[Lehman collapse, 15 September 2008 - headlines 16 Sep 2008]

Economics is a social subject.

It’s the interactions and relationships between people that make the economy go around.

Debates over economic issues are not technical debates where expertise alone settles the day. They are deeply political debates.

Economics is a social subject.

It’s the interactions and relationships between people that make the economy go around.

Debates over economic issues are not technical debates where expertise alone settles the day. They are deeply political debates.

A society in which ordinary people know more about economics, and recognize the often conflicting interests at stake in the economy, is a society in which more people will feel confident deciding for themselves what’s best – instead of trusting the experts. It will be a more democratic society.

Economics is a social subject.

It’s the interactions and relationships between people that make the economy go around.

Debates over economic issues are not technical debates where expertise alone settles the day. They are deeply political debates.

A society in which ordinary people know more about economics, and recognize the often conflicting interests at stake in the economy, is a society in which more people will feel confident deciding for themselves what’s best – instead of trusting the experts. It will be a more democratic society.

Quite apart from whether you think capitalism is good or bad, capitalism is something we must study. It’s the economy we live in, the economy we know.

“The process by which money is created is so simple that the mind is repelled.”(John Kenneth Galbraith)

Far from being a precious commodity that had become readily accepted through trade as the barter theorists thought, money as coin has generally been accepted by fiat, that is, issued and guaranteed by an authority, such as a powerful leader, an office-holder or a religious organisation. (Mellor 2011)

Far from being a precious commodity that had become readily accepted through trade as the barter theorists thought, money as coin has generally been accepted by fiat, that is, issued and guaranteed by an authority, such as a powerful leader, an office-holder or a religious organisation.

Making coin out of a precious metal confuses the role of money as a measure of value with the value of the coin itself.

Gold can change value both as a commodity and as a coin in terms of purchasing power. Therefore gold/silver as a commodity does not ‘have’ a value. It is valued, but at any point in time the exact value will vary and will need to be designated in some other form of commodity or money, such as silver or dollars.

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State endorsement of bank debt means that banks are able to issue liabilities at will.

Page.33

Unlike state-issued ‘fiat’ money which, when issued becomes the property of the receiver to dispose of as they will, money issued by banks has to be paid back with interest.

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Unlike state-issued ‘fiat’ money which, when issued becomes the property of the receiver to dispose of as they will, money issued by banks has to be paid back with interest.

Control of money issue passes from the state to the banking sector and with it the benefits of seigniorage, that is, financial profit from making loans.

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This creation of credit-money by lending in the form of issued notes and bills, which exist independently of any particular level of incoming deposits, is the critical development that Schumpeter and others identified as the differentia specifica of capitalism.

If banks could not issue money they could not carry on their business.

Credit creation is the actual business of banking

Mellor (2010) Page.39

It is clear that in the late twentieth and early twenty-first centuries, the bank credit creation system was not just responding to the needs of production but to the demands of speculative inflation.

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As states were receiving the product of uncontrolled credit creation, the public would eventually have to pay the price in its role as guarantor of the money system.

Capitalism is first and foremost a historical social system.

Capitalism is first and foremost a historical social system.

What distinguishes the historical social system we are calling historical capitalism is that in this historical system capital came to be used (invested) in a very special way. It came to be used with the primary objective or intent of self-expansion.

Capitalism is first and foremost a historical social system.

What distinguishes the historical social system we are calling historical capitalism is that in this historical system capital came to be used (invested) in a very special way. It came to be used with the primary objective or intent of self-expansion.

It was this relentless and curiously self-regarding goal of the holder of capital, the accumulation of still more capital, and the relations this holder of capital had therefore to establish with other persons in order to achieve this goal, which we denominate as capitalism.

The purpose of capitalism is self-expansion – capital begets capital – and it does so by monetizing social value and human labour. This is a circuit of transformation.

Immanuel Wallerstein, Historical Capitalism (London: Verso, 2011), 15.

Historical capitalism involved therefore the widespread commodification of processes – not merely exchange processes, but production processes, distribution processes, and investment processes – that had previously been conducted other than via a ‘market’.

Historical capitalism involved therefore the widespread commodification of processes – not merely exchange processes, but production processes, distribution processes, and investment processes – that had previously been conducted other than via a ‘market’.

And, in the course of seeking to accumulate more and more capital, capitalists have sought to commodify more and more of these social processes in all spheres of economic life.

Immanuel Wallerstein, Historical Capitalism (London: Verso, 2011), 15.

“Capitalism only triumphs when it becomes identified with the state, when it is the state.

“Capitalism only triumphs when it becomes identified with the state, when it is the state.

In its first great phase, that of the Italian city-states of Venice, Genoa and Florence, power lay in the hands of the moneyed elite. In seventeenth-century Holland the aristocracy of the Regents governed for the benefit and even according to the directives of the businessmen, merchants, and money-lenders.

“Capitalism only triumphs when it becomes identified with the state, when it is the state.

In its first great phase, that of the Italian city-states of Venice, Genoa and Florence, power lay in the hands of the moneyed elite. In seventeenth-century Holland the aristocracy of the Regents governed for the benefit and even according to the directives of the businessmen, merchants, and money-lenders.

Likewise, in England the Glorious Revolution of 1688 marked the accession of business similar to that in Holland.” (Braudel 1977)

“Capitalism only triumphs when it becomes identified with the state, when it is the state.

In its first great phase, that of the Italian city-states of Venice, Genoa and Florence, power lay in the hands of the moneyed elite. In seventeenth-century Holland the aristocracy of the Regents governed for the benefit and even according to the directives of the businessmen, merchants, and money-lenders.

Likewise, in England the Glorious Revolution of 1688 marked the accession of business similar to that in Holland.” (Braudel 1977)

The fusion of state and capital was the vital ingredient in the emergence of a distinctly capitalist layer on top of, and in antithesis to, the layer of market economy.

Over the last quarter of a century something fundamental seems to have changed in the way in which capitalism works.

The tendency since 1970 has been towards greater geographical mobility of capital.

Rather than being a modest helper to the capital accumulation process, [finance] gradually turned into a driving force. Speculative finance became a kind of secondary engine for growth given the weakness in the primary engine, productive investment.

Rather than being a modest helper to the capital accumulation process, [finance] gradually turned into a driving force. Speculative finance became a kind of secondary engine for growth given the weakness in the primary engine, productive investment.

The result was an acceleration of the process of debt build-up – going beyond mere speculative orgies that historically came at the peak of business cycles, becoming instead a permanent, institutionalized feature of the economy.

Rather than being a modest helper to the capital accumulation process, [finance] gradually turned into a driving force. Speculative finance became a kind of secondary engine for growth given the weakness in the primary engine, productive investment.

The result was an acceleration of the process of debt build-up – going beyond mere speculative orgies that historically came at the peak of business cycles, becoming instead a permanent, institutionalized feature of the economy.

The search by capital for profitable outlets for its surplus despite the stagnation of investment opportunities within production, coupled with the belief that asset prices as a whole went only one way – up – generated a secular financial explosion. (p.18)