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Great interview on the crisis of capitalism with Leo Panitch, Sam Gindin, Greg Albo

milo204
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N.Beltov
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I like that views such as the following are clearly expressed ...

Greg Albo wrote:
I think there's a real bankruptcy of ideas among liberals and social democrats.

... and, obviously, needs to be said. However, views such as the following ...

Greg Albo wrote:
Certainly, its clear that the political forces in no part of the world have been able to break out of the neoliberal political policies or the balance of power that has backed neoliberalism, that is, the way that finance and industry have supported neoliberal policies at the level of the state.

... is followed by something like this ...

Albo wrote:
I think the continuing momentum and the breakthrough in the Andean countries as challenges to neoliberalism-not that either Bolivia or Venezuela have managed to break-through neoliberalism, but they have been combining, developing new political forces with anti-neoliberal and anti-capitalist political agendas-is helping to reform the left across the continent of Latin America and it's a very positive development globally.

This is misleading as the group of countries belonging to ALBA (Cuba, Venezuela, Bolivia, Ecuador, Nicaragua, Brazil to some degree in non-gov organizing, and so on) seems to be trivialized. That's something the other side would do.

 

However, it makes interesting reading as long as the Eurocentric, North American centric premises are understood.

 


Fidel
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Leo Panitch wrote:
This arguably is the fourth. The first great crisis of capitalism was from 1873-1896, it's often argued. The second was the Great Depression of the 1930s. The third was the crisis of Keynesianism and of profits in the 1970s. And we may be entering the fourth. Each of those crises had different causes and different outcomes. They are not all caused by the same thing and they don't all lead to the same type of outcome.

And Panitch goes on to describe post-WW II globalizing capitalism, and back on track post-1970's crisis etc. I don't think he mentioned the VietNam war, which some economists say today was the larger reason for inflation of the 70's and not so much lavish social spending pointed to by political conservatives at the time. They were printing money so to speak in order to fund an immoral war in Vietnam and carried through by the doctor and the madman bombing the daylights out of Cambodia.

I think that today's globalizing capitalism really is in trouble. The IMF is warning of debt crisis spreading to Asia. Europe is essentially bankrupt. The situation could leave the IMF and USA as sources of capital for lending to first world and developing economies. But the IMF is running out of money, and the USA is essentially insolvent and dozens of States essentially bankrupt. They've offshored a lot of heavy industry and means of generating hard currency to pay down debts run-up by the world's most energy intensive and most unsustainable economy in world history. There will be no real recovery this time by printing money. The world's leading economy based largely on war will probably look to more war as a solution to this debt crisis. Liquid war and terrorism financed by the west is already a reality in Central Asia. There are ongoing threats againts Iran by nuclear armed NATO gangsters. And US Military continuing to surround Russia and China with military bases and weapons and communications installations. There has been no real reduction in US military spending since 1991. It appears to me as if capitalists have every intention of turning to war capitalism, once again, as a solution to this fourth crisis. But printing more money will not be a solution this time.


N.Beltov
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Uncle "Capital" : "The rumours of my death are greatly exaggerated. And tell that babbler Fidel that I, in no way, resemble low hanging fruit. Dream on, dipper."


Fidel
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N.Beltov wrote:

Uncle "Capital" : "The rumours of my death are greatly exaggerated. And tell that babbler Fidel that I, in no way, resemble low hanging fruit. Dream on, dipper."

I know what you mean about capital having nine lives. For now, see this, this, and this.

German Giants Flee Wall Street

China calls USA's bluff

As Leo says, this is probably a unique crisis among capitalist crises. Last century saw the end of a half dozen or so empires. I think it's the USSA's turn this time. Economic historian Michael Hudson says that the foundations of capitalism are weaker today than even Marx predicted.


Ryan1812
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I will agree that the global financial crisis may have signalled the waining of the USA's neoliberal empire, but the final death of it will not come in this century. I don't even think, to be honest, that we have seen the climax of the American empire. I think that the USA is still in it's adolesence. The political and economic power of the USA, in my honest opinion, has yet to be fully realized. The French and British Empires also had this same adolesent period that saw them struggle, and then be reborn more powerful then before. I'm not happy about this, becuase the USA is still that same Manifest Destiny led merchantile nation it has always been. They, and we, are still living our lives of the backs of the LDC's and DC's and this isn't going to change in my life time.


N.Beltov
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Well, don't go to the other extreme. The Empire is in decline, they're just not dead ...  yet.


Fidel
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Ryan1812 wrote:
I will agree that the global financial crisis may have signalled the waining of the USA's neoliberal empire, but the final death of it will not come in this century. I don't even think, to be honest, that we have seen the climax of the American empire.

I think America is about where Britain was by the mid 1950s with respect to influence over its former colonies slipping away. The USSA peaked in 1980 wrt being the largest military and economic power in the world. Today America is the largest military power and will increasingly have to choose between maintaining bloated military budgets and funding public sector spending on necessities, or that part of the USA's economy that has little or nothing to do with free market capitalism. The problem for American empire today is that other countries rich and poor are losing faith in laissez-faire financial capitalism, and that their central banks have actually been financing US Military buildup all around their borders and especially so since 1971 with the rise of petrodollar imperialism. Countries like China and Russia and a few more are not so keen on putting their eggs in one basket so to speak with buying more US debt. Something has to give.

 


Jacob Richter
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US imperialism went past its apex after the Vietnam War.  Until that point, occupations had a beneficial role for the US, and the US could spend lots of money on reconstruction for mutual benefit.

Now, that's just not the case.  The US military is geared purely for destruction, with not much of a reconstruction apparatus.


Fidel
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Greg Albo wrote:
I think there's a real bankruptcy of ideas among liberals and social democrats....
Greg Albo wrote:
It's forming a left that is more open for new political initiatives, is more open to longer term organization-building, and I think is breaking from the lock that has been on the left both in Canada and in the U.S. of trying to fight our politics either through the Democratic Party or the some combination of the Liberal Party and New Democratic Party in Canada. I think that's very positive for us being able to build a new left in North America over the next couple or years.

Is it my imagination or does Albo makes it sound as if the NDP have been in federal power in Ottawa for too long?

It certainly sounds good that workers in general need to fight back. And Leo Panitch does say that he could go on listing the ways in which neoliberalism has changed the ways in which workers organize and battle for things like living wages and rights etc. Economic historian Michael Hudson says that Marx believed that finance capital would eventually be subordinated to the needs of industrial capitalism, and eventually paving the way for socialism. Marx and others of his century were quite optimistic about the future of industrial capitalism (the older state-capitalism) and how it would lead to worker ownership of the means of production, and socialism.

I believe as Michael Hudson believes that if workers want to regain lost footing in the battle for a better quality of life, we have to do as Marx suggested we do. And that is to fight for democracy. We must win the battle for democracy. And we must fight for a return to industrial capitalism and capital formation in the real economy and not concentration of capital in a parasitic Disneyland economy of finance capital. Hudson says that reading volumes II & III of Capital reveal this to be true in modern times.

And we social democrats will continue to push for government ownership of the responsibilities for funding public programs and pensions etc and not sloughing people off toward increasing reliance on "the market" for necessities like housing and food on the table and annual incomes fit for human beings. And this is basically what the NDP adocatesm which is pushing Ottawa to take back the responsibility for these things they have told Canadians they could no longer afford to finance since 1993-1995. As Marx said people must do, we must fight for and win the battle for democracy. That means working toward unseating those two parties that have had tight grips on federal power ih Ottawa since 1867 through today and non-stop.

From Marx to Goldman Sachs: The Fictions of Fictitious Capital Michael Hudson


N.Beltov
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The battle "for democracy" does not end with Parliamentary cretinism. Albo and others like him point out that social democrats, such as yourself Fidel, typically underestimate the amount of struggle required even for the very modest gains that an NDP administration MIGHT enact.

As for the much more difficult and PERMANENT gains associated with, say, a Canadian version of socialism, I really believe that's it's beyond your imagination entirely. But, hey, the orange-flavoured team is better than the red-flavoured team, or that nasty blue-flavoured team. Most of the time, that is. :)


Fidel
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N.Beltov wrote:

The battle "for democracy" does not end with Parliamentary cretinism. Albo and others like him point out that social democrats, such as yourself Fidel, typically underestimate the amount of struggle required even for the very modest gains that an NDP administration MIGHT enact.

The NDP doesn' promise that they MIGHT reverse Liberal Government rollbacks of social gains and funding of social democracy to 1940's levels across Canada. The NDP is promising that they WILL fight tooth and nail to achieve exactly that with enough NDP MP's in Ottawa. And the NDP says that replacing the tens billions of dollars in core funding removed from everything from health care to education is doable. As I was saying before a hundred times in other threads, social funding as well as total federal tax take is well below the OECD capitalist country average. It's been the dynamic duo Bay Street parties in power and sharing power in Ottawa that have made Canada into a rightwing US Libertarian's dream come true. The NDP has done more opposiing of the neoliberal agenda in Canada since trudeau's time in the sun than some people are willing to give them credit for and not naming any names here.

N. Beltov wrote:
As for the much more difficult and PERMANENT gains associated with, say, a Canadian version of socialism, I really believe that's it's beyond your imagination entirely. But, hey, the orange-flavoured team is better than the red-flavoured team, or that nasty blue-flavoured team. Most of the time, that is. :)

I think that a national opinion poll says you're lacking in imagination yourself, and that Canadians really do want health care and education and uI-Ei-oh? and the post-war social lien in Canada funding at pre Shawinigan Strangler and Paulie Pockets levels. You might turn your nose up at these hard-fought for social gains made by Canadian workers, civil society groups, the CCF and NDP in the last century, but I think you're wrong as to how much Canadians value those gains which made living in a capitalist system bearable for several generations of people in Canada.

All powerful industrial capitalists of Marxian theory have since been overthrown by a parasitic financier elite over the last 35 years or so which Marxists never expected might occur. Down is now up and vice versa. It's a new world order and class struggle redefined by finance and banksters. How can trade unionists wield the same bargaining power today with so much of the real economy offshored, sold off and pawned off? What we have today is oligarchy and class struggle even farther behind the eight ball than Marx predicted, N. Beltov. Workers need to get in the game and stop pointing to social democrats as being responsible for the neoliberal voodoo and place blame directly on the shoulders of those two Bay Street parties that tied Canada's economic wagon of fortunes to corporate America since St Laurent and Diefenbaker through to Mulroney and Chretien. The arithmetic of the thing is simple - we need Venezuelan style MMP to catapult Hugo Chavez of the North into the halls of power, and not in Winnipeg but Ottawa where we have enjoyed Washington style lobbying and rightwing think tanks bending the ears of our useless senators and politicos since Brian Mulroney.

 


George Victor
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The new, complete dependence of workers on The Market can be corrected by collapse of The Market.  Then we are all destitute together and can begin all over, starting with a command economy and strict exchange controls.   Smile 


Fidel
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Well N.B. may prefer this quote from Hudson's Critique essay, because he, too, comes down on social democratic and Labour parties:

Michael Hudson wrote:
Many Social Democratic and Labour parties have jumped on the bandwagon of finance capital, not recognizing the need to rescue industrial capitalism from dependence on neofeudal finance capital before the older conflict between labor and industrial capital over wage levels and working conditions can be resumed. That is what happens when one reads only Volume I of Capital, neglecting the discussion of fictitious capital in Volumes II and III and Theories of Surplus Value.

I like Panitch's call for nationalising the means of money creation and credit. I also like Jack Layton's knowledge of marauding capital. I think Layton would be a good guy to have in Ottawa in the event that there is a political challenge to international capital.


Ryan1812
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I'm sorry but Fidel's pie in the sky is just too tempting for me to resist. I agree with Hudson entirely, and have actually studied much of Panitch as a social historian. Here's the point, a return to industrial capital WILL NOT HAPPEN! The longer and longer the Canadian left, or the North American left, fights to reinstate this anachronism, the longer we will be mired in old battles long since won by the neoliberals. Come on Fidel.  Seriously, neoliberalism has won the game. There is nothing that drives prices lower, makes consumer's happier and uses up our resource base more (to the smiles of Liberals and Conservatives alike) the our current system. It's rock solid and it isn't going to change. We on the left need to pull our heads out of the sand and realize ourselves that we are still stuck in the good ole-days when we had it good, when industrial capital had our backs, when we were organized and had a proud and strong voice. THAT VOICE IS GONE! It's been broken since the 70's-80 and it isn't coming back.

We need a new directive, a new plan, a new way to bring our voices together because, my brother in arms, industrial capital isn't it. I agree with many of the speakers we are discussing about in this thread that the left is lacking good ideas and cohesion. Why is it that our social investments are lower than the OECD average I wonder? Could it be because the OECD, like the World Bank, like the IMF, is a neoliberal engine that strives to decrease the tax burden and pillage LDC's and DC's alike for the benefit of low prices? The NDP isn't going to change this. They are neoliberal-lite, to quote one my fiancées poli-sci professors.

The NDP will not gain a powerful hold because Canadians, by and large don't trust them. Proportional representation isn't coming now, or ever, because the business elite know it will not benefit them. Canada now, more than ever, is a business paradise BECAUSE neoliberalism has won out here, more than anywhere else. Even in the states they are able to collect together and oppose things. I envy the Tea Party movement. At least they have cohesion. We in the left in Canada have nothing. We aren't cohesive because we are so busy vying for the scraps at the neoliberal table we haven't looked to see just what we have given up and how useless it is to fight the fights of old.

I admire your stick-to-itiveness Fidel, I really do. And I admire your ability to look at the discouraging future we have and think "we will do better." But unfortunately, I've lived too long and seen so much in so few years, and been so involved in the political process. I know it's useless to fight it. I hate it, ya know. Really I do! I was once like you and felt that we on the left, if we just banded together, could bring back the glory days and make them the most shining example of social fortune that ever was. But I hit a wall and realized that breaking neoliberalism is, in a word, impossible. I won't be beaten, it can't be beaten. To try to is to waste your time. Eek out your own social change and make it good. Use less plastic, and don't buy products that aren't socially conscious. Beyond that, we are the dystopia. God help us.

 


George Victor
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You and Saruman the White, Ryan!   Quite the capitulating pair, having "lived too long and seen so much in so few years"! Thirty something?


N.Beltov
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Good one, George. I guess Ryan has never heard of ALBA, or the council of wizards. Or Bombadil. Or, ...


Fidel
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Ryan1812 wrote:

 

I'm sorry but Fidel's pie in the sky is just too tempting for me to resist. I agree with Hudson entirely, and have actually studied much of Panitch as a social historian. Here's the point, a return to industrial capital WILL NOT HAPPEN! The longer and longer the Canadian left, or the North American left, fights to reinstate this anachronism, the longer we will be mired in old battles long since won by the neoliberals.

Well I believe Marxian insight is required to understand what's happening today. Basically neoliberalism is another version of laissez-faire state capitalism, or that which failed in North America after a 30 year run by 1929. Marx described contradictions inherent to both industrial as well as financial capitalism. Marx didn't believe that the parasitic form of capitalism would overthrow industrialism due to the destructive nature of finance and usury. What rightwing ideologues have done since 1980, which was to prop-up finance and banking at the expense of productive labour economies in a number of countries defies all logic. But this is what has unfolded over the last 30-35 years or so. As Michael Hudson and others have said, I don't believe there will be a real economic recovery of western world capitalism until a massive write-down of debt takes place on a scale of the financial deal between nations that took place by the latter half of the 1940s at Bretton Woods. The inherent contradiction today is exactly how Marx described it but with world wide debts integrated in what is now a globalizing economy and exceeding whole nations' ability to repay them. It's a giant Ponzi scheme gone bad. What can not be repaid won't be. There will be a major overhaul of the international monetary system within the next ten years with the current political capital of neoliberal ideologues on the wane everywhere. Change for better or worse is in the pipeline I believe. But generally they prefer small and profitable war as a solution to crises of capitalism as opposed to world war as the latter tends to lead to chaotic upheaval and most importantly,  revolutions.


Ryan1812
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George Victor wrote:

You and Saruman the White, Ryan!   Quite the capitulating pair, having "lived too long and seen so much in so few years"! Thirty something?

I was under the impression his name was "the Wise," in which case, thank you. As far as capitulating and hyperbole, I have been in a hospital for a week and am not my usual realistic self. Perhaps it is a bit much to exclaim that I have een so much after only 26 years on this earth. However, I do feel that I have seen, read and lived alot, and these things give me the opinion that deafeat isn't just imminent, but is here. But pleast, prove me wrong.

George Victor
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Could you explain why your age group tends not to vote?  Is the defeatism a general malaise of the twenty-somethings?

p.s.  Be well. 


N.Beltov
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I don't think Ryan is all that far off when he claims that a return to some state run industrial capitalism from the current dominance of finance or finance-industrial capital is a fantasy. However, when we discuss ideological matters, like neoliberalism, then a philosophy of capitulation seems counter-productive. The other side does a fine job of that already.


Ryan1812
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George Victor wrote:

Could you explain why your age group tends not to vote?  Is the defeatism a general malaise of the twenty-somethings?

p.s.  Be well. 

To be honest GV I don't know. I've voted since I was of age and truth be told, the first thing I did when I turned voting age was joined the NDP and sought out the federal contituency association to figure out how to become a member. It baffles my mind that people have the opinion that because they have the right to say no, that means they should. Voting is an obligation, a responsibility and the malaise or disinterest that follows around the twenty-something group continues to keep me in awe.


siamdave
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They start by saying the left needs 'new ideas' - no, the 'left' needs to open its eyes and accept certain facts they (or most of the left 'leaders' at any rate) seem uninterested in acknowledging.  I speak mainly and specifically of the central issue underlying every economic problem in the world today - the simple fact that for the last 35 years we have allowed private banks to create virtually our entire money supply, with next to no (real) government regulation. All else follows.

This comment of Panich - '...That can't happen unless the portion of the surplus, if I can use that term, that passes through the financial system and gives us the funds for credit in...' - indicates to me that he either does not understand that private banks create our money, or it's something he does not wish to talk about - either way, he needs, along with pretty much every other 'person of influence' on the mainstream left, to wake up. It's not 'surplus' which gives us funds for credit, credit is created out of thin air by banks punching numbers into computers - and when our entire money supply is created as debt by private banks, and they expect interest on that money every year - well, it is a matter of great puzzlement to me how so few people seem to understand the problems with this (problems for 'we the people', that is to say - it's obviously a pretty great system for the few who control it ..). There is, of course, an alternative - a democratically controlled money supply created debt-free - which, of course, would kick capitalism square in the nuts, so it's obvious why their mainstream media don't want to go anywhere near this idea - by why leading influential 'lefties' refuse to go there, since it is not at all a difficult idea to grasp - well, it makes one wonder, at times, if there isn't a bit of change being passed around in plain brown envelopes.

I won't get into it here - but I write about it at some length here, with more explanation as to exactly why allowing banks to create our money leads to the current type of situation - What Happened? http://www.rudemacedon.ca/what-happened.html .

Talking about ways to negotiate for workers etc to have a bit more free time and other 'demands' we can make of our capitalist masters to try and ease the tightness of the chains a bit is really completely in line with the old 'rearranging deck chairs on the Titanic' analogy - and certainly everything said in this piece has nothing whatsoever to do with the 'new ideas' they say are necessary. It's not 'new ideas' that are needed - it's waking up. And I fear I am in some agreement with Ryan here - any kind of mass waking up - after 100 years of increasingly sophisticated mass indoctrination - isn't looking very likely these days. I keep fighting - but it's hard not to very seriously consider the idea that they have, indeed, won. Next stop - feudalism redux (new essay coming soon, for those who are capable of thinking beyond what their 'leaders' tell them is ok to think ...)


Fidel
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I think Ryan may not realize the scope of the crisis of neoliberalism today. And it's not just one crisis or one over-inflated bubble but a number of them. I think that they believe the conservative right and centre-right are going to regain their former electoral glory of phony-majority support just as soon as the North American and western world economies come out of this swan dive. It won't happen without a major overhaul of the financial system. Liberals/Liberal democrats and Conservatives and Republican conservatives in power or phony opposition are going to face crisis after crisis until such time as a new international monetary deal. There will be no inflating their way out of it this time. It's finished. Kaput. As in game over insert another loonie and no more false economies to buy voter support with. There will be no more sweetener added to the neoliberal kool aid. Their lawnmowers have been running on ginger ale all along, wink-wink say no more eh.


N.Beltov
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"The Statue of Liberty is Kaput!" Who said that?


Fidel
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I edited to address Ryan and not N.B. I'm not too sure of what N.B. thinks about the current crisis except to let us know perhaps that the NDP deserve the usual 20 lashes and no soup.


N.Beltov
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hah! Your rambling missive makes perfect sense now! No, really! All this talk of socialism really needs to stop. The NDP is the way and the light.

Well, at least the light does reflect off the shiny head of the great, moustached helmsman anyway. Hell, yea! And what was that about NDP soup? Please Sir, I want some more! etc.


Fidel
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Meanwhile, back at the ranch... our colonial administrativeship in Ottawa continues handing the country over to rich Americanos, banks and money speculators.

Hey let's go throw eggs at "the moustache" who has a shiny head. And if we throw rotten eggs, it should really get things rolling for the proles.


Ryan1812
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Fidel wrote:

I think Ryan may not realize the scope of the crisis of neoliberalism today. And it's not just one crisis or one over-inflated bubble but a number of them. I think that they believe the conservative right and centre-right are going to regain their former electoral glory of phony-majority support just as soon as the North American and western world economies come out of this swan dive. It won't happen without a major overhaul of the financial system. Liberals/Liberal democrats and Conservatives and Republican conservatives in power or phony opposition are going to face crisis after crisis until such time as a new international monetary deal. There will be no inflating their way out of it this time. It's finished. Kaput. As in game over insert another loonie and no more false economies to buy voter support with. There will be no more sweetener added to the neoliberal kool aid. Their lawnmowers have been running on ginger ale all along, wink-wink say no more eh.

 

I'm sorry Fidel but as much as I'd like to believe I just don't see it. Believe me, I never want to be the one defending neoliberalism. However, it's stranglehold over the world and the continuing domination of transnational corporations that continue to function outside of sub-continental jurisdictions, is far from over. We've had recession, and the state will always turn to periods of socialism to alleviate the problems. Yes the US will bounce back and yes, maybe a new monetary policy will need to be put in place. But needing and actually happening in the political world infrequently meet. Who's to say that a shift will change. The list of billionaires keeps going up, people keep getting richer while the LDC's and DC's suffer. I don't see the change. I hate with a passion Thomas Flannagan but his theory of incrementalism is something that I hold near and dear to my heart, just twisted for a leftist. I will change the things I can, because I KNOW the world will not change for me.


Jacob Richter
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siamdave wrote:

This comment of Panich - '...That can't happen unless the portion of the surplus, if I can use that term, that passes through the financial system and gives us the funds for credit in...' - indicates to me that he either does not understand that private banks create our money, or it's something he does not wish to talk about - either way, he needs, along with pretty much every other 'person of influence' on the mainstream left, to wake up. It's not 'surplus' which gives us funds for credit, credit is created out of thin air by banks punching numbers into computers - and when our entire money supply is created as debt by private banks, and they expect interest on that money every year - well, it is a matter of great puzzlement to me how so few people seem to understand the problems with this (problems for 'we the people', that is to say - it's obviously a pretty great system for the few who control it ..). There is, of course, an alternative - a democratically controlled money supply created debt-free - which, of course, would kick capitalism square in the nuts, so it's obvious why their mainstream media don't want to go anywhere near this idea - by why leading influential 'lefties' refuse to go there, since it is not at all a difficult idea to grasp - well, it makes one wonder, at times, if there isn't a bit of change being passed around in plain brown envelopes.


Some leftists have gone there though:

http://www.revleft.com/vb/nationalising-banksi-t137695/index.html

Financial National-Democratization

"Even the Financial Times now warns in its editorials that it may not be possible to avoid much longer the issue of really taking the whole banking system into public ownership, given its current dysfunctionality. Indeed, there has long been a strong case for turning the banks into a public utility, given that they can't exist in complex modern society without states guaranteeing their deposits and central banks constantly acting as lenders of last resort." (Leo Panitch)

It is interesting to note the market-socialist David Schweickart referred to and approved of the same editorial alluded to by Leo Panitch, one by Willem Buiter, a professor of European political economy at the London School of Economics and the former head of the European Bank of Reconstruction and Development.  In The end of American capitalism as we knew it, Buiter wrote:

Is the reality of the modern, transactions-oriented model of financial capitalism indeed that large private firms make enormous private profits when the going is good and get bailed out and taken into temporary public ownership when the going gets bad, with the taxpayer taking the risk and the losses?

If so, then why not keep these activities in permanent public ownership?  There is a long-standing argument that there is no real case for private ownership of deposit-taking banking institutions, because these cannot exist safely without a deposit guarantee and/or lender of last resort facilities, that are ultimately underwritten by the taxpayer.

Even where private deposit insurance exists, this is only sufficient to handle bank runs on a subset of the banks in the system.  Private banks collectively cannot self-insure against a generalised run on the banks.  Once the state underwrites the deposits or makes alternative funding available as lender of last resort, deposit-based banking is a license to print money.

That suggests that either deposit-banking licenses should be periodically auctioned off competitively or that deposit-taking banks should be in public ownership to ensure that the taxpayer gets the rents as well as the risks.  The argument that financial intermediation cannot be entrusted to the private sector can now be extended to include the new, transactions-oriented, capital-markets-based forms of financial capitalism.

It should be noted that "bank runs on a subset of the banks in the system" vs. "generalized run on the banks" refers to fractional reserve banking; banks keep only a fraction of deposits in highly liquid reserves, lend out the rest, all the while being legally obligated to redeem all deposits upon customer demand.  For all the rhetoric by Milton Friedman, the rest of the Chicago School, the Austrian School further to their right, and other right-wing economists on fractional reserve banking as the main culprit behind debt bubbles, they miss the point: under the present financial system, the amount of public control over M0, M1, M2, and the entire money supply generally is almost non-existent.  A national-democratized financial monopoly beyond even the limitations of the former Gosbank SSSR (USSR State Bank), along with the extension of this public monopoly on money supply control into the general provision of commercial and consumer credit, is the only way towards achieving at least substantive public control over the money supply.  It is also the only way to make substantive inroads against the massive behemoth of derivatives trading.

In early 2009, political economist Paulo L dos Santos went further in addressing the appropriate purchase prices based on the market capitalization of these financial institutions, particularly those in trouble:

There is a simple, rational alternative that needs urgent public discussion.  Expropriate the banks - or, for those partial to more diplomatic language, nationalise them at the market prices that would prevail had the public not poured hundreds of billions into them.  Then run the banks under the sole imperative of stabilising the financial system and paving the way for economic recovery, with no constraints imposed by the need to attract private capital or maintain future private franchise value.

Expropriation would lower the fiscal impact of state intervention.  It would also curb the massive hoarding currently taking place as banks try to build up capitalisation levels.  State banks could maintain lower capital reserves - after all, the only thing maintaining public confidence in the solvency of banks are state guarantees.  This would allow additional room for credit creation, and render recent interest rate cuts effective.

State banks would also be able to provide relief on the debts currently saddling many households, helping provide a welcome boost to aggregate demand.  Lastly, state banks could curb the more egregious practices of private banks: exorbitant account, overdraft and transaction fees; interest rates on credit to households; gains made on trading and own accounts at the expense of retail savers; and, of course, bonuses.

These measures are unlikely to be taken by currently dominant political forces, even though such policies are neither socialist nor in themselves steps towards socialism.  They are just rational attempts to stop the current economic bloodletting.  Economic recovery will require taking on the long-term systemic economic imbalances that conditioned the current meltdown.  Those include falling real investment by non-financial corporations, mediocre productivity growth, growing private provision of pensions, health and education, and rising inequality.  Addressing those issues will require significant socialist inroads into the functioning of the economy and dramatic political changes.  They also require an integrated, long-term understanding of the current crisis and secular developments in the real economy.  Stay tuned.

Many have tried to contrast the role of financial capital with that of the older industrial capital, usually by resorting to some form of ethics.  Keynes himself openly distinguished between the "entrepreneur" and the "capitalist" (financiers, short-sellers of shares and similar speculators in derivatives and currency exchange, etc.), but the market-socialist David Schweickart made the most obvious point in his book Against Capitalism about the system inherently joining the two:

It is true that some capitalists innovate, reorganize, and manage, but it is also true that many do not.  This fact, if not its ethical implications, is acknowledged by most economists; it is reflected, for example, in the standard distinction between interest and profit.  Profit is the residual accruing to the entrepreneurial after wage, rental, and interest accounts have been paid.

The basic problem for one trying to justify capitalism (noncomparatively) is precisely this category: interest, a return that requires neither risk nor entrepreneurial activity on the part of the recipient.

Time preference need not enter into the explanation of the capitalist's behavior any more than the entrepreneur's.  If Marx and Weber are right, the motivational structure for the paradigmatic capitalist is accumulation, not consumption.  Moneymaking becomes an end in itself.  The capitalist qua capitalist invests now not to have more to consume later but to have more to invest later.  As Marx puts it, "Accumulate, accumulate.  That is Moses and the prophets."

One last aspect of financial national-democratization should be touched upon, and indeed it is about an ethical position as much as it is about the numerical difference between assets and liabilities: equity.  In several pre-industrial societies, there were taboos against charging interest on loans or - to use an older word - usury.  There were also equitable rules on secured loans.  For example, Exodus 22:25-27, Deuteronomy 23:20-21, and rabbinical literature prohibit the charging of interest to Israelites (except when a life is in danger) as well as the using for loan security items needed by the poor among them to survive (garments needed by the poor among them to survive cold nights or flour-making millstones, but other items are implied as well) - quite a contrast to the Catholic-imposed privilege of charging usury enjoyed by medieval Jewish usurers but for the convenient purpose of anti-Semitic scapegoating later on, and certainly a contrast to the financial practices of modern Israeli society!  Meanwhile, the anti-usury Islamic finance has a Sumerian precedent which could be applied today, free of pork and alcohol limitations and applied especially towards venture (read: vulture) capital activities: agreements between the de facto creditor and the de facto debtor whereby the latter would manage the new business venture and the former would invest in the business venture, assuming typical business risk to income stability but deriving income in the form of profits.  To revisit what Santos discussed above, a national-democratized financial monopoly should be more than capable of absorbing, say, the higher risk to income stability posed by small cooperatives or small-business proprietorships as it effectively nationalizes those debtors' operations in the financing agreements - only to effectively re-privatize them as equitable profits (and not interest) due the monopoly reduce that monopoly's ownership positions.

 

REFERENCES

 

From the global crisis to Canada's crisis by Leo Panitch [http://www.theglobeandmail.com/servlet/story/RTGAM.20081203.wcopanitch04/BNStory/specialComment/]

The end of American capitalism as we knew it by Willem Buiter [http://blogs.ft.com/maverecon/2008/09/the-end-of-american-capitalism-as-we-knew-it/#more-300]

Bank expropriation is rational, but neither socialist nor sufficient by Paulo L dos Santos [http://political-finance.blogspot.com/2009/01/bank-expropriation-is-rational-but.html]

Against Capitalism by David Schweickart [http://books.google.com/books?id=A_0afomkjQYC&printsec=frontcover&source=gbs_summary_r&cad=0]


siamdave
Offline
Joined: Sep 2 2005

These guys still haven't got the light turned on, although they're at least looking. This quote - "..banks keep only a fraction of deposits in highly liquid reserves, lend out the rest, all the while being legally obligated to redeem all deposits upon customer demand.." - indicates they still do not understand what happens. Banks do not take deposits, and lend some of the deposited money out. They simply create new deposits out of thin air when someone takes out a loan.

And nationalizing 'the banks' is not what is required - it's something of a red herring - the key is to stop banks from creating our money supply and charging interest on it - no private citizens should have that power. Banks that function like 'savings and loans' places are meant to function are fine - properly regulated. No money creation power.

The rest gets into a long story, but people need to rethink the whole idea of money - right now, it is a weapon used by the wealthy to control the citizens. It should be seen more as a controlled pool of credit which is accessible by any citizen, with, of course, appropriate safeguards. I'm working on a longer essay which I'll post when finished.


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