This article originally appeared at Truthout.org and Roar Magazine.
Like much else in economies, finance both enhances the economy's growth and development and undermines it. The balance between these contradictory effects depends on all the other aspects of an economy and society and how they all influence financial contradictions. From its first entrance into the economy -- that part of society concerned with the production and distribution of goods and services -- money has been contradictory. On the one hand it enabled trade and exchange far beyond the limits of barter and other pre-money systems. On the other hand, money introduced all sorts of new instabilities.
The role of finance and its contradictions changed especially after the 1970s. The old centers of capitalism (western Europe, north America and Japan) lost major parts of their global primacy. A combination of computer-related automation, political shifts and relocation of production to low-wage areas -- particularly in Asia and Latin America -- brought economic decline to most of the old centers' people. In effect, employers in the old center obtained access to a vast new, lower-waged labor force and the profit gains associated with it. The employers could relocate to where the new cheaper labor became available or else bring that labor into the old centers as immigrants. Most old center countries did both. The result nearly everywhere in capitalism's old centers was stagnation or decline of real wages coupled with sharply worsened inequalities of income and wealth.
Ironically, the post-war period had enabled the resurgence of a capitalism that had been hobbled by the Great Depression and the war. Coupled with the social-democratic gains achieved during the 1930s and 1940s, the years from 1945 to 1975 witnessed a decades-long celebration of rising standards of mass consumption paid for by rising real wages.
Indeed, depicted as the emergence of a comfortable "middle class," rising consumption was celebrated by capitalism's ideological champions as the system's great achievement and justification. Product advertising exploded alongside rising consumption, intruding into every corner of modern life. One key result was to make rising levels of consumption more than ever the measure -- the very definition -- of each individual's success in life. In the US, parents promised one another and their children an American dream of ever-rising consumption financed by ever-rising real wages.
The arrival and continuance of stagnant or declining real wages after the 1970s made the realization of that dream impossible. Yet it was so deeply internalized and desired by Americans, so ingrained in their expectations, that they were determined to achieve it even without the rising wages to pay for it. They would sustain rising consumption otherwise, partly by borrowing. The latter provided a new profit opportunity for financial capitalists: lending to consumers to enable their rising consumption.
Families determined to consume more usually turned first to sending more household members out to do more hours of work as real hourly wages stagnated. When those extra hours proved insufficient, borrowing remained as the only way to pay for rising consumption. In profit-driven response, the financial sector invented new forms of consumer credit extension (especially credit cards and later student loans) and greatly expanded old forms (mortgages and car loans). Banks bundled all these forms of consumer debt into asset-backed securities, enabling them profitably to tap globally dispersed sources of loanable funds.
Credit crucially supported the booms of the 1980s and 1990s into the new century, yet it also spread globally the risks that the huge new supplies of consumer debt instruments might not pay off. The spurt of financialization after the 1970s also included major new loans to corporations and governments. When the credit default crisis broke in 2008, it included all three types of loans: consumer, corporate and public. Financialization had yielded large new profits and the expansion of the financial sector relative to all the other sectors of capitalist economies around the world. It had also yielded their global collapse.
The financial expansion phase is often followed by its contradictory other, the contraction phase. The crash of 2008 proved to be the turning point this time between the phases. Bailouts, bail-ins and a wide variety of other monetary (and some fiscal) policies have been tried to "manage" the crash and its consequences with, at best, mixed results to date. Where some "recovery" has occurred it largely bypassed huge portions of the population. Recovery's impacts on the top 1 percent and 10 percent of enterprises and individuals also proved uneven.
Financialization facilitated the historic relocation of capitalism from its old to its new centers. Because this relocation was driven by the profit gains of capitalists moving from high to low-wage production, the result was a supply-demand imbalance. Lowered global wages rendered effective demand deficient. In this situation, debt could temporarily remedy the imbalance. Global finance thus profited in multiple ways from the globalization it promoted. Yet it also over-reached, took excessive risks, and eventually imploded. Its survival became dependent on state intervention and support.
As a result, financial industries are now stronger but also weaker, thereby perpetuating finance's intrinsic contradictory nature. Their longer-term fate now hinges most on what happens to the larger capitalist context. As capitalism declines in its old centers and leaves massive social, economic, ecological and political divisions and destructions in its wake, how far will the resistance there go? Will movements demanding state-financial enterprises to compete with private counterparts gain strength? Will initiatives to go beyond capitalism arise, grow and challenge the established financial institutions? Has that already begun?
In capitalism's new centers, will history repeat there the bitter divisions and working-class struggles that characterized the early development of capitalism's old centers? Might struggles in old and new centers find some common ground and bond to build an effective alliance in opposition to capitalism? Answers to these questions will have more to do with shaping the future of financial industries than the details of their practices.
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Many commentators seem to agree that there is no escaping our current situation unless we think outside the box. Outside the box is where I come from.
My animated movie, Money as Debt (2006) predicted a Crash and an ongoing debt crisis. My two sequels (2009) and 2011) provide both a unique and very radical analysis of the cause (our monopoly concept of money) and a thoroughly thought out solution (parallel forms of money).
Wishing and hoping for something better, with only vague ideas of how to get there?
Try evaluating a fully developed proposal and roadmap.
http://paulgrignon.netfirms.com/MoneyasDebt/MAD2014/solution12.htm
We have to decentralize the power that money has now. Maybe a “Serves” – a decentralized unit, will replace “Money”, what say Prof ? Read here about Serves: https://www.facebook.com/notes/unselfish-movement/what-might-replace-the-price-tag-life-in-a-moneyless-economic-system/572564356263297
Share together and save the world (Maitreya the world teacher) Our only option to last with all of us!!
People who need money borrow it into existence as a debt-of-itself-on-a-schedule to a bank and people who don’t need money keep it forever or re-lend it as existing money. That makes “stability” (successful repayment in the aggregate) dependent on the rate of creation of new debt-to-banks never decreasing. When it inevitably does decrease, mathematical defaults are the only possible result, the magnitude of the default being the shortage of new bank credit on time multiplied by the number of principal debts dependent on recycling the same principal.
Ups are always followed by downs and by 2007 the ratio of M2 (total principal debt to banks) to M1 (available money) had reached an unprecedented 5.26 :1. Velocity could not sustain a ratio that is normally functional between 2 and 4 and the Crash happened.
Much more at http://www.moneyasdebt.net
While it might be challenging to obtain full agreement regarding the moral question, I offer the following as but one response to the practical question: Sociocracy – decisions made sociocratically are (1) made by consent, (2) consent is obtained through equivalency of voice and exists only after any paramount objects have been understood and satisfactorily overcome (not by force, but by changes in any proposal), (3) All decisions, after being consented to, have an agreed upon date specific for evaluation, and, (4) an agreed upon method of evaluation; (5) at any point after implementation, a concern may be raised and must be considered.
I would also suggest that tying economic decisions to the notion of constant growth appears to me to fly in the face of the fact that resources are not infinite. It seems that we, in particular those in the so-called ‘developed nations’ would be well-advised to examine our values, our aspirations, our goals, our public policy and our foreign policy.
David Graeber points out in Debt: the first 5000years; that ‘barter’ has never existed, it is a fabrication of Adam Smith, most pre-money systems were credit based, including the shops that smith used in his period!
The end of competitive capitalism begetting the rise of monopolies, followed by financialization and globalization, put an end to those dreams. Today, instead of flying trains and robotic butlers, we got iPhones and smart phones. All of those big dreams are summarized in a small device which, by means of intrusive advertisement and promotion, is sold to consumers in prices of at least 10 times more than its real value. Some poor people in third world countries would sell their body parts (e.g. a kidney) to buy an iPhone.
Still, there are people around who have not woken up from old dreams and see a bright future for their glorious capitalist economic system.
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