(9 am. – promoted by ek hornbeck)
The various outrages over the “bailout” typically imagine it as a species of robbery — but what needs to be seen here is that the “bailout” is an attempt to “reconstitute capitalism” given the threat to it (see the Economist editorial “Capitalism at bay“) which was prompted by the deflation of the credit bubble and the current economic crisis. If we look at the “bailout” with a sober, steady focus upon its meaning in political economy, we see it, and the capitalism it is reconstituting, for what it really is: a system of domination, where an investor class gets “bailed out” whereas the rest of us are viewed as being lucky to find work and are supposed to be placated through “jobs programs.”
(Crossposted at Big Orange)
Earlier this week the Associated Press scoured financial fillings for the bailout recipients and found that $1.6 billion went for salaries, bonuses and other perks for top executives last year, even as many of the banks were heading for crisis.
“We’ve lent some of it. We’ve not lent some of it. We’ve not given any accounting of, Here’s how we’re doing it,’ ” said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. “We have not disclosed that to the public. We’re declining to.”
The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest?
None of the banks provided specific answers.
And then, of course, you have the outrage at the Madoff Ponzi scheme, which comes in for critique in gjohnsit’s wonderful diary as merely the most expendable sector of a fraudulent business culture:
What sort of denial does it take to give your money to a known crook and yet still think that the crook will only take other people’s money? It’s because they knew Madoff was a crook is why they invested with him.
And in another diary, gjohnsit asks:
What can you say about an $8 Trillion Wall Street bailout that doesn’t require a single executive to lose his job, a single reform to be put in place, or even any real congressional oversite.
Let’s be plain about what the intention is behind this bailout. This is about reconstituting capitalism. It’s narrow, inaide-the-box, thinking. It’s pretty clear what’s happened: Wall Street has created zillions of dollars of funny-money securities, granted this funny money the status of “value,” and used it to borrow more money, which then went into the stock-market bubble and infested itself into every investment avenue one can name. When the real estate markets collapsed, the ability to pay back debts collapsed, and this collapsed the value of the funny-money securities as well as shutting down the bank’s willingness to loan anything. Pretty soon, everyone figured out that the so-called growth of this era was phony (and this is where I agree the most with Jerome’s recent diary). Thus the downward spiral.
Reconstituting capitalism of this sort means risking another collapse, uh, of the same sort. But, hey, when (in the addled brains of our society’s economic managers) it’s either the current system or nothing, who needs to think about that, anyway?
Seriously — will bailing out the big banks and the big corporations (eg AIG) save the economy? Of course not — Federal policy so far has matched Herbert Hoover’s record in that respect. But the groupthink mentality currently in charge of Washington DC is intent upon restoring the status quo, i.e. bringing back the current system “as it was,” and pretending that maybe, when they’re finished reconstituting it, that it won’t collapse like it’s collapsing right now.
Lest anyone reading this post still imagine that such a process is all sweetness and light, I shall here discuss the words of that ultimate bugaboo of Republicans — Karl Marx — on what “reconstituting capitalism” really means.
To understand “reconstituting capitalism,” we should reflect, then, on how capitalism was originally constituted. The best explanation, still, starts with this chapter, in CAPITAL. For Marx, capitalism had to have some sort of starting point, otherwise the whole process of capital accumulation (whence the rich get richer, and the poor have babies) couldn’t be explained:
We have seen how money is changed into capital; how through capital surplus-value is made, and from surplus-value more capital. But the accumulation of capital pre-supposes surplus-value; surplus-value pre-supposes capitalistic production; capitalistic production presupposes the pre-existence of considerable masses of capital and of labour-power in the hands of producers of commodities. The whole movement, therefore, seems to turn in a vicious circle, out of which we can only get by supposing a primitive accumulation (previous accumulation of Adam Smith) preceding capitalistic accumulation; an accumulation not the result of the capitalistic mode of production, but its starting point.
So we know how the rich get richer; we can see through Marx’s notion of “surplus-value” (described elsewhere in CAPITAL) how they profit off of hiring other people to work for them. But we don’t know how the rich became rich in the first instance, before capitalism began. Marx explains as follows: we are supposed to imagine, if we listen to the mainstream economists (the Republicans of their time), that the rich originally became rich because they were better people, more frugal and industrious then those lazy working class slobs:
This primitive accumulation plays in Political Economy about the same part as original sin in theology. Adam bit the apple, and thereupon sin fell on the human race. Its origin is supposed to be explained when it is told as an anecdote of the past. In times long gone-by there were two sorts of people; one, the diligent, intelligent, and, above all, frugal elite; the other, lazy rascals, spending their substance, and more, in riotous living.
At this point, Marx explains that, in the tale told by the mainstream economists, “working for a living” becomes like the “economic original sin” — you must do it because you have been cast out of the economic Garden of Eden, where the rich folks still live:
The legend of theological original sin tells us certainly how man came to be condemned to eat his bread in the sweat of his brow; but the history of economic original sin reveals to us that there are people to whom this is by no means essential. Never mind! Thus it came to pass that the former sort accumulated wealth, and the latter sort had at last nothing to sell except their own skins. And from this original sin dates the poverty of the great majority that, despite all its labour, has up to now nothing to sell but itself, and the wealth of the few that increases constantly although they have long ceased to work. Such insipid childishness is every day preached to us in the defence of property. M. Thiers, e.g., had the assurance to repeat it with all the solemnity of a statesman to the French people, once so spirituel. But as soon as the question of property crops up, it becomes a sacred duty to proclaim the intellectual food of the infant as the one thing fit for all ages and for all stages of development.
So what really happened?
In actual history it is notorious that conquest, enslavement, robbery, murder, briefly force, play the great part.
This, then, is the ultimate starting point of the capitalist system. It’s what “constituting capitalism” involved. It is no coincidence at all, then, that capitalism began during the era of Europe’s imperial conquest of the world: the 17th, 18th, and 19th centuries after Christ. Original accumulation comes easy to expanding empires: they forcibly occupy territory, expel the natives (or herd them onto reservations), and hand over the new turf to the government’s best buddies. This, after all, was how America was founded.
But what does this have to do with the bailouts? Well, the bailouts are an instance of “reconstituting capitalism,” so they count as primitive accumulation just like the “conquest, enslavement, robbery, murder, briefly force” of old. Thus the cries of “robbery” which attend upon each new multi-trillion-dollar bailout.
But “reconstituting capitalism” isn’t any new conquest or robbery. It doesn’t even look like robbery. It certainly has none of the violent characteristics of the conquest of the Americas. But it does reinforce, on a grand scale, the old conquests and robberies. And it does so at a time when the whole system is in desperate need of being rethought.
So how, precisely, do said bailouts function in such a way? In order to answer this question, we need to go into the secret of money, as explained in Hutchinson, Mellor, and Olsen’s The Politics of Money. Money is the device used to exact the robberies which “reconstitute capitalism”; as the authors point out, “the exchange of goods for money is what the capitalist market is all about” (31-32), and so
Since the question of primitive accumulation is about origins, The Politics of Money starts with the origin of money:
In short, the institutions of banking and finance create the money supply through a range of mechanisms ultimately endorsed by statutory authority. (63)
Yes, that’s right, the banks create money. The explanation for all of this is in a long, drawn-out discussion of fractional reserve banking, wherein the banks must keep “reserves” in order to justify their creation of money.
Now, of course, there must be a mystique surrounding the creation of money, a justification for the magical powers of seigniorage. As John Kenneth Galbraith suggests:
The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems decent (from his book Money, p. 29)
This, then, is what we call debt. As money is created with debt, debts are the pivotal acts upon which the capitalist economy rotates, and thus the instrument of “reconstituting capitalism.” So what is money? Money is a claim upon labor-power. Money has worth because it can be used to buy that which people do or make. Conversely, money has worth because people work for it.
When the government prints up trillions of dollars in new money (i.e. “issues debts”), and then uses that money to pay off the debts of those who have dabbled in the imaginary wealth of “financial instruments,” it has pretty much handed a big chunk of the money franchise to the creators of these same “financial instruments.” How about if I create some “financial instruments” to the tune of $70 trillion in proclaimed value or whatever, sell the “financial instruments,” and then get away scott-free when the owners of the “financial instruments” demand a government bailout? It’s government-backed fraud — the profit-making scheme of the century!
The government has, as one recent diarist put it, the power to create money. When it uses this power to prop up the financial sector in the way it has done, it is “reconstituting capitalism” in the sense of granting privileges to a privileged few while the majority go broke. We can see the class bias of the bailouts in the way in which “jobs programs” are promoted as the solution to the massive unemployment and financial penury of most of us. How about if the owners of failed banks (and other businesses) had to count on “jobs programs” like the rest of us? I’d love to hear them say, “excuse us, but we’re too big to fail, so we deserve a bailout instead.”
The government could use its money-making power to create a more egalitarian, more ecologically-conscious society which might stand a chance in light of the dreadful state of ecosystem resilience today, as we are waiting for the knockout blow to be delivered by abrupt climate change. But that would be good pragmatism, guided by a full accounting of the state of the world today. No, what the current leadership follows is bad pragmatism, which demands that the status quo be restored in all things marked “property” and “economics.”