With its lending business, the financial sector supplies the rest of the economy with the business resource needed by all, and gets a lot of money out of it. It makes the generation of profit in industry and trade dependent on its own growth, which it takes into its own hands in the refinancing circle. Yet it remains itself dependent on its customers’ business success that it speculates on with its high-handed growth: it is up to the users of its funds to turn them into self-expanding capital, thereby proving it was economically right to create and provide the credit thus successfully used, and attesting the value of the money brought into being for that purpose. For the financial industry, this dependence of its own business operations on a clientele whose course of business it has made dependent on itself and its self-organized growth is a contradiction that it faces head on from the standpoint and in the interest of its autonomy, its control of the conditions and success of its own operations. It puts into action its claim that the debts it does business with — those it incurs and those of its debtors — are per se accumulating money capital: it ‘securitizes’ the anticipated result, turning it into a security, a tradable object. In other words, it treats the success of its speculative credit creation as an economic fact and markets this as a business item. In this way the industry establishes a whole world of new financial transactions.

1. Advancing from lending to trading in fictitious capital

In the banks’ lending business, their legal entitlement to repayment and interest makes loaned money function as money capital for them — not in the sense of an advance for some profitable business, but as a direct right to increased money. The banks turn this function into an independent economic item: they certify a legal claim as a security, thereby giving the promised growth of money a tangible existence as a purchasable item. The money that in a normal loan transaction would be given to another acquires in this case the irrational form of a price to be paid for participating in and benefiting from the capital growth financed with it.

This new form alters the whole character of the business. The object it works with is no longer money’s capacity to act as a source of profit in another’s hands and reap a price for that in the form of interest, but rather the anticipated, legally objectified result of a successful capitalist business operation; a right to enrichment that a money owner pays a price for, a sum for which the promised returns are like interest paid. The traded commodity is not, as with lending, a sum of money intended to be applied as capital, but rather an asset instrument that represents a ready-made portion of money capital, a quantum of enrichment alongside and formally separate from the expansion of the capital that the proceeds from selling the asset instrument are to function as. In relation to the promised return, a capital yielding this return is feigned; that is what is bought. This transaction is risky: whether and to what extent the proceeds from selling a security prove themselves as capital and thereby attest the security’s ‘nature’ as capital is still a matter of the competition in which the money made from the sale has to prove itself as a capital advance. But this risk is shifted to the purchased paper itself. The fiction that it is an automatic source of money passes its first acid test with its sale; when the competition between seller and buyer settles the price actually obtained, this at the same time settles how high the sum is that is acting for one side as a capital advance and for the other side as a money-capital asset. And the feigned capital remains dependent on the competition over its purchase price. As a (risky) money-capital asset, it continues to exist independently in the hands of its (particular) owner; separate from the sum of money that was first and originally paid for it. It remains separate as well from the business that received the originally paid sum. Once marketed, the money capital derived from the speculative promise of returns can be further bought and sold among money owners, being newly valued with every new sale.

Thus, the security has left the primitive nature of the lending business behind. It objectifies finance capital’s presuming to be the autonomous master of its business activity, the sovereign author of its growth, and therefore to give the debts it controls the quality of self-expanding money capital. With this achievement, the financial industry fulfills its own need, arising from its regime over society’s business activities, to actually emancipate itself from its dependence on the business world’s money requirements and generated money surpluses, i.e., from others’ success in using its credit; and to pursue its growth entirely according to its own calculations. It doesn’t wait for its services to be in demand, but goes on the offensive. It transforms the need for others’ money, a need it itself has and wants to exploit, into offers of investment, and markets these offers to firms that need capital, as well as to money owners who are not yet getting enough out of their property. In its customers, the banking industry thus creates the corresponding, new interests. Firms of some importance that want to grow are made acquainted with the opportunity to put their need for money in the form of an attractive offer that they can charge money for: as issuers of securities, they procure — or their house bank procures them — a presence as a producer of the money capital they need as an advance. Credit dealers offer all money owners nice opportunities not simply to put their precious property in others’ hands, but to buy themselves property that is legally guaranteed and acts like an automatic money machine while at the same time it can be turned back into money any time as needed. With this offer they arouse the interest in it, creating the figure of the investor. The credit institutions themselves are active in both positions, in fact in all functions that they enhance their credit business with. They construct fictitious capital for their financially strong customers and for themselves, act as its broker and as buyers and sellers for their own account as well as for others’. In this way, they make the capital market. This market turns the antagonism between loan capital and companies in need of money into a competition between those acting as issuers at times, as investors at times, but above all — as far as the market makers are concerned — in both character roles all the time.

2. The business items of the capital market, and their value

In transforming credit relationships into purchasable money capital, the financial industry has creatively applied and further developed legal terms and conditions to achieve a great number of variants. Two of these appear to be particularly important:

• Bonds are for a fixed amount, run for a certain, predetermined time period, and as a general rule promise a fixed interest rate. Thus, the difference from a normal loan seems rather formal; yet even at this point the formal attributes already have a marked economic content. With a bond, the — promised — payment of interest becomes a sufficient precondition for treating a debt as as a self-accumulating money asset; the need for capital becomes capital. A company that finances itself with bonds puts a number on its creditworthiness itself with the offered interest rate, claiming from the community of investors recognition of its promised interest rate as a fair return, hence of its offering as capital. The company thus aggressively subjects its need for capital to comparison with rival offerings and, upon selling its bond, sees this need valued as capital. This connection to the entire market for such fictitious capital remains in effect for the term of the bond: on the secondary market for bonds, the issuer’s creditworthiness is constantly being scrutinized, considered in relation to interest yields on other investments, and translated into the updated daily valuation of the money capital that the bond represents. By issuing bonds, the company turns its own business into a means for realizing the capital that its bonds feign. The aim and criterion for success of its profit-making is to realize and increase the money capital that its bond buyers have in their hands. The buyer of the bond recognizes the issuer’s need for money as money capital; he invests his money in the security whose market price represents the current, comparative valuation of the firm’s promised course of business. Otherwise, he has nothing to do with the company’s operations themselves, and his investment instrument relating to them doesn’t keep him chained to them either. What he has bought for the purpose of making money remains a tradable commodity whose price is constantly being determined anew through the relation of supply and demand between investors, as well as between them and the issuers of new bonds. It is up to him to decide whether to speculate on the redemption due at maturity or to liquidate his asset some other way.
• Stocks represent on the one hand the company’s share capital, its original capital advance. On the other hand, they constitute a money capital in the stockholders’ hands that independently exists as an asset alongside the applied capital, as a commodity to be purchased and resold.^[1] At the starting point, when a public limited company, a corporation, is formed, the two coincide; the capital that the corporation does business with is the same as the sum of money capital existing in the form of stock shares. The money put into buying stocks is money paid into the firm’s business assets irrevocably and without any time limit. At the same time, the two entities are already distinct when the corporation is formed. In its capital, the stockholders’ private property is negated by being turned into the property of the company acting as an independent legal entity. Share holdings preserve stock buyers’ private property, as their private and also alienable asset. However, in the relation between the two sides, there is a priority for private share property, and thus for independently existing fictitious money-capital. The stock company controls its capital as its own property, but the company is itself the property of the stockholders, albeit with the caveat that they can sell their claims to property but not pull them out of the company. And what this property is worth depends on the company’s business success but it is speculative from the start and throughout, being determined in practice by the stock owner’s private property being traded. This speculative valuation of the stock involves various elements. What matters first is the yield the company promises. Its profit, or the part of its proceeds distributed as profit, divided by the number of shares (which is why each profit share is called a ‘dividend’) and extrapolated to an imaginary capital that would yield such a return — that is a first determinant of the share value. The returns actually realized in the past serve here as — more or less powerful — indicators of the profit expectations that the size of the fictitious capital is derived from. A significant role in this assessment is played by how one gauges the company’s potential, i.e., its earning power, the general economic trend and the trend in the particular sector where it operates, and what the competition looks like that is already active or to be expected. The extrapolation to a capital sum that will pay off in accordance with the expected profit share includes comparisons with the current local standard interest rate as a basis, and with alternative offers for increasing money through finance capital. This calculation is modified by speculating on the firm’s profits that are not distributed as dividends, but rather used by the company for the competitive success and growth of its own business operations, thereby raising the real value of the nominally unchanged share capital represented by the sum of all shares, thus raising the size of the proportionate firm ownership that a single share represents, and also raising future earnings prospects. This plus is diminished when the firm issues new shares to raise its share capital, thereby reducing the proportion of old shares in the company and its profits. The plus is realized when the company allocates these new shares to its old shareholders at little or no cost, thereby letting its owners’ assets participate in its growth.^[2] Henceforth the competition between share owners and speculators interested in buying money capital decides the share price. All aspects of speculative valuation remain in effect; trading ensures a factual constant revaluation; and this it does permanently, because the fictitious capital handled on the stock exchange relates to a portion of a company’s capital that cannot be detached from it.^[3] So the shareholder’s wealth remains a variable quantity, depending on the valuation his fictitious money capital receives from the market, where large and small, professional and freelance money capitalists are busy making their comparisons as competitors. For the company, the resulting share price is of vital importance insofar as it provides the latest information about its relative creditworthiness: how much confidence the money-owning business world has in its future capitalistic performance, both in general and in comparison with other listed companies, and thus how much power it has to procure — with bank loans, bonds, or by increasing its capital — funds for confidence-inspiring growth. The joint-stock company thus still depends on the speculator community’s interest in the fictitious capital it issues even when all its shares have been marketed: its growth and thus ultimately its continued existence depend on how well it serves this interest. The stockholders are freer: they can take price gains any time by selling their share certificates, might have to ‘realize’ losses, but in any case use their discretion to detach their wealth from their speculative instrument and so from the firm the instrument is based on.

The financial industry supplies the market it is active on^[4] with different brands of fictitious capital — it has also taken hold of the sphere of landed property.^[5] And it is constantly delivering plenty more. After all, the more successful companies are in procuring money, the more they need. They see each invention of the money business as an instrument that grants them access to others’ money and helps them win the competition for profit. On the other hand, the financial managers’ inventiveness arouses a broad interest in products whose use-value consists in acting as a source of money. By serving these two sides of its own business, the finance industry enlarges its market and institutionalizes speculative trading in fictitious capital as the royal road to capitalist enrichment.

3. Capital growth through speculation

The numbers from developments on the stock exchange provide an ongoing record of the sales achieved trading in various securities: they provide information about the prices that trading gives to these commodities. This is naturally interesting to all, private individuals and professionals alike, who have invested their own or someone else’s money in such credit notes. But the rest of the business world stares in no less fascination at the reports as they are issued several times a day, since the course of a trading day also includes all kinds of preliminary decisions about what industry and commerce and all the rest can expect.

a) Securities portfolios and their profitable management

Anyone involved in securities trading is dependent on information about its effects, because the current prices of the various securities convey key messages. Owners of relevant investments learn how much money they own — because they’ll have it if they sell at the current price. As investors who have put their money in securities, i.e., exchanged it for such assets, they are interested in the constantly updated columns of figures telling them about the changes their wealth has undergone — i.e., whether it has been reduced, merely preserved, or increased by the market with its rates and prices. It is of course a plus they are aiming at when they put what they have into this type of business item, thereby exposing it to the forces of supply and demand. They are acting as speculators, reckoning on future prices because they regard them as possible. What they want to know is the price trend, the future development of how their security holdings are rated. The busy comparisons constantly being made give rise to decisions to buy and sell that all follow one purpose: to multiply wealth by skillfully reallocating securities in a portfolio.

It is a most distinctive brand of capitalist enrichment that is pursued in financial markets. The assets traded there present the expansion and accumulation of capital as objects embodying money’s power to multiply itself. This they do so radically and so consistently that the sum of money to multiply is itself not some amount set in advance for the process, but rather is derived from the certificated power of money to create returns. This derivation takes place in a theoretical form through speculation, on future growth, in comparison with competing offers, etc. It becomes practically effective through trade in the various papers, through the back and forth between realizing the attained market value and reinvesting the proceeds in other promises of growth, trade that is constantly taking place on the appropriate financial markets and, in its most prominent form, on the stock markets.

The actors meeting in this speculative trade are in principle all making the same calculation — with the amount and reliability of hoped-for gain in portfolio assets (or size and certainty of feared loss of them) — but on the basis of divergent views about the optimal relation between the two opposing aspects, and different assessments of future market developments. They agree on terms with each other because they have opposite ratings of the same good, that is, see its price movement as a prospect for enrichment in the opposite way. Successes in this competition make both freelance and professional speculators very proud of themselves. In fact, it is a profession of its own to assemble a portfolio of securities that represents the best possible blend of the two virtues of speculation, greed and caution, and manage it in such a way that its value grows as planned. One important thing for this purpose is an information advantage relating to factors that could influence one or another price trend or the general one — hence also a skill in spreading rumors to drive a certain trend. Others are the breadth of comparison of possible interesting investments, and the speed of buying or selling. This too, like everything in the market economy, again depends crucially on the size of the capital to be used for speculation: the size should be sufficient for taking part in the various submarkets of the securities trade, for initiating and completing transactions everywhere, for surviving ‘dry spells,’ etc. Financial institutions compete for size by, among other things, offering to manage assets: the power of disposal over a great number of portfolios, which might require different strategies for increasing value or avoiding losses, enhances the power to make the most of stock market developments, even to steer them a little in a direction that benefits one’s own good cause. It brings in fees to boot.

Thus, the financial industry organizes the growth of fictitious capital and its competition over shares of it in a way that is formally separate from the corporate world, which on its part uses the money it receives from the capital market to compete over generating profits and its own growth.

b) The regime of fictitious capital over the ‘real economy’

In the media, experts explain which messages the development of stock prices most likely holds for those parts of the economy where people make money other than by speculative trading. They explain what employers and job holders, politicians and the general public may expect from the course of the investment business. Things go back and forth between hopes and fears, since, on this scene, results do not only put on record business successes or failures: they quantify the confidence that speculating investors have in the ‘real economy’ in general, and in some of its sectors and prominent individual firms in particular, insofar as they present reactions to events in industry and trade. They are thus at the same time signaling how things are going to proceed: which developments the stock traders (who are well known for anticipating the future) expect, and are consequently to be expected. After all, their reactions are at the same time setting conditions for further business: the capital market decides on the allocation of the financial resources that the ‘real-economy’ working world needs for carrying out its various small-scale and large-scale circulations. The prices that are produced on the financial markets, and the most important of which are listed on the exchanges and made known through every channel, are therefore an index of the creditworthiness and hence the competitive power that the financial world attributes to companies, individually and altogether. At the same time, these prices are a factor of the capital size and thus the capacity with which companies do business.

Conversely, the capitalistic achievements of ‘real-economy’ firms in their competitive struggles for market shares are the object of a continuous, speculatively comparative rating by the financial markets (which, according to their own logic of confidence, consider the actually brought-about expansion processes as just one aspect alongside others). And at the same time, these achievements are the result of the financial resources that capital markets have provided them in accordance with their speculative expectations. The command power that capitalist property exerts every day in a market economy exists as a dependent variable of the growth of portfolio assets through constant speculative trading. This subordination to the inherent laws of fictitious capital meets with the keenest interest from companies in industry and trade. They use the accomplishments of the capital market, namely, all the techniques it develops for incorporating the power of others’ money into one’s own money assets, as a means to gain clout by capital size and thereby in turn to increase their creditworthiness (or ‘shareholder value’ in the case of joint stock companies). Their dependence on markets that devote themselves entirely to optimizing securities portfolios is the real basis of their business; their ‘competitiveness’ always comes about through the use of the instruments of finance capital.

c) Unity and antagonisms between fictitious and ‘real’ capital

The financial institutions that ‘make’ the capital market — i.e., stock it with material, manage it, act as buyers or sellers in a fiduciary capacity or on their own account — have long been involved in their commercial customers’ operations as much more than mere lenders and securities jugglers. With their fictitious capital and as managers of others’ assets, they play a decisive part in the business policies of the corporate world to make it grow successfully and thereby prove itself as a good condition for increasing turnover in securities trading and for a positive trend in prices. For their part, all ‘real-economy’ companies worth mentioning play a part in capital-market developments as both supply and demand, as both securities issuers and investors. Utilizing the equation “credit = capital,” they participate in other companies’ business success just as they use the others’ interest in their own course of business for getting hold of others’ money. In this way, both sides, the financial industry and real industry, are constantly confirming that a bank pursues exactly the same purpose as an automaker or a supermarket chain; namely, they are all interested in increasing the power of their capital and nothing else.^[6] In pursuit of this aim they work together in a way that leads to society’s life process being completely subsumed under the power of money capital. The consequences are well-known, in many cases unpopular, but on the whole accepted as given facts that can’t be undone. Production sites along with jobs and proud job holders are up for grabs when the stock price leaves something to be desired. On the other hand, speculation on a new booming industry will whip up completely new work environments. Developing the productive force of human labor and inventing products the world has been holding its breath for are subject to a constant stream of ‘technological revolutions.’ State services that have traditionally been regarded as in the general interest and therefore up to public administration have to be privatized — investors need know nothing about medicine or water pipelines, rail transport or education to always see each relevant sector as representing the same one thing, namely, an insatiable need for capital, and to turn universities, nursing homes, or highways into profitable investments. Nations and regions that are judged by competent financial experts to likewise suffer from this one single affliction, namely, a lack of capital, are mercilessly opened up, i.e., turned into arenas where speculative investment decisions on some global stock market are transformed into real, local exploitation of human labor power and natural conditions.

This of course does not do away with the antagonism between the credit business, which equates the promise of yields with capital expansion, and the business being credited, which is supposed to make this equation come true. It alters the form of the antagonism, which now takes place where one side uses the instruments of the capital market for its competitiveness and the other side directs the competitive efforts of firms with the power of property in the form of securities: it takes place as a competition of speculators who make prices with their opposing assessments. This converts the dependency of finance capital on financed business, and vice versa, completely into a critical comparison of alternative investments and consequent purchases and sales.^[7] The conflict between a firm’s interest in growth and its financiers’ interest in enrichment is shifted to the price risks that the speculators create for each other with their calculating and their freedom to optimize their portfolios. Their trading activities with each other decide at the same time the fate of companies and that of the relevant assets.^[8]

In this way, the financial sector has really got somewhere by emancipating itself from its basis, the growth of capitalistically produced property. The sham it lives on, that everything it touches is already self-increasing monetary wealth, has been developed into the art of portfolio management. Not that the masters of money capital really have control of success in this business; they have taken things to the point that advantageous trading for one side definitely goes against the calculations of the other side, and even both can lose. The sector does not resign itself to this contradiction. It takes it into account by attaching the label ‘risk’ to its business items and throwing itself at the challenge of turning its self-created uncertainty into the ultimate deal.

4. Business with ‘risk transfers’ and its politico-economic importance

No one knows better that uncertainty is part of the financial business than those who run it. One of the things taken for granted in their business is the rule that profit rises and falls with the degree of risk. This automatically brings about two complementary needs in the financial world: to reduce or try to get rid of the uncertainty of speculation, and to make money on it since it can’t ever be eliminated. Such needs of the financial industry offer it plenty of opportunities.

a) Derivatives

The need for certainty, which arises as soon as loan capital is given out and which recurs in all forms of financial business up to the speculative exploitation of security prices, is seen by savvy capitalists as ready demand for properly specified insurance services. So they offer, for example, to assume the risk of debt servicing. The risk is separated from the risky loan transaction and assumed by the insurer; the price of this service depends on the financial standing of the debtor or bond issuer. The insurer doesn’t leave his own risk uninsured but rather passes it on, by paying a premium matching his own financial standing, or else in securitized form, directly to his peers or else to other investors interested in fictitious capital involving such risks that are removed and emancipated from the original loan transaction by at least one intermediate step. This type of insurance transaction has long since become so common that, in trading in the relevant securities, the original borrower’s creditworthiness is not simply reflected by the insurance-risk rating but is measured, i.e., quantitatively determined, by it. The result is a ‘risk transfer market,’ whose turnovers are driven at least as much by the interest in speculative investments as by insurance needs.

For doing business with that uncertainty arising from speculation in the course of managing and enhancing the value of securities portfolios, the financial industry has (further) developed the instrument of forward contracts, making it the material of a separate trading segment. One party purchases the option to buy certain securities at a later date at a currently fixed price, gaining if the price has risen by then, risen more than the option cost, that is; or to sell, with a corresponding gain if price has dropped. The other party takes money for its obligation to deliver or accept the security, gaining when the partner doesn’t exercise the option because it doesn’t pay off for him in view of how the value of the security actually develops. Or one side purchases a future to secure the price at which it can obtain a certain amount of securities at a specified later date; the other party guarantees the price at which it will then deliver the ‘underlying,’ namely, the securities in question; the actual price movement decides which side gains. At the same time, the speculator community has long since recognized that the same gain at stake in this kind of transaction can be realized much more easily and cost-effectively if the contract is not based on delivering the underlying, but directly on the difference between the price currently agreed to and the one actually obtaining at the settlement date. That way, futures and options are also much more suited for protecting the value or the speculatively anticipated growth in value of a securities portfolio. Here, too, no oppositely speculating owner of corresponding assets is needed as counterparty to the portfolio owner or manager, but merely speculators willing to invest the necessary sum of money. And here, too, the interest in such a speculative investment is at least as productive as that in the certainty to be attained at best with forward transactions for one’s securities portfolio and its growth. In any event, both together ensure a transaction volume that far exceeds the sales of the underlying assets.

But it is not just in regard to their volume that business with futures and options, trade in securitized interest rates and other risks of the lending business, and other ‘derivative’ financial operations parts ways with ‘spot markets’ where the underlying assets are bought and sold and a need for insurance arises. With its derivative products, financial speculation develops a world of its own with its very special procedures, rules, and criteria for success.

• A first example is a business model that came into disrepute as a trigger for the financial crisis starting in 2007. A bank securitizes its loans to debtors of various credit ratings, sells these debt papers to a ‘special purpose entity' specially established and credited by the bank. This entity refinances itself, namely, its bank debt, by issuing and marketing its own ‘good’ bonds, which as a rule are short-term, accordingly have lower interest payments, but of course have to be frequently re-issued and re-marketed. The surpluses it makes from the interest spread between the purchased bank papers, the ‘assets,’ and the securities it issues are passed as ‘fees’ back to the bank that established it. The starting point here is thus a customary banking deal. However, the securitizing and the type of refinancing give rise to a separate market that no longer merely doubles the original credit relationship and reflects its risk. Instead, the trading lives off speculation on the reliability and business acumen of the issuers of such ‘asset-backed securities.’ ‘The market’ attests the soundness of the traded products as profit-generating assets and thereby their value — or lack of soundness and value — according to the relation of supply and demand that comes about on it. Professional buyers of such papers like to construct new securities from them, by dividing them up and putting them back together differently. For these papers too, sufficient demand proves the construction’s success, trading passes on the risk, and the constructor makes money. The important thing in any case is to avoid disruptions in the sale of the securities and obligations the issuers use for refinancing. It is the decisive criterion for the success of this business model to keep such trading going and thereby maintain the value of the traded objects. The banks’ original credit business is affected by this derivative market in a very productive way. Credit customers are sought — and found — not in order to make money on their interest payments, but in order to create material for securitizing debts and processing them into commodities of the derivative kind. This is the material needed for a method of enrichment that, quite fittingly, turns the relation between ends and means in refinancing operations upside down.
• A second example, which also stands for a relative emancipation from trade on the ‘spot markets’ while having repercussions on its course and results, is the lively activity on the futures exchanges. When such speculators make an offer to buy or sell an ‘underlying’ at a specified later date — only in the rarest of cases with the intention of actually acquiring or delivering the item — and quote a price and put money down for it, then they are certainly considering an economic object and all sorts of circumstances that are relevant for speculatively assessing how its market value will develop. Nevertheless, they are at the same time taking part in a huge financial bet that is honored and renewed on a daily basis until the due date. And whatever speculative profit or loss they get, so long as they maintain their stake, depends on the futures price their calculations are aimed at, which arises from the postulated offers to buy and sell that are continuously compared with each other. Enrichment comes about not by participating in the performance of a portfolio, but rather by appropriating others’ bets in relation to one’s own, in accordance with a futures price that follows its very own ‘logic’ of ‘supply’ and ‘demand.’ The fact that this price regularly differs from that of the ‘underlying’ is in turn a business opportunity for the ‘arbitrage’ trader. His ability to have a determining effect on that price becomes clear on the due date, the ‘witching day,’ when financially strong speculators mobilize quite a bit of money and credit to intervene on the ‘spot market’ and give the underlying the price they have bet on with their futures…

Additional remarks

The creators of the various securities based on securitized bank loans through one or another intermediary step boast about their art of finding a mix of profit opportunities and loss risks exactly tailored to the ‘risk profile’ of each investor and constructing the corresponding ‘product.’ Such a security no longer represents the underlying credit transaction, whose yields and risks are at most reflected indirectly. What the finance ‘industry’ produces in such cases is the legal form, and the form of economic objects, that it gives to profit and loss opportunities derived — by means of Nobel prize–worthy computational models — from various financing and refinancing relationships. The worth or worthlessness of such products is directly decided by the investors’ interest they can arouse. Each marketing success carries not only the profit opportunities further but also the risks, creating a new kind of overall risk that occurs when, for whatever reason, the promised profit stops being refinanced by ever new borrowing, i.e., trading in such papers comes to a standstill. The collapse of this market very easily expropriates everyone who has got involved in it whether as an issuer or as a buyer. Market experts refer to this activity — impartially but understandingly — as a ‘risk transfer market,’ claiming it has the most useful effect, as long as it works, of tending to spread the risks of the credit business toward the greatest risk-seekers, thereby ensuring an optimal allocation of society’s financial resources. Those who run this special kind of trade provide this public service simply by cooking up their products so that the traded risks spare them personally the most. That turns it into a sustainable business model that has the potential to trigger a real financial crisis.

The doings on modern futures exchanges are often made plausible — with some expertise again — by a reminder that forward transactions have their basis in commodity trade. One merchant gets a contractual guarantee that a commodity he doesn’t need yet will be delivered at a later date, when payment will also be due. Another merchant guarantees delivery at the agreed time for the commodity’s current price, plus the amount of money the buyer saves by not having to pay interest until the time of delivery for going into debt to pay the current price right away, as well as the storage costs he saves up to the delivery date. This is more or less the thoroughly sensible model on which the futures prices supposedly come about on the markets as well, where the purchase or sale of securities at a specified delivery date is agreed on formally, there being no real intention of buying or selling.

But a different tale is told by the way these exchanges work, which is also often explained in detail to an interested clientele greedy for money. It is based on just about the opposite, namely, on emancipating a special branch of speculative enrichment from the course of the underlying transaction it relates to. Speculators here — some in the fictitious role of future sellers, taking a ‘short’ position because they do not have what is fictitiously promised; others in the role of future buyers, ‘long’ simply because they are the other party — put a figure on the price at which they would currently conclude a contract on the delivery or acceptance of an asset at a due date determined by the market. In other words, they specify how they believe prices will move by this date, and indicate the amount they intend to contract for — an amount that definitely has nothing to do with the number of underlying assets that actually exist and are being traded. The financial market, which defines all the parameters of such contracts — due dates, quantity units, also monetary values for benchmarks such as share indices that have no value themselves — acts as a contractual partner to all parties. Every day it calculates from the relation between ‘short’ and ‘long’ positions an average price whose change in relation to the speculators’ exposures gives rise to profits for some and corresponding losses for the others. This profit or loss is immediately posted to the account that each client has to pay an amount into as security and as proof of his ability to pay for his exposure. Depending on his financial standing and the volatility of the object of speculation, this amount is between five and fifteen percent of the contract’s value amount. In the jargon of the industry, this proportion is called ‘leverage’ because it makes the posted result calculated on the nominal value of the ‘future’ improve to seven to twenty times as much relative to the actual capital invested, thereby basically constituting credit creation at a very high level of business trust among competing speculators. The fraction of a sum has the effect of the total — which of course makes itself felt equally in a negative way in the case of a loss. If a client held on to a bad speculation up to the end, he would owe the total amount of his exposure. But a customer can get out of a deal at any time with an ‘offsetting transaction’ — a contract in which he acts as if he were speculating against himself. What the futures exchange organizes is thus a process of constant enrichment through the appropriation of others’ money. While this process still relates to the price trend of a fictitious capital on the ‘spot markets,’ it is removed quantitatively as well as qualitatively. Quantitatively, the amount of speculative bets can never be large enough. The more participants and the higher the sums, the more liquid the market and the easier, safer, and more profitable the business of the exchange making the market. Qualitatively, the futures price results from the relation between speculative short and long positions and is the actual object of speculation. And even this high-flown market activity is considered by the experts to make good economic sense. Firstly, it is again supposed to have the function of ‘transferring risk’ to those with the greatest appetite for risk, although there is really nothing being ‘transferred’ here but rather a whole new world of profit-loss relations opened up. Secondly, futures markets are said to have the function of making the status and course of speculation transparent in an ideal way through the futures price, thus ensuring fair prices on the ‘spot markets’ as well — unless of course they cause distortions there, as may also happen…^[9]

Alongside the possible business risks, all differences in valuation arising in the course of a financial transaction constitute an opportunity for speculators to make money directly, i.e., without an ownership or business interest in the various speculatively rated items themselves. Even the slightest differences in currency exchange rates or in the price of contracts for interest rate hedges, etc., that arise even temporarily between various money-trading centers or in the course of a trading day are exploited. A lot of short-term credit is raised, used for buying such an item, or the right to it, minimally cheaper and quickly reselling it at a minimally higher price, and paid back immediately, so that profits are pocketed virtually without using any money of one’s own — at the expense of speculating colleagues who have made money on the different valuations now equalized by arbitrage trading. Modern communications technology and the computational arts of mathematicians working in the field make it possible to exploit tiny margins that until quite recently were disregarded and lost in the white noise of global financial transactions. Experts contentedly take note of public services such as total transparency and harmonization of all risks…^[10]

b) A high-turnover capitalistic “zero-sum game” as a force of production

On such a financial market there is no real growth; in any case one cannot see any increase in society’s overall financial-capital assets but “merely” a redistribution of money. Descriptions of this type of speculative enrichment, for the benefit of small-time speculators, repeatedly warn that it is a “zero-sum game.” So the enormous size of this market occasionally prompts free-market experts to critically inquire what the whole thing is actually good for. They get especially critical when a financial crisis gives rise to the suspicion that this is an arena where money is not really earned, much less honestly come by, but senselessly and irresponsibly ‘gambled away.’ However, when one sees the repercussions that a slump in derivatives sales has on the financial industry’s power in general and on the services it is expected to provide for the course of other businesses in particular, it becomes clear what this voluminous market achieves in politico-economic terms. Quite obviously, the huge turnover in this area, the volume of the mere transfer or speculative reprocessing of all the risks taken, enhances the power of the financial sector to act as guarantor of its own business activity and source of all other business activity, to the extent that it does. So it can all the better put into practice, and thus give credibility to, its basic sham of being in full control of its dependence on others’ business. In fact, when financial-market players buy and sell their securitized risks and bet on future values they consider possible, they are using each other for comparatively valuing, and thereby fundamentally recognizing, their speculative products as money-capitalist wealth. They are assuring each other, all around, that their risks are basically trustworthy. The sheer volume of the derivatives trading they manage and carry on themselves testifies to the soundness of what they are trading, and especially what is being traded on the corresponding ‘cash markets.’ In the end, the whole financial industry — with its growth and its collective financial power — backs up the constructions it uses to speculate on the value of its dealings, making them hugely convincing.^[11]

The ‘depth’ that the financial market gains in this way does not only reflect the power of society’s money being centralized in the hands of the financial industry. It stands for the power this industry gains from the capitalist wealth it concentrates in its hands to act as an inexhaustibly liquid source of finance for itself, and as a financier, director, and beneficiary of the rest of economic life, as if that were only a subdivision of its own speculative accumulation. The actors on the financial market operate with the entire social power of capitalist private property — and do so, in their self-created world of securitized risks, fixed-date wagers, arbitrage transactions, etc., in full conformity with the system: as competitors. They are no longer competing merely for shares of growing profits, but rather for private enrichment at the direct expense of their business partners, right up to the antagonism of speculative wagers managed on their exchanges. And vice versa: their struggle to increase their capital by speculating against each other, speculating even on others’ damage, presupposes that they have a joint power of disposal over society’s monetary wealth as the source of its accumulation. Their competition is based on this common ground, and operates with it. Thus, the financial industry brings to completion the contradiction of competition and credit that its entire business activity stands for. It socializes the power of private property at the highest level — and it uses this power for a business world of enrichment through risk transfer and forms of expropriation that has moved way beyond its basis, the mode of production of credit-financed capital accumulation.

This contradiction can be easily ignored as long as it works. But there comes a point when the managers of finance capital themselves make the transition and stop relying on each other in their competition against each other, instead revoking their business trust in their rivals.

Additional remarks

Financial companies call their souped-up debts ‘products,’ and their line of business an ‘industry.’ And when utilizing and paying most, if not all, of the people who serve them, they are of course eager to apply techniques that firms in other lines of business use for reducing their unit labor costs and trying to increase their rate of return. Here, too, technological equipment is used wherever possible to make operations more effective and economize on labor. But the personnel costs for constructing the various ‘financial products’ are not really crucial for whether, or to what extent, they actually yield returns and make the company grow. This depends on the creditworthiness that a firm in the speculation business acquires essentially with the mass of debt that it incurs and has others incur with it. That is what decides refinancing costs and revenue-generating business volume.

In the pursuit of that success, the finance business produces a number of very special occupations, enriching capitalistic class society with quite distinctive economic characters. It creates the manager and its complement, the money owner, a character mask of wealth, who has ceded the power of his property to accumulate to a salaried employee, the aforementioned manager.

It begins with the separation between ownership and entrepreneurial activity that is institutionalized in the joint stock company. In this form of business, the management responsible for running the company serves an owner interest that is associated with its real object, namely, with the practical application of the power of property, in a separable way, through the intermediary of a portion of fictitious capital and its expansion. The power of capital itself lies in the hands of a salaried executive who has to decide not merely how to generate profit, but also how to apply it appropriately, first and foremost how to split it into reinvested and distributed parts, i.e., to what extent the owners are enriched. The conflicts of interest between ownership and capital expansion that this separation entails are not eliminated by establishing a board to supervise senior management in the name and on behalf of the owners and give its nod to management’s decisions, not least on its own pay. And the conflicts are definitely not eliminated by periodically holding owners’ meetings. Instead, they are made permanent by such measures, becoming an enduring task for a mediating body which in turn consists of seasoned top managers who now have, besides the additional pastime, an additional income in the form of director’s fees.

The key actors of the finance business hold a similar position of power to salaried company managers, albeit a much more general one that is less directly related to the practical application of capitalist wealth in companies. The finance business itself — normally organized as a joint stock company, too — inherently consists in the management of others’ property and others’ capital requirements. For this line of business, ownership of money and use of capital are from the outset two separate spheres, which it obligingly brings together to make itself the decisive arranger and master of the increase of both sides’ wealth — and especially its own. It is entirely up to salaried functionaries to exert the economic power of property. More and more with each advance and each new achievement of the credit industry, the capitalist property whose power is exerted by managers acquires the status of legal entitlements, which professionals produce, place on the market, continuously manage, and thereby make productive for their owners. The leading commanders of this sector bring about the accumulation of private property by capitalistically socializing it. Their control over this contradiction is their accordingly abundant source of revenue. The fact that they are at the same time the private owners of a substantial share of the money capital of society that they direct results quasi-automatically from their function. But it does not eliminate the functional separation between the status of portfolio owner and the profession of executive money manager. Ideally, the top income from looking after the wealth of others is the source of the money managers’ own.

The credit-business tradition includes not only this honorable profession but also the demimonde of clever speculators who take advantage of the fuzziness and risks of big banking. But this branch of the speculation business has gained stature through the globalization and acceleration of all financial transactions, the disproportionate growth of derivatives trading, and the advances in the technology that has given capital markets such a boost. In and alongside the credit institutions that continually run the global financial business, a great number of jobs have arisen whose holders enrich their employers, and themselves in the form of lavish bonuses, by quickly and skillfully enough applying the algorithms required for identifying and exploiting minimal chances for profit, and the sums of credit made available for the purpose. The opportunities for manipulating the relevant parameters of these transactions have multiplied accordingly. It has become part of the qualification profile for this profession to be willing not merely to make the most of the gray area up to outright fraud, but to extend it.

The jobs that are ordinarily at the beginning of a successful career as a speculator or executive take a toll on people’s living time and nerves more or less like all the other usual jobs that modern capitalism has to offer. Nevertheless, it is clear — especially in the imagination of those out to become managers — that this is the only way to make a career that can actually lead someone not born into it to the point of participating in real capitalist wealth. The small radical minority for whom this promise comes true fall in beside the class of capital owners as special and specialized character masks of responsibility for enriching the rich, to whom they soon belong themselves.

5. The financial industry and ‘the business cycle’: Twofold growth and the necessity of economic crises

With the power it acquires, the financial industry grants the advance for general economic growth across the board. One company’s successful growth creates additional ability to pay, thereby giving quite a few others more to earn. So capital accumulation in one place gives rise to accumulation in another. This is anticipated by the financial industry, which stands above all companies and industries with its business activities, and in relation to all firms as debtor and creditor. It generalizes the positive connection that firms have with each other via ‘the market,’ and finances the overall capitalistic success that is its basis. It is part of its business that there are always a number of firms that fail, being supplanted or taken over by more successful companies. After all, it is the competition of individual capitals that is being financed. And it is likewise clear that this fate is also met time and again by companies in the financial sector. Credit is an indispensable means of success, but cannot guarantee success in a world of free competition. This does not alter the fact that the financial industry grants the advance for overall economic growth.

Nevertheless, the general course of capitalist business is not only characterized by frictions and upheavals, which permanent competition necessarily involves, but also by a general up and down. No remedy has been found for this by the experts, nor effective measures to combat it by the class in charge. When borrowers and lenders are always doing everything they can to achieve constant growth, this results in a course of economic activity that periodically depresses the overall growth rate to zero or below before it rises again.^[12] Obviously, the calculation that the accumulation of capitalist wealth will always produce the conditions for generalizing and continuing this accumulation — especially under the regime of a potent financial industry — alternately works out quite well and not at all.

The reason lies in the economic goal itself pursued by firms furnished with credit to compete for growth, and in the very methods employed for that purpose. Their need for credit already reflects this, indicating that they are not interested in continuing to do the same thing over and over on a gradually expanding scale. What they need an advance for beyond the capital growth they have already generated is their competition to maximize their profit, i.e., the double purpose of not only selling as much as possible but selling more and more, and increasing their profit margin by reducing their production costs. Since the first objective will tend to make the greater amount of production factors required more expensive rather than cheaper, it is all the more important for them to save cost in production itself. Capitalist companies automatically know which factor to focus all their efforts on to obtain a lasting effect. What they have control of is the relation between the cost and the profit-yielding performance of labor. After all, its productivity — objectified in technological equipment and an accordingly organized production process divided into various subtasks — is up to the company from the outset, being set in advance for the workforce in their workplace as an objective necessity to perform at maximum effectiveness. Corresponding progress in this area improves the relation between wage costs and product again and again and ever further. The company that profits from this first, and in any case, is the one that successfully leads this technological progress, produces more with fewer workers, and is therefore in a position not just to increase its profit margin, but to reduce prices and increase sales at the expense of its competitors, thereby realizing the double objective that is decisive for capitalist firms. Competitors have to follow suit with their cost of labor in relation to the product’s market value, thus likewise making employees redundant and saving the previous wage payments. Otherwise they drop out of the competition, send their workers home without any wages at all, and stop buying other means of production as well. This results in an entirely unplanned overall effect: because all companies pursue the same strategy of increasing labor productivity, they tend to reduce society’s ability to pay, which at the same time they draw upon to an increased degree in their efforts to achieve more profitable sales. In this way, the measures each individual company takes in keeping with its own calculation for success, namely, reducing the selling price, making the greater profit margin smaller again, become a necessity for all. This reduction of maximized profits that is forced on a company is accompanied, in its profitability calculations, by an increase in material costs corresponding to the increased sales, as well as the expense for new machinery. Often it is even necessary to reorganize the entire production process, which is usually more expensive than merely replacing old equipment. As a result, firms do create new ready demand for the improved means of production to replace the old; and advances in technology always lead to new consumer products that spawn a need for them and whose production creates additional societal ability to pay. But the fact remains that each new line of business pursues the same objective of profit maximization, which, under the pressure of competition, always brings about the same effect. The increase in profit through enhanced labor productivity reduces society’s ability to pay in relation to the intended growth. At the same time, this ability to pay is supposed to realize capital growth, and each company claims it for itself as if the market existed solely for its growth. Thus, again and again the capitalistically counterproductive effect of the technological progress that capital pursues asserts itself. The struggle to increase profit leads to a necessity to reduce prices at the expense of profit, and at the same time requires a disproportionate rise in capital expenditure in relation to the profit obtained. Taken together, this reduces the return on invested capital, the first victims being smaller firms with less capital. This happens so regularly in fact that the experts in the field have invented a special term for it, ‘consolidation.’^[13]

The contradiction between the purpose and the effect of that silver bullet of capitalist growth, technological progress, is something a good market economy can always take pretty well for some time. The financial industry helps companies surmount the barriers to growth that arise out of the necessity of capital investment rising disproportionately to profit, i.e, of profitability decreasing for the capital already invested and especially that to be invested anew. When banks see opportunities, they even provide companies that are only running up losses on the market, i.e., whose capital is at risk of being totally lost, with new stature enabling them to compete more successfully. In any case, the banking industry makes sure that companies’ dependence on the market — i.e., on the ability to pay that they themselves create so out of kilter with their own revenue claims — and thus the contradiction between needed and available means of growth, becomes the dependence of all business activities on the banking industry, i.e., on its speculation on future growth, and on the financial clout it has for putting its speculation into action.^[14]

The credit industry can keep relying on this capability it has because growth in one place gives rise to growth in another in this industry as well. It does not come about here through purchase and sale of more produced commodities, but rather through circular refinancing of its loans, creation and marketing of securities, trading in fictitious capital and its spun-off risks, etc. Its speculation feeds on itself. This is especially visible in the valuation of assets that is brought about by speculating on how they will perform and is continuously rechecked in stock market indices. The competition between individual companies has a productive effect in this sector, too. It forces all of them to try and increase the volume of their business, and thus their power and interest in financing growth in all other sectors.

However, the contradiction in the competition of capitals for market share is not resolved by credit or financial markets; quite the contrary. The power of others’ money drives this competition forward until the undertakings all out to exploit the market for themselves are no longer about distributing the profit to be gotten from society’s ability to pay, but rather about distributing the damage. The capital investment necessary for making a profit, on the one hand, is no longer profitable, on the other. The damage turns into a general event when the financial industry decides to abandon its speculative investments on a large scale. This not only brings ruin upon its debtors and plunges the ‘real economy’ into ‘recession.’ The resulting write-offs and their repercussions on the capital market in general, and the refinancing of their own investments in particular, mean trouble for financial institutions themselves. The busier they have been about practicing their professional self-delusion of equating credit and capital, heaping up securities, piling up assets and liabilities, the more trouble they are in. In the worst case, this sector is no longer able to do what it is no longer willing to do, namely, keep financing business life on the same scale as before. Then it comes: economic crisis, where what is inherent to the system becomes reality — the absurdity of a complete breakdown not because there is too little for everybody, but because there is too much of everything. Too much capitalist wealth has been accumulated in all its forms typical of the system.^[15]

The reason why a market economy where everyone is always making every effort to do everything right will periodically undergo crisis lies in the contradiction that the methods of capital accumulation necessarily lead to overaccumulation of capital, as explained above. It is always finance capital that makes this systemic necessity come true, and determines how it comes true. Finance capital makes the contradiction ever bigger and decrees discontinuation with all its consequences. One thing is certain: it not from any insight into the contradictory nature of the accumulation that finance capital finances that it decrees discontinuation. On the contrary, one has to admire how unflappably ‘the stock market’ starts acting after each crisis as if this time the recipe had been found for a perpetual upswing. Whatever causes for the crisis that the financial industry finds for reducing its exposure and letting the capital market collapse to a greater or lesser degree, and especially the causes that experts agree on after the fact, are all accidental in nature, rather than the reason inherent to the system. But the effects are always the same ones: money capital is annulled, sources of wealth paralyzed, produced goods sacrificed and, quite in passing, a large number of wage-dependent livelihoods destroyed. The purpose is to fix the disparity between production and the market’s absorption capacity so that the same circle can start up all over again.

Additional remarks

Sometimes there are international developments that touch the financial industry’s very raw speculative nerves and prompt it to declare an overaccumulation of financing for business that is no longer profitable. Once it was a political controversy over imperialist Middle East policy that had massive consequences for the price of oil — that was called ‘oil crisis.’ Another time it was the financial world’s lively distrust of future business prospects in a region that the same financial world had previously termed a global ‘economic engine’ — that was the ‘Asian financial crisis’ — and so on. In 2007, irregularities in the US housing industry caused the collapse of a whole sector of the global derivatives market, which was backed in part by home loans. The impact on the solvency of those calling the shots in this and other market segments led to a gradual annulment of so much fictitious capital that the world’s major economic powers had to mount an international bank rescue to keep money in circulation at all. In view of the specific starting point of the affair and its first phases, the illusion was harbored for a while that repercussions on the ‘real economy’ could be avoided. But as the global credit sector became increasingly unwilling and imminently unable to even just prolong loans to the ‘real’ sector and to certain states, and continue speculative trading in now dubious securities, it was of course finally time to admit that entire national economies were no longer worth their accumulated debts, and business with them and in general had produced much more than had been transformed into good money.

How the states went about rescuing banks and debts is a separate story, and an indication that it is not the economic reason for such crises that is a state affair but rather to carry them through and complete them. Chapters III and IV will return to this matter.

*

When capitalist growth has again reached the point that a wave of devaluations of credit and fictitious capital becomes a full-blown crisis, then all sides call on the state to offset the publicly dangerous collapse of capitalistic business life. Economists of theory and practice who otherwise reject ‘state intervention’ as the work of the devil, considering it improper meddling in the freedom of the markets, now declare private-sector banking to be ‘systemically important’ and its rescue a self-evident state task, for which the guardian of the system must spare no expense and embrace any debt level. And rarely do obviously self-serving requests fall on more receptive ears with politicians. For it is completely clear to the authorities that the economic capacities of finance capital definitely have to be rescued because their polity depends on it. So it is quite fitting that in the case of crisis the private sector admits that it would be finished without the state’s protective umbrella, i.e., that it can only function if the public power takes care of it, and, on the other side, the sovereign manager of the nation as a business location makes it clear that it has made the place it is running, and its own economic freedom to act, dependent on the performance of a functioning credit-based economy and wouldn’t dream of exchanging this system for anything else — especially in times of need because of some crisis.

Fair enough; in the case of crisis, all sides invoke the symbiosis of state power and finance capital because it is the normal case.

Notes

[1] This construction was not invented by modern financial managers, but already in the early days of capitalism by merchants who joined forces for particularly large or particularly risky ventures. They suspended their private property for the sake of joint business success, of course each with the aim of privately making money from taking part in the joint operation. The financial industry, which concentrates society’s monetary wealth in its hands with its lending business in order to fund the business world’s competition for capital growth and to grow with that itself, discovered the primitive technique of partnership for individual enrichment as a field of business, detached it from the contingencies of parallel commercial interests and, in the form of free stock-trading, turned it into the main component of the securities market, where banks act as advisors to those founding corporations, as marketers of stocks, as buyers and sellers, as administrators of the property rights attached to shareholding, etc.

[2] In a developed market economy, it is no longer the case that an asset is only valuated after deposits amounting to the nominal share value have been collected — share capital divided by number of shares. When a joint stock company is founded, speculation on fictitious money capital already determines both the value of the share, its issue price, and the sum of capital that actually goes to the company as its business capital — or to the previous owner of the firm now ‘going public’ as the purchase price for the capital already functioning. Nowadays, a new joint stock company makes its appearance by ‘book building.’ The prospects for success of the new publicly traded company are presented in public in a ‘roadshow.’ Big capital-market participants make a valuation of the shares as in an auction, after which an offering price is set. Then the suspense mounts until the first trading day shows whether it is confirmed or exposed as ridiculous, whether it is undercut or overbid. After all, that is not decided by working out any numbers, but by investors’ ability to pay and their willingness to pay on the basis of purely speculative calculations.

[3] This only ends when the corporation is completely transferred to the ownership of a new — individual or collective — operator. Then it is time to finally pay not only the most recently determined share price but also a premium for redeeming the property right as such associated with the share.

[4] This is what will be meant in the following by ‘finance market,’ ‘capital market,’ occasionally also ‘money market,’ or the pars pro toto ‘exchange’; all, if you will, according to the definition of the financial market in H.E. Büschgen, Das kleine Bank-Lexikon, 3rd edition, Dusseldorf, 2006, p. 367, as “the (conceptual) conjoining of markets that trade in money, capital, credit, securities, currencies, etc.” The differentiations that experts offer on this conceptual basis focus on criteria that are clearly of interest for conducting such business, such as “term or maturity structures, organization level, market participants, market instruments, and — specifically on international markets — currencies or regions as well”; but they are of no importance for determining the politico-economic nature of this sphere.

[5] The bourgeois state makes sure that the land on which all life takes place — in a market economy as well — is subject to a private power of disposal, and others interested in using it have to pay a ground rent to the owner. This is something bankers didn’t need to invent. It is right up their alley that money to be made on this basis can be credited like interest on capital, and marketed as money capital just like debt obligations. They accordingly added to their various capital markets a real estate market on which they and others with plenty of capital to invest can acquire property in land, an asset with a very special speculative potential. Such investments are, on the one hand, considered particularly safe, because they exploit the trivial fact that each and every business activity and human existence itself need places to take place on, and it costs money to satisfy this elementary need the same as anything else in the market economy. On the other hand, this market is especially inclined to form speculative ‘bubbles,’ as experts assure us, which is not a disadvantage as long as the ‘bubble’ doesn’t ‘burst,’ and is moreover hardly a surprise. After all, the object of speculation is not the future of an ongoing business with reasonably predictable earnings, but rather the potential future interest of all kinds of investors in a very special business condition, namely, a particular business location. The land prices this speculation creates are therefore, in the first place, extremely dependent on the general and local ups and downs of capitalist business life, and are thus regarded by those in the know as a particularly sensitive seismograph for business fluctuations. Secondly, land prices are extremely elastic: they can skyrocket to ludicrous heights when a site can or might be expected to be opened up for a massive business need; and they are just as prone to crash. This makes it all the more appealing to capital-market pros to let all the world take part in creating and accumulating speculative money capital from land through real estate funds or similar constructions: an opportunity for a next kind of securities business.

[6] One of the outstanding achievements of this identity of interests is the financial industry’s skill when it comes to getting a company on the stock market (‘taking it public’) and thereby providing it with a completely new capital base. Another is its skill in organizing ‘mergers and acquisitions’ that bring about an increase in capital without growth, solely by centralizing monetary assets.

[7] A particularly drastic strategy of finance capital for utilizing the instruments of the capital market for its own enrichment at the expense of another company has become known under the heading “private equity” and promptly got itself compared to a “plague of locusts.” An investor buys up the ownership in a firm on the stock market, charges the purchase price to the firm as a liability, removes profitable components from the business, normally in order to sell them, and lets the rest, including debts, go bust. In this modern form, the credit relation reverts to the status of ruinous plunderer of the debtor, dropping behind its starting point in capitalism as long-term participation in the success of a company being financed. Thus, the modern achievements of the financial industry also mean progress for some lovely phenomena of capitalist business life that are not at all productive.

[8] When a crisis-shaken public draws a fanciful picture of the relation between the sectors of capitalist business life with politically correct variations on the idea of an opposition between ‘money-grubbing’ and ‘productive’ capital, then they are not denying the banking industry’s good reputation as a service provider to the ‘real economy’ with its investment needs, but rather adding an accusation that makes a constructive contribution to the affirmative overall picture. They are expressing in coded form that even the lousiest low-wage job is dependent on how the financial sector performs.

The sad truth that the performance of the credit sector is more about exercising power over work and life than about loyal service has also become firmly established, among both professionals and laymen. They all look at the indices on the state of speculation in securities to assess the health of the economy. And no one sees that as an objection to this brand of common good.

When veteran supporters of a free society finally feel obliged to demand that free business life should also be a bit fair, they like to resort to a criticism that focuses on the element of private ownership in the banking business and the ‘mobility’ of capital that it organizes. Diagrams showing the shares of capital ownership, which to others only document the ‘interdependence of the economy,’ swiftly lead to charges of unequal distribution, at times even of undermining competition. That’s one way of taking sides for the good purpose the banking industry actually fulfills in the system of competition for private wealth.

[9] As a benchmark for their forward transactions, the world of speculators of course also use the type of goods originally traded on a future basis by producers and merchants. These are products whose quality basically stays the same but whose prices are known to fluctuate widely; mainly raw materials, traditionally in particular agricultural commodities whose production depends on the course of the year and whose amount also depends on natural conditions. The logic of futures speculation is the same in this case. It is based on estimates of the commodity price brought forth at specified future dates by ‘the market,’ i.e., by the relation between supply, which is determined by various circumstances, and demand, which is essentially dependent on the business cycle. This speculation emancipates itself from what is really happening on the market since the contracts opened relate to completely arbitrary quantities, and its very own relation between fictitious buying and selling positions continually brings about a new futures price. And it acts back on the formation of real commodity prices mainly because financially strong traders in futures, arbitrage, and other derivatives cause shortages or gluts on the real commodity market when trying to manipulate the spot prices in the interests of their speculation. This may benefit or harm the commodity dealers and producers active on this market, but is in any event for the speculators’ own benefit and to the detriment of everyone who has bet on different prices.

[10] For example, Germany’s central bank (Deutsche Bundesbank) has great esteem for the growth of the derivatives market in 2006 (the crisis not having hit yet): “The trading of financial derivatives has increased greatly over the past two decades. After initially focusing on equity and commodity markets, it later applied its well-tested concepts to interest rate risk and exchange rates as well. A relatively recent segment involves credit derivatives, which can be used to detach credit risks from the underlying credit deal and make them separately tradable or newly create them” (Monthly Report of July, 2006, p. 56). Even two years later, in its Monthly Report of July, 2008, in an article on “Recent developments in the international financial system,” the Bundesbank quite ingenuously praises this sort of profiteering: “The palette of traditional banking services and financial products has been supplemented by innovative and sometimes complex financing and risk transfer techniques. … These developments [are] not least the expression of an intensified search for profitable portfolio diversification …” (p. 16). With regard to those who run this business, it notes quite nonjudgmentally that “Innovative financing and risk transfer techniques are being intensively used particularly by large and complex internationally active financial institutions. These financial conglomerates provide a wide range of financial services. In their proprietary trading they function both as suppliers and as purchasers of credit-risk transfer products” (p. 24).

[11] This industry can function without a sprawling derivatives market, as evidenced by the many decades it took to create a realm of speculative freedom for itself under state license. But establishing such a market for itself is so logical that it must be considered an intrinsic necessity. It is the culmination of capital’s emancipating the power of property from its material substance, a process that already begins with the use value of commodities being subordinated to their exchange value, and that becomes real in money.

[12] In the model world of bourgeois (‘macro-’) economics, the overall balance of the market economy always works out as a matter of principle. This is because it explains the relation between production and consumption, between supplying and ‘clearing’ the market, by saying the total sum of incomes resulting from capitalists and wage workers taking part in social production (which are indiscriminately identified with what these two types of households contribute to the products’ value) is simply equal to the use of these incomes for purchasing and consuming the mountain of goods produced. Of course, in the real world it is not merely a matter of consuming what has been produced and producing what is to be consumed, but rather of a thing called growth. Economists fit this fact into their basic equation by having the use of incomes include an item for unconsumed income called ‘savings,’ while on the income generation side there is an item called ‘investment,’ meaning investment in future growth of production. This explanation is based on the same fallacy already noted in connection with how economists interpret inflation. They ideally expect prices and incomes to have the function of matching each other, and regard this putative function as what prices and incomes are all about. This is the starting point for the world of models they construct. It also applies to their business-cycle theories dealing with the obvious, more or less periodically recurring failure of the self-regulating dynamic equilibrium that supposedly characterizes market-economy growth. These theories assume that disturbances are caused by ‘exogenous’ or else ‘endogenous factors.’ They identify these factors by exploiting the fact that every ‘slump of the economy’ can be connected to one or more circumstances — political events, large-scale fraud, natural disasters… — that can in retrospect be seen as having triggered the crisis. They are taken as the cause, since it is only some disturbance in the normal course of things that is being sought. More far-reaching theories try to explain the periodic recurrence of economic crises, searching for ‘statistically significant’ correlations between economic cycles and other periodic occurrences according to the rules of empirical social research, and presenting their findings as interesting approaches. The picture of the market economy as an inherently consistent, absolutely sensible system of neat correspondences remains intact. A bourgeois economist would rather believe that the stars or the mood of consumers disturb economic affairs than start doubting his premise.

[13] What asserts itself in this counterproductive side effect of capitalist efforts to achieve lasting growth is not, as some say, the shortsightedness of business calculation, but rather a contradiction that underlies the entirely appropriate and system-oriented calculations of capitalist firms. On the one hand, the productive work that society needs because it lives on its products is, in this system, not toil to be shared as expediently as possible, but rather a source of money income. This applies not so much to those who perform it as to the businessmen who have it performed and who present themselves as the true productive actor by having the right to pay wages. Work yields money because its product is a commodity with monetary value that is intended for sale, i.e., actually the money paid for it. The more work whose product finds a market, the more money, i.e., wealth. On the other hand, a capitalist firm does not want simply to take in more and more money, but rather to keep a rising maximum for itself from what it takes in. Hence, it wants to have to pay out as little as possible to the other party in the enterprise: to those hired to perform the required work. There, one basically already has the contradiction expressed by businessmen forever complaining that profitable jobs keep getting more expensive — and so less profitable. The more effectively a company lowers unit wage costs by getting more and more products out of each quantum of paid work through the use of advanced technology, the less work is required for satisfying society’s needs. And because work’s benefit for society is actually the money earned on what it produces, reducing the amount of work required means reducing the amount of money to be earned on the commodity thus produced. Businessmen unerringly bring about this paradoxical effect without being aware of it. They aggressively put into practice their calculation of producing commodities more cheaply to enlarge their margin for profit (which they know only as a cleverly chosen markup on their production costs), and increasing the mass of their profit by using part of this margin for undercutting their rivals in a perpetual price war. That is how they end up lowering the monetary value of their commodities by reducing the quantum of work they contain. Consequently, their competition over shares of the profit to be realized with their commodity on the market goes against the share of profit contained in their salable product. At the same time, this progress costs them a greater expenditure for the ‘production factor, capital,’ i.e., machinery. Hence the result of their struggle for more profit is that it not only becomes more and more expensive to make a profit, it also tends to become less and less lucrative.

This contradiction in the accumulation of capitalistic wealth unfolds in the market economy in practice as a permanent selection among competing firms, this taking place alternately between phases of competing for overall rising profits and phases of fighting to survive.

[14] In the system that calls itself the ‘market economy,’ producing for the market and then selling the products on the market as intended are not simply phases that relate to and follow each other, but separate spheres. The only relation between work done and society’s needs is through money — that is precisely what constitutes this system’s special rationality. That is, there is a constant conflict between demanded price and willingness and ability to pay. And this is not merely a conflict between opposing interests, selling high vs. buying low. Instead, the two sides have the contradictory relationship described above, that the commodity-supply side is determined by the growth of capital, while the ability-to-pay side is limited by consequences of this same growth. This contradiction shows itself in a competition in which the losers experience the limits of the market. All the business entities that take part in this competition as intermediaries between production sphere and market activity contribute to the underlying contradiction’s unfolding by separating the two sides from each other even further through their business and relating them to each other solely in terms of their own profit interests. The decisive role in this is played by the credit industry. With its speculation on profit from future sales, it advances the growth of capitalist production and thereby drives the production sphere and the commodity-value realization sphere apart in such a way as to make the commodity producers’ competition for society’s ability to pay (namely, for the return to be skimmed off from it) completely dependent on its speculative decisions on which competing capitals are to prevail and which are to be destroyed.

[15] What is wretched about economic crisis is in fact that the classes of society suffer a lack, each in its own way. But the reason is not that there aren’t enough useful goods, rather that wealth in its social form of money can only go on pursuing its raison d’être, more growth, if it undergoes a good shrinking. At the beginning of the necessary contraction there is obviously a surplus that is useless in the prevailing system:

• Industrial and commercial companies have a mass of unsalable commodities lying around. Too much wealth has been produced for realizing the calculated revenue or at least enough to cover costs. Competition inevitably makes sure the negative effect becomes general. What one firm ‘pushes on the market’ below value at cut-throat prices ruins other firms’ business and forces them to act similarly. In the end, useful things have not only lost their value but are actually scrap.
• The same applies, even worse, to the sources of wealth that companies have at their disposal. There is an excess of means of production and production facilities in relation to the amount of commodities that can still be profitably sold at sufficient capacity utilization. Because their use does not bring in any profit, the finest technology and best material only have scrap value. The money invested in them turns out to be an unproductive expense that ruins the balance sheet.
• The other factor of production is easier for companies to deal with. The damage caused by having more workers on payroll than are needed for profitable work is remedied by layoffs. What companies have brought about across the board with their growth-promoting technological progress — too much commodity value in relation to the ability to pay thereby generated in society — doesn’t just impact the workers made redundant through this ‘labor-saving’ progress. It also impacts parts of the workforce continuing to do work that has been made more productive: the general increase in productivity has caused there to be too many of them now.
• Finally, one great irony comes about. Alongside the business disaster of a lack of ready demand everywhere, there is at the same time too much money that its owners can no longer find any profitable use for. There is liquidity that suffers from not being able to be turned into capital.

© GegenStandpunkt 2021