From: www.ruthlesscriticism

[Translated from GegenStandpunkt radio broadcast October 2008]

Now that the world's largest banks collapse and overnight many billions of assets dissolve into thin air, politicians, economic experts and journalists have started to worry about the effects of these collapses on something like the “real economy.” This is remarkable, because until recently a difference between stock returns and bank yields, on the one hand, and the wealth that arises from the production and sale of useful things, on the other hand, was completely unknown. On the evening news the state of the stock market is announced even to the simple folk who don’t own any shares, and this is meant to be understood as direct information about what's happening to “the economy.” If the mood of the stockbrokers has been good and the capitalization of the companies listed on the stock exchange has grown again, then – as always – the wealth from which “we all” live has grown bigger. However, because banks now crash and financial accumulation does not function anymore – and probably as long as they are not back on track – the professional world knows the difference between speculative property titles and the real wealth which is produced in the “real economy” by labor.

Nevertheless, none of the experts argues for a focus on the production of real wealth and for letting the financial houses go to the dogs with their speculative money propagation. This is beyond all imagining in a capitalist nation. Right at the moment when the financial magic goes bust, the authorities make their biggest concern the service that the credit system is supposed to perform for the real economy. In the name of this service, they accuse the financial market players of having screwed everything up. It's ridiculous how lovers of a powerful financial sector have suddenly discovered greed in the bankers who they grandly celebrated for years, how those who otherwise extol risk and risk-taking as a virtue of the capitalist economic system are now criticizing the excessive risks that investment banks whose gigantic profits they admired have taken on without obviously being able to see through them.

The investors and managers of the large financial assets have however done nothing wrong and also nothing significantly different than always. They have driven to new heights the growth of their industry and their enrichment from a type of business which is speculative from its respectable starting point.

Business by money lending

Banks do the same thing as all capitalist businesses: they make more money from money – but without the detour that others must take for the same goal through the production and sale of goods. The financial houses do nothing for the creation of material wealth. They lend money – and increase it by an agreement with their borrowers: they must pay it back to them after an agreed upon period with interest. In doing so, they are even indifferent to whether their customer invests the borrowed money as capital and generates a return flow with it or whether he spends it on consumption. His contractual obligation to repay holds absolutely; his actual ability to do so, however, depends on whether he is able to procure the necessary money by the maturity date. The credit relation ignores this circumstance: it acts – and if it works, it actually is so for the bank – as if the money increases automatically to the extent that time passes: in its hands money is immediately capital – but only by speculating on a money increase which is pursued by others and which is not in its hands.

The universality and dissemination of credit is based on the fact that it is used for the purpose of capitalistically increasing money. In the interest payment, the bank appropriates a part of the surplus earned in production and trade. Its power to demand more money back from the borrower than it gives him is based on the fact that it enables the borrower to make profit with capital that does not belong to him at all. He pays the tribute because he can make more profit with the borrowed capital than with only his own.

In a world where the real source of material wealth doesn’t count because it functions so reliably, the available amount of capital appears as the crucial condition for profit making. In a well-ordered capitalism, nothing depends on the will and readiness of the workers, the ones who create the useful things which are then sold at a profit: there is a superabundance of cheap workers in occupations at all education levels, and they are so reliably available that no capitalist sees himself dependent on them, and casually calculates with them alongside raw materials and working materials as production factors.

Under such circumstances, the ability to generate profits in fact depends on nothing more than the power of money. Someone who can purchase the necessary means of production, who can afford the necessary capital advance, who can even advance funds for phases of research and development and buy technical innovations that surpass the facilities of competitors and devalue them – he is going to make the money. Whether and to what degree a company or a nation sets profit making in motion on their investment site, what weapons they can use in competition, is all decided by whether they have the necessary amount of capital at their disposal. So the absurd, in itself inexplicable appearance comes about that money itself would be the source of its generation – as though money would be capital just like that and by itself.

It is the bank that provides command over capital – and thus frees private and national accumulation from the limits which they find in yesterday's accumulated, and therefore once again investible profits. This is the banks’ service to industrial and mercantile profit making, on which their power to take part in the profits others extort from their workers is based.

The accumulation of financial capital

Of course, the purpose of a bank generally speaking is not to perform a service for those who make profits from wage labor. It doesn't serve the real economy, but - like any other capitalist enterprise - uses the needs of others to make a plus for itself. The capitalist real economy, and the entire production and consumption of the society that depends on it, is a means for the self-accruement of finance capital – and not just in the limited perspective of the financial magnates themselves, but objectively: the banks decide which company gets credit, thus has the necessary weapons in competition, and which does not; whose debts are rolled over; and which defaulting debtor must file for bankruptcy. They are the economic power centers which determine the course of capitalism.

The banks use their privilege – making money into capital without any detour, increasing it only by lending it and reclaiming it – as best they can. They would not get very far this way if they lent (only) the money that its owners have brought in as personal wealth and then waited around until it returned back to them with interest. Like their borrowers, the banks also “work” with money that does not belong to them. They borrow money from the public by attracting deposits and promising interest payments for savings accounts, time deposits, sometimes also for current accounts. It procures itself command over other people’s money in order to allow on its part others the use of other people’s money at higher interest rates.

In this way, the bank separates the ownership of money from disposal over it and makes a double use of the money. It takes the creditors’ money who hold accounts with it and lends the same to somebody else. The right of ownership remains with the credit lender, while the money itself migrates to the credit taker who can deal with it like with his own money. The bank nonetheless promises the depositors that at any time or on a deadline they can get back the loaned out money, which it no longer has – and which it hopes to get back again sometime in the future, and then depending on the business success and solvency of its debtors. This is the second stage of speculation.

No matter how banks perform this feat in its details – they carry it out not only in relation to their depositors, but also to themselves: they regard the money that they give away and do not have until repayment, which itself is questionable, is regarded by them as a property value that they have, and they enter it as “asset” in their books. Banks would consider these assets as being criminally unexploited if they let these entitlements on future repayments, which they own, sit around on their books and wait for redemption. They treat their customers’ debts as “assets,” as interest-bearing capital, which they resell at a profit to other money investors or make them the basis of their own new borrowing in order to initiate without any own new capital the same roundabout way of doubling monetary property, over and over again, and on an increasingly higher scale.

Of course, banks and financial firms do not use the purchasing power that they create through the assignment of others’ debts as salable or loanable assets only or mainly for crediting the growth and competition needs of their customers in the “real economy,” but invest them in everything that promises growth: in shares, raw materials, precious metals and also interest-bearing securities which other banks put on the market. In this way, finance capital frees its growth and its profits from the limited growth needs and growth opportunities offered by industry and trade. There is no more service by the financial sector to the real economy to be seen: this branch of capital, on which the rest of the capitalist economy depends so crucially, simply uses its special status and accumulates off itself. It once again radicalizes its ability to use money as capital without detour, and uses not even money but money it does not have, promised, expected money – precisely credit – as accumulating capital.

One bank procures purchasing power by taking credit from other banks in such a way that it sells them securities, promises to pay interest, on the expected success of its business. And it gives credit to other banks by buying securities they issue. In this circle, the financial houses create ever new investment opportunities and at the same time the investment instruments that they need to seize these opportunities. They give each other credit and take each other‘s credit, thereby crediting themselves ever larger assets and paying and collecting more and more interest and similar yields on it. What would be a swindle if it were done by one bank is, given the mountains of credit established by the banking sector, an honorable business: the credit system credits itself.

This works – precisely as long as investors, thus basically the banks themselves along with their investment and hedge funds, want to do nothing else with the financial wealth, which they credit to themselves and once and again turn over on the financial markets, than immediately invest it again in profitable assets. As soon as, however, nudged by whatever reason, doubts arise that this spiral can endlessly perpetuate itself, and not just one person but many do not want to see new securities, but the money that these papers promise, then it quickly becomes clear that no bank has the money and can pay back what it owes and promises to its creditors. The chain reaction that threatens when a major bank crashes is a nice proof: why is the bankruptcy of the German IKB-Bank able to rock the whole national financial center? Why does the collapse of a house like Lehman Brothers have the power to destroy the world financial system? Precisely because the assets of banks consist of nothing other than debts from other banks. If their debts can no longer be served, then this discloses that the assets of the others are worth nothing because they are just promises of payment from competitors. This proves at least one thing: in a developed financial system, banks do not really do their business with money they have or borrow, but with the credit that they enjoy as the great centers of money power. Their means of business is the confidence of their competitors and, beyond that, the broad public that they can always pay if they have to. They do not enjoy confidence because they can pay, but they can pay because and as long as they have confidence.

It is only too warranted that mistrust periodically appears. In the end, the property holdings that are created and accumulated on a gigantic scale exist not in good money, the universal means of access to produced wealth, but in the promise of future payment of money. As long as the confidence in the future payment is intact, the debt titles that are to be turned into money on demand are securities equivalent to money. Vice versa: because the investors’ own confidence is the only reason that they can have confidence, this circle turns again and again into its opposite; there are enough occasions for it; this need not necessarily but can be business failure in the real economy. The plummeting confidence and the desperate attempt to turn debt papers into money nonetheless – even at a loss - puts it to the test once again: it becomes obvious in the breakdown that the financial assets are not the real capitalist money wealth which they claim to be and as which they are traded and paid for at the stock exchanges, instead they are nothing but speculative advances, entitlements on future wealth which – as it is then realized – doesn’t exist. As soon as the question arises whether the money that the certificates promise really exists, the money produced by work and exploitation always proves to be much too little. Breakdowns of speculatively created wealth are not new. If they are currently more severe than usual, and not only this or that sector of the financial market crashes, and it is not just one or another country that goes bankrupt, but the entire world financial system threatens to break down, then this is merely because the accumulation of finance capital prior to this point was especially large and global.

The states are rescuing their financial system

Now governments jump in and bail out the bankrupt banks: the Federal Government of Germany puts billions of euros into the insolvent Hypo Real Estate, the U.S. government wants to spend the unimaginable sum of a trillion dollars to stop the ongoing collapse of its national credit system – meanwhile these sums have increased by far all over the world and are still insufficient. The bankruptcies of large speculators are apparently not a private matter. With their massive commitment, the states acknowledge that a functioning speculative sector is the lifeblood of their economy and their own finances. Financial power for the necessary investment of the national economy and for the needs of the state budget are both in principle boundless, and the crucial economic capacity of a nation in the capitalist world is to be able to mobilize it solely by the use of confidence in the credit power of the banks. States differ in the degree to which they dispose over this power; those who are not able to assemble this credit power by themselves, or those who lose it, remain forever poor and powerless – or quickly become so.

The more finance capitalist are set free to accumulate their bank profits, their debt- and asset-entitlements, in a speculative way and with no orientation to any service whatsoever, the better they can accomplish their outstandingly important service for the homeland. For this reason, the politicians’ reproaches against the “gamblers and speculators” in the financial firms are so dishonest: the respective governments themselves have for decades granted them ever greater freedoms in order to boost the growth and profitability of their financial sectors. If the speculation of the big money vultures bursts, then no sacrifice is too small for their rescue with state funds: the state “insures” everything, risks its own creditworthiness, burdens the future national budget and endangers the currency. In the process the entire people is made liable for rescuing the credit institutions. The service of money capitalists to the community exists in enriching themselves, and for this to work out, the well-behaved people in the real economy are not only to do their service and provide hard work cheaply; in times of emergency, they are additionally called upon to rescue credit institutions that juggle billions.

That's all fine: even vis-à-vis the many capitalists in commerce and industry, money capital once again embodies capital as such. Its business, to make money property – without any step in between – the source of more property, must succeed so that all the other businesses can succeed. The whole economic life of the country, even the work and wages of the masses without property, is made dependent on the speculative enrichment of the financial magnates. Whoever does not want to attack this madness should also not grumble that the state pinches pennies for the needy, but has billions and trillions left to spare for the banks in need.