the face of democratic political reform. <e e#pected industrial
capitalism to mobili%e finance capital to fund its e#pansion and indeed its e'olution
into socialism! plowing profits and financial returns into more capital formation.
It was the tas& of socialism to see more of this surplus spent on raising wages and
li'ing standards while impro'ing the wor&ing conditions 0 and spent b$ go'ernment
to freel$ pro'ide an e#panding range of basic needs! or at the 'er$ least at subsidi%ed
prices. Infrastructure spending and rising li'ing standards thus would become the
ultimate beneficiaries of capital formation! not landowners! monopolists or predator$
finance.
This is not how matters ha'e wor&ed out. "ore of the economic surplus is being
siphoned off as land rent and interest. Let man$ of "ar#4s followers conflate his
anal$sis of industrial capital with the financial d$namic of usurer4s capital. The
latter is not part of the industrial econom$ but grows autonomousl$ b$ purel$
mathematical means! running ahead of the econom$4s abilit$ to produce a surplus
large enough to pa$ the e#ponentiall$ soaring financial o'erhead. )36* @nd in contrast
to his anal$sis of industrial capital! "ar# e#plained wh$ the financial o'ergrowth 0
rec$cling sa'ings into new loans rather than in'esting them producti'el$ in tangible
capital 0 cannot be sustainedE
The credit s$stem! which has its focus in the so-called national ban&s and the big
mone$-lenders and usurers surrounding them! constitutes enormous centralisation!
and gi'es to this class of parasites the fabulous power! not onl$ to periodicall$ despoil
industrial capitalists! but to interfere in actual in a most dangerous manner 0 and this
gang &nows nothing about production and has nothing to do with it. )37*
ociet$ therefore faces a choice between 1>2 sa'ing the econom$! b$ writing down
debts to the abilit$ to carr$ without stripping the econom$I and 1-2 sa'ing the
financial sector! tr$ing to preser'e the fiction that debts growing at compound interest
can be paid. .or pensions and other public programs! for e#ample! this means a choice
between 1>2 pa$ing them on a pa$-as-$ou-go basis! out of the real economic
surplusI and 1-2 the fictitious assumption that funds can earn annual returns of ;
percent or more to pro'ide for labor4s retirement b$ asset-price inflation fueled b$
debt le'eraging and purel$ financial maneu'ering 1"-"42.
If economic e'olution is to reflect the inner logic and re/uirements of societ$4s
technological capabilities! then finance capital must be subordinated to ser'e the
econom$! not to be permitted to master and stifle it. That is what Aohn "a$nard
[e$nes meant b$ what he gentl$ called euthanasia of the rentier. In practice it
means that go'ernments must pre'ent propert$ rents and other returns to pri'ilege
from being capitali%ed into ban& loans.
To sa'e societ$! its 'ictims must see that asset-price inflation fueled b$ debt
le'eraging ma&es them poorer! not richer! and that financiali%ation is the destro$er
and e#ploiter of industrial capital as well as of labor. The ob+ecti'e of classical
political econom$ was to bring prices in line with sociall$ necessar$ costs of
production. This was to be achie'ed in large part b$ ta#ing awa$ economic rent in
order to pre'ent it from being capitali%ed into loans to new bu$ers. Bu$ing rent-
e#tracting opportunities on credit increases prices for basic needs! turning societ$ into
a tollbooth econom$. It also forces go'ernments to compensate b$ raising ta#es on
labor and tangible capital.
"an$ ocial Gemocratic and Mabour parties ha'e +umped on the bandwagon of
finance capital! not recogni%ing the need to rescue industrial capitalism from
dependence on neofeudal finance capital before the older conflict between labor and
industrial capital o'er wage le'els and wor&ing conditions can be resumed. That is
what happens when one reads onl$ Volume I of Capital! neglecting the discussion of
fictitious capital in Volumes II and III and Theories of urplus Value.
Footnotes
)>* @ shorter 'ersion of this article was gi'en in at the China @cadem$ of
ciences! chool of "ar#ist tudies in Bei+ing in Ho'ember -??=! and at the
Meft .orum in Hew Lor& Cit$! "arch -?! -?>?.
)-* Theories of urplus Value! Part III 1"oscowE .oreign Manguages
Publishing <ouse! >=9>2! p. 57;.
)3* Capital! Vol. III 1ChicagoE Charles <. [err! >=?=2! p. 9>?. @ll subse/uent
/uotations from Capital are from this edition! unless specificall$ noted 1as in
footnotes >6 and 372.
)5* Ibid.! p. 9?6.
)6* ee for instance ibid.! p. 9??E ZIn place of the old e#ploiters! whose
e#ploitation was more or less patriarchal because it was largel$ a means of
political power! steps a hard mone$-mad par'enu.4
)7* Ibid.! p. 9>7.
)9* Ibid.! pp. 7==f.
);* Ibid.! p. 9>> fn. >>7.
)=* It is onl$ in the :nglish-language translations of "ar#4s Theories of
urplus Value III 1>=9>! pp. -=7f.! 6-9-392 for instance! that one can find
"artin Muther4s denunciation of usurers! not in Muther4s ,or&s published b$
.ortress.
)>?* Capital III! p. 66-.
)>>* In his Jrundrisse noteboo&s! [arl "ar#E Jrundrisse! Penguin! Mondon
>=93! pp. ;5-f.2 incorporated into Capital III 1ch. ##i'2! p. 573.
)>-* Capital III! p. 7==.
)>3* ZCapitalism in the 8nited tates is now in a new stage! mone$ manager
capitalism! in which the pro#imate owners of a 'ast proportion of financial
instruments are mutual and pension funds. The total return on the portfolio is
the onl$ criteria used for +udging the performance of the managers of these
funds! which translates into an emphasis upon the bottom line in the
management of business organi%ations.4 <$man P. "ins&$! Z8ncertaint$ and
the Institutional tructure of Capitalist :conomies!4 ,or&ing Paper no. >66!
Aerome Me'$ :conomics Institute! @pril >==7! cited in M. Randall ,ra$! ZThe
rise and fall of mone$ manager capitalismE a "ins&ian approach!4 Cambridge
Aournal of :conomics! Vol. 33 1-??=2! pp. ;?9-;-;! and also in ,ra$!
Z"ins&$4s "one$ "anager Capitalism and the Jlobal .inancial Crisis!4 -?>?!
httpENNwww.le'$institute.orgNpubsNconf\april>?N>=th\"ins&$\PPTsN>=th\"ins
&$\,ra$.pdf.
)>5* Capital III 1Chicago! >=?62! p. 9>3.
)>6* Capital III 1"oscowE .oreign Manguages Publishing <ouse! >=6;2! p.
59=.
)>7* Capital III! p. 57>.
)>9* Ibid.! p. 659.
)>;* Ibid.! p. 65;.
)>=* Ibid.! pp. 66>f. 1Ch. ##i#E The Composition of Ban&ing Capital2. The
term fictitious capital passed into general circulation. In the 8nited tates it
meant capitali%ed unearned income 1Zeconomic rent!4 income without cost-
'alue! mainl$ in the forms of groundrent and monopol$ rent as well as
financial e#traction of re'enue2. <enr$ Jeorge pic&ed it up in The Condition
of Mabour 0 @n Kpen Metter to Pope Meo ]III! 1>;=>2 <enr$ Jeorge
.oundation of Jreat Britain! Mondon! >=3?! referring to the Zfictitious capital
that is reall$ capitali%ed monopol$4 1in The Mand Question and Related
,ritings! Hew Lor&! Robert chal&enbach .oundation! >=;-2! pp. -?>f.2.
Boo& 3! Chapter 5 of Jeorge4s Progress and Po'ert$ 1>;9=2! ,illiam Ree'es!
Mondon! >;;5.2 is titled! ZKf purious Capital @nd Kf Profits Kften "ista&en
.or Interest.4
)-?* Capital II 1"oscowE .oreign Manguages Publishing <ouse! >=692! p. 63-.
)->* It often surprises both ends of the political spectrum to learn that it was
"ar# who firml$ established depreciation as an element of 'alue theor$. @s
Terence "cCarth$ wrote in his initial :nglish language translation of "ar#4s
Theories of urplus Value 1which he translated under the title of @ <istor$ of
:conomic Goctrines! Hew Lor&E Mangland Press! >=6-! p. #'2E Z@s a logical
conse/uence of his e#amination of Ph$siocrac$! "ar# was led to a stud$ of the
:conomic Theor$ of Gepreciation. o complete is his anal$sis of this aspect of
income formation that! if Capital has been called the bible of the wor&ing
class! the <istor$ might well be called the bible of the ociet$ of Cost
@ccountants. . . . K'er the whole societ$! failure to pro'ide ade/uate
depreciation reser'es is! "ar# implies! to negate economic progress and to
begin consumption of that portion of the 'alue of the product which "ar#
belie'es belongs neither to the labourers in industr$! nor to their emplo$ers!
but to the econom$ itself! as something which must be Zrestored4 to it if the
economic process is to continue.4
)--* I discuss Ricardo4s 'iews and the more ad'anced response of his
contemporaries in Trade! Ge'elopment and .oreign GebtE @ <istor$ of
Theories of Polari%ation '. Con'ergence in the ,orld :conom$ 1-nd ed.
IM:T -?>? )a'ailable on @ma%on.com*I orig. pub. MondonE Pluto Press!
>==-2.
)-3* The Po'ert$ of Philosoph$ )>;59* 1"oscow! n.d.2! p. >66. Theories of
urplus Value III! pp. 3=7-=; /uoted @ntoine Cherbulie%! Richesse ou
pau'rete 1ParisE >;5>2! p. >-;! whose title and content seems to ha'e inspired
<enr$ Jeorge4s Progress and Po'ert$ 1>;9=2E ZRent thus would replace all
state re'enues. .inall$ industr$! liberated! released from all fetters! would ta&e
an unprecedented leap forward . . .4
)-5* ocialism Vs. ingle Ta#. @ Verbatim Report of a Gebate held at Twelfth
treet! Turner <all! Chicago! Gecember -?th! >=?6. ChicagoE Charles <. [err
^ Co.! )>=?9*! pp. 5f.
)-6* <. . .o#well! ZThe Hature of the Industrial truggle!4 :conomic Aournal
-9! pp. 3-3--9! and ZThe .inancing of Industr$ and Trade!4 ibid.! pp. 6?-->62.
)-7* Capital III! p. 9>5! /uoting Religion saint-simonienne! :conomie
politi/ue et Politi/ue 1ParisE >;3>! p. =; and 562. "ar# cites the >;3>
compilation Religion saint-simonienne describing ban&s as enabling
Zindustrious people4 to obtain financing for their enterprise! and Charles
Pec/ueur! Theorie Hou'elle d4:conomie ociale et Politi/ue 1Paris >;5-! p.
5352 urging that production be ruled b$ what the aint-imonians called the
$steme general des ban/ues.
)-9* Capital III! p. 9>> fn. >>7. aint-imon4s wea&ness! according to "ar#!
was that of man$ land ta#ers! namel$! his failure to see the antagonism
between the bourgeoisie and the proletariat. <e blamed this on the .ourierist
desire to reconcile capital and labour! which "ar# belie'ed to be impossible.
)-;* Jeorge ,. :dwards! The :'olution of .inance Capitalism 1>=3;2! pp.
>7f.
)-=* Mlo$d Jeorge called them Zthe stronghold of reaction4 1see Thomas
Aohnston! The .inanciers and the Hation )Mondon >=35! p. >3;*2. :rnest
Be'in! J. G. <. Cole and other members of the British Mabour Part$ critici%ed
ban&s in The Crisis 1Mondon >=3>2. ee also Cole! The ocialisation of
Ban&ing 1Mondon >=3>2! and Aohn ,ilmot! Mabour4s ,a$ to Control Ban&ing
and .inance 1Mondon >=362. The Mabour Part$4s proposed solution was to
nationali%e the Ban& of :ngland! and in >=33 to recommend sociali%ing the
+oint stoc& ban&s as well. [e$nes was s$mpathetic in Z@ Hew :conomic
Polic$ for :ngland!4 :conomic .orum! ,inter >=3--33! pp.-=-39.
)3?* I chart these 'ariables in "ichael <udson! ZThe Hew Road to erfdomE
@n illustrated guide to the coming real estate collapse!4 <arpers! Vol. 3>- 1Ho.
>;9-2! "a$ -??72E3=-57.
)3>* <$man P. "ins&$ accordingl$ called this the Pon%i phase of the financial
c$cle in ZThe .inancial Instabilit$ <$pothesis!4 Me'$ Institute ,or&ing Paper
Ho. 95! "a$ >==-! and tabili%ing an 8nstable :conom$ 1Hew Lor&E
"cJraw-<ill Professional! >=;72.
)3-* Peter Gruc&er! The 8nseen Re'olutionE <ow Pension .und ocialism
Came to @merica 1Hew Lor&E <arper ^ Row! >=972. ee also Gruc&er4s Post-
Capitalist ociet$ 1Hew Lor&E <arperBusiness! >==32! p. 99E ZPension fund
capitalism is fundamentall$ as different from an$ earlier form of capitalism as
it is from an$thing an$ socialist e'er en'isage as a socialist econom$.4
)33* I trace this campaign in ZThe P5.9 trillion P$ramidE ,h$ ocial ecurit$
,on4t Be :nough to a'e ,all treet!4 <arpers! Vol. 3>? 1Ho. >;6=! @pril
-??62! pp. 36-5?.
)35* ince eptember -??; the 8 .ederal Reser'e has engaged in Zcash for
trash4 swaps! accepting +un& mortgages at their nominal Zmar& to model4
'alues. The Treasur$ has printed bonds for their these swaps! and ta&en .annie
"ae and .redd$ "ac onto its own balance sheet! gi'ing public guarantees that
Zta#pa$ers4 will ma&e good on all losses.
)36* Capital III! p. 9??
)37* Capital III 1"oscowE .oreign Manguages Publishing <ouse! >=6;2! p.
63-.
Tags: land! "ar#