Unleashing Usury: How finance opened the door for capitalism then swallowed it whole, Richard Westra, Clarity Press, Inc, Altanta, $24.95, 978098085338
Westra presents a bold and challenging Marxian analysis of the world economy that concludes Capitalism no longer exists and moreover cannot be recreated in another form. In this Post Capitalist world, the remaining Capitalist states and their productive capacity are being consumed and their ability to sustain their populations is being destroyed by the unproductive monster produced by unused money, variously called Creditism, Casino Capitalism or as Westra prefers Usury.
Westra bases his analysis on Marx’s Labour Theory of Value and comes to broadly similar conclusions to Paul Mason’s Post Capitalism (2015). Westra differs from Mason in arguing it is impossible (as opposed to unlikely) for Capitalism to be resurrected. Westra reminds us Marx in his early work described Capitalism as a mode of production which like its two predecessors the Slave empires of Egypt and Rome and the Feudal system is historically delineated with a beginning and, when the material factors necessary for its continuance change, an end. To be durable modes of production must reproduce the necessities of human life i.e. give direct producers enough to live on and ensure the demand for goods is efficiently met. Marx identified the process by which Capital in general achieves this balancing act as the contradiction or antagonism between value and use value.
Westra’s central argument is that changed forms of production combined with the explosion of Creditism have fundamentally removed collective Capital’s ability to ensure the necessities of human life are reproduced and hence Capitalism no longer exists and humanity’s very survival is at risk.
When a mode of production disintegrates it is not automatic that a new stable form takes its place and during this period reproduction of necessities may not occur. After the fall of Rome a Dark Age lasted hundreds of years before Feudalism emerged. The breakdown of Feudalism led to hundreds of years of revolutions, wars and widespread poverty before Capitalism fully emerged. Marx anticipated the end of Capitalism could lead to regression of humankind to a more primitive form of society Barbarism, or alternatively humankind working collectively to create a new durable mode of production Socialism.
Westra sees a unity between these earlier writings and Marx’s later detailed examination of Capital. He stresses that Economics only is possible when the exchange of money for labour becomes general throughout society under Capitalism and that the theory that human beings had always sought to maximise wealth is a myth promulgated to hide the essence of Capital: neo-classical economics “starts as ideology, pretending to be an economic theory, masquerading as a science”. Hence the insistence: There is No Alternative.
Westra reprises Marx’s theory of Capital, the centrality of surplus value to the cycle of productive labour, Capital, goods and money and why overproduction crises and regular cycles of boom and slump are intrinsic to the process. He outlines the various stages of capitalist development including Imperialism and the post WW2 Golden Age of Bretton Woods Capitalism, when vigorous state intervention ensured productive forces expanded with near full employment, rising wages and more Capitalist states created.
He also documents the changing role of Usury, or lending money to make money, from being outlawed as a sin under early feudalism; accelerating the disintegration of feudalism as the exchange of money spread through society; as merchant Capital funding nascent capitalist enterprises. During slumps, money is not invested in new capital and accumulates as idle money which can facilitate a boom using new technology.
Technology and science are endogenous to the Capitalist mode of production, however, incorporating major technological changes into industrial processes may require more idle money than is available. Between 1890 and 1914 transforming industry for steel production required industrial reorganisation and pooling of financial resources. State economic activity rose to 13.3% in the UK and to 17.7% in Germany. Car production and related industries required the whole reorganisation of society to implement in the late ‘30s and post war and a central role for state financing or state generation of money. US state investment was 61% of all investment in 1943. Reproduction of the necessities of life was delivered by Capital through Welfare states. Big Banks grew to support Big Government as Government debt grew to 60% of all debt, and this continued during the post-war boom. Government spending in advanced countries rose from 33% to 42% of GDP between 1971 and 1983.
From 1950 and 1971 the % of the workforce involved in manufacturing rose from 34% to 40%; real disposable income never fell and rose for each quintile of society; the top 1% of earners share of US income fell to just over 20% by 1979. Reproduction of value necessitated high taxation of profits and incomes to fund civil society and provide Capitalist firms with necessary infrastructure and skilled workers.
The post war boom was largely internally funded by large corporations from profits and Capital markets with 65% of US corporate funding from ’46-’70 being internally generated. Up until the late ‘70s idle money was always used in the interest of Capital in general, the role of finance or Usury as an autonomous entity was severely constrained by rules restricting interest rates, guaranteeing savings and separation of commercial and investment banking. There were no major bank failures between 1945 and 1974.
By the late ‘70s evidence of a new overproduction crisis covering most durable goods emerged. By 1980 there were 10 million more registered US cars than drivers. Productive investment slowed and trans-national corporations (TNCs) started to have large stores of idle money which was moved out of their “home” country. Between ’76 and ’80 US corporations tripled foreign investment to $530 Billion. US government debt grew due to Vietnam; inflation rocketed and during 1975 US industrial output shrank 10%.
In 1980, the US increased interest rates to over 20% which whilst designed to protect its interests stopped world capitalist expansion in its tracks as the US dollar was the de facto world currency. Average real interest rates increased to 5.6% between 1980 and 1987. Big banks and TNCs realised they could make more from speculative lending than lending for productive purposes. Governments were pressured to repeal laws restricting lending and constraining banking which they did. Westra argues the only action which could have defended Capitalism at that time was increasing Big Government deficits and Big Bank accommodations coordinated worldwide. This did not happen and Capitalism as a sustainable mode of production was doomed.
Changes to the form of production also destabilised the advanced Capitalist states. The development of ICT and logistics allowed slicing and dicing of the production of commodities to maximise the extraction of surplus value. Manufacturing investment in advanced economies plummeted as TNCs decentralised production to less industrialised countries where agriculture could supplement low wages to meet human necessities. Wages and employment in advanced countries fell. The 13% increase in China’s share of global manufacturing from 1970 to 2008 mirrored a 12% fall in US share. In 2010 only 13% of gross added value came from manufacturing and only 11% of US labour worked in manufacturing. By 2012 TNC investment in third world countries exceeded that in advanced economies for the first time.
To attract TNC investment many countries offered tax breaks or special enterprise zones whereby TNCs locating there paid no or limited tax. Special company structures were set up or subcontractors, not technically owned by the TNC, were used to ensure profits were not taxed in the advanced Capitalist countries. The 4 top US Tech giants are estimated to hold $255 Billion in cash and securities in overseas subsidiaries. Tax receipts in the advanced Capitalist economies and their states ability to reproduce civil society through the welfare state are continually undermined.
ICT technology deploys scientific advances largely funded by the state. Capitalist firms patent increasingly minor innovations, unlike early industrial processes which were rarely patented. ICT patents are estimated to account for close to half the worth of the US corporate sector. Such patents or Intellectual Property entitle the owner to rent out the right to use the technology. The rent of Land, a finite resource, was for Marx a drain on surplus value. So too are patents which however, in the case of ICT are infinitely re-rentable without more labour power or material resources. They convey profit to the owner without labour or production. Increasing use of machines to produce goods further reduces the need for labour in production. Mason shows Marx identified this possibility in his “Fragment on Machines” in Grundrisse .
With fewer workers productively employed and less tax income, advanced Capitalist states can only meet the necessities of human life for their populations with massive budget deficits.
For Westra, the neo-liberal inspired deregulation of finance, liberalisation of trade, privatisation and austerity finished this process of upsetting Capitalist states’ balancing act between value and use value. It thus effectively ended Capitalism as a stable mode of production.
Westra describes neo-liberalism as an ideological refurbishment of neo-classical economics, a 19th century theory which did not describe capitalism then let alone now and is totally inappropriate for the current global economy.
Neo-liberalism claimed deregulation of finance would “free Capital”. Risky lending resulted in 1,000 banks crashing between ’86 and ’95 and over 11,000 bank mergers between ’95 and 2000. The 1999 end of the legal separation of investment and retail banking led directly to the 2007 crash. Banks too big to fail emerged, the Big 6 US banks held $9.5 Trillion in assets or 65% of US GDP in 2012 and took 93% of all bank revenue that year.
Increasingly arcane financial instruments fuelled speculation and encouraged debt particularly household and government debt. Derivatives holdings of the top 3 banks amounted to $194 Trillion in 2010, 3 times global GDP. Shadow banking vastly exceeds “normal” banking and is barely regulated. Governments and households can never repay their debt nor are these assets being productively invested. Interest rates are zero or negative.
Money as Capital for the first time is literally Free as no interest need be charged, yet no sector of the economy is experiencing significant growth. Idle money increasingly looks to gouge profit from the carcase of the Capitalist state.
Privatisation of state assets has at one and the same time, degraded infrastructure, granted mega profits to financiers, worsened services and increased debt. In ex USSR countries gangsters “acquired” whole industries which the state had invested enormous resources in. Privatisation has not even significantly reduced the size of the state, its ideological aim, yet it still seeks to extend into areas like health provision. Latest rounds of trade talks are about removing laws defending health and environment and enshrining the “rights” of intellectual property.
Managers of TNCs and other Capitalist companies are little constrained by their owners. Finance has provided cheap money for management buy outs whose only aim is to propel the managers into the super-rich. Merging TNCs inflates their asset and stock value and rewards their managers as does share buybacks. TNC debt had grown to $29 trillion by 2015, 3 times their annual earnings, yet between 1990 and 2013 the value of publicly traded companies rose 524% to $51 Trillion and world GDP only rose 228%. By 2015 a mere 62 individuals had the wealth of 50% of the world’s population.
Austerity insists Capitalist states balance their budgets! There is NO alternative. UK Government spending fell from 50% to 45% of GDP from 2009 to 2013 and poverty and food banks became endemic. Greece’s economic collapse is the clearest result of this policy being enforced throughout the Eurozone.
Firms operating to Capitalist models still exist but no longer adequately maintain the Capitalist state, indeed their managers and owners have tried to free themselves from all states and increasingly themselves act as part of the Capital markets. According to Westra we have Capitalists without Capitalism.
As Marx noted, Money is not in itself productive, only when it is put to use does production arise. Finance Capital or Usury has become abstracted from and parasitic on the productive process. World money supply has risen 400% since 2008 yet credit and loans to real economic activity has only grown 15%.
Usury as described above has lowered wages to poverty levels, destroyed communities, increased global unemployment to over 200 million and is destroying society’s ability to reproduce the necessities of existence. Unless it is stopped this could lead to the end of civilisation.
I could quibble that Westra has not proven that Capitalist states cannot be revived. After all $11.7 Trillion Government bonds worldwide yield less than 0%, an increase of $1.3 Trillion in a month, some are 50 year bonds. This can fund reproduction of value for a time. Moreover the question of a 4th Industrial Revolution, which Westra and Mason largely dismiss on different grounds (Mason referring to Kondratieff cycles), has just been the subject of the World Economic Forum at the end of June, so some Capitalists think it could generate new sources of surplus value.
However, I agree with Westra that even widespread deployment of prospective new technologies is unlikely to soak up enough idle money to make much difference overall.
The real question posed by Westra and Mason is how we create new forms of production collectively to stave off the descent to poverty, environmental disaster, war and barbarism and slowly move towards socialism.
Neither Westra nor Mason map out a detailed roadmap, Westra promises another book. Drawing on their analysis and suggestions, allow me to posit some priorities.
1. Abolish tax havens and publish everyone’s tax returns. Secrecy allows evasion and corruption e.g. BHS, Panama Papers.
2. Fight austerity which neo-liberalism uses to force privatisation, deregulation and undermine democracy. There IS an alternative.
3. Stop TTIP and other trade deals. We need enhanced protection of rights. Modern technologies allow localised production under democratic control. Free Trade has ensured much of the world has been pillaged and workers impoverished.
4. Restore effective democracy by restoring power to the people and local control. The campaign for an independent Scotland and rejection of the EU partially reflects people’s alienation from power.
5. Ensure everyone is fed and housed with a high citizen’s wage and a free health service.
6. Challenge property rights. We are in a war to break the chains by which property restricts humanity. Intellectual property should be free, academic papers should be freely available, patents restricted, land reform more radical, essential industries renationalised.
7. Control Finance. Force insurance companies to invest locally for their members. Draw up plans to renew infrastructure and rapidly combat climate change using government fiat money and regulated bank lending. Expand local currency schemes under democratic control e.g. a separate Scottish pound.
Collective action through unions, parties, civil society, international movements and governments will be necessary. We are challenging the powerful to remove their power before they destroy civilisation. We MUST win.
For a review of Paul Mason’s post Capitalism see https://www.commonspace.scot/articles/2312/gordon-morgan-if-capitalism-is-dead-what-happens-next
Gordon Morgan is an SLR Editorial Committee member