week five of economics for activists, Mechanics Institute Limerick

1. Economics for Activists
Week Five – Credit and Capitalism
Mechanics Institute, Limerick
June 2013

2. Mary Mellor, The Nature of Money
Chapt.4 – Credit and Capitalism
Credit is essential for contemporary capitalism because:
1. Money is needed to enable the productive or trading process to start
2. Customers also need credit to be able to purchase goods
3. If capital is to accumulate there must always be new money coming into the
system

8. “Marx, for example, emphasizes that all of these forms of capital –
merchants‟ capital, money capital and rent on land – had an historical
existence which stretches back well before the advent of industrial capital in
the modern sense.

9. “Marx, for example, emphasizes that all of these forms of capital –
merchants‟ capital, money capital and rent on land – had an historical
existence which stretches back well before the advent of industrial capital in
the modern sense.
We therefore have to consider an historical process of transformation in
which these separate and independently powerful forms of capital became
integrated into a purely capitalist mode of production.

10. “Marx, for example, emphasizes that all of these forms of capital –
merchants‟ capital, money capital and rent on land – had an historical
existence which stretches back well before the advent of industrial capital in
the modern sense.
We therefore have to consider an historical process of transformation in
which these separate and independently powerful forms of capital became
integrated into a purely capitalist mode of production.
These different forms of capital had to be rendered subservient to a
circulation process dominated by the production of surplus value by wage
labour.

11. “Marx, for example, emphasizes that all of these forms of capital –
merchants‟ capital, money capital and rent on land – had an historical
existence which stretches back well before the advent of industrial capital in
the modern sense.
We therefore have to consider an historical process of transformation in
which these separate and independently powerful forms of capital became
integrated into a purely capitalist mode of production.
These different forms of capital had to be rendered subservient to a
circulation process dominated by the production of surplus value by wage
labour.
The form and manner of this historical process must therefore be a focus
of attention.”
David Harvey, Limits to Capital (London: Verso, 2006), 73.

12. 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.

13. 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.
“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.

14. 1. From finance capital to financialisation
Financialisation sees financial assets not as representing
wealth in the „real‟ economy, but as wealth creating
investment in their own right. (p.85)
Leverage became the most important tool of financial
accumulation… debt [or leverage] piled on a small amount
of initial investment can vastly increase the profit made.
The secret is access and banks were lending incredibly
cheaper to speculative finance companies. (p.89)

19. 2. Credit and speculation: hedge funds and
derivatives
Hedge funds – „betting syndicates for the very rich‟ (p.89)
A major activity of hedge funds is derivative trading…
Most hedge fund derivative activities are purely speculative,
that is, there is no underlying exchange of goods or
services. They gamble on anything, shares, securities,
futures, currencies. (p.90)
On the margin – leveraging without borrowing money.
(p.91)

20. 2. Credit and speculation: hedge funds and
derivatives
Hedge funds are an emblem of the globalised casino
economy, with most of their funds held offshore to avoid
tax. (p.93)

29. 6. The limits of financialisation
The two main aspects of capitalism, productive and
financial, are inherently in conflict. Capitalism is divided
against itself. Finance seeks short term gain while
productive capital needs long term investment.
The financial sector is not just about the activities of a
financial market (intermediation between those with capital
and those who need capital), it is about the process of
financial accumulation. (p.102)

30. … the difference between capital in money or productive
form ultimately leads to the separation between interest on
money capital and profit of enterprise.
The distinction amounts to a division of the surplus in two
different forms, which may ultimately crystalize into a
division between money capitalists and producer
entrepreneurs.
Harvey, Limits to Capital, 72.

31. 7. Speculating with the People‟s money
The argument put forward in this book is that although the money
system is controlled by capitalist finance, it is still publically
underpinned by social trust and political authority. The money
system is backed by the capacity of the state to borrow money on the
basis of future taxation, or issue money that will be accepted as viable
through the trust of the people.
The money system therefore is only as strong as the solidarity of the
society itself, and the capacity of the political authority to ensure
payment of taxes or access other forms of national income. (p,104)

32. The modern banking system evolved through a close link between
the needs of capitalism and the needs of the state.
Financialised capitalism no longer wishes to keep its side of the
bargain.
While it will still supply the state with loans through the money
market, it is not willing to support the other important aspect of the
money system, taxation.
Since it is taxation that is the ultimate source of high-powered money
which underpins all other aspects of the money system, globalised
money must be fragile. (106-7)