very interesting argument below by Michael Hudson: ---------- Forwarded message ---------- From: Dante-Gabryell Monson <[email protected]> Date: Mon, May 30, 2011 at 10:51 PM Subject: Fwd: [gang8] The debt overhead: capital accumulation or an autonomous dynamic? To: excerpted from message below : " to get economists and many economic reformers to see that the financial system is decoupled from the production-and-consumption economy. It is autonomous. " " Most Third World debt represents accrued interest – not necessarily unpaid interest, but new bank loans to enable debtors to pay the interest. This is what Hyman Minsky called the Ponzi stage of the financial cycle. " " The ECB demands that governments (“taxpayers”) in Ireland, Greece, Spain and Portugal take full responsibility for making good on the bad loans and reckless speculation of banks, so that wealthy and institutional investors who placed their credit and fortunes behind such schemes would be saved from having to take any loss. In such cases it is preferable to drive even national economies into bankruptcy. Mass poverty appears merely as an “externality” to financial fortune hunting at the top of the economic pyramid. " ---------- Forwarded message ---------- From: Michael Hudson <[email protected]> Date: Mon, May 30, 2011 at 4:28 PM Subject: [gang8] The debt overhead: capital accumulation or an autonomous dynamic? To: GANG8 <[email protected]>, Dear Gang, It seems almost impossible for me to convince Marxists and Georgists that the debt burden is NOT an accumulation of capital representing high profits (causing under-consumption) or land rent, but that debts can accrue — becoming creditor “savings” -- without any surplus at all. How to make this clear? Here’s my attempt so far. When the Merchant of Venice Antonio owed Shylock a pound of flesh, he had a debt, but there was no surplus – no substance – out of which to pay. His ship failed to come in. And it even was a zero-interest loan. (Friends did not charge interest in polite aristocratic ages.) There was a debt, and it was owed to Shylock – who made his surplus by lending money to merchants, who made it by trade. (There was little wage labor as yet, and not much mortgage lending.) Other creditors made loans to government – against taxes that were levied on basic commodities, or the land, or charged as user fees for public monopolies (transportation), or achieved in war by looting to pay off the creditors. That is how the first Crusade was organized, after all: The Doge of Venice advanced funds to the Crusaders, in exchange for a quarter of the loot. This was not a surplus. One could argue tautologically that loot had to be produced as a surplus before. But the volume of loot was independent from the volume of debt that came to be erected. If all debt reflected an existing surplus, then somehow it could be paid. But the problem is that many debts can’t be paid – except by eating into the bone, NOT the surplus. The Greeks rioted because the Socialist government was threatening to take away their livelihood to pay the bankers – as Brown’s Labour Government sought to do to Iceland, and as Spain’s Socialist Government was trying to do. Yet it is hard to get economists and many economic reformers to see that the financial system is decoupled from the production-and-consumption economy. It is autonomous. Many Marxists imagine that the financial crisis represents an “accumulation of capital” in excess of investment opportunities because of profit that employers squeeze out of wage labor. This is over-accumulation, or under-consumption – a failure of Say’s Law and the circular flow, as Keynesians and classical economists alike would say. There is over-accumulation of capital in the production sphere,” as one Marxist friend of mine puts it. All finance capital – and its interest revenue – is squeezed ultimately out of wage labor. Marx went to great lengths to speak of M-M' avoiding the basic M-C-M'. Suppose that labor were indeed paid “its entire product.” Then it would have an economic surplus. It might use this to buy the first criterion of status in today’s world: a home in a nice neighborhood with good schooling. It then would buy trophies, cars – on credit, at interest. I hear much the same kind of argument from followers of Henry George. They believe that “all interest comes from land rent.” The economic surplus is attributed to land rent – or as some admit, to other forms of economic rent, most notably monopoly rent, e.g. of the radio broadcasting and communications spectrum, phone systems, patented seeds and technology, etc. Yet what is left out is the unique banking and financial monopoly – that of credit creation. The great majority of debt that is owed does NOT imply a primary surplus produced by the “real” production-and-consumption economy on which most economists focus – and even most Marxists, Georgists and others. Today’s financial system is autonomous from the “real” economy. Marxists say But now, debt is created freely on computer keyboards. And once there is debt, it accrues interest. There have been times in history when creditors have helped economies organize a surplus out of which to pay interest. The papacy in the 13th century enabled Britain to pay Peter’s Pence and other tribute by creating a market for wool in the Low Countries (Belgium and Holland), which wove it into textiles and tapestries to sell to Romans. So the Roman economy paid the Netherlands for handicrafts, and they paid the British farmers who paid the government to pay Rome. That was the 13th-century circular flow. The World Bank and IMF wee supposed to help Latin America, Africa and Asia create viable economies to pay back World Bank loans and those of its global commercial bank clients. But the “development policy” was too shortsighted, too geared to financing foreign dependency on U.S. farm exports, and northern hemisphere industrial products. The EU’s relationship to its indebted member countries has made almost no contribution to the economic surplus at all. Its behavior has been purely predatory on the part of German, Dutch and French bankers, acting as their collection agent. “Bailing out” Greece and Ireland is simply a means of making these bankers whole for loans that have gone bad. The loans have been created largely on computer keyboards – or were pure gambles, in the case of derivatives. A gamble on a horse race, on the direction of interest rates, on the national lottery, or on foreign currency exchange rates does not require a surplus. Horse betters may have their kneecaps broken if they don’t pay, but it would be tautological to call their kneecap a form of surplus (although it was produced by eating food, which was produced on the land – and sold by stores employing wage labor, and so forth). This occurs regardless of a surplus. An unpaid bill becomes a debt. A mortgage that goes unpaid accrues interest, late fees, penalties and related charges – mostly pseudo-charges for foreclosure and other “services” provided by bank subsidiaries in today’s vertically integrated financial world. Most Third World debt represents accrued interest – not necessarily unpaid interest, but new bank loans to enable debtors to pay the interest. This is what Hyman Minsky called the Ponzi stage of the financial cycle. The ECB demands that governments (“taxpayers”) in Ireland, Greece, Spain and Portugal take full responsibility for making good on the bad loans and reckless speculation of banks, so that wealthy and institutional investors who placed their credit and fortunes behind such schemes would be saved from having to take any loss. In such cases it is preferable to drive even national economies is into bankruptcy. 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