The Financialization of Life

Yves here. One of the efforts the Naked Capitalism community has been engaged in is trying to understand and map our emerging political and economic order. Over the last four decades, massive changes have taken place in social values, in job security, in the importance of communities relative to other networks, like professional associations, and in the role of the state. Economists, social scientists, and laypeople have used various frameworks for describing this period. Understanding the driving process is important not merely for the purposes of description, but also for analysis, since a major question remains open: is this a last gasp of large-scale industrial capitalism, or is this the starting phase of a new economic order? We’ve tended to see this period as a self-limiting finance-led counter-revolution against the New Deal, but that may prove to be too optimistic a reading.

This Real News Network interview with Costas Lapavitsas, a professor in economics at the University of London School of Oriental and African Studies, takes a different perspective. Lapavitsas contends that financialization itself constitutes a new form of capitalism, which is supported by neoliberal ideology.

Independent of whether you fully agree with Lapavitsas’ framing, this talk gives a good overview of the major economic and political changes since 1970. His summary would be useful for those who could use a historical perspective on these shifts, or want a high-level understanding of the restructuring of modern economies without having to get too deep into the weeds. But even though this interview is designed to go down easily, it offers a lot of grist for thought.

AUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.
This is our first town hall. We just opened up the studio a few days ago, and we’re going to do our first town hall about how finance exploits all of us. It’s a very important topic for us at The Real News, because one of the main reasons we came to Baltimore was to take up one critical question, which is, more or less: what would you do if you ran Baltimore in the interests of the majority of its people? Of course, there’s sort of a built-in assumption there that it’s not currently the case. But that’s what we think. I think the facts would lead one there. But if in fact you had a mayor, a city counselor, if you had a governor, a state assembly, and their only interest was the majority of the people’s well-being, what with that public policy actually look like? It’s easy to critique the existing system. It’s perhaps not so easy to say what you would really do. And over the next year, two, or three years, we want to do investigative journalism. We’re going to do town hall discussions and debates and talks and film screenings and all manner of formats, but all directed at the same basic objective: what would public policy look like if it was only in the interests of ordinary people?

So we’re going to kick it off tonight and talk about how finance exploits all of us with our guest, Costas Lapavitzas. The topic is very important, and it’s a very good topic particularly for Baltimore, because Baltimore is the home of the subprime mortgage. Most people that follow this know that the 2008 financial crisis was triggered by a banking crisis that to a large extent was triggered by subprime mortgages, people that were lent money, banks knowing they could never repay the mortgages, and not really caring if the mortgages were ever repaid, because they would package hundreds and even thousands of these mortgages, sell them on the derivatives markets to pension funds and other banks, and the whole thing was a house of cards. And I guess they had either an underlying belief that American real estate could never collapse or they didn’t care, ’cause they were making such fees on the whole thing they really didn’t care if the whole thing came down, because most of the people playing this game cashed out very well and they make money before the crash and they make money after the crash.

And Baltimore was the target of all this, not in the 2000s, but in the 1990s. This is where the whole subprime experiment began, and it was all targeted at African Americans, deliberately so. And it’s come out in court documents since a lawsuit that the City of Baltimore launched against Wells Fargo Bank. It came out that it was specifically targeted to African Americans. They would higher African American loan officers to sell this stuff. They would not care at all whether people could pay. They would promise low interest rates to start, and then later, of course, it would balloon up and people would lose their houses. In the year 2000, subprime mortgages was the number one cause of foreclosures in Baltimore long before it became a national phenomenon.

So this is sort of an example of how we want to tie systemic issues like big banks, predatory lending, and how this appears locally and how it screws up people’s lives, and over time start talking about what an alternative financial system–and not just financial but other ways of my managing a city and a state and, someday, a country–might look like.

So without further ado, I’d like to introduce our guest tonight, and he is Costas Lapavitsas. And he’s a professor of economics at the School of Oriental and African Studies at the University of London. He’s a member of Research on Money Finance (RMF) and the lead author of the new RMF report “Breaking Up? A Route Out of the Euro Zone Crisis”. His previous publications include Crisis in the Eurozone; Social Foundations of Markets, Money, and Credit; and Political Economy of Money and Finance. And Costas is going to speak for 15, 20 minutes or so, and then we’ll have a Q&A. And I look forward to hearing it all.

So go ahead, Costas.

COSTAS LAPAVITSAS, ECONOMICS PROFESSOR, UNIV. OF LONDON: I will present to you some ideas that I have dealt with in my new book, Profiting without Producing, which has just come out, which discuss finance and the rise of finance. I can’t tell you very much about Baltimore because I don’t know about it, but I will tell you quite a few things about what I call the financialization of capitalism, which impacts on Baltimore and on many other places.

So, getting on with it, and very quickly because time is short, I think it’s fair to say and all of us would agree that finance has an extraordinary presence in contemporary mature economies. It’s very clear in the case of the U.S., but equally clear in the case of the United Kingdom, where I live, Japan, about which I know quite a bit, Germany, and so on. There’s no question at all about it. Finance is a sector of the economy in mature countries which has grown enormously in terms of size relative to the rest of the economy, in terms of penetration into everyday lives of ordinary people, but also small and medium businesses and just about everybody. And in terms of policy influence, finance clearly influences economic policy on a national level in country after country. The interests of finance are paramount in forming economic policy. So that is clear. Finance has become extraordinarily powerful. And that, in a sense, is the first immediate way in which we can understand financialization. Something has happened there, and modern mature capitalism appears to have financialized.

Now, what is this financialization? The best I can do right now is to give you the gist of this argument of mine in my book. And I will come clean immediately and tell you that I think financialization is basically a profound historical transformation of modern capitalism. This is the way I understand it. It’s a profound historical transformation that really began in the 1970s, and it’s now been running for about four decades.

How to understand, then, the profound historical transformation, how to go about it, what concepts do we need? I think we need first of all to look at some economic processes, some economic change that is taking place, fundamental economic change, and then we need to look at some changes in politics and institutions and combine the two in order to grasp the historical change.

So let me start with economic changes, the economic foundations of this transformation. I think there are three key root changes here.

The first, funnily enough, doesn’t relate to finance itself, but it relates to industry and commerce. In other words, it relates to nonfinancial economic activity. One must start there to understand the historical transformation. So what has happened to big business in particular? Well, what’s happened to big business is very interesting. Two things have happened to it. First, big business has become increasingly capable of financing investment out of retained earnings. It retains its profits, and on a net basis it finances investment pretty much out of that. Of course, it still uses banks, but it doesn’t rely on banks on a net basis to finance investment. That gives it independence, a certain degree of independence from banks.

In addition to that, big business has made so much in retained profits–currently U.S. big business is sitting on piles of cash. It has made so much in retained profits that it can use those funds to play financial games, to engage in financial transactions and financial activities on its own account. So big business has financialized. The key element that we’ve got to understand first is the financialization of big business. Large enterprises have acquired some of the character of financial institutions, have become bank-like, and they engage in these transactions, and they change the structure of their own organization as they do that. So that’s the first thing.

Second economic change, and very, very important, too, relates to banks. If big businesses is doing that, banks must do something else to make profit. Banks are profit-making institutions. So if big business becomes increasingly independent of banks, banks must do something else. What have banks done? It’s very clear what they’ve done. They lend less to businesses for investment and so on, and they play more games in the financial markets. They become transactors in financial assets, and they make profits increasingly not from lending but from fees, commissions, and trading. They become traders in financial assets.

At the same time, banks have also turn households. Households have become a very profitable activity of banks, a new activity. This is a new phenomenon in the development of capitalism. So that much about banks.

The third change has to do with households, workers, ordinary people. And what we see there in the last three to four decades is that ordinary people have been qdrawn into the former financial system like never before. Households have become financialized. Finance has become a fundamental part of household life–like I say, like never before.

Why is that? Partly because wages have been stagnant. And therefore–I mean, nowhere more stagnant than in this country. I mean, real wages have been absolutely flat in this country for decades. So partly because of that, people have turned to debt. But also people have got assets, financial assets.

So the financialization of everyday life, of households, is a bit of a complex story. What is actually happening there, I think, is not simply that you borrow in order to consume. That also happens. It’s a more complex story than that. What is actually happening is people need access to health, education, housing, and a variety of other needs. Every country has systems of provision for these things. Each country differs from the next country, but pretty much there are similarities. These modes of provision have historically, traditionally, incorporated public provision, some methods of public provision, for everything–for housing, for health, for education, and so on. What we’ve witnessed the last three to four decades is a retreat of public provision. Public provision has retreated. Private provision has taken its place. As this is happened, finance has emerged as the facilitator of that. So we turn to private provision to solve our housing needs, our health needs, our education needs, and finance makes profits out of that, basically, without having any skills in doing these things. So this to me is the financialization of households, the third major trend.

So non-financials have financialized, banks have changed, and households have been drawn into the financial system. These changes together have basically transformed the economy, transformed the foundations of the economy. This is a new type of capitalism.

At the same time, we’ve had changes in institutions and in ideology. These you would have heard about and you would be familiar with. The changes in institutions are very clear. We’ve had wave after wave of deregulation. Labor market has become more deregulated, and financial markets have become more deregulated.

And in addition to deregulation what we’ve had is the rise of the ideology of neoliberalism. Deregulation goes hand in hand with neoliberalism, the idea that the market is good, the state is bad. In this country, this is a very powerfully held idea, more powerfully here than anywhere else. Actually, it’s extraordinary how powerful this perception is and how a lot of social issues are understood in this way.

The point I want to make you is that neoliberalism is very, very powerful and sustains financialization, but neoliberalism is not really about asserting the merits of the market over the state. Actually, it’s more complex than that and it’s more crafty than that, because neoliberals are not the enemies of the state. Neoliberals want to take over the state. The actual content of neoliberal ideology is to take over the state and to use the state to protect the market, to make the market bigger, to effect market-favoring, market-conducive changes. So this has also been going on the last three to four decades. And that to me is the core of financialization.

So what have we got after four decades of this? These changes, seen very clearly in the United States, have created, firstly, a deeply unequal country, a deeply unequal society. Financialization is fundamentally about inequality. We see this inequality in terms of income, where the top 10 percent and the top 1 percent draw an extraordinary proportion of income annually. But we see it in terms of the functional distribution, the distribution of income between capital and labor, where labor has lost–and lost dramatically–during the last three to four decades in this country and in just about every other mature capitalist country that has financialized.

So this is a deeply unequal system. It generates inequality. Finance has acted as a key lever in increasing it inequality. Finance is a vital mechanism in increasing inequality. You can see it in terms of the profits it creates. Financial profit has become a huge part of total profit through these activities that I’ve just discussed by markets, households, and so on–a huge part of total profit. And the rich in this country and elsewhere typically become rich through financial methods; the way in which you acquire great wealth and you cream off the surplus is basically through financial methods, through access to financial assets, privileged ways of trading financial assets, and privileged position in of the financial system that allows you to extract vast returns, which appear as salaries and wages, in other words, remuneration for labor. Come on. What kind of remuneration for labor is this allows someone to draw tens of millions of dollars annually? For what kind of labor? This isn’t labor. This is a kind of rent, this is a kind of surplus accruing because of power and position in the financial system or access to finance. And that is typical of financialization in this country and elsewhere.

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105 comments

  1. H. Alexander Ivey

    I agree with his basic argument, that over the last 30 – 40 years, big business has switched from making money by making things and providing services for a profit to making money from dealing with and controlling access to money, that the banks have switched from making money by controlling access to money to making money by being the middle man for big businesses and by fleecing small to middle size businesses and individuals by selling them questionable financial products – insurance, hedges, money management, etc.), and that indivduals and small businesses have turned to the banks for the money needed to provide basic services (services that were once provided by governments, or controled by the governments).

    What he has missed, in the main, is the role of government. Why did business turn to financing, why did the banks start fleecing, why did the people turn to banks for loans, etc.? Because the governments quit doing their job of setting standards and punishing legal abuses.

    1. abynormal

      “There are many fingers and no first”… but business/corporations turned to Welfare not financing. the largest corps. set their eyes on the world, through Oil & other resources including cheaper labor, requiring large amounts of ‘start-up’.
      here are a few of the necessary strongholds Corporations gained and why:

      ” American private enterprise is confronted with this choice; it may strike out and save its position all over the world, or sit by and witness its own funeral…. We must set the pace and assume the responsibility of the majority stockholder in this corporation known as the world…. This is a permanent obligation…. Our foreign policy will be more concerned with the safety and stability of our foreign investments than ever before. ”
      Standard Oil of New Jersey executive, 1946

      “Pembina Consolidated Silver Mining Co. v. Pennsylvania – 125 U.S. 181 (1888), the Court clearly affirmed the doctrine, holding, “Under the designation of ‘person’ there is no doubt that a private corporation is included [in the Fourteenth Amendment]. Such corporations are merely associations of individuals united for a special purpose and permitted to do business under a particular name and have a succession of members without dissolution.”[3] This doctrine has been reaffirmed by the Court many times since.”

      Corporate Charters tackled their largest beast…Unions and Trade Unions. this gouge allowed a broad stroke that finally diminished fair wages and our ability to pressure corporations through boycotts, etc.
      “Workers in the United States have also been learning about the need for international solidarity when they have conflicts with foreign owners of companies based in the United States. A recent case involved Local 7591 of the United Paperworkers International Union (IJPTIJ) in Charleston, Illinois. When the management of their employer, Trailmobile, tried to force them to accept a three-year wage freeze, the workers demanded a better deal. When Trailmobile responded by locking out 1,200 workers, the union decided to focus on the Indonesian owners of Trailmobile’s parent company, the Gemala Group. The UPIU teamed up with activists protesting Indonesia’s murderous policies in East Timor and demonstrated at Indonesian embassies in Australia and the United States. Eventually Trailmobile caved in and gave the workers what they wanted.”
      …corps said, ‘This Won’t Happen Again’. by the time Enron hit the scene…corporate lawyers knew exactly how and where to throw the money.

          1. susan the other

            Yes, me too. Corporations R Us. That the big corporations became “financialized” by their own hand is also interesting – they just managed to finagle so much socialized welfare they thought they might as well sell debt. They had to do something with all that loot in a world nearly saturated with a never-ending supply of consumer goods. The result we are seeing now is very Picketty to me. Too much money seeking slightly too much profit over the decades destroys an economy at its roots. I disagree with Lapavitsas on one point. I don’t think the big corporations wanted to get rid of the state or take over the state so much as they wanted to have a constant source of demand that they could control. To do that they had to impose a certain impoverishment which meant they had to get government provisioning out of the way – which has actually backfired on them. And etc. But I’m just splitting hairs. Great stuff.

      1. Vatch

        The Gemala/Trailmobile/East Timor event occurred in 1996. I’m not saying this to invalidate anything that you said; I just want to clarify the time frame.

      2. Nathanael

        ” The more you tighten your grip, Tarkin, the more star systems will slip through your fingers. ”

        The sort of corporate elites who keep “clamping down” are, frankly, MORONS. They are writing their own death warrants and signing them.

        The correct strategy for staying in power is to keep the 99% happy. Bread and circuses! Votes!

    2. nohomehere

      I agree with you, but why did the gov stop inforcing standards and illegal abuses? My answer is, no civilization last forever the mistakes of the past get repeated ! When the top( the finacial geniouses and corporate powerhouses and the 1%ters find themselves scrambling for selfpreservation and see’s it is lossing its foot hold, they suddenly become agressive and their attitude becomes one of scorched earth ! nothing can be built if the only survivors where diseminating the erroronious again in hopes of regaining its power again. thus war is often the end of political and economic quarrels of different dimentions ! Men are rare, who give instead of take, as leaders politically as well as economically! So My conclusion is that we will see a world wide disruption and disarray permiting A new (THEORY) Flawed though it may be as a temporary halt to the coming chaos! but as usual the rules will be intolorable for many if not most , eventually that is, as it takes time for the true meaning and effect of instituted programs and policies to take there toll on individuals. as exemplified by germany and hitlers rule . . . . most will not see it’s fruition (the theory’s) that is, until it is much to late to stop, descent will only lead to SIDELINING. One must visualize on a world scale the finale fling of RULE MAKERS trying to control what makes us all human and very routine or cyclical. Greedy men will only continue as long as permited by providence and a change happens to us as a species! Now that all the chips are on the table and the players are all in one can estimate the size of the pot and anticipate the agony of the lossers . those that will be left flat but recoverable and others creeping towards the door trying to hide their thoughts. In hope I wait for my change and “this corruptible must put on INCORRUPTION and this mortal ( MUST) put on IMMORTALITY!”(quote:1st Cor. 15.53)

  2. alex morfesis

    bloombergization…I think we have more information about items most were not aware always existed. Sears was in everyones wallet and had data points that they would work when they were the walmart of the economy. The financialization was always there and execs worrying about how to cook the books on the 13th week to make their bonus was always in play as anyone with a half a brain used to start reading a corporations SEC filings by starting with the footnotes. Unions died, not just because industrialists worked them, but due to the wilting flower effect. To have a nice garden with interesting variety and proper continued growth, you have to clip off the flowers before they have begun to wilt. The wilting effects the rest of the plant as energy is drawn to try to make the impossible happen…keep the flower stuck in time…it naturally wants to hang on longer than it should, thus effecting the entire future of that plant…Instead of allowing smaller firms to grow into the size that could sustain a strong unionized work force, in many parts of the country union organizers, either from stupid greed or by being “played”, killed the goose and finished off the golden egg factory, making it difficult for small potential industrialists to imagine growing an enterprise or even starting one in some parts of the country.

    much of what we see in financial information is not new…its just new to those who did not know where to go find it…the financial plutocrats have always been there…its just that DIALOG was not cheap in the early 1980’s…the information was always there…it just was not there in a visually pleasing and easily accessed manner. Trade publications and institutional lobbying type organizations were always saying these openly “shocking” things many find disturbing to read in ALEC or the US Chamber of Commerce website, or even MERS or NTC…it was always there…its just that the circulation was maybe just the 20 thousand who got a monthly copy of the publication. Now there is access to this same meme across the globe. Not saying that any of this is bad, in respect to people getting a better idea of what is going on around them…perhaps sunshine really is the best disinfectant…

    1. Nathanael

      I think you’re right about that. The Internet has actually exposed a lot of bad stuff which has been going on for decades, which is making it possible to organize around such issues. It helps.

  3. Gerard Pierce

    One of the problems with the term financialization is that the very word obscures what is really going on.

    It’s like saying that double entry bookkeeping is the secret of success in business.

    When Adam Smith wrote about the pin makers everyone was amazed at his identification of the division of labor as a fundamental economic principle. But this is another case where “division of labor” obscured how the economy actually works.

    It didn’t take a lot in the way of resources to make pins. In theory any small group of laborers should have been able to set up their own pin factory. The cost of materials was minimal, and the laborers in a pin factory knew more about the process than anyone else.

    But that doesn’t seem to be the way that it worked out. I’m pretty certain that any number of groups tried this and wound up with an inventory of pins that they couldn’t unload at any price. Some people were able to obtain customers and sell pins. Others were destined to work for the first group.

    In the legal profession there are some not-very-good attorneys who couldn’t try a case to save their lives, but who are able to take potential clients to lunch and turn them into actual clients. This kind of attorney is referred to as a rainmaker.

    The only point that I am trying to make here is that the term financialization doesn’t explain how anything really works. In some parts of finance being an athlete and being a member of the right fraternity is necessary if you want a trainee position in certain financial firms.

    You can’t explain how it works if you leave out class and social position, and you can’t explain how it works solely on class and social position.

    1. fresno dan

      I think your exactly right. Its not what you know, but who you know.
      When I have read articles about the elite, what is amazing is the tight nexus of people – everything from Andrea Mitchell being married to Alan Greenspan to Chelsea Clinton marrying a Goldman Sachs banker.
      This clique, fraternity, call it what you will, has always been around. But I think there was some countervailing power in the past, and some divisions based on religion, geography, and ethnicity that divided the power and kept it from being completely uniform in its agenda for financial dominance. (and remember, the democrats and republicans are in lock step in pleasing wall street – I am so decrepit that I can remember when they disagreed over who the chairman of the FED would be…).
      I think now the elite is driven of money, for money, by money. Its really just a financracy – all money all the time.

      1. Nathanael

        That’s how it looks from the outside. The internal divisions within the power elite are not usually clear to those outside it, except to those very close to it.

        Yves is close enough that she can see some of the internal divisions. So can I. I could call it the Soros/Koch divide, perhaps; it’s an old divide, equivalent to the Liberals vs. the Tories in the 1830s. This stuff matters.

  4. Working Class Nero

    Lapavitsas is a clear thinker and gets many things right. His problem is that he refuses to examine the root cause of what led to financialization.

    Why is that? Partly because wages have been stagnant. And therefore–I mean, nowhere more stagnant than in this country. I mean, real wages have been absolutely flat in this country for decades. So partly because of that, people have turned to debt. But also people have got assets, financial assets.

    Here he is absolutely spot-on: wages have been flat and some of the resulting relative loss in standard of living is attenuated (temporarily) by debt. But what caused real wages to stagnate? What were the processes that led to labor losing its power at the negotiating table with capital? Because the answer to these questions are not only fundamental to understanding the root causes of financialization; even more importantly they are critical to someday rebalancing the power equation between labor and capital. Sadly, and I would speculate due to political reasons, Lapavitsas doesn’t go there, and that’s because the answer is is labeled as “far Right” by many.

    The only power labor has in the face of capital is scarcity and labor’s ability to deny its use to capital in the form of strikes. The key to overturning the power equilibrium between labor and capital was capital’s ability to access cheap third world labor and thus be able to pit the workers of the First World against those of the Third. There is no better illustration of this than the defeat of the Cesar Chavez’s United Farm Workers of America. And it doesn’t matter how clever the union negotiator is when management makes it very clear that if the ruinous contract is not accepted, the factory will be moved to China.

    So through the process of globalization, “Workers of the World, Compete!”, capital was able to get the upper hand on labor. This is where the political problems occur for Lapavitsas. In some ways the “Left” have been even more vocal champions of First vs. Third World labor competition than the Right and in many ways still are. For example in most Leftist circles it is strictly verboten to even imply that such competition is bad for the First World workers. It would be called “scapegoating” the noble Third World wokers. The truth is the Left abandoned First World workers and joined forces with capital to assist them in transferring wealth to the Third World. So from a political point of view it is much wiser for Lapavitsas to point out the ugly tumor of financialization than discuss the underlying cancer of globalization; because the chemotherapy required to kill it involves closing borders to cheap labor and protecting borders from cheap imports; and these are political non-starters for all mainstream parties and academics.

    And so as the article progresses, the cause and effect start getting confused:

    But we see it in terms of the functional distribution, the distribution of income between capital and labor, where labor has lost–and lost dramatically–during the last three to four decades in this country and in just about every other mature capitalist country that has financialized.

    Again, this is true but the correct order of things is lost. First labor got dumped by capital, then through financialization, capital basically said “we can still be friends” and gave them the occasional peck on the cheek in the form of loans. The goal of course was to keep labor from turning to political forces that would actually attack globalization. And until labor does start doing something to redress the balance, the pecks on the cheek will become fewer and further between and will come with ever increasingly stringent terms.

    1. Brent Shawalter

      Your either a nationalist or your not. No “Left” can say they value 3rd world workers more than any other, because there is no “Left”.

    2. vlade

      Yep, my comment was et by WP, but it was about the same thing. Financialization is the lever that makes everything worse, but the starting point, and the point to fix, is the stagnant real wages, for which banks are less responsible than other parts of the economy.

      1. not_me

        is the stagnant real wages, for which banks are less responsible than other parts of the economy. vlade

        Just because industry and business may now be able to automate and outsource without financing from the banks does not mean that they did not previously use the government-privileged banks to dis-employe workers with automation financed with the workers’ own (legally) stolen purchasing power and thus achieve independence from labor cartels and the banking cartel.

        So now we not only need to de-privilege the banks but redistribute real wealth! What a mess pragmatism (eg. government deposit insurance instead of a Postal Savings Service) instead of a principled distinction between government and the private sector has caused!

        If this country goes down it won’t be because of excess CO2 or resource depletion per se but because of lack of principle wrt purchasing power creation.

    3. proximity1

      RE: [A] “First labor got dumped by capital, then through financialization, capital basically said “we can still be friends” and gave them the occasional peck on the cheek in the form of loans. [B] The goal of course was to keep labor from turning to political forces that would actually attack globalization.”

      I think you’re right to point up [A] but that you’ve (perhaps) missed that [B] had, by then, already been precluded as a pressing concern. By the time captial felt it safe to dump labor, it had also already arranged the seizure of governments’ institutions and in doing so precluded labor’s potential turning to political forces that either could or would attack globalization. The debasement of democratic institutions in electoral and administrative politics preceded what was the eventual effective removal of labor as a serious obstacle to the advancement of both globalization and financialization–those two trends which have complemented and which continue to complement each other so well.

      So, I think that the [B] goal was rather to stave off a feared (by the corporate and banking interests) general collapse of broad consumer-demand in economies such as that of the U.S. where, as wages became stagnant or often fell in real terms, various economists have argued that liberalized consumer-debt practices were seen as the way to fill the breech–to allow people to enjoy what could only be a temporary continuation of their material standards of living since debt-based consumption cannot go on without limit.

      1. Nathanael

        “By the time captial felt it safe to dump labor, it had also already arranged the seizure of governments’ institutions and in doing so precluded labor’s potential turning to political forces that either could or would attack globalization.”

        They tried this before. Many times. This is a form of hubris. People, pushed hard enough, will find political forces that overthrow governments. Every damn time.

        If you want to stay in power as an elite, you have to do the following things:
        (1) Feed the vast majority of the population. All the time. Fail to feed enough people, and you WILL be overthrown.
        (2) In cold climates, keep everyone clothed and housed (less important in tropical climates).
        (3) Do your best to keep everyone healthy (everyone hates epidemics)
        (4) Keep people entertained.
        (5) Don’t lose wars.

        This is an old formula. What gets me is that the idiots we have in power today are screwing up nearly everything on the list.

    4. diptherio

      Off-shoring jobs was just the most recent way of dividing labor, so as to keep it in line. Racism and jingoism have always been useful to the employing classes, and unfortunately your analysis seems to fall into that same old trap.

      …closing borders to cheap labor and protecting borders from cheap imports

      That’s thinking in their terms. The solution is not sealing off the border (good luck with that, btw); what we laborers should be pushing for is an end to capitalist ownership of the means of production. It’s the division between capital ownership and labor that is the problem: if the laborers owned (or rented) the capital for their own benefit, rather than renting themselves to owners of capital for the benefit of those owners, then all this “first world vs. third world” discussion would sink into irrelevance.

      Framing the issues the way you have plays into the capitalists’ hands. We need to break our minds out of these old ways of thinking. You frame things as US workers vs. all other workers, and US goods vs. all other goods, but this is not helpful. We shouldn’t be closing the borders to our fellow workers in hopes that this will give us more bargaining power (it won’t, because robots, among other things), we should be building solidarity with workers everywhere to overthrow the current economic arrangements and replace them with something more conducive of human health and happiness.

      1. Working Class Nero

        then all this “first world vs. third world” discussion would sink into irrelevance.

        Really? Can you please let me know what the standard of living will be for those workers who used to live in the first world when your Year Zero is finally reached? Are you really saying that if we just try one more time, that this time the dictatorship of the proletariat will raise the entire third world up to the level of the first? Can you really be saying that? Even Neoliberals are not this deluded. They are occasionally even honest about their desire to level the differences between the first and third world. But only a fool would believe anything other than this levelling will mean a slight increase for the third and a huge decrease for the first. Is this what you are talking about? Please be clear about the endgame you foresee because I suspect that your endgame and the Neoliberal Globalization endgame are exactly the same – equality between first and third world labor. Which was exactly the point of my original comment, that the Left cannot attack globalization because they actually strongly support its levelling goals.

        We shouldn’t be closing the borders to our fellow workers in hopes that this will give us more bargaining power (it won’t, because robots, among other things), we should be building solidarity with workers everywhere to overthrow the current economic arrangements and replace them with something more conducive of human health and happiness.

        You know, when Libertarians make their insane pleas for open borders they at least have the common consideration to promise me trillion dollar bills on the sidewalk. All I get from the Left is the rather vague “something more conducive of human health and happiness “ Wouldn’t one idea of solidarity be that third world workers stay in their countries and not undermine first world salaries and in return the first world will stay in their countries and not colonize and invade and exploit the third world?

        1. diptherio

          Dictatorship of the proletariat? Way to put words in my mouth. I am simply suggesting that rather than pitting workers in the US against workers everywhere else, we put our efforts into placing workers in control of their own companies. Co-ops of all kinds (worker, consumer, producer, multi-stakeholder) present a “third way” beyond capitalism and state socialism.

          I don’t believe that quality-of-life has simply to do with material wealth. If it was that simple, then human happiness would be a zero-sum game (more for me = less for you), but that is fortunately not the case. We need to look for solutions that alter the structure of our economic system to direct flows of income away from “the 1%” and towards the rest of us. Restructuring ownership is the best way I have seen to accomplish this. Or we can just keep fighting among ourselves to try to increase the value of our labor to our local slave-owners…er, I mean capitalists.

          Your suggestions have been tried numerous times in the past, and they have never worked. As soon as the workers divide themselves along national/ethnic lines, the capitalists make use of that division for their own purposes. As a US laborer, I have much more in common with a Mexican laborer than I do with a US capitalist. You seem to me to be suggesting that this is not the case, and that nationality should trump economic conditions. I strongly disagree.

          1. Working Class Nero

            As a US laborer, I have much more in common with a Mexican laborer than I do with a US capitalist. You seem to me to be suggesting that this is not the case, and that nationality should trump economic conditions. I strongly disagree.

            Yes, you do have much more in common with the Mexican laborer — much more than you do with the US capitalist — in many areas, in most areas, except in economic interests. You see, the problem is that both the US capitalist and the Mexican laborer have a huge interest to work a deal together behind your back and to afterwards kick your suddenly redundant ass to the curb. Because the average US worker earns six times what the average Mexican worker earns. So do you agree, assuming that you and the Mexican will accomplish roughly the same amount of work in the same amount of time, that the US capitalist has a huge incentive to replace you with Pablo? He could double Pablo’s wages and he would be saving 67% on his wage bill. And Pablo obviously has an interest to see his paycheck doubled, agreed? Can’t blame a brotha for wanting to get paid, can ya? You could actually even be twice as productive as Pablo yet our US capitalist could hire Pablo and his twin brother Pedro and still save 33% on his payroll.

            So I think you can see that at the end of this cycle, with open borders and free trade for all, you will have even more –namely, your paycheck — in common with those Mexican laborers than you ever thought you would. And the US capitalist will be mighty grateful that you did your part to make him even richer.

            So now do you see who benefits by uniting the workers of the world???

        2. EmilianoZ

          International solidarity is in the DNA of the left. The left cannot give it up without betraying its own soul.

          How can we demand justice from the 1% if we are unwilling to grant justice to the 99% everywhere? If we condone our own selfishness, why should we not condone the selfishness of the 1%? We would just be like them, only less successful.

          Diptherio’s plan of co-ops everywhere seems good to me.

          1. Working Class Nero

            The way you are defining international solidarity (leveling of first and third world standards of living) is indeed in the DNA of the left. The first world left cannot keep it up without betraying its own local working class. Which was exactly the point of my first comment and is exactly what we have seen on the ground for the past 40 years.

            1. MyLessThanPrimeBeef

              It’s an apparent paradox – we desire international solidarity and international solidarity means impoverishing US workers.

              The way out of this apparent paradox is to realize (A) the box the 0.01% put us in, under the delusion of (B) First World-Exceptionalism.

              A. the box we are in is the division of labor and capital. With co-ops, labor can be capital too. GDP sharing too, on a larger scale. Importantly, Money Creation via the People Spending it into Existence is another – Keene’s one-time (or occasional) helicopter drop of money, but only, now, a regular feature, rather than a ‘bug.’ No more public sector equivalent of trickle down economics via the government spending into existence (the government is a household). In summary, labor can be capital.

              B. Home, sweet home. Who wants to leave behind family, relatives, friends and one’s country for another? There is nothing exceptional about America or Europe. To say workers can only thrive in the First World is to give in to First World-Exceptionalism (it may appear so under the status quo, but it is not necessarily so in a better world). Vanquish imperialism and neoliberalism, freed people everywhere from being exploited and oppressed by the invasive imperial currency, except when there are natural disasters, you won’t see any mass migration.

              That’s how I see as the way out of the apparent paradox mentioned above; otherwise, behind the Mexican workers, there are more and we have no basis to deny Kurdish refugees, Chinese farmers, Ukrainian miners, African villagers, etc. And to say we should take in Mexican workers is passive. To let ourselves be boxed in that ‘apparent paradox,’ the only way, consequently, to be consistent, and not be weak and look feeble, is to actually invite everyone in the world to come here. That’s taking a active stand. As far as I know, 1) no one is that ‘active,’ and 2) that doesn’t do much to get us out of the ‘apparent paradox.’

      2. Banger

        You know I like the direction you are going in–but I have to disagree. Worker solidarity is simply not possible at least in the U.S. Most workers I’ve known over the decades would rather take a cut in pay than ally with non-white workers or upper-middle class bohos–simple as that. In the U.S., contrary to our official ideology, culture trumps economics bottom 60% of the population. We are a deeply, deeply fragmented society and the ruling elites have engineered it to be that way.

        The best we can do is to have solidarity with some workers in cooperatives and real unions. As we move towards a neo-feudal society we will need to count on cooperation and solidarity with each other and should be putting most of our efforts in that direction. I see no chance of a national movement towards solidarity of anyone but the ruling elites–even they are fragmented these days but more closely united, for sure, than both the working class and the insanely fragmented left.

        1. Nathanael

          ” Most workers I’ve known over the decades would rather take a cut in pay than ally with non-white workers or upper-middle class bohos–simple as that.”

          Yeah, that *has been* the case. But the culture’s changing. We really are a much less racist, much less sexist society than we used to be. And with so many people going to college (and getting college debts) — and then working at fast-food joints — the distinction between “upper middle class bohos” and “workers” is collapsing.

          This is similar to the appearance of union solidarity in the 19th century, where at first it seemed impossible, because “Irish and Polish will never cooperate”. But the culture changed.

          The South is worse, of course, because it has a longer and more ultra-violent history of this stuff: plantation owners pitting poor whites against black slaves, men against women, women against men, everyone against Native Americans. But even there, it’s changing.

    5. Bart Fargo

      I can’t see this happening in a country as dependent on foreign manufactured goods, low-income labor and natural resources as the US. At least not without momentous social and economic realignments that force wealthy elites to invest in American workers and manufacturing, rather than in forever trying to automate the working class out of existence. But if current power structures remain in place, there is no reason to think the rentier class won’t do everything in their considerable power to poke holes in trade and labor restrictions as they have done for centuries, to say nothing of what size holes the black markets could punch. How can natural resources be partitioned to meet economic needs and yet still separate the oil-hungry developed world from the oil-surplus developing world, especially when supplies become scarce? Why would the elites ever stop foisting credit schemes on populations where mindless consumerism is the dominant way of life, particularly when this strategy has paid off beyond their wildest dreams in terms of both financial profit and social control? What will happen as robotics, big data and AI advance and work their way up the wage ladder in the developed world, a process that will be accelerated by high labor costs? We’re already seeing corporate oligarchs tapping vast databases of personal information, using them to enhance their own profits while reinforcing inequalities of the status quo. Current power structures ensure that technology is controlled by the few at the expense of the many, just like capital itself. So I think Diptherio hit the nail on the head in noting that the power relationship between labor and capital itself must be realigned, as for all the reasons above segregating the world into high- and low-income trade areas is woefully inadequate to address the needs of the many.

    6. Yves Smith Post author

      This process started in the 1970s and 1980s, LONG before offshoring became common.

      Deregulation started in the 1970s. Labor crushing started domestically in the 1980s, with Volcker speaking privately of the need for labor to “get the message” when he was allowing interest rates to rise to the moon, and with the Reagan administration breaking PATCO, which announced that corporations were free to break unions.

  5. not_me

    The point I want to make you is that neoliberalism is very, very powerful and sustains financialization, but neoliberalism is not really about asserting the merits of the market over the state. Actually, it’s more complex than that and it’s more crafty than that, because neoliberals are not the enemies of the state. Neoliberals want to take over the state. The actual content of neoliberal ideology is to take over the state and to use the state to protect the market, to make the market bigger, to effect market-favoring, market-conducive changes. So this has also been going on the last three to four decades. And that to me is the core of financialization. Costas Lapavitsas
    `
    So neo-liberals are hypocrites since markets should need NO favors from the State unless they need the power of and privileges of the State to maintain a cartel. This is clearly seen in the banks since they have a government-provided (by default) monopoly on the risk-free storage of and transactions with fiat*. The monetary sovereign ITSELF should provide a risk-free storage and transaction service for its fiat (eg. a Postal Savings Service (PSS) that makes no loans) and that service should operate on a 100% reserve basis with no lending of its reserves to banks or anyone else so that at a given moment, ALL of its deposits could be redeemed simultaneously – that’s honesty – and it’s absurd that, at its root, our money system is NOT honest but based instead on a mere probability (a high probability during normal times, a low probability during bank-runs) that the banks can honor such demands as occur for reserves (assuming ordinary people had reserve accounts at the Central Bank or a PSS and thus could deal in them).

    *Actually mere claims to fiat, since a nationwide run on the banks to redeem demand deposits, assuming ordinary people had reserve accounts at the Central Bank, would reveal the banks as frauds since a demand account means, or should mean, instant access to reserves (assuming once again that ordinary people could deal in reserves) not sometime later if the bank can sell enough assets to obtain sufficient reserves, which in aggregate, they can’t, except to the Central Bank with its unlimited ability to create reserves in exchange for assets.

    1. Brent Shawalter

      Your really not getting it. The market needs no favors from the state, because it becomes the state. Aka Market state.

      The Nation State is dissolved and market economy becomes the rule of law.

      1. not_me

        The market needs no favors from the state, because it becomes the state. Brent Shawalter

        The corruption has proceeded step-by-step:

        1) Goldsmiths branched out into the business of storing other people’s gold too in exchange for transferable receipts.
        2) The goldsmiths discovered that since the receipts were rarely redeemed that they could lend new, unbacked by gold, receipts into existence in exchange for promissory notes to repay those receipts plus interest, or even better for the goldsmiths, with physical gold plus interest in gold. Thus was born fractional reserve banking and it works after a fashion and creates a boom. Eventually though, the boom (bubble) bursts and a panic ensues and everyone wishes to redeem his receipts for gold, ie. a bank run. The goldsmiths, now bankers, face ruin as does the economy that has come to depend on them.
        3) The goldsmiths, now bankers, or at least a new generation of them, seek protection from government by such things as laws to prevent species redemption during panics, a lender of last resort, government deposit insurance to calm the public, etc.
        4) Once protected by government, the banks become too big to fail as the entire economy becomes hostage to their survival.
        5) Like you said, the banks now practically own government but it all started with government privileges for what should have remained 100% private banks with 100% voluntary depositors.

        So let’s not confuse genuine markets with a government backed banking cartel.

        1. skippy

          No such animal as a true, real or natural market beardo, fantasy goals really mess with dealing in reality based solutions imo.

          1. not_me

            Genuine markets are an ideal that may not exist in practice but are to be strived for none-the-less. Yes, some will always try to cheat via government or fraud, etc. (and some NEVER will) but in a prosperous economy with comfortable economic security for all, it is to be expected that most will be content, ala Maslow’s Hierarchy of Needs, to be honest in their dealings.

            1. skippy

              True enough, tho purists of many stripes seem content with currant events and are all slavishly opposed to an evil mixed economy.

              skippy… market share and price are idols to them all.

      2. Carla

        “and market economy becomes the rule of law.”

        Yes, we can readily see this every time we agree to accept the terms of a credit card, as just one example: we agree to relinquish our legal rights as citizens and submit to a corporate-controlled arbitration process to resolve any disputes.

        It is really frightening how insidious all of this is. It takes me back to this, which Yves posted a few weeks ago: http://ineteconomics.org/new-economic-thinking/fred-block-tenacity-free-market-ideology

        Another example of the subversion of the rule of law is the subprime fraud itself. Paul Jay refers to the subprime cancer as originating in Baltimore in the 1990s. Perhaps. But it was metastasizing in Cleveland during that decade as well. Perhaps it was a coordinated attack on all the African American inner city neighborhoods in the country, I don’t know. But it seems that poor communities are the laboratories of financialization.

        1. susan the other

          MERs was incoporated in 1993 (I think). And it was a first step to streamlining the mortgage industry which was just another way of saying commoditizing housing. I’m wondering if they were so hubristic as to shred notes and cloud titles when they first started out. But as the mortgage debacle progressed it certainly became the logical next step.

      3. not_me

        The Nation State is dissolved and market economy becomes the rule of law. Brent Shawalter

        IF that happens then you can be sure that common stock will be used for private money because fiat will no longer exist and because commodity monies are ridiculous.

        Thus we will have the “sharing” (but only among the haves, the highly skilled and mercenaries) that the Left desires but without the economic stagnation and busybodies that the population so loathes that they rather have fascists in charge instead. So instead of fascists, those in charge now, we’ll be ruled by neo-feudal lords if we don’t repent of the current money system and redistribute much of the real wealth in this country and THEN the entire population can “share” with little need for government to distribute its meager charity.

        And yes, quit blaming foreign workers and immigrant workers! Are you a Luddite too? SOME Americans are profiting from foreign workers and automation; the question is “Why aren’t ALL Americans profiting off foreign workers and automation?” Huh? You do realize that trade restrictions were a cause of WWII? Your stale solution will have us repeating that ugly history.

        1. not_me

          Ooops! Last paragraph should be directed to Working Class Nero. Sorry, Brent unless you agree with him.

      4. MyLessThanPrimeBeef

        When the Nation State is dissolved, and the market, or any, economy become the rule of law, that’s when we have, instead of no taxation without representation, no taxation without inflation.

  6. proximity1

    I think all three previous comments (so far) point up important insights and should be usefully combined for the general effects they illustrate together. Yves is right, I think, to mention that a simple reaction against the New Deal is too narrow a frame in which to understand a more complex set of phenomena. But that factor needn’t be taken as exclusive of others. At the same time, it can operate complementarily with other dynamics. But, as Pierce points out, the financialization of formerly other-directed econ. activity is just part of that & not necess. the most illuminating part. Antecendents (which are mentioned as important) are, first, the corruption and capture of politico-legal institutions by ideologically-driven players who sought to undermine their former bases of operation in a new way–one that reoriented the whole presupposed arrangements of power’s uses to a far more ends-justifies-any-means manner, the invasion of realpolitik into features of domestic political life where it had not long or consistently dominated. This did, as observed, have a watershed moment in the 1970s with many earlier trends contributiting to what Wright Mills might identify as a “pivot” in these trends. One leading factor (morfesis points out) is the decline/debasement of union power. True, it became corrupted in various ways from within as well as from outside–but the same forces could have contributed to both aspects of its weakening and eventual (temporary?) demise. Morfesis, again, contributes another useful concept with the wilting phenomenon–which I’d call “economic exhaustion” of a certain theretofore operable socio-technological conditions.

    Those work more or less well until somthing more fundamental in change exhausts their capacities to produce a dominant profit-making scheme–that (or those) same factors themselves are the or part of the newly recognized coming dominant scheme for profit-making. Thus, financialization, rather than a fundamental key is just an episode in a longer, deeper process of scheme-creations (typically technologically-driven) and their exhaustion. This harks back to something that Marx actually got right: the water-mill and the steam-engine give us different and ultimately conflicting socio-economic orders. The weaker will be forced to give way to the stronger–unless, that is, it is seen as of such inherent social value and importance that institutions oppose its destruction and replacement. That could always happen, at least in theory, and I believe there are examples of it. But they’re more the exception than the rule.

    Ivey’s important questions prompt us to look for the reasons behind a formerly operable profit-scheme’s decline and replacement because we want to understand what drives this as it affords insights into the timing of how events have occurred. They aren’t predestined but they are influenced by how technologies arise and take hold, what they make newly possible in economic or other affairs of society. We may have to go a bit deeper into the weeds to find a frame of reference which is more useful than what financialization as a key driver affords us.

    By taking a longer view, we have several such cycles of rise, dominance and exhaustion to study in the period since the advent of the industrial revolution. It brought the end of an agrarian order in Britain which saw common lands suffer what came to be called the “enclosure movement.” That drove people off their own home-based industries and into growing cities where cotton mills, spurred by techno. innovations, could produce vast quantities of thread, and, with automated looms, of cloth, swamping and ruining the former home-industries of spinning (thread), of cloth-making (weaving) and creating demands for such quantities of pins that no home-based industry could possibly keep up with demands.

    In the decades since, what has transformed these industries and led to their abandonment of western sites of production was not technology’s innovations but rather labor costs–in which financial powers intervene. So, high-tech cloth production was sent to low-labor-cost sites of assembly (piece sewing) since that aspect remains one which is labor-intensive rather than machine-intensive.

    Things don’t take effect in isolation, they combine in their effects. Government is corrupted, unions decline, technology makes possible the export of formerly western-based industries to low-labor sites of construction or assembly, etc. And these bring their own influences, reinforcing or not, in their turn. Governments’ corruption saw the exhaustiion of formerly operable set of forces which had protected organized labor (unions’ power) and the wage structures that made sustainable.

    Thus, if banks lose their formerly key roles as buyers and holders of debt, as financers of corporate expansion, replaced by in-house sources or by privately-held wealth-funds seeking investment opportunities, then the whole picture of operable profit-making schemes may be threatened with exhaustion–and shall, unless deliberately rescued (for other non-profit-based reasons of intrinsic worth) be sacrificed to these episodic changes. Financialization is one of these episodes and a currently central one. But it is also, at the same time, just a feature of a longer process we’ve seen recurr as once dominant relations become undermined by changing vital factors–as often, if not more often, for the worse as for the better, clearly.

    1. Jim

      Couldn’t agree more with you when you state “by taking a longer view, we have several such cycles of rise, dominance and exhaustion to study in the period since the advent of the industrial revolution.”

      You then argue that the enclosure movement brought an end to the agrarian (common lands) order in Britain and forced excess labor into urban areas. But does this historical development justify your implied hypothesis that the enclosures were the point of departure of original accumulation?

      I have read some sources (for example,Russell: The Crisis of Parliaments English History 1509-1660, which argue that between the 15th and 16th centuries in countries were the enclosures were most numerous the extent of fenced fields would amount to about 3% of all existing land and it is then difficult to imagine how such a small percentage could have a determinate role in the birth of English capitalism.

      Perhaps there were also more powerful non-economic factors a play in the birth of English Capitalism?

      1. proximity1

        Hi, Jim– thanks for that and the referernce you cite. Since I don’t know it, I can only offer a hunch in reply and maybe you’d tell me whether it’s true or false– I wonder if, by “3% of all existing land” the author means what we’d call either common land, accessible to commoners for use, that is, land neither owned by the crown or any other member of the titled class or by any private or public corporation. If that is what’s meant, then of course a vast amount of land is automatically excluded from consideration. But, as I say, I haven’t read it so I don’t know.

        RE: …”your implied hypothesis that the enclosures were the point of departure of original accumulation?”…

        I apologize for giving that impression. I agree with what I take is your view of it– capitalism (in various forms) in England (not to mention other places) predates the industrial revolution.

        Since the book you cited covers a period of particular interest to me, I’ll look for it in a library. Thanks again for mentioning it. In return, I cite for you Hammond and Hammond, The Village Labourer. Oldie but goodie–outside the modern academics’ view of passable historical work.

    2. Nathanael

      ” Thus, if banks lose their formerly key roles as buyers and holders of debt, as financers of corporate expansion, replaced by in-house sources or by privately-held wealth-funds seeking investment opportunities,”…

      …then the individuals running the in-house sources or privately holding the wealth funds gain the power of feudal lords. And now you begin to see how we move to feudalism.

      The banks get utterly destroyed in the process. Bankers are very stupid; their destructive financialization policies are going to destroy their entire industry.

  7. Jonathan

    This is the ancient debate about usury as social poison (“He that hath not given his money upon usury, nor taken reward against the innocent” etc.) Usury unfettered eventually subjects the entire population to the wasting process elementary probability theory calls “gambler’s ruin”, where haphazard profit meets the the relentless Alien of compounding.

    Bribe-driven repeal of usury laws, a crime as old as the world, is the yeast in “neoliberalism” and “conservative revolution”. Peasant, prole and small-merchant ruin follows from it as night follows day. Check the early 80s for the current American case.

    The plot of the movie always revolves around the question: Can the crooks can get fat enough fast enough to buy the entire State and its violence monopoly before the pogroms begin? The twist: Will that violence really suffice to ensure the desired obstruction of justice?

  8. paulmeli

    This is a new type of capitalism.

    Yes, a new form of capitalism even less stable than the previous form. As was pointed out in the introduction, finance is self-limiting. I see no chance of success for this system, other than destroying democracy, which is likely the goal.

    The ability of debtors to service debt is limited by their income, yet only a fraction of income growth is attributable to credit expansion, the rest comes from public investment. Public investment growth has declined over the years since WWII, right along with real incomes, and over the past 6 years credit expansion has been nil.

    The mathematical reality is that all investment is essentially “draining the pond”…the net flow of funds is always towards profits (as distributions and retained earnings)…the only way it could be the reverse is if businesses in the aggregate lost money…and that too is unsustainable. The pond is finite…it only gets bigger when deficits add to it. Credit nets to zero (asset plus liability =0).

    With investment that produces stuff we at least get some benefit, but for financial investment or “rent seeking” there is no upside for the 99%. The Warren Buffetts of the world are parasites by definition, regardless of the political views they hold. The only upside for us is the savings we are able to claw out of deficits…the rest ends up at the top. It’s not necessarily evil, it’s the tyranny of the arithmetic. Without state intervention there is no way to change the dynamic.

    Rent-seeking serves only to move money, predominantly to the top end of the income spectrum from everyone else. Only public investment makes the financial pie bigger, and if that pie doesn’t grow then the real pie doesn’t grow either, or the few end up with everything and the rest of us nothing.

    1. Nathanael

      “Yes, a new form of capitalism even less stable than the previous form. As was pointed out in the introduction, finance is self-limiting. I see no chance of success for this system, other than destroying democracy, which is likely the goal.”

      Even destroying democracy won’t save it, because debt-deflation capitalism really is unsustainable. It has to be replaced with something else, whether that’s socialism (good), or feudalism (not so good, but it has its good points).

      “The Warren Buffetts of the world are parasites by definition, regardless of the political views they hold. ”

      Warren Buffett *knows* that; he’s a self-aware parasite. As such, he’s trying not to kill his host. Our real problem is not men like Buffett; our real problem is the parasites who are killing their host (the whole of the people being the host). And we’ve got a lot of those in finance and in CEO offices.

  9. Eeyores enigma

    Very provocative headline for this post. It seems there is little or no agreement on anything which is why I always lament the fact that all here and elsewhere on the net way over complicate things. This is the core reason that I believe the internet has done as much harm as it has done good.

    As I have stated before the instant that finance enters the picture i.e. money is borrowed to purchase something, the price of that thing is no longer a reflection of its value which in turn makes the medium of exchange that is used or loaned into existence of questionable value.

    From that point on the value of everything and who gets the money and how much is determined by those who are given the right to lend. That might as well be game over right there but I am certain you all will chime in as to how it is way more complicated than that.

    1. Banger

      I think there is quite a lot of agreement on this matter here. We mostly agree that financialization is a net-negative to human life and most of us agree that capitalism has, in general, become toxic. That’s a good start. And you’re right about over-complicating matters–but that’s inevitable on the left with its all talk no action agenda–we have nothing left to do but organize and we lack the ability to do so there’s nothing to do but split hairs.

      The problem with the internet is that we aren’t able to use it skillfully. Take sites like this one. We simply state our piece maybe answer a few comments as best we can without going into depth. At least we don’t insult each other or agree stupidly just to feel good but we end up just spinning wheels. What we need, as I’ve suggested before, are long-term and more structured discussions so we can see graphically where we agree or disagree so we don’t have to repeat the same ole same ole.

      1. Jim

        Hey Banger,

        Just wanted to get back to you on some of the exchange on, I believe, Oct. 21.

        I support your idea on the importance of attempting to develop a new philosophical paradigm as the foundation for a new politics. Old Mr. Hume I see as an ultra-modern thinker in the sense that his insights on the important role of feeling in helping to disclose the real has foreshadowed, I believe, many of the current insights of cognitive and neuroscience research.

        I am also encouraged by your attempt to bring meditative practices into the mix because the origins of these practices in what has been labeled as the axial age–may be the type of cultural revolution that is necessary in the 21st century.

        1. Banger

          I think you have a good point about Hume.

          Well, my point and yours is that we have to have a supportive intellectual foundation to ethics and politics particularly at this time when so much in our culture, tradition, philosophy and even science seems unsupported by logic. I think such a project is doable without having to get deeply into the weeds–obscurity is a sign of unclear thinking and after Hume I think much of Western philosophy went in that direction.

          But how can we approach such a project? I would love to do something like that–I just don’t like the idea of doing it alone.

      2. MyLessThanPrimeBeef

        Banger, maybe it’s true that we do nothing but split hairs, though, sometimes, one does thing, not because one expects any immediate return for one’s effort, but because that’s what one is compelled to do, out of one’s passion to do so (to work on a project, to express an opinion, to offer an idea, etc.).

        That’s what comes to mind, when I read, from time to time, here or there, ‘what is the use of all this?’

        “Why do I have to learn to throw on the wheel (or paint or sing)?”

        I don’t know. Maybe you like it one day.

      3. Carla

        “Take sites like this one. We simply state our piece maybe answer a few comments as best we can without going into depth.”

        Banger, I think you take the deep dive often, and I, for one, am very grateful. I am here to learn. You are one of the commenters on NC who expands my mental universe, and from whom I consistently learn.

        “What we need, as I’ve suggested before, are long-term and more structured discussions so we can see graphically where we agree or disagree so we don’t have to repeat the same ole same ole.”

        Although I may not have the chops to participate in the type of structured discussion you propose, I can only hope that when you and others create that discussion mechanism, you might consider at least letting plebes like me read your dialogue, and learn.

        1. Banger

          Carla, if anything, chops are as much a hindrance as a benefit. Each of us possesses unique gifts that in any given community complete and enhance a group in often mysterious ways. I know that this online thing is educational in the sense of being a place to “hear” some unique voices–I just see potential for depth for all of us that is sadly missing–not because people here are shallow but because the depth and talent here is amazing as can be seen from the insightful comments on this and many other threads.

  10. craazyman

    All you so-called “thinkers” — and that includes the Professor — will never get out of the mental laundry machine you roll around in like a stained T-shirt that never gets cleaned — unless you find a new perspective. You can’t just take what western economic thought gives you and think you can build with that. That’s like taking your mashed potatoes and trying to make a sculputer. Who you foolin? YOurselfs. Maybe you can make a butt plug shape with your mashed potatoes but it won’t be a sculpture like Rodin would have made out of bronze. No way.

    You’re all like house flies hitting the screen over and over and over thinking it’ll get you outside. You’ll never get outside that way. But there’s a door behind you wide open.

    This explains it all. This 45 minute Youtube video that shows how the Iroquois nation feel into a dark time of murderous violence. Then a warrior who wanted a better way for his people made a spiritual quest to the shores of Lake Ontario and met a prophet of peace who traveled by canoe across the lake, having forseen in a vision that his prophecy could bring peace to the Iroquois nation.

    The prophet showed the warrior the answer that could end the cycle of hate and death. he held out his hand )see video at 34 minutes) and showed the path of transcendence. You won’t believe what it was. Are you sitting down? Is your coffee out of arms reach so you won’t knock it over in shock? OK. Get ready. Drum roll. . . . . . . . . . . . . . Wapum! That’s right. Money! Can you believe it?

    If you don’t believe me, see it with your own eyes! http://www.youtube.com/watch?v=xFIgq8D3oRk

    Nobody will ever understand the urge to financialization without understanding the psychoanalytical energetic structure of what money is. That’s where you have to start. Then you can stop banging on the screen and fly out the open door right behind you.

    1. susan the other

      One of the intro points was that Lapavitsas was gonna talk about a socially responsive system in which there could be “profit without production.” What happened to that part?

      1. craazyman

        It gets confusing. I’m not sure what professional trained economists would say about this, but to me that sounds like getting paid to boss other people around telling them what to produce.

        when you do that, you have to go to meetings a lot and you call that work. then when you make money it’s called “productivity”. that’s what it seems like to me anyway

        that’s profit without production — getting paid to tell other people what to produce while you’re busy sitting around in meetngs all day

        for the financial economy, “productivity” is other people’s work divided by your sitting-around-in-meetings (SAIM) time. For productivity to go up, as your SAIM time goes up, other people really have to crank! It’s just the math. It’s not my personal opinion.

        that’s why you can’t be too soft on the workers, or else the whole system will collapse & you might have to actually produce something rather than sit on your butt all day in meetings or even dinners. In dinners, you sit on your butt and eat too and even get drunk, if you’re not too concerned about social stigma. If you’re productivity is high enough as a butt sitter, you can afford not to be and you can annoy people and put your hands all over the hot women. some might even like it! haha.

      2. MyLessThanPrimeBeef

        I can think of some examples.

        First, profit with production.

        After that, you can have profit with destruction – you remove TV commercials brainwashing people to buy more than they need, for example. You can remove smart phone from your life, another example. How about removing some cars? All examples of subtraction (negative production) for profit (measured in Nats – a Nat is a unit of a healthy Nature).

  11. Eeyores enigma

    AS an example I live in Oregon. I have been active in increasing local food production for over 10 years. I am not talking about gardening. I worked with local area farmers and food processors and brokers because you can’t just tell a farmer to grow food. Everything a farmer grows is contracted by processors and or brokers.

    Anyway come 2007 – 08 a lot of farms were hurting financially due to inputs, fuel, and seed going up in price with produce going down. Banks were understanding for the most part, willing to restructure loans and anything else they could do to keep things crawling forward.

    In comes a hedge fund specializing in buying up farmland for the extremely wealthy as a hedge against collapse.

    Soon it became widely known that there was an entity in town that would pay top dollar for farm land and banks began calling in loans and foreclosing right and left. In some cases this entity outbid the owners of the property who had pulled everything together in order to retain 2 and 3 generation farms. I personally witnessed a good friend and life long successful farmer loose his farm.

    Then this entity who became the largest land owner leasing land out to farm on increased their lease rate 3 to 5 fold driving up the lease rate throughout the area making it impossible for the young folks who are getting all interested in organics, permaculture, and sustainable farming to start out.

    But I guess with so much profit in farming there is plenty of room for financial types to step in the middle and skim some off the top right?

    1. EmilianoZ

      Very interesting. Examples like this provide a vivid concrete form to abstract ideas.

      At some point the 1% will just about own everything there is to own on this earth.

      Of course those hedge funds dont even have the money with which they bought the farmland. They borrowed it from banks that borrowed it from the Fed at 0%. The Fed creates the money with which the rich will buy up everything.

      1. MyLessThanPrimeBeef

        A couple of examples of ‘the solution is worse than the problem.’

        1 Cheap money to grow the GDP (resulting in negative growth of the 99%’s GDP share – see a recent chart).

        2. mis-allocation of public money – too much for the military and not enough social spending. Propose a theory that says government can spend as much as it wants. YOU GIVE AWAY SO MUCH FOR SO LITTLE. Permanent loss of people’s political sovereignty for some occasional infrastructure projects.

    2. jrs

      So the 1% have their “hedge against collapse” and everything that would make real (not just financial) collapse LESS likely which is organics, permaculture and sustainable farming is locked out by cost barriers. Sounds about right.

  12. Dan K

    One by-product of the financialization of the economy has been the financialization of economic thought. Financialization means that people increasingly interact with the economy via financial relations and instruments, and this promotes widespread money illusion. Mainstream economic thought is now obsessed with monetary and financial factors: i.e. inflation rates, interest rates, central bank operations, nominal aggregates etc.

    Much heterodox thought and popular economic thinking and activism on the internet has also become overly focused on monetary and financial factors, and imagines purely monetary and financial fixes for what ails us: i.e. alternative currencies, scrip, free-banking, helicopter drops, 100% reserve banking, gold standards, t-bond sales, t-bond purchases, etc.

    Sometimes the idea is floated among both the orthodox and the heterodox that the economy is just a lump of “demand”, and as long as this undifferentiated, free-floating blob of demand is supported with a sufficient quantity of money, whether via central bank monetary operations, government deficits, inflation targets or alternative currency schemes, then all will be healthy.

    These forms of thinking come in various degrees of usefulness. But underneath all that stuff is a world of real, non-financial wealth and power: material output and factors of production; non-financial services; institutions and political power relations; ownership structures. Established and innovative patters of production, employment and “demand” can be socially beneficial or socially toxic. There is no clear-headed form of socioeconomic activism that can be focused on macroeconomic categories alone based entirely on monetary aggregates, rates and balances, or the overall level of demand.

    1. Calgacus

      There is no clear-headed form of socioeconomic activism that can be focused on macroeconomic categories alone based entirely on monetary aggregates, rates and balances, or the overall level of demand.
      Right. But you can’t be clear-headed if you ignore money and demand or have wildly wrong theories about them. The main problem is that people are deceived by wildly wrong theories of money. Once enough people are clear-headed about money, it will be very easy to make the US economy work far, far better for the 99%, Simply by them deciding to have full employment nationally at a decent wage, and understanding that arguments that this is not simply a matter of democratic decision are gibberish and delusional.

    2. MyLessThanPrimeBeef

      I agree, Dan K.

      We overlook political solutions while busying ourselves with squeezing the world into economic jargons and theories.

      One example would be replacing ‘No taxation without (presumably, human) representation,’ to ‘No taxation except when the computer screen shows inflation.’

    3. Carla

      Dan K: “These forms of thinking come in various degrees of usefulness. But underneath all that stuff is a world of real, non-financial wealth and power: material output and factors of production; non-financial services; institutions and political power relations; ownership structures.”

      Do you agree that the world of real, non-financial wealth and power rests upon the rule of law, or that it should? If you agree, what the hell are we going to do about THAT one?

    4. efschumacher

      Dan K: Manuring the land, that is where production comes from. That is according to Gerard Winstanley, squatting on St George’s Hill, Weybridge in 1647. It was common land then, but now St George’s Hll is a ‘gated community’ of the English 1%. In many ways manure and money are analogous substances:

      – spread it on fertile ground and stuff will grow.
      – spread it widely and it promotes growth overall, although some places will not produce.
      – pile it high in a hoard and it just stinks.

      I’m all for spreadin’ it around.

  13. wbgonne

    Great piece that really gets to the heart of the matter. Neoliberalism represents a merger of corporate power and government power. Unlike libertarianism, where government is enfeebled, under neoliberalism government power is robust and fully harnessed by the corporatists. This merger of our two primary power centers is contrary to the central feature of American governance: the diffusion of power through checks-and-balances. Neoliberalism corrupts those basic principles. More specifically, government is the mechanism through which the people exercise their power and, in a democratic republic like ours, the people are supreme, and government is supposed to check business and protect the people. But when the reigns of government power are given to the corporatists the people are excluded. And this is what we have today. This is neoliberalism.

    The effects are everywhere. Privatization, deregulation, public-private partnerships. Corporations are promulgating laws and regulations that serve themselves at the expense of the people. Literally at the people’s expense, since the corporatists’ goal is to extract as much money as possible from the people. As neoliberalism has taken root, corporatists have moved from “manufacturing consent” to enacting laws compelling consumerism and forbidding challenges to corporate machinations. This is what we have today.

    1. John Yard

      Absolutely correct. The neoliberal order is the fusion of capitalism and the state. The objective of the state is now protection of asset prices, as opposed to the greatest good for the largest number.

      1. wbgonne

        Yes, I think libertarianism is preferable to neoliberalism but fail because each results in corporatism. Libertarianism hollows government and tbereby undermines the power of the people to act collectively. In a capitalist society like ours, corporatism and the superrich will inevitably fill the void of power abdicated by government. So the corporatists are basically given an open playing field. Under neoliberalism, government power remains but is harnessed by the corporatists and the superrich to form a plutocracy. This is corporatism on steroids, which is what we have today. But both libertarianism and neoliberalism fail in the end because tbey are promote financial power centers that supersede the power of the people.

        1. skippy

          “It starts just after the end of World War Two, when America’s industrial and financial giants, fattened up from war profits, established a new lobbying front group called the Foundation for Economic Education (FEE) that focused on promoting a new pro-business ideology—which it called “libertarianism”— to supplement other business lobbying groups which focused on specific policies and legislation.

          The FEE is generally regarded as “the first libertarian think-tank” as Reason’s Brian Doherty calls it in his book “Radicals For Capitalism: A Freewheeling History of the Modern Libertarian Movement” (2007). As the Buchanan Committee discovered, the Foundation for Economic Education was the best-funded conservative lobbying outfit ever known up to that time, sponsored by a Who’s Who of US industry in 1946.

          A partial list of FEE’s original donors in its first four years includes: The Big Three auto makers GM, Chrysler and Ford; top oil majors including Gulf Oil, Standard Oil, and Sun Oil; major steel producers US Steel, National Steel, Republic Steel; major retailers including Montgomery Ward, Marshall Field and Sears; chemicals majors Monsanto and DuPont; and other Fortune 500 corporations including General Electric, Merrill Lynch, Eli Lilly, BF Goodrich, ConEd, and more.

          The FEE was set up by a longtime US Chamber of Commerce executive named Leonard Read, together with Donaldson Brown, a director in the National Association of Manufacturers lobby group and board member at DuPont and General Motors.

          That is how libertarianism started: As an arm of big business lobbying.” – NSFWcorp

  14. JEHR

    Take the present monetary policy that the CBs are espousing: interest rates have to stay low so that inflation cannot become a problem. Those two ideas are crushing for all the people who do not buy and sell stocks in the “free market.” With inflation comes (possibly) increases in salaries and wages; with higher interest rates comes money earned on modest savings from salaries and wages. Cut interest rates and you cut earnings on savings; cut inflation and you stagnate income. That is what financialization means for those who cannot afford to “invest” or speculate in the stock market. To those who play the stock market, all is well and good especially for those with HFT capabilities and insider information plus loads of money.

    The financiers were smart enough to know that as long as some of the people could still maintain some profit through the stock market by financialization (i.e., QE), then there would be no revolt against this system of financialization. The revolt would have to come from those who feel cheated by the market who aren’t the poor people who are living from paycheque to paycheque.

    And I am not even mentioning that when interest rates do rise, the biggest banks will become insolvent.

    Thus I will be cold in my grave for many years before interest rates rise and before salaries and wages support a family comfortably.

    Never was it ever truer than it is now that “those that have money, make money, and those that haven’t, won’t.”

    1. susan the other

      I’ve been curious about little asides coming from the Fed, like Fischer’s Stability Committee looking at dangerous imbalances so as to nip them in the bud, and what seems an ernest desire to help housing recover… someday. And a concern that inequality could bring down the flagship of capitalism, aka capital financialism. They’ve already proven that a shut down in credit kills any bubble. So if interest rates stay at zirp the Fed (has claimed) it has other means to combat inflation. After last weeks frenetic stock market it is clear that one very powerful tool will be refraining from buying up stocks to plunge protect. They’ll let stocks fledge whenever they need to control inflation. And other things we can’t even imagine. Maybe.

    2. Nathanael

      “The financiers were smart enough to know that as long as some of the people could still maintain some profit through the stock market by financialization (i.e., QE), then there would be no revolt against this system of financialization. The revolt would have to come from those who feel cheated by the market who aren’t the poor people who are living from paycheque to paycheque.”

      All correct, except one thing: the financiers are — on the whole — too stupid to actually understand this. As such, they are decimating the upper middle class, making them feel cheated, and so there will be a revolt.

      It can be nipped in the bud by reversing the extraction and taking the money (and therefore power) away from the billionaires. But who’s willing to do that? In 1912 the answer was “Woodrow Wilson”. In 1932 the answer was “FDR”. In 1918 in Russia the answer was “Vladimir Lenin”, which is a lot messier!

  15. Jay M

    My alarm was screaming. Itchily my eyelids moved open to the DJ crawl projected on the ceiling. Luckily my new I-alarm could be shut off using Apple-pay, so that was a quick hand wave. I rolled over my bed loans before rolling out of bed, while my smart pillow whispered–don’t be a deadbeat sucker, you’ll regret it. The fridge charged my checking account market rate for everything. All was up, nothing down. I swiped my credit card on the window which allowed the sun to rise.

    1. optimader

      I woke up, swiveled my ankles around and flexed back ( recommendations from a kat I knew) and generally steeled myself to get out of my nice waaaarm crib into a ccccold room (l like cold), trundled downstairs made some great coffee in my ancient Bodum then sat outside and amused myself watching the not too earlybirds fight over worms and a frenzied Mr. Squirrel seemingly looking for something by randomly digging holes.
      To think people turn on a TV in the morning to get harangued at? Seems bizarre to me.

      Jay, what the heck am I doing wrong?

      1. optimader

        I hope he had a quarter for the bathroom? That could be a deal breaker for how the rest of the day goes.

  16. Steven

    “It’s a profound historical transformation that really began in the 1970s, and it’s now been running for about four decades.”

    Capitalism has ALWAYS been about money. With apologies to its victims during the first two centuries of the Industrial Revolution, that was not such a bad thing. The real strength of Western Civilization, the source of its power, wealth and ascendance, was not the brilliance of its scientists and engineers but the fact that it didn’t let a little thing like money get in the way of implementing advances in the knowledge of physical sciences. (I believe apologists for finance euphemize this as ‘efficiency of capital’.)

    The obvious watershed year at least for Western civilization was 1914. Rather than share the wealth with the people in their host countries who had helped them acquire it, Europe’s ruling classes decided to use it to try to exterminate competitors who stood in the way of acquiring yet more money by exporting the wealth made possible by the Industrial Revolution to foreign markets. The U.S. made a killing (so to speak) by assisting them in the effort.

    WWII was just, as Marx put it, history deja vu, a tragic farce. Since WWI, the US, the only country in the world rich enough in natural resources to be able to afford it, has experimented with various forms of what Thorstein Veblen called “economic sabotage”, AKA “the American Lifestyle”. But by 1971 (the year oil production in the US peaked and the year 1944 Bretton Woods went bust) the powers that be (PTB) in the US must have decided it was time for a ‘post-industrial economy’ in the US. Since they could no longer make money making ‘things’, they decided to eliminate the ‘C’ in Marx’s M -> C -> M’ and just make money from money.

    Until the PTB and the rest of us realize that money isn’t wealth (it is DEBT – a claim on society’s real wealth) the U.S. and the rest of Western Civilization (sic?) will continue to go down the crapper. Oscar Wilde wrote its obituary a long time ago: “They know the price of everything and the value of nothing.”

    1. Steven

      Make that

      Oscar Wilde wrote its epitaph a long time ago: …
      </

      (Didn’t for a brief moment in time we have the ability to edit our posts?)

    2. Banger

      I think you have the right date, 1914 for the change in eras at least in the U.S. within five years we had anti-drug laws, anti-civil liberties legislation, women’s right to vote, WWI, the Creel Committee, the Palmer raids, Prohibition, and so on. The key was deep government (local, state and federal) intervention in our lives for good or bad on a scale unimaginable a century before.

      Financialization was in the air even before that date with the machinations of J.P. Morgan and others that led, eventually, to the establishment of the Fed. The grab for power by the elites was not to institute an economic system but to use the system for political gain–it appears to be about money but it is about power.

      1. Nathanael

        If you look at the late 19th century (which I have), you see a period of unbridled financier power, leading to popular opposition / protest / revolution (at the state level). This is the period of the Populists, the Progressives, the Grange, the Worker Party, the Labor Party, the Greenbackers…

        Woodrow Wilson — an extremely canny politician — co-opted a large part of the revolutionary anti-financier agenda (including the high tax rates on the rich), without killing the 0.1%ers (as happened famously in France 1789 and Russia 1918). This revived the economy and quieted down the revolutionary spirit.

  17. Jim Shannon

    YS – “Understanding the driving process is important not merely for the purposes of description, but also for analysis,”…
    Historically, the Monied Elite have always steered the ship of “state”!
    Economists world wide have refused to “Understand” the role TAX POLICY has played in the extraction of WEALTH from “our” natural resources, human labor and the market for goods and services all consumer driven!
    The “Financialization of Life” is about GREED and has nothing to do with the value of life!
    Manipulation of the TAX CODE has corrupted whal that WAS “Good” about capitalism, and our leadership is steering the ship of state on to the rocks!
    The real crash will be ugly! Eventually there will be nothing left to steal from the consumer!

  18. Unkle Smokey

    Hello NC commentariat,

    I have been a lurker here for a few years and just want to say thanks to everyone who makes this site so interesting to read. The comments and discussions have really helped broaden my understanding and have given me a few good laughs as well.

    For a long time I have wanted to recommend Giovanni Arrighi’s “The Long Twentieth Century”. I am really surprised more people don’t mention it.

    According to him, financialization is not only not new, but has happened before in each of the preceding hegemonies (Italian city-sates, Dutch, British). I am not able to do him justice, but his analysis of the A-phase (manufacturing and real trade) and the B-phase (finance) of capitalism’s growth and transformation over the long term seem spot-on to me. But in terms of understanding things like the last 40 years of financialization, it is frustrating to see how often it seems cause and effect and reversed. Neoliberalism I think is one example.

    Somewhat ironically, “marxist” economists seem to have a much better understanding of historical capitalism than traditional western economists. Anyway, it appears we are at the point of another major shake-up in the world system and no one knows what will happen next. Fun times.

    1. Jim

      Unkie, that study is extremely worthwhile.

      One thing Arrighi seems to get it when looking at the origins of capitalism is the importance of the development of largely autonomous cities (think Italian city-states in particular) and how their roots are largely political and military–not economic.

      Such urban areas were apparently able to inject a type of dynamism into the largely stagnant feudal world.

      There appears to be plenty of empirical/historical data to suggest that the expansion of capitalism owes at least a part of its origins to the emancipation of such urban communities.

  19. Jim

    “One of the efforts the Naked Capitalism community has been engaged in is trying to understand and map our emerging political and economic order.

    Such an effort couldn’t be more worthwhile but it raises some big questions

    Can we explain the emergence of a new political and economic order exclusively by economic variables?

    The assumption that we can is the foundation of much of the commentary above.

    Historical explanations for the birth of capitalism (for example,the attempt to explain the transition from feudal to the capitalism mode of production) seems to lead into a blind ally because the birth of capitalism seems to presuppose capitalism itself.

    Another historical example might be the reasons for the historical success of capitalism in England when compared to the sudden rise and then fall of Dutch political and economic power by the late 17th century.
    If England, beginning in the early 17th century could achieve a modern economy without rates of urbanization, occupational specialization or capital availability for investment, at least comparable to the Netherlands, at the time of their primacy, this would seem to mean that none of these conditions are essential for determining the modern character of the English economy. Perhaps there were non-economic factors at play?

    The tendency not to look beyond economic variables especially for the left, is rooted in the assumption that social relations, political institutions and culture are always seen as secondary, reflective or at least dependent on more fundamental economic processes.

    Furthermore, their is the further assumption on the left that among all of these secondary things there are some that definitely more secondary than others–especially culture.

    Culture, as a rule, is believed to be farthest removed from the supposed material objectivity of economic and therefore the least important. It is seen as having no history independent of economic processes.

    Until the left begins to critique its own fundamental assumptions (like viewing culture as simply a shadow cast by economic development) it may never be able to understand how new economic and political orders emerge and the crucial importance of cultural and political variables in this process.

    1. Banger

      Indeed! For me, economics, is a rather trivial pursuit that teaches us very little other than as kind of intellectual escapism or obscurantism to keep us from seeing the political and cultural truths it hides. My own father was, among other things, an economist and that was his view.

  20. Fool

    But wasn’t the NY gubernatorial Democrat primary a referendum of this very tension: Teachout the Trustbusting Public Servant vs. Cuomo the Slick Oligarch? And didn’t the Democrat base ultimately vote in an overwhelming majority for the privatization of public assets (i.e. for Cuomo) over the reclamation thereof?

    Cuomo may have bought influence, but he didn’t buy votes (in literal terms). The 1% is called the 1% — and not the 51% — for a reason. This is what the people bargained for, maybe this is what they deserve.

    1. Nathanael

      No, it wasn’t an overwhelming majority. It was about 2/3. Most of that was from machine politics in NYC, too. Teachout did best upstate (people are particularly mad about fracking).

  21. cassandra

    If trade really is at the root of inequality generation and lack of redeeming social function, why not call for a financial transaction tax? The rate could be adjusted to inhibit high-speed trading to a sensible level; it would make alternative long-term investments in real corporations more competitive; it would provide badly-needed government revenue to avert the insane austerity being imposed everywhere. I do also like Lapavistas’ idea of a public bank, but I don’t think he takes it far enough; the government should be printing its currency from that sort of an institution instead of paying interest on its debt to the privately-owned Fed.

  22. Nathanael

    Neoliberalism / debt slavery is *inherently* unsustainable, because it depends on people spending money on things they can’t afford. This is debt-fuelled — but this stops working because eventually nobody will issue more debt (because it obviously won’t be repaid).

    This is not an optimistic analysis. The natural next step is the conversion of debtors into indentured servants and eventually into vassals of lords. (“Your debt is forgiven, but now I own you.”) In short, the next step is feudalism. Banks have very little role in feudalism and will collapse.

    Some of the current power elite seem to understand this and be moving into it aggressively — Google, for instance, with its Google Buses and Google Housing and so on. Most of the older guys, and particularly the financier types, don’t seem to have a clue.

    Of course, corporate leaders have tried the feudal move before — Pullman comes to mind. The corporate execs generally weren’t able to commit to their side of the deal — they started cheating the workers — and the result was various socialist political movements. Which proceeded to become powerful political movements in quite a lot of countries. In the US, Woodrow Wilson co-opted the progressive platform (with very high taxes on the rich) while jailing the actual socialists, which neutralized both the would-be feudal lords and the socialists. In most other countries, the socialists actually got into power.

    1. proximity1

      More good points. [ BTW, To the writer above who argued that there’s so little agreement (in general) here, I offer in counter-evidence this and my previous posts above where I expressly found much to agree with from earlier comment.]

      And, lest anyone sneer at the idea of a return in some form of indentured servitude, consider that in what we’re pleased to call the most advanced of contemporary societies, various forms of genuine slave-labor have made a come-back and their part of the economy is, though not clearly known, probably larger than generally thought and growing.

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