This thread had an interesting post:

This article, while having a little bit of a conspiracy feeling, makes several important points. I would like to discuss one of them based on this quote:

This is a question that always troubled me a bit: How would we exactly deal with that in a revolution? While the flight of capital has always been an issue, in the era of the internet it litterally takes seconds to transfer all money out of the country. How do you nationalise a bankrupt banking system? I mean, what's the point? And moreover, how would we build on a bankrupt economy towards socialism, given that we can't get rid of money-relations from day 1.

I hope that what follows answers the question:

[The most concrete case scenario to apply this to is the European Central Bank.]

http://www.revleft.com/vb/abolish-ex...html?p=1705093

Note that Paul and I had a discussion on this, and how comrade Sanpal thinks this is the kind of scheme Duhring wanted:

http://www.revleft.com/vb/abolish-ex...48/index2.html
http://www.revleft.com/vb/giving-up-...907/index.html

Re. the money transferred out, the new government could declare it worthless and order the issuance of totally new currency, but at this point I don't know.



I will post my "Financial National-Democratization" commentary in this thread tomorrow.

Financial National-Democratization

“Even the Financial Times now warns in its editorials that it may not be possible to avoid much longer the issue of really taking the whole banking system into public ownership, given its current dysfunctionality. Indeed, there has long been a strong case for turning the banks into a public utility, given that they can't exist in complex modern society without states guaranteeing their deposits and central banks constantly acting as lenders of last resort.” (Leo Panitch)

It is interesting to note the market-socialist David Schweickart referred to and approved of the same editorial alluded to by Leo Panitch, one by Willem Buiter, a professor of European political economy at the London School of Economics and the former head of the European Bank of Reconstruction and Development. In The end of American capitalism as we knew it, Buiter wrote:

Is the reality of the modern, transactions-oriented model of financial capitalism indeed that large private firms make enormous private profits when the going is good and get bailed out and taken into temporary public ownership when the going gets bad, with the taxpayer taking the risk and the losses?

If so, then why not keep these activities in permanent public ownership? There is a long-standing argument that there is no real case for private ownership of deposit-taking banking institutions, because these cannot exist safely without a deposit guarantee and/or lender of last resort facilities, that are ultimately underwritten by the taxpayer.

Even where private deposit insurance exists, this is only sufficient to handle bank runs on a subset of the banks in the system. Private banks collectively cannot self-insure against a generalised run on the banks. Once the state underwrites the deposits or makes alternative funding available as lender of last resort, deposit-based banking is a license to print money.

That suggests that either deposit-banking licenses should be periodically auctioned off competitively or that deposit-taking banks should be in public ownership to ensure that the taxpayer gets the rents as well as the risks. The argument that financial intermediation cannot be entrusted to the private sector can now be extended to include the new, transactions-oriented, capital-markets-based forms of financial capitalism.

It should be noted that “bank runs on a subset of the banks in the system” vs. “generalized run on the banks” refers to fractional reserve banking; banks keep only a fraction of deposits in highly liquid reserves, lend out the rest, all the while being legally obligated to redeem all deposits upon customer demand. For all the rhetoric by Milton Friedman, the rest of the Chicago School, the Austrian School further to their right, and other right-wing economists on fractional reserve banking as the main culprit behind debt bubbles, they miss the point: under the present financial system, the amount of public control over M0, M1, M2, and the entire money supply generally is almost non-existent. A national-democratized financial monopoly beyond even the limitations of the former Gosbank SSSR (USSR State Bank), along with the extension of this public monopoly on money supply control into the general provision of commercial and consumer credit, is the only way towards achieving at least substantive public control over the money supply. It is also the only way to make substantive inroads against the massive behemoth of derivatives trading.

In early 2009, political economist Paulo L dos Santos went further in addressing the appropriate purchase prices based on the market capitalization of these financial institutions, particularly those in trouble:

There is a simple, rational alternative that needs urgent public discussion. Expropriate the banks – or, for those partial to more diplomatic language, nationalise them at the market prices that would prevail had the public not poured hundreds of billions into them. Then run the banks under the sole imperative of stabilising the financial system and paving the way for economic recovery, with no constraints imposed by the need to attract private capital or maintain future private franchise value.

Expropriation would lower the fiscal impact of state intervention. It would also curb the massive hoarding currently taking place as banks try to build up capitalisation levels. State banks could maintain lower capital reserves – after all, the only thing maintaining public confidence in the solvency of banks are state guarantees. This would allow additional room for credit creation, and render recent interest rate cuts effective.

State banks would also be able to provide relief on the debts currently saddling many households, helping provide a welcome boost to aggregate demand. Lastly, state banks could curb the more egregious practices of private banks: exorbitant account, overdraft and transaction fees; interest rates on credit to households; gains made on trading and own accounts at the expense of retail savers; and, of course, bonuses.

These measures are unlikely to be taken by currently dominant political forces, even though such policies are neither socialist nor in themselves steps towards socialism. They are just rational attempts to stop the current economic bloodletting. Economic recovery will require taking on the long-term systemic economic imbalances that conditioned the current meltdown. Those include falling real investment by non-financial corporations, mediocre productivity growth, growing private provision of pensions, health and education, and rising inequality. Addressing those issues will require significant socialist inroads into the functioning of the economy and dramatic political changes. They also require an integrated, long-term understanding of the current crisis and secular developments in the real economy. Stay tuned.

Many have tried to contrast the role of financial capital with that of the older industrial capital, usually by resorting to some form of ethics. Keynes himself openly distinguished between the “entrepreneur” and the “capitalist” (financiers, short-sellers of shares and similar speculators in derivatives and currency exchange, etc.), but the market-socialist David Schweickart made the most obvious point in his book Against Capitalism about the system inherently joining the two:

It is true that some capitalists innovate, reorganize, and manage, but it is also true that many do not. This fact, if not its ethical implications, is acknowledged by most economists; it is reflected, for example, in the standard distinction between interest and profit. Profit is the residual accruing to the entrepreneurial after wage, rental, and interest accounts have been paid.

The basic problem for one trying to justify capitalism (noncomparatively) is precisely this category: interest, a return that requires neither risk nor entrepreneurial activity on the part of the recipient.

Time preference need not enter into the explanation of the capitalist's behavior any more than the entrepreneur's. If Marx and Weber are right, the motivational structure for the paradigmatic capitalist is accumulation, not consumption. Moneymaking becomes an end in itself. The capitalist qua capitalist invests now not to have more to consume later but to have more to invest later. As Marx puts it, "Accumulate, accumulate. That is Moses and the prophets."

One last aspect of financial national-democratization should be touched upon, and indeed it is about an ethical position as much as it is about the numerical difference between assets and liabilities: equity. In several pre-industrial societies, there were taboos against charging interest on loans or – to use an older word – usury. There were also equitable rules on secured loans. For example, Exodus 22:25-27, Deuteronomy 23:20-21, and rabbinical literature prohibit the charging of interest to Israelites (except when a life is in danger) as well as the using for loan security items needed by the poor among them to survive (garments needed by the poor among them to survive cold nights or flour-making millstones, but other items are implied as well) – quite a contrast to the Catholic-imposed privilege of charging usury enjoyed by medieval Jewish usurers but for the convenient purpose of anti-Semitic scapegoating later on, and certainly a contrast to the financial practices of modern Israeli society! Meanwhile, the anti-usury Islamic finance has a Sumerian precedent which could be applied today, free of pork and alcohol limitations and applied especially towards venture (read: vulture) capital activities: agreements between the de facto creditor and the de facto debtor whereby the latter would manage the new business venture and the former would invest in the business venture, assuming typical business risk to income stability but deriving income in the form of profits. To revisit what Santos discussed above, a national-democratized financial monopoly should be more than capable of absorbing, say, the higher risk to income stability posed by small cooperatives or small-business proprietorships as it effectively nationalizes those debtors’ operations in the financing agreements – only to effectively re-privatize them as equitable profits (and not interest) due the monopoly reduce that monopoly’s ownership positions.

Another reason to advocate labour credits or a gift economy/open access immediately post-revolution.

Labour credits are impossible unless at least a significant portion of the economy (i.e., whole sectors) is already planned. What is possible, however, is to disable the circulation function of "money" from the point of the consumer (while leaving this intact for business-to-business transactions). Get rid of anonymous cash, too.

What is "... is already planned"? Do you mean before organizing of labour credits system the whole sectors of economy have already to function on the plan base & monetary system successfully? Then why labour credits at all? Organizing of plan economy is inseparable with organizing of labour credits, it's the whole. How plan economy would function successfully if worker-consumer couldn't plan his/her own needs in labour hours which he/she could compensate working in common enterprises or in other work places of this sector of economy? Central planning kinda "Gosplan SSSR"? Gosplan "spied" upon "market demands" and as a rule it was late and wrong.


How to disable this? Do you mean it is the same "maney" which is intact for business-to-business transactions and simultaneously this "money" has the disabled circulation function for consumers? Duhring has opened his eyes and sent you a greetings.


I agree with you if to abolish the monetary system as a whole in the non-market economic sector and replace it with 'labour -credits' system but to keep the normal monetary system in the state-capitalist and private economic sector.

I don't agree with you if you mean "get rid of anonymous cash" by "disabling the circulation function of "money" from the point of the consumer" as you've said in the previous paragraph.

DNZ:

Just coming here from the other thread.

The problem with "anti-usury" Islamic finance is that it is still based on expropriation of surplus value, albeit in a slightly different form. However much Islamic finance dresses it up otherwise, it is still lending money with the expectation of a return on investment. As such it forms a vital component of accumulation, which is the whole point of capital. Islamic finance is just an elaborate way of pretending it isn't something that it actually is - only it cannot square the circle.

Risk premium is just the difference between the return on investing in ultra-safe government bonds and investing in something else. The idea is that the higher the rate of return, the riskier it is. The rate of profit is not a risk premium as such, unless by risk premium you're just talking about rates of return.

The risk premium in lending is related to profitability (or projected profitability). At least, that's how credit ratings agencies determine creditworthiness. A company with lower creditworthiness would only attract investors looking for higher risk premiums.

The rate of interest is determined by the supply and demand for loanable funds. It is limited by the rate of profit and thus by the ability of capital to expropriate surplus value. The problem for Islamic finance is that it cannot determine without reference to an "outside" benchmark (ie Libor) what the cost of capital should be. How is it to be determined?

You could argue that an Islamic central authority could, like the ECB, Fed or BoE, etc., set a target Islamic rate of return, as the central banks set a target interest rate. But again, how is this determined, what referent is used?

Some scholars have followed "Tobin's q" - that equity financing should determine investment, based on the ratio between share price and a company's capital assets. If q is higher than 1 then firms should invest, and the level of the rate of q could be a determinant in gauging the Islamic rate of return. However, the problem with Tobin's q is that it doesn't follow reality. In reality, when a firm increases its capital, its stock market value falls, and only after the fact. But we can only know how the market values current assets, not future investment. Thus the equity market cannot be used to determine marginal q.

Again, in reality, it is profits, profitability and projected profitability that determines investments.

How different is that to, say, Proudhon's mutual bank scheme?

Currency, or more accurately, money, is valuable to the extent that it is acknowledged as a legitimate medium of exchange, which is why financial capital is so weak compared to physical or human capital. I inserted some commentary of Burnett Bolloten's about the value of money in post-social revolution Spain into the Wikipedia article on the topic, and it's worth quoting here:

The central point is that the abolition of currency or other mediums of exchange in financial capital that were previously acknowledged as legitimate mechanisms for capitalists to gain possession of the means of production renders capital flight pointless. Flight of what, exactly? Actual productive resources? Actual capital goods? Capitalists rarely have direct access to these things that they are said to "own." Kropotkin outlined the underlying theoretical reasons for the irrelevant role of capitalists when the means of production are democratically self-managed in The Conquest of Bread:

Does that answer your question?

I am not denying the expropriation of surplus value. I should also add that, in Islamic finance, the lending is done by private lenders.

Please consider that modern Islamic finance has Western influences, while the pre-colonial Islamic finance doesn't. How did pre-colonial Islamic finance try to square circles, in your words?

Well, from what I've learned, attempting to establish some sort of rate of return in relation to return on equity is quite subjective, even when trying to select a risk-free rate (selecting among long-term government bonds - which term is appropriate).

Are you implying that Gosbank SSSR, especially during the NEP years, was similiar to Proudhon's mutual bank scheme?

oh yes, you are right: Islamic banking only came about from around the 1960s. In the pre-capitalist era, however, there were practices that are still applied today, such as the mudarabah. It's really just a case of where the financier takes a share of the profits. Thus, the entrepreneur's total profit is shared between him and the one who supplied the funds. For instance, A is a merchant who uses B's funds to buy $1m worth of goods which A then uses with his expertise to sell for $1.5m. The profits are split between A and B. And this still applies to Marxist theory. Total profit - "interest" (the share of the profit going to the finance provider) = profit of enterprise. The contract is a little different, that is all.

It's not that complicated until we get into other scenarios. For instance, A needs a new machine that costs $1m, instead of lending him the money, B purchases the machine for A. B then agrees to sell the machine to A at a higher price and A buys it back over a number of repayments. Here, the "interest" takes the form of an increased price increment for that commodity. (Actually, this is even practised in non-Islamic consumer finance, where items advertised as being available on "interest free credit" actually have the interest already built into the price.) The problem is, how to calculate what the "price increase" should be.

In any case, the Mediterranean Islamic world saw a flourishing of trade and the development of many forms of business practises of what would be modern capitalism. I am not sure why we would want to either go back or emulate all this.

Apart from the rate of profit, that is.

No, but the idea of a bank issuing ultra-cheap credit is.

I honestly haven't read a single text of Proudhon's, but I'd heard that the mutualist credit scheme involved the complete abolition of usury, something that even the most progressive credit unions don't accomplish.

Agnapostate,

There'd be a small interest charge of say 1% to cover admin costs.

(Notwithstanding the fact that it wouldn't work)

I guess in my "equity" scheme of things, the lender (the state bank) would do a calculation for expected repayments, based on at least one good scenario, at least one bad scenario, and an expected scenario somewhere in the middle.

Re. items having interest already built into the price, I suppose then the consumer would be screwed if they don't go for the installments option.

How so? It fluctuates. Also, I was wondering about your thoughts on how rates of return for preferred shares are based on, if not on some subjective risk-free rate plus an equally subjective premium.

Perhaps James Tobin's Q theory could work if one considers the rates of return on preferred shares?

Re. medieval Islamic business practices: keep in mind that the lenders were private parties.

I don't see much of a problem there re. ultra-cheap credit as a form of "equity" (emotionally speaking, of course). German Social Democracy advocated this (implied in the old demand for producer coops aided by state credit). Trotsky advocated this in his "Transitional Program." Die Linke advocated this in their Draft Program. The Venezuelan government has similar arrangements in place.

or you can just ignore it. It's only relevant if you want to maintain commodity production and exchange while abolishing "usury" (ie calling it something else).

That's what I love about the free market: you're free to buy this new TV/fridge/washing machine on "interest free" credit, or you can fuck off!

Of course the rate of profit moves. I am not sure what your point is there. As for ROR on preferred shares, you normally receive a fixed income which takes priority over common shares, though you sacrifice voting rights. In fact, though they are both called shares, preferred stock shares characteristics with bonds as well as stocks. Preferred stocks are rated by credit reference agencies, for instance, though unlike bonds they are equity, not debt. Pension and insurance funds like to hold preferred shares for the fixed income and for tax reasons. Banks issue them for Tier 1 capital.

I am also not sure what you mean when you say the risk free rate is subjective, unless you think the US Treasuries rate is subjective. Certainly you could say that the choice of USTs as the standard is subjective, but then again everyone chooses it because it is objectively the safest.

No because the issuance of preferred shares is limited. It's less than 1% of the total equities market (iirc). In the US, I think only banks and utilities are allowed to do it. There are all kinds of different rules in different countries about preferred stocks.

To be fair, you can't switch to non-commodity production overnight. There are better ways to extract the surplus value, and this is one of them. [It's also more economically substantive than, say, "anti-imperialism" on much of the left to the point of supporting some Islamist groups that don't have much of an economic agenda.]

And there is a substantive reason or two why only retractable preferred shares are internationally classified as debt and not equity.

Yes, that's what I meant. Ten-year? Fifteen-year? Twenty-year? Which issue? No two ten-year issues from different years are the same (even the yield of a 2009 bond vs. a 2010 bond with the same term).

Oh? Thanks for this info.

Well, I think inroads into surplus value would (have to) be made beforehand, so a switch to non-commodity production would presuppose a workers' movement which had already reduced the surplus part of the working day to a minimum and so on.

Well, yes. Retractable preferred stock is exchangeable for cash on maturity, so in effect you have a debtor/lender relation in that case.

Well, common sense says you compare like for like. So if you are thinking about a 10-year investment, you'd compare to 10-year government rates, and so on. Government issues are vital for creatnig a debt-yield curve. The fact that it changes year on year doesn't matter. It just means that this year the rate from which we calculate risk premium is x and last year it was y.

you're welcome

Interesting article, though alter-globalization communists like Negri propose that information systems and communication networks such as the internet open up new revolutionary horizons. The central thesis of their most salient tome, Empire, is that the contemporary 'postmodern' capitalist information society is presently passing from an imperialist to a 'post-imperialist' stage defined by 'biopower' based on immaterial labor and 'affective networks,' which would include information networks and communication systems like the internet and which, according to them, open up new horizons for counter-power and revolution. This new paradigm transforms the class composition of the working class into a new social subject they term the 'multitude' - different in composition from previous class concepts like 'the people' or the 'proletariat' or the 'masses' - and determines the necessity for a new 'biopolitical' organizational strategy against capital.

Thanks for that, though it leaves the question whether we can directly abolish money after seizing power. I'm not so sure about that. Given that we live in a globalised economy and given that revolutions are uneven (though often international in nature), how would we deal with the rest of the world to get our stuff? Also, wouldn't such an abrupt ceasing of money isolate us from the world working class, given our inward looking and isolated nature of an autarkic economy (or at least one striving towards that)? Thirdly, what about consciousness? Can we really just put overboard generations of indoctrination that for something to get, you need to give something (often in the form of a universal medium, such as money). Fourthly, how would an economy actually work without money? For all its downsides, money is an important mechanism in the economy, what capitalist call the "invisible hand". How would we be able to produce according to need? I think Kropotkin's formulation of "giving a few hours of productive toil to have a right to all the pleasures that civilization procures", while undoubtedly correct in a macro sense, is too vague in a micro sense.

Some great discussion here:

http://www.rabble.ca/babble/internat...am-gindin-greg

Although the person who had an alternative essay didn't elaborate well enough on why there's no need to nationalize the banks. Anyway, here's his essay for consideration:

What happened?!?