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Finance Capital

III. The ‘systemic’ importance of finance, and the public power[1]

[Translated from GegenStandpunkt: Politische Vierteljahreszeitschrift 1-10, Gegenstandpunkt Verlag, Munich]

0.

The peculiar nature of the transactions by which financial institutions prove themselves as capitalist enterprises — they follow their own calculation of profit, aiming to increase their revenues and surpluses continuously — is scarcely appreciated. This is because the services the financial industry provides for the functioning of the market economy are held in high esteem: thanks to finance, the “markets” are supplied with money; every branch of business is provided with capital.

Clearly, not only do financial transactions help their originators attain impressive bottom lines, but they also enable them to accomplish key tasks in the free market system. The profitable trade in money and credit is an indispensable condition and lever for capitalist growth, for the increase of monetary wealth. It establishes the power of money-capital over the economic performance of all sectors of the market economy, which ensures that the financial sector receives special care by the state — and not just in a crisis.

a)

The politicians are rescuing the banks — the banking system in the form of its largest and most important institutions — because of their systemic relevance. However, the explanations circulated about this leave doubt about whether those in charge, those responsible, and the experts really understand what they say about their system and the relevance of the banking industry to it — in any event, if they do understand, they aren’t saying it.

The negative side is clear enough: bankruptcies can bring the whole market economy to a standstill. Without government intervention, there would be bank failures with such devastating consequences — which could yet occur — because the banks speculated on a huge scale and squandered it all. These financial operations, their techniques, and their products have been reported on to the last incomprehensible detail with a mixture of fascination and disapproval. Normally, these financial operations don’t concern the public at all, but now they have failed, and the public has been upset by the discovery that they are speculative, as if banks traded in anything but what they call ‘risk.’ The message is: such highly speculative activities, by which so much money is moved around and earned so quickly, just has to fail in the long run. The key lesson drawn from this is that if the banking business is so systemically relevant that its failure can ruin everything, then the pros must kindly succeed in what they set out to do; otherwise they should keep their hands off. But what is it that people wish them luck at? How and with what do the banks become so important that the entire market economy depends on their success? And what do the financial transactions that, having failed, are now castigated as excessive, wrong, and irresponsible, have to do with the paramount importance of the banking industry? Is there not perhaps a connection between the boundless amount of money banks earn, not least in such a particularly highly speculative way, and the particularly critical importance of their business activity for the system?

These same politicians who create twelve-figure dollar and euro sums in order to save the banking sector, and the same experts who find that distasteful but unavoidable, offer a remarkably humble account of the positive services they expect from the banking industry: money traders are to behave honestly and modestly, no longer as ‘financiers,’ but as respectable ‘bankers,’ and help out medium-sized businesses with loans; that is their true calling. And everything else is supposed to be foreign to their profession? The enormous financial business with its potentially devastating consequences in the event of failure is supposed to be nothing but a violation of the industry’s good business practices? And the billions in additional government loans to rescue the banks are merely intended to stop businesses from running out of money and to help new businesses get start-up loans? The notion that banks should make an honest contribution to the success of this economic idyll obviously obscures the nature of the transactions with which money is earned in this industry.

What remains are the expenses the state takes on to keep the banking industry from bankruptcy — and in fact its business as a whole, including its enormous departments that were first caught up in the crisis. The state, the ultimate power, thereby declares, in a practical and concrete manner, the dependence of its economic system on the success of the financial industry just as it is, in the same way it is run by its owners and functionaries, and affirms that this industry should therefore continue on in exactly the same way. It confirms that the systemic relevance of the financial sector is not a temporary exception, but normalcy.

All that remains is to add what systemic relevance actually consists in.

b)

Politicians and an informed public demand that the banks provide an adequate supply of money to the economy. This refers to the granting of loans to the business world, which uses them to carry on its business continuously and to expand successfully. This suggests that the banks are to help the rest of the economy meet its needs with loans; after all, that’s what they are supposed to be there for. This pretty picture of the banking profession has the advantage that it makes it easy for common sense to regard the activities of the financial sector as plausible and laudable. It has the disadvantage, though, that the interpreters of the banking business themselves don’t stop there. After all, the reason they insist that the banks are obliged to serve the economy by supplying it with money is because the economy is extensively and existentially dependent on the financial sector making its crucial means of business available to business; that’s a bit more than a useful service. And it is well known and taken for granted that banks conduct their lending operations not out of duty, but out of self-interest, with the aim and the result of properly profiting on their clients. In fact, it is expressly approved and even encouraged whenever the state, in times of crisis, intervenes and temporarily overrides the rule that loaned money must promise a return that pays off. This absolutely has to remain the rare exception to the free market rule; on that there is universal agreement among experts and those in charge.

So in any case, one can say that whatever banks do, they do as capitalist enterprises, i.e., in order to increase sales and profits; any other purpose would be unprofessional, a violation of the proprietary interest that the functionaries of money are obligated to pursue, which would contradict the system. By seeing to this business interest, banks have become not only larger, but also have become the command center for the use of capital in the entire national economic enterprise. They are so extensively and intensively involved in the general life of business that their loans and their securities trading really cannot be confused with a helpful addition to the expansion process of the private wealth at work in production and trade and other related services. Their business is the source of every significant economic activity in the modern market economy. It frees firms from first having to earn the funds they use to grow, from being restricted in their competition by the yields of their previous business activity. In place of these obstacles, the banking industry imposes dependence on its calculations and its means of business, which it makes available in any amount and at a price that the bank and its client agree on. The service that banks are credited with and praised for when they supply money is, in terms of its political-economic significance, the provision of the capitalist production process in general, the production and accumulation of capital, with debt as the only appropriate basis of business — debt, not in the lowly sense of a debit marked down by hard-hearted creditors, but in the sense of the power of money to increase, turned into a commodity for sale. This power of money is what the banks trade in.

This power is a quality of money itself, but money traders do not themselves produce the use-value of the commodity that the credit industry fashions out of money. They presuppose it: they rely on money acting as its own source because it commands the entire life process of society, “living” and “dead” labor, production and produced wealth, and uses it to reproduce this very command power of property on an increasing scale. They assume that what is objectified in money is not just everyone’s buying power but the power over the means of its accumulation. With their debt business, they free this power of property from the limits of private property. The credit business achieves this feat by the very fact of obtaining the wealth of society in its monetary form and turning money’s capital quality into a commodity separate from individual ownership of it, as a capital advance available to any business that a financial institution deems sufficiently promising to speculate on. For that is how — forget about ‘supplying’ — the banking industry relates to the rest of the economy: it takes the business world as a sphere of investment, as a bunch of opportunities to provide money in the form of credit or to invest it, to put it into circulation as capital, and thereby to make it function as a source of money for itself. It enriches itself on the overall process of capitalist accumulation by comparing and making use of individual undertakings for itself, according to the only two criteria of success the pros of finance know and recognize: the risk and return that they calculate and deem profitable compared to alternatives.

That is how banks effectively control the business life of capitalism, to which they owe the use-value of the business item that they lend independently of its limited results produced by business. They control a business world that, with the use of debt as an advance for its profiteering, has also adopted the standpoint and success criteria of their financial backers: independent businessmen calculate with their own financial assets that they invest in their company just as if they were giving themselves a loan, one that has to pay off in comparison to other investments; managers of joint stock companies are paid to make their shareholders richer.[2] This is how the power of the banking industry is firmly anchored in its clients’ need for capital, in their manner of calculating, in their all-important means of success and in the associated criteria of success. Its regime over business life is not an undecided power struggle, but established and accepted as an objective constraint on effective capital accumulation — beyond all conflicts of interest that continue to exist between financial companies and the firms of other industries. In principle, the capitalist common good coincides with financial institutions’ success in pursuing their own self-interest. That is the political-economic truth about the supply of money that market experts demand of the banks as their dutiful service.

For that reason, bankers aren’t displaying any deviant behavior when, in addition to their lending to manufacturing and trading companies, they open up entire worlds of new business opportunities with which they multiply the turnover of their business with debts and, above all, the resulting profits. Even in such derivative spheres and with the artifacts traded there, they act on the principles and follow the logic of enrichment by speculation that already determines their simplest and most common lending transactions: they deal in “risk” and earn on it. In the process, they render outstanding services to the growth of their financial power, enabling them to provide companies in the rest of the economy — and of course to each other — with capital, i.e., with the productive force of money as an independently existing commodity, in any amount they consider expedient and speculatively justifiable. When such speculative transactions fail — as they have now for over two years — and, corresponding to the logic of speculative investment, the financial industry’s financial power is progressively ruined until it nearly reaches rock-bottom and has to be kept by the state from a ‘disclosure of assets’ concerning the nullity of its commodity, then it provides the strongest proof of the identity of its success with the general welfare of free-market business life; and this is confirmed by the conflicts of interest that have arisen, as well by the indignant complaints about the almost economically criminal behavior of greedy “banksters” not honoring their obligations. All that confirms the fact that whenever finance capital breaks down, the accumulation of capital as a whole comes to a halt.

c)

The supplying of money, for which the banking business has responsibility and is held accountable, includes the management of society’s payments. To that end, banks have developed the technique of replacing money with book entries. These accounting procedures represent the exchange and mutual settlement of promises-to-pay that banks vouch for, i.e., claims and liabilities between the institutions that administer the accounts of big and small money owners. The political-economic significance of this technique is that banks thereby create ability-to-pay for their borrowers in the form of promises-to-pay that banks recognize and handle as means of payment between each other — the banks’ promises of payment come back to them from their borrowers as capital advances that have been made use of, i.e., given out and earned on by others, enabling the banks to create money once again. The money they credit to their customers and with which the whole world gets paid therefore represents the credit with which the banks finance the capital advance and turnover of the business world; it is created and put into circulation through speculation on some capitalistic use that justifies the production of ability-to-pay by increasing it. For depositors and account holders, this money represents income and property, i.e., their real, free-market wealth. In terms of both its origin and its economic substance, it objectifies the power of banks to make the whole world operate with debts and to vouch for that with their own liabilities. What a modern business world uses to do business, what its rank-and-file use to settle their accounts, and what savers put in their savings accounts and then take out again, are tokens of banks’ credit business, derivatives of their speculative transactions. This credit-money fulfills all the functions of money, in whose place the banks employ it — based on their being able to take for granted that it proves itself as the source of its accumulation, confirms its financial power, and then also functions as a means of purchase and payment for everyone.

The widespread use of credit tokens as money serves the purpose, and has the beneficial consequence, of freeing the banks’ expansion of their financial business from any limit set by the amount of money already earned by society and deposited with the banks; and of correcting the relationship to the effect that the business world can earn — and can let their employees and all the rest earn — as much money as the speculative involvement of financial companies will allow them. This unleashing of the banking industry,[3] however, includes a less wonderful side effect: the expansion of the aggregate capital advance, calculated on the basis of general — and for the lender, profitable — growth, has the consequence that the power of the so abundantly available money to bring about its own growth is also only as great as the growth that it actually brings about on the whole; and from that follows, in the modern market economy, a tendency, registered as a chronic ailment, for this power to decrease. Credit tokens exist as means of payment and are also used as means of circulation; but if they do not engender enough growth to justify their creation, the power of command over work and wealth that they represent shrinks — they lose value. They may still provide for a market demand, calculated on general growth, for commodities of all kinds; but if growth does not keep up with capitalist production, then what grows on balance and overall are merely the prices that the entire business community — including the unproductively consuming public — ultimately has to pay. Conversely, access to credit allows free-market business life to continue along briskly when businessmen and consumers have to pay rising prices for their needs on the basis of whatever circumstances and conditions; but the result is the same: the means of circulation represents, with its increased amount, not increased financial power, but merely a new average price level. So the freedom of credit-money creation has its price: the beneficial effect of growth includes the counterproductive tendency, possibly threatening growth, for the capitalist capacity of the currency, i.e., the value of the unit, to shrink.

For the past two and a half years (since mid 2007), the financial industry has shown that the price paid for the use of debt as capital and for the replacement of money with credit tokens can turn out rather differently. Previously, it had supplied itself with a rapidly increasing amount of investments and ability-to-pay, through which its power to supply the other markets with credit-money was also strengthened enormously, thus spreading capitalist blessings. Since speculators started mistrusting their own products and investments, the loss of their value has caused the financial power of banks — i.e., the bank’s ability to vouch for their liabilities, and with this, to vouch for the financial assets and payments of the business community and the general public — to fade. In the end, of course, the politicians had to save the nation’s ability-to-pay. There is hardly a more drastic demonstration that the market economy’s monetary wealth actually consists in nothing but tokens — in the form of money — of the presumptuousness of the banking industry to increase this wealth with its lending. [4]

Additional remark 1. A small digression on the subject of ‘inflation’

Prices have always been rising in the market economy, in varying proportions, for various reasons, and with different effects: commodities that make up a large and indispensable part of social consumption can become more difficult to procure, i.e., only with greater effort, or sold by monopolistic suppliers at higher sales prices. In ancient times, princes saved on the gold and silver in coinage, and merchants accordingly demanded more of the worse money. In less distant epochs, states have, as needed, thrown unbacked paper money into circulation, monetary tokens as proxies for a real money-commodity; this has, at times and in specific sectors, driven up market demand and opened up the opportunity for producers of the needed goods to push through price increases. And so on. The market factors that counteract such price increases are just as numerous and varied: the supply of higher priced goods is expanded; the demand for them decreases; the altered state of competition forces price reductions; the development of the productive forces which are used to produce a commodity leads to a sustained reduction of their market value. And so on.

Inflation refers to a general rise in prices and expresses this in the money with which the permanently increased and further increasing prices are paid: as depreciation of money. In the public’s lax usage of the term, this usually denotes nothing more than the numerical inversion of the rate of price increases, which is determined statistically on the basis of various baskets of goods; the consumer is thereby enlightened as to the average increase in his cost of living. Economically, however, inflation is regarded as a verdict on money: the idea of a reduction in the value of money abstracts from all particular, sector- and product-specific conditions of competition and extortion between ‘supply’ and ‘demand’ from which the effect of a general price increase arises; it is irrelevant whether it is a demand for essential goods in excess of supply that triggers such an impetus, or the extortionate price increases of an important commodity by a monopolistic supplier, or a shortage of supply due to whatever circumstances. How the various free-market business branches and social classes are differently affected is left out of consideration as well; the construction of an ideal, typical basket of goods serves — for lack of a money-commodity as yardstick — as an aid to measure the value of money against itself over time and to document its decline. In contrast to price changes of other kinds and causes, inflation designates that general tendency of prices to increase that modern economists have become as accustomed to as to a chronic runny nose, as an effect or expression of a characteristic of money; and the metaphor of “inflating” indicates what is meant: this money loses value because too much of it is habitually circulated. An overall and general excess of ability-to-pay brings about an overall and general reduction of the power of access embodied in the monetary unit.

The obvious question about what the circulating quantity of money is too large in relation to, about the source of this excess and the reason for its chronic nature, leads objectively to the banking industry and the economic nature of its means of business: this industry does its business by creating growth with debt; and in this business, disregarding the limits of the market — in terms of both its capacity to absorb an increased supply of goods as well as the availability of goods for the needs of an accumulating economy — is taken for granted virtually as a condition of business. Money is created for sake of the growth that bankers and lenders expect to make money on; for this purpose, the markets are perpetually revolutionized through the use of this created money. The business activity put into motion and maintained in this manner lives on the speculation that the processes of exploitation and expansion brought about with debt will actually expand in a capitalistic manner. For this very reason, however, this calculation never works out, because credit and capital markets do not finance a capital accumulation secured in advance, but rather an all-round competition for growth. This necessarily produces winners and losers; that is why bankruptcies are part of business, as are collapsing banks — when a wave of bankruptcies strikes back on the credit institutions involved — along with many other beauties of the free-market. Inflation is one expression of the general imbalance, viewed as a whole, of more loans granted, more money invested, than can be transformed into capital, i.e., of more credit-money in circulation than can be used profitably. It is the tendency of credit to fail as an instrument of business, and thus deficient growth, which expresses itself in the depreciation of money and which is measured with the help of baskets of goods and price comparisons. As long as it remains within reasonable bounds and is accompanied by real growth, namely by an effective accumulation of capitalist capacity, the depreciation of money hardly matters. It only gives cause for concern when the nation’s working capital grows nominally, as measured in units of credit-money, but its power to accumulate itself no longer grows or is not even reproduced; the banking industry — which makes money available and, as the authority over the general course of business, notices the failure of its loans to prove their worth by their declining use-value — reacts especially critically to the effects of its own business activity, which strike back at it like an anonymous process. And it is therefore also clear what the object of concern actually is when inflation grows into a serious problem: definitely too much credit has been granted and brought into circulation, more than can still operate as accumulating capital.[5]

The leaders and experts of the market economy, who calculate the chronic tendency toward inflation in their economy with the aid of commodity baskets and convert it to a rate of money depreciation, know that the banking industry is the originator of the phenomenon, of course. What gives them concern is the circumstance that the real growth of their economy is less than nominally indicated. They take this to mean that growth — the purpose of all economic activity — is suffering from inflation; and therein lies a not insignificant confusion. For this is how the disproportion between credit and its expansion —which manifests itself as an excess of nominal over real growth — is perceived, not as a consequence and not as an expression of lacking growth, but as its cause; not as an effect and an indicator of a capital accumulation that, when measured against credit-financed capital advance, is largely insufficient, but as a surplus of market demand that drives up prices and thereby ruins growth. In this case, money custodians and experts make a distinction within the total amount of circulating medium between that part that — still — finances solid growth, and the surplus that — only — pays for general price increases, and go on to search for the appropriate quantity of money. This is in fact a hopeless undertaking; after all, the amount of created credit cannot determine the extent to which it proves itself as a lever of growth. Nevertheless, national monetary policy needs such a guideline; so the corresponding research interest doesn’t wane.[6] The model-theoretic dogma that has money essentially only reproducing the circulation of the goods economy in the opposite direction, that therefore assumes from the start a correspondence between the quantity of goods and the quantity of money needed for its turnover, additionally affirms, in a strictly scientific way, the standpoint that the problem of inflation lies with the quantity of money by which the available sum of money exceeds the cost of the quantity of commodities that it aims at. And the results of the permanent comparison between amount of money, growth, and inflation rate always give empirically established figures that can be interpreted as early or leading indicators for mistakes, and incorporated into strategies for attempted countermeasures.

***

The relationship between politicians and bankers, and especially between state-appointed money guardians and professional speculators, is anything but conflict-free. A crisis such as that of the last two and a half years leads all the more to disagreements and the escalation of conflicts of interest, particularly on the issue of regulatory requirements. But even when the sharpest controversies erupt over the universally acknowledged necessity of state rescues of finance capital with the debt it thereby incurs with the financial sector, policymakers and bankers pursue, seemingly in their own self-interest, a common cause. And, of course, this is not only true when things go wrong. The state recognizes finance capital as the crucial economic agency; it acknowledges the business activities of banks on the capital markets as the essential driving force of the economy, which serves the state as a source of money, i.e., as its material power base. The rules it imposes on credit institutions are aimed at ensuring this function, affirming the importance of this industry. Correspondingly, that is to say, in accordance with the terms and conditions of business and criteria for success in the industry, the state uses the efforts and results of banking for itself, as a source of finance for its budget and as a steering instrument for its national economy, incorporating them into its system of rule. It utilizes the power over business life it gives to finance capital for the success of the nation.

1.

The political power, as legislating body, looks after the private interest of banks, etc., just as it does that of other companies. At the same time, the importance of this business for the functioning of all economic activity shows to advantage: its “systemic relevance” — a popular theme in the crisis — is taken into account in the art of authorizing credit-creating operations and restricting the related freedoms.

a)

The credit industry requires absolute legal certainty — i.e., the across-the-board presence of state power in the form of laws and in the form of authorities that enforce their validity. In principle, that does not distinguish this particular line of business from the other sectors of a market economy. In this economy, what prevails everywhere is competition for money; productive cooperation between independent owners takes place exclusively on this antagonistic basis. And the state, which imposes the status of competitor on its citizens, without any consideration at all for the status of their property, uses its power everywhere to help them cooperate: it provides a legal requirement that gives competition a durable form.

The basic principle of this order and the elementary form of all collaboration in a modern civil society is the contract, which entitles free competitors, wherever and to whatever extent they need each other, to receive a service in return recognized by both parties as equivalent for a service rendered, and obligates them to provide a service in return for services received. The competitors owe each other what they have agreed to on the basis of their conflicting interests, and without resolving their conflict. This elementary form of any business transaction, a legally contractual quid pro quo as the formal principle of all cooperation, easily suits the banking industry, at least in its simplest variant: the creditor has to hand over a sum of money; the recipient agrees to the payment of interest and repayment within a stated period. But of course, there is something special about this kind of transaction: what is being exchanged are not really equivalents, but rather a sum of money for the right to its increase. What contract law decrees here is the separation of the capitalistic capacity inherent in a piece of property, existing in the form of money, from this property, in such a way that this power to increase itself becomes a tradable commodity. Civil law carries out this remarkable achievement without any fanfare under the unostentatious heading ‘loan,’ and otherwise occupies itself with the necessary details involved in producing legal security in and for the enormous branch of business that the loan contract pros have long since managed to bring about.

After all, they have not only used their license to engage in lending — professionally and on their own account — in order to expand their business quantitatively. Their growth has enabled them to occupy a position of power in which the saved and circulating monetary assets of society are at their disposal, and they use these assets to create the ability-to-pay required by the business world for its enrichment. The money earned by society does not simply go through their hands, it originates with them as credit, and consists of credit tokens covered by nothing but their own ability-to-pay, which is in turn based on their own creditworthiness. And everything that banks do in that regard is based on the license that the state grants them: the state ensures the utilization of the license for business purposes and at the same time ties its use to strict conditions.

These conditions — and the organs of state charged with their proper enforcement — all deal with the risk to which financial institutions expose the monetary wealth of society, the ability of their loan customers to function, and thereby the accumulation of capital overall: all of that is exposed to risk by banks enriching themselves on this wealth through their speculative trade with it. The state requires financial institutions to heed the interests of their clients in the business-minded, i.e., self-serving speculative use of their power over money and society’s need for money; to this end, it sees to good business practices and fairness in financial trading. At the same time, it looks to secure the operational ability of the industry that has established itself as the decisive command center in the hustle and bustle of the market economy, i.e., it aims to secure the successful use of the economic power it entitles the financial industry to exercise. So even the authorization to engage in banking is subject to some conditions; in Germany, for instance, a small businessman is no longer allowed to operate a bank; a wealthy private person apparently no longer satisfies the lawmakers as sufficient backing for this business. An extraordinarily comprehensive set of regulations applies — the observance of good business practices is not left to the good will of industry pros; it is codified down to the last detail. This is, first of all, necessary for the very reason that, in this case, contracts are not being concluded merely over traded goods. Instead money is exchanged for contractual relationships that are a playground for the speculative imagination and legal creativity of financial managers. In order for money to become a tradable commodity as capital, and even more so in an immense multitude of variants and derivatives, the producers of these goods enlist the power of the constitutional state; and it lends its power for this purpose, but will not let it be misused. So the law repeatedly and prominently stipulates that financial firms act with “expertise,” “diligence,” “conscientiousness,” and also “in the interest of clients” and requires that business procedures be organized in a way that ensures that conflicts of interest between various clients and between the bank and its clientele are kept “to a minimum.” The profitable risks that the industry constructs and puts in circulation as commodities may indeed be risky, but they must be transparent, i.e., made known and, in principle, understandable and so designed that the distribution of possible gains and losses could reasonably be approved. At certain levels of speculation, fine lines between honest business practices and fraud are drawn. With all that, the law not only aims at an even-handed treatment of conflicting ownership interests and keeps an eye on the danger that financial companies would risk other people’s money without a second thought and devise contractual subterfuges for that. It is just as aware that wealth and overall economic growth are put at risk by the financing of the nation’s capital accumulation through credit and by the widespread use of credit tokens as means of payment — should the ‘risks’ actually occur that the banks undergo and create with their clients’ money and scatter and multiply by resale. For that reason, the state does everything in its power to encourage speculating financial institutions to protect their investments: it stipulates the ‘backing’ of awarded loans with a certain percentage of the banks ‘own equity’; it demands that large credit exposures, individually and in toto, are reported to oversight authorities as having a certain relation to ‘equity capital’; it monitors banks’ risk and liquidity management; and so on — everything to ensure that they remain masters of their business with debts, i.e., that they remain creditworthy for their peers and thereby as solvent as is necessary to ensure that a constantly growing capitalist business life is financing and kept running smoothly.

b)

The modern constitutional state aims at achieving an adequate supply of credit and money not only by laying down rules for banking, but also by materially intervening at key points in the business of money creation. It does not permit financial institutions to issue banknotes, i.e., private money in the form of universally circulating claims to any kind of treasure lying in the vaults of the banks. The stuff that banks credit, transfer, and debit in the course of processing societal payment transactions, what they create and destroy in terms of payment flows, is not money, but substitute money: these are liabilities they incur and exchange in order to execute the turnover of the power of money they have made into an article of commerce, the credit they have awarded the business world; and they are supposed to stick to that. The real money — which the crediting and accounting procedures of the banks refer to as the obligatory unit of measurement and definitive material of abstract wealth, and which their deposit money acts as a surrogate for — consists for the most part of banknotes whose issuance the state reserves for itself and entrusts to its central bank. These money tokens, and only these, are the power of disposal that the state attaches to property by force of law, quantified in a concrete form. With this money, the central bank, acting on behalf of the ultimate power, intervenes in the credit business of commercial banks. It exchanges credit instruments owned by the banks for legal tender according to rules it enacts and constantly modifies, thus acting as a reserve fund for banks’ liquidity management, with which they organize their ever-ready ability-to-pay and thus demonstrate their creditworthiness. The state thereby demonstrates its fundamental trust in the private banking business as the source of the capital the business world uses to do its business, and as the source of the substitute money with which the turnover of capital is carried out; it materially reinforces its authorization of the banks to produce their speculative creations. By doing so, the state reduces none of the risks assumed by the credit industry with its transactions, and to which it exposes the assets and capital growth of its clientele. Rather, it confirms that this is exactly how it wants capitalism to function in the country. With its monetary sovereignty, it supports the systemic risk originating with the power of finance, and makes it clear that it unconditionally relies on the success of this industry. By requiring the privately owned banking system to use legal money, imposing conditions and requirements for its use, and entitling it to finance its liquidity requirements with this money, it identifies the money it creates by decree with the ability-to-pay banks create through lending, and therefore identifies also its sovereign power with the private power of the banking sector over capital and growth in the nation.

These everyday business dealings between the central bank and commercial banks are the way the state, the ultimate power, continually puts into practice its approval of the fact that the power of money enters the world as a commodity that is priced and made available by financial institutions in accordance with their own business interests, and that the credit tokens the banks create are what represent money. The modern state is so single-minded in this regard that in exercising its monetary sovereignty, it frees itself from any ties to a precious metal money-commodity in order to leave it to its central bank to create real money entirely according to the liquidity needs that the banks develop out of the course of their business in accordance with the given rules. The modern state has emancipated itself from every last thread connecting it to a substance that acts with its units of weight as measure of commodity values, and that serves with its nationally available quantity as the foundation and liquidity reserve of the credit system and as cash on the markets, a substance whose limited availability therefore has to be taken into account by the central bank when it issues banknotes and by credit institutions when they create money; it sets its sovereignty to define the general equivalent of all commodities, i.e., money, above all else, in order to place it entirely at the service of the money trade and enable it to fully act in the interests of the credit system. To that end, it even accepts that its money shares the fate of the credit tokens with which banks carry out payment transactions, chronically losing value to the extent that the sum of created credit fails as a source of capitalist growth. Just as in earlier times when private banknotes had to put up with valuations diverging from their nominal gold or silver value depending on the issuing bank’s business success and its evaluative assessment by competitors active in the credit business, so does modern state money reflect — in whatever distorted way — the mismatch between the overall business use of the banks’ financial resources, represented by their substitute money, and the overall success of the businesses so financed: the capitalist capacity embodied in money, and thus its power over wealth in general, shows a tendency to decline. This process is no longer measured against a money-commodity with clear, physically defined units of weight, but against the price of an expediently designed basket of commodities that allows for comparison of the previous buying power with the current buying power of the same amount of money; in this manner, the power of money is measured against itself over time and an annual rate of depreciation is determined. This makes it clear that with modern state money, the subsumption of the general equivalent under its service as a product of finance capital is complete: the “measure of value” itself, money, not only as a yardstick, but as the objective existence of social wealth in its perfect form, counts only as much as its overall successful use as a means of growth for the banking industry.[7]

For this very reason, it goes without saying that the state attaches conditions to its practical authorization of the credit industry to use legal tender as an instrument according to the needs of its business, conditions that are supposed to compel banks to avoid unacceptable credit risks, to invest money basically only in such a way that they meet all conceivable demands on their ability and willingness to pay, and to ensure that the value of money remains stable in their business-minded promotion of general growth. In the interest of ensuring the soundness of their speculation, they are obliged to keep minimum reserves, proportional to their diverse liabilities, of real money — which in the imagination of experts differs from deposits and loans basically due to its absolute liquidity — and prove it in the form of deposits with the central bank and cash holdings. Because, from the perspective of the banking business, every amount of money kept as a liquidity reserve goes unused, i.e., remains withheld from use as credit and is thus costly to the bank, these ‘minimum reserve requirements’ are, on the other hand, deliberately made modest; after all, the banking business is supposed to put up sound rates of growth. The same dual objectives apply to ‘open market operations’ between the ‘bank of banks’ and its clients: the lending of liquidity widens the scope for monetary creation; the absorption of liquid funds is supposed to counteract the risk of an unhealthy ballooning of credit and an inflationary overheating of the economy.[8]

Of course, it can’t be ruled out that individual banks can still fail despite these precautions — the latter, after all, are not intended to prevent business with risks, but to enable its continued existence. That is why a special bankruptcy code makes explicit provision for bankruptcies, so that they can be wound down without damaging the whole economy. In addition, a statutory deposit insurance fund prevents or at least reduces unjustified private property losses, and, to that extent, therefore ensures the status of the financial sector as fiduciary for society’s financial assets. And before any damage suffered by a competing business partner due to a bank failure might affect the capacity of the industry to create credit, the central bank would sooner alter its terms for refinancing the monetary requirements of commercial banks in order that they remain solvent no matter what.

c)

As the current financial crisis has demonstrated extensively, financial crises annul the daring equations — of debt and money capital, of banks’ promises-to-pay and society’s ability-to-pay — that the banking industry establishes and the state certifies and confirms through the use of using its real money. The legal compulsion for financial firms to gain confirmation at the highest level, in dealings with the central bank, for the trustworthiness of their business with credit risks by using funds guaranteed by the power of the state as a secure component of their liquid reserves, then compels the guardian of the capitalist community to take over responsibility for the ability-to-pay of the business world that its creators, the private banks, no longer ensure, and save the credit of the nation with the money of the central bank. This makes clear that by giving finance capital the license to create credit and money, the modern welfare state with its rule of law actually places the economic fate of its society in the hands of finance, a fact which receives no great attention as long as it works.[9]

What a state thereby allows itself is noticed to some extent when experts problematize a future “moral hazard” the state allows speculators to undertake by handing over to them the task of supplying money and credit to the business world; then, in the end, it can’t avoid buying out losing businesses that endanger the existence of banks, and this certainty is exploited by the “gamblers” in the industry for reckless business activities — especially when their companies are “too big to fail,” i.e., too big for the market economy to survive their failure. Debate rages on whether the size of credit institutions should therefore be limited by law as a precaution, or whether size doesn’t just instead indicate the stability and efficiency of a company and thus offers the best precaution against the danger of collapse. This is how the role of private banking in the prevailing political-economic system is brought up in the negative case of a failure, which must be avoided at all costs. In fact, what’s at stake in this case is a central element of a market-economy reason of state: the bourgeois sovereign insists on, and makes everything conditional on, the financial assets of society being completely and permanently used for capitalism; it wants money to be constantly and exclusively put into circulation as money-capital. It sees this interest realized in the credit industry and guaranteed by the private interests of financial companies. It therefore authorizes these companies to direct national growth with their kind of capitalist enrichment, and it takes every precaution to ensure that they, with their system-conforming and socially beneficial business greed, pursue their business properly — which means nothing other than being successful. It therefore places its monetary sovereignty in the service of the credit business that finance capital operates, and whose procedures it stipulates to the industry in line with industry business practices and success strategies. The involvement of the central bank with its legal tender in the liquidity management of banks is the practical proof of the fundamental, systemic trust of the state in the banking system as its instrument for proper management of its country as a location for business. The state itself defines and arranges the economic cause of the nation so that the nation stands or falls with the business of the credit industry.

2.

Capitalist growth is the source of the funds that pay for the political rule of the state as administrator of a budget. Governance aims at fostering economic success, and measured against this goal, the effective use of state power is reduced to a mere cost. It’s tax- and debt-financed needs are the object of a continuous balancing of interests that may degenerate into spectacles of justification under democratic conditions. In the end, of course, the state is always financed in a manner that suits capitalism. The financial branch of the economy is the economic instrument of the public sector; yet the financial system is not burdened by providing the services demanded of it, but rather once again thereby gains power.

a)

The state employs its sovereign power to organize the use — the mobilization and utilization — of the productive forces of its people, that is to say, the economic basis of its power separated from itself as a system of private enrichment, and to hand over control over that economic basis to the power of private property centralized in the financial sector.[10] For its rule, it uses the money whose accumulation is the business of its economy. It finds and gains disposal over the source of funds to cover its needs in the private interest in profit, in the power it gives to property and considers to be in good hands with finance capital, and in the capitalist growth thereby brought about.

For the sovereign, using capitalism as its economic means entails a number of obligations. It understands that the money it needs and withdraws from circulation in the form of taxes impairs the productivity of its economic base; modern politicians are enlightened enough to agree with their economic elite that the state and the activities of its politicians constitute expenses. Hence, the ultimate authority imposes on itself the duty, while making demands for its concerns, to protect private property and above all else the use of property for its own accumulation, and forces itself to economize. At the same time, what follows from the system of capitalist enrichment — this in addition to the needs of the nation’s constitutional power apparatus itself — is a whole catalog of government functions that no statesman is able or willing to avoid: from the transportation infrastructure to the education system, and from the administration of justice to the management of employment services, the political system, subdivided into fixed areas of responsibility, takes care of everything a successful capitalist system needs in the way of business conditions and everything this economy produces in the way of intolerable consequences.

The ultimate power sees itself confronted with the necessity of financing its own rule, and with this rule keeping a market economy in order and making it more and more efficient, which conflicts, of course, with the maxim of imposing a minimal burden on its capitalist base. The task of modern fiscal policy is to combine the two: to finance everything deemed necessary and for that to burden growth-programmed wealth as little as possible. There are few things that those in charge argue over more intensely and devotedly than over the appropriate balance between expenses for useful rule and economizing in governance.

b)

In putting together its budget, the state shapes, in a comprehensive manner, the overall budget of the society it rules. With the money it draws in from its society and pays out for the requirements of its rule, it promotes business and brings about entire industries in which companies make their profit and therefore in which, first and foremost, financial institutions find opportunities for lending and investing. In this way, state consumption acts as an important motor of capitalist wealth accumulation. At the same time, accumulation is hampered by the state reducing private income with taxation and burdening capital turnover with additional charges. Nevertheless, the state has in finance capital an institution at its side that creates current investment funds out of future financial flows. The state capitalizes on this ability by issuing securities in anticipation of future tax revenues, i.e., by virtue of its sovereign power of disposal over the money of its society, transforming them into liquid funds on the capital markets. Of course, it thereby pawns these future tax revenues, and fiscal policymakers sigh over the large and ever growing share of debt service in the state budget. These same experts, however, think nothing of financing these payments completely through new securities offerings anyway; they continually secure additional budget funds by issuing new debt under the title ‘net borrowing.’ What is capitalized in this case are not future tax revenues but money inflows from future borrowing; taxes from future economic growth act as evidence of the state’s ability to create credit ever more extensively.

The banking industry appreciates the value of this kind of government fundraising: on this basis, it gains title to assets that it considers to be particularly safe for the very reason that they do not originate in the proceeds of capitalist businesses, but are guaranteed by the sovereignty of the state over all profiteering. Though their returns are consequently rather low in comparison, their reliability makes them an important item in every portfolio and contributes to the soundness of the speculation business and to the increase of the capacity of this sector to act as financier of future capital accumulation. Hence, with this method of raising funds, the ultimate power not only decreases the burden it represents for economic growth, but also increases the crediting power with which the banking system drives this growth. Booms of capital accumulation never come about without the strong participation of the state.

c)

The special, fundamental value attached to government-issued securities doesn’t spare this segment of fictitious capital a critical examination by the speculation trade. This applies, as always, to the economic trustworthiness of the issuer: what is placed under scrutiny is the reliability of future revenues, which justify government borrowing and the treatment of this debt as money-capital. Naturally, the capitalistically unproductive use of borrowed money by the state doesn’t aim at anticipated profits, even when financial policy-makers devote a part of the state budget to explicit ‘investment’ purposes, intending that their debt be acknowledged thereby as economically justified, for these expenditures simply don’t bring about any commodity whose sale involves expectations of surpluses. What convinces lenders about the quality of government securities is first and foremost the prospect of a rate of national economic growth that promises growing tax revenues for the state budget. Here, finance does not assess the ability of the borrower to repay debts out of current income — as is the case when it comes to unproductively spent consumer loans; if that were the criterion, creditworthy sovereigns would have long since disappeared in the global realm of the market economy. The pros in the finance industry assume that government bonds — just like the debt certificates issued by successful capitalist companies — are redeemed by the creation of new fictitious capital. They have also become accustomed to the fact that the same is true for the interest the state has to pay. What they calculate with, and what they put their money on, is a relationship between an increase in public debt offerings and a tax-burdened growth of societal wealth that is judged by the community of investors to be acceptable, and rewarded with sufficient willingness to invest in government debt. The relationship between this demand for government securities and the quantity on offer is the first and crucial determinant of the interest rate at which these capital investments are to be sold, as well as of their ongoing, speculative valuation: this turns out worse, i.e., the required interest is higher, the more modest the prospects for future capital accumulation on a national scale, and the greater the increase in government debt in proportion to economic growth. This is how — by precisely quantifying its confidence down to the second decimal place — finance capital demands that government borrowing be economically justified by the continuous increase of the capitalistically productive wealth of its society.

Future growth, whose ratio to the quantity of public debt is speculated on, is of course itself a speculative magnitude, the object of credit transactions. The amount of interest private companies have to pay and the valuation of the fictitious capital with which they finance their business are guided by the yield on government bonds — which, due to the particular reliability of these papers, marks the lower limit for returns from lending. At the same time, these returns influence the yields of government bonds, because the Treasury competes with private business for other’s money and has to make competitive offers.[11] The art of comparative speculation is thus faced with a particular challenge due to the fact that the demand of both the state and the business world for credit each depend on the course of the economy in different ways. Business demand for credit is high in phases of lively, general growth as well as in critical stages when earnings required for debt service fall short due to market collapse; in these cases, conflicting reasons and purposes for the demand for ability-to-pay allow the banks to demand high prices for their money; conversely, there is little for banks to earn when businesses no longer seen as creditworthy collapse, but also when those surviving begin to accumulate again on a diminished basis. It is precisely when the economic growth propelled by the state budget runs up against its self-fabricated barriers and when the resulting recession lowers tax revenues that the financial needs of the state tend to rise. All this enters into the bill finance capital presents to the state when it critically appraises its financial need and invests in its fictitious capital.

On top of that, there is the bill that banks pass on to their borrowers and, of course, to the national budget, for the negative effects that a modern market economy has on the value of money. With the widespread use of debt as a commodity that has the use-value of being capital, and the use of credit tokens as means of payment, money traders cause capital advance and growth to drift apart, which, among other adverse consequences, the chronic complaint of monetary depreciation is based on; as creator of an ever-growing mass of fictitious capital, which, along with the payment of interest, is continually refinanced with new debt, the state makes a major contribution to this tendency. The banking industry, affected by the reduction in the use-value of its business item, knows how to compensate: it puts a premium on the price it demands for money, which it does in advance, as befits professional speculators. It enlists its borrowers as a whole, and even the state budget, for ensuring that its credit business always pays off for the banks, even when the overall growth of capitalist wealth falls short in relation to the credit they have advanced.

In this way, the state, in all its advantageous business relationships with the banking industry, is confronted with the power it gives to the industry that provides its national budget management with the necessary financial freedom. The same ultimate power that puts its monetary sovereignty in the service of private credit creation, and whose central bank creates, with its legal tender, the necessary confidence in the private business of providing society with money, needs for its budget management the confidence of private, financial capital for justifying its debt instruments through future economic growth within its jurisdiction and in its money. It makes itself economically dependent, not just on the taxes that flow in from the private business activities of its society, but also, in its sovereign dealing with this source of money, on the speculative calculations of money traders. Normally, their judgment turns out positively. If, however, according to the assessment of credit providers — or even according to official guidelines for reputable money creation — the increase in national debt and the future growth of the economy diverge too much; if, perhaps, the rate of inflation is already growing and government borrowing continues to increase; then the ultimate power has, in fact, a problem: first with the cost of its indebtedness, then possibly with the sale of its bonds. But in no way does that mean the state is done for. After all, the state itself can make sure that its fictitious capital gets sold. Normally, it is sufficient to ease regulations on credible liquidity management and for access to national liquidity; if necessary, the central bank guarantees the value of national debt papers and their redeemability at any time, or buys them up directly itself, thus supplying the state budget with funds. But the question is whether it maintains or restores the power of the financial wealth of society to increase itself through business, and in such a way that speculation on the financial strength of the political beneficiary of this power — the monopolist of force in society — pays off again; whether, thanks to government incentives, the expansion of capitalist wealth recovers across the board and on a scale that once again puts the creditworthiness of the state beyond doubt, and the power of the banking sector to create credit can meet all demands: that is the whole question.

On the other hand, there is no question about what responsible politicians must do to make sure that such bottlenecks and dilemmas do not come about in the first place.

3.

The state dedicates itself to the goal of not acting as a burden on capitalist growth, but rather of proving itself as a promoter of thriving economic activity through various branches of policy: fiscal, economic, business cycle, and monetary policies are aimed at putting the nation’s economic growth on a successful course. In the process, it arrives at its own kind of cost-benefit calculations. Implementing these policies means making use of the financial sector, which clashes constantly with budgetary issues, opens up new business for the banks — and demonstrates once and for all what the relationship between state power and financial business is all about.

The state assumes that the economic cause of the nation — the system of private enrichment and its provision with money and credit as means of business — is best served when finance capitalists do business with money and credit on their own account and in accordance with their own profit calculations; it supports and monitors their business accordingly. It uses the economic power it thereby concedes to finance capitalists as an instrument for financing its budget and for utilizing and fostering the national economy through its budget management: the power of capital markets to turn the state’s financial needs into money gives the state the freedom to finance its rule as needed. This freedom has a price: the state, which finances its activities with money and credit, is given a rather practical reminder by its creditors and by the financial-economic consequences of its debt that the economic objective of its rule is the growth of capitalist wealth, which thus first and foremost dictates the necessity of ensuring the perpetual success of the nation’s financial sector. Guaranteeing that success is the crucial test of its budget management. With this, the circle is closed: since the state makes the economic cause of the nation the business of banks, it logically makes the success of banking the cause of the nation.

a)

The tasks that need to be fulfilled in the management of the nation’s budget are found out by those in charge in the ongoing democratic dialogue with the competing interest groups of the nation. Everywhere in the world, they regularly come to the same old conclusion: the state’s first and most important economic task is to stimulate growth that is solid and enduring. This fundamental insight is what guides fiscal policy and the demanding and supportive oversight of the national economy, and determines the criteria for a demanding review of success — everywhere and always the same.

Taxes and social contributions in a bourgeois society are determined in a way that takes account of the various stages of the circuit of capital and differentiates according to the capacity of the taxpayers, thus tapping parts of income earned or profits made. This is only logical; after all, in a modern state, the rule of the people by law is separated from the economic exploitation of those who do the work and create social wealth. Political rule lives off the power of a system of private enrichment that assumes an independent existence apart from the state. At the same time, this kind of taxation ensures, in principle, that government revenues follow the logic of private enrichment and are proportionate to its success; this makes the treasury’s seizure of societal wealth conform to the system as much as the sovereign expropriation of private property ever could. This principle, however, definitely doesn’t settle everything. Precisely because the state explicitly makes promoting overall economic growth its top priority, its budget cannot simply content itself with what the prevailing tax system yields in terms of revenues. The guardians of the common good are sensitive to the complaints of those who can argue convincingly that their tax burden hampers overall growth, and politicians are inclined to test out the effects of targeted tax relief on growth. On the other hand, when it comes to the income of consumers, which has little or no effect on growth, they continually test the limits of the little guys’ ability to cope. A decent tax system is, therefore, an eternal work of reform.

— The tasks the state has to spend money on follow rather without fail from the need that its civil society and market-economy idyll have for a political authority, as well as from the requirements of its own rule. If, however, the growth of the nation’s economy is the sole concern, what the politicians in charge of their specific area happen to consider expedient cannot be the final word on each respective expenditure. Finance and economic ministers have to examine all expenses in terms of their impact on growth and set clear priorities. For those sections of the state budget classified as mere ‘consumption’ in accordance with a distinction dictated by an interest in promoting growth, it is not the task that justifies the cost, but rather the allocated funds that determine how and to what extent a given task is to be carried out. Especially in those instances where looking after the victims of the system costs money, the idea of personal responsibility comes into its own, something that should not be taken away from a politically mature citizen; in this case, there are even criticisms of government paternalism to be heard. On the other hand, economically-minded politicians discern — on their own or through shouts from their colleagues in the economy — numerous business areas in which “the market,” otherwise and in principle the only true control mechanism, doesn’t in fact regulate everything optimally: where investments crucial for national growth are too risky for private investors, the state has to help out by assuming the risk and providing investment funds. Here the state cannot restrict itself to the funds that tax revenues would allow for each particular department: there is always enough money for government expenditures that are acknowledged as “investments.” And there are plenty of intelligent links between the need to restrain expenditures and the need to subsidize businesses and business sectors. For instance, progressive social policymakers in particular have come up with the idea that poverty assistance — at least when it comes to the elderly and to providing healthcare for the poor — could be redefined as a profit opportunity for insurance companies: that would spare the redistribution of wage income, which has long since been regarded as an unacceptable increase in the price of labor due to additional costs; it would pay off for an entire branch of finance capital; then even taxes that would still be necessary could go to a good cause. Meanwhile, the German state, for instance, is already carrying out several infrastructure projects: the privatization of postal and rail services is not necessarily cheap, but the budgetary resources necessary for them are, in any case, better employed as start-up funds for a thriving line of business than for, say, maintaining public servants and officials who have held up city railroad operations by insisting on bureaucratic maintenance procedures. The greatest imperialist power in the world now even purchases all sorts of military services from capitalist businessmen…

— The state gets the freedom to pursue growth-promoting budgetary polices from the financial markets. With their approval, the state can open up new areas of business by privatizing public property and public services; the demand for its bonds, which the banks organize, provides the resources for its consumptive expenditures and subsidies in excess of the sums of money its tax offices siphon off its citizens. In good times, when the economy is growing anyway, that is how the state accelerates capital accumulation — and thus makes its special contribution to ensuring that the methods of profiteering conflict with their purpose, i.e., that an excess of capital looking for profitable investment opportunities doesn’t find any, leading to weak growth or recession and crisis.[12] In that phase, the guardians of the capitalist common good feel compelled to take countermeasures with stimulus packages that, in the interest of boosting the economy, make government spending — in the right places, of course — an end in itself and correspondingly increase government borrowing. In that case, however, the necessity of incurring debt conflicts with the ease of incurring them, and boosted growth conflicts with its soundness; interest rates and inflation may rise. In any case — not only in critical situations, but especially then — government budget policies need to be supplemented with prudent conduct on the part of the central bank, which guarantees and regulates the financial industry’s freedom of action: it has to serve the goal of sustainable and solid economic growth by pursuing the right monetary policy.

b)

The central bank provides its systemically crucial service to modern capitalism by ending the tradition of there being a real money-commodity initially produced as a use-value, replacing such a money material with banknotes as legal tender, certifying the credit tokens of commercial banks as full-fledged money substitutes through the exchange of the money it creates with their securities, and thereby turning its own money into an aid for the banks, making its value a dependent variable of the banks’ lending activity, i.e., making it dependent on the impact of banking on growth. The experts of the capitalist system, however, make no further fuss about this service. They concern themselves, theoretically and practically, with the effects of state money creation on the course of capitalist business, and they do so exclusively with a view to how to steer that business wisely. Even though it goes without saying that it’s all about growth and that the ‘bank of banks’ gives a powerful boost to the activity of commercial banks by providing liquidity, in some countries the law explicitly lists “growth” among the tasks of the highest financial institution. Right next to that — in the case of the European Central Bank (ECB) quite a ways before — the state addresses the problem that inevitably results from the subsumption of money under the interests of the credit system and from the ‘impetus to growth’ that is supposed to emanate from this kind of money: with and through its productive business dealings with the private banking world, the central bank is supposed to maintain the value of money and prevent the development of credit bubbles.

After all, the value of money and the soundness of credit are notoriously at risk; the producers and custodians of the national currency take this for granted as a certain, empirical fact. The financial industry does everything possible to increase sales and profits; the state’s fiscal policy has a powerful effect on growth and contributes heavily to the increase in the masses of credit paper. And monetary policymakers are acquainted with the consequences, namely, the phenomenon of over-accumulation, even if they have no clue about the actual concept of what this term specifies: they are familiar with asset inflation in the credit trade that leads to a collapse of speculative assets whose prices have been driven up; and often enough they have seen that, ultimately, credit-financed growth has a negative impact on the capitalist suitability of the means of business, as exemplified by its statistically derived average buying power. The central bank tries to curb these undesirable effects, if it cannot realistically prevent them, to a level the economy can tolerate.

What the money guardians are faced with here is a lack of growth, inadequate in relation to the mass of credit created for growth and intended to be confirmed by growth — the consequences of this imbalance include a heap of speculative transactions dissolving into thin air and the power of command of money over the sources of its growth generally diminishing. Central bank functionaries and their masters aim to overcome these problems by reining in the volume of credit creation: the basic idea of monetary policy consists in restricting the amount of loaned money in just the right way so as to eliminate undesired inflationary effects. In fact, the inability of credit to perform — namely, the very partial, or possibly even complete lack of capitalist success of the nation’s business financed in this way — certainly cannot be rectified by there being less of it. Monetary policy experts, however, consider the over-accumulation of financial resources, which shows up as a credit bubble or a loss of financial value (or in both forms, or possibly as a business crisis) entirely from the standpoint of loaned and invested funds — as a problem caused by an inappropriate amount of money. They blame the failure of the means of business to increase itself on its quantity — as if speculation would automatically turn out well if only speculators would stop speculating in time. They have a sound reason for this view of things: the quantity of credit-money brought into circulation is the one factor the central bank has any influence on at all. And the experts also have a theoretical argument to make: according to their economic models, the relations of supply and demand, money and credit, are regulated by an equilibrium; if unwanted or disastrous effects arise, then this tendency of the system towards equilibrium must have been disturbed in a fundamental and long-lasting manner; and the cause of such a disturbance can be seen directly in the phenomenon to be explained: when credit is annulled and money devalues, then it is because there was too much credit — by the same amount that it has lost in value according to the prevailing inflation rate. For solid credit conditions and a stable monetary value, what matters is the correct amount of money. The idea is essentially that one has to get a grip on the indicator of a lack of growth before it slips into the red, i.e., before it points to an excess of money and credit creation. This would then prevent the imbalance that has upset the equilibrium and growth from coming about in the first place. The job of the central bank is to find the right amount and make it come about.

In order to influence banks’ creation of credit to achieve this effect, modern central bankers have declared that the all-important condition for stability consists in the scarcity of the liquidity they provide.[13] Of course, this general maxim doesn’t help them determine the proper amount of credit; and when statisticians calculate an inflation rate and bubbles burst, allowing conclusions to be drawn about the extent of the excess of means of business, then it is too late for successful steering measures. For this reason, the controversy over which leading indicators are the most significant and which parameters are the most reliable becomes all the more lively. The debate is not only shaped by competing schools of thought, downright intellectual fashion trends, and lots of mathematics; it is also influenced by divergent political standpoints, because opinions are divided as to how strict the scarcity regime dictated by the central bank should be. The proponents of maintaining a restrictive supply of bank liquidity in the interest of ensuring a rock-solid credit industry and a stable monetary value face off against a faction that demands more freedom and stronger incentives for the creation of credit by banks in the interest of rapid growth and to facilitate public borrowing in the enlightened self-interest in a continuing boom. Each side has a prognostic approach for its own concerns, and, of course, each has a corresponding strategic recipe for balancing credit supply and demand and for finding the point to which the central bank can still promote real growth without thereby co-financing inflation, ensuring stable prices without stifling growth.

This controversy always takes place within the usual parameters of the credit industry: the amount of money the central bank offers financial institutions or wishes to buy back from them, the periods of the corresponding transactions, and, finally and above all, the interest rate. All monetary policymakers draw on the experience that interest rates during boom times, though high, are not high enough to prevent the economy from overheating and the credit industry from forming bubbles, which predictably leads to the bubbles bursting and business collapsing. Therefore, the central bank must keep the liquidity the banks need so tight that banks cannot expand their lending at will, and make it so expensive that they are bound to loan only to rock-solid companies. At the same time, they have to be ready to alter both parameters — making their money more abundant and cheaper — at precisely the right time, so that the decline of growth, whenever it comes, doesn’t lead to the dreaded crash. But whatever is done to steer the economy by managing the liquidity of banks, the ups and downs of credit-financed capital accumulation pay precious little attention to the designs and interventions of central bankers. The latter is therefore constantly accused of having once again reacted too late; instead of steering properly and effectively, the government bank has merely earned alongside others on the high level of interest rates in the boom, then strangled business that was stagnating anyway, and afterwards didn’t raise the lowered interest rates again in time to prevent the next economic bubble and the next surge in inflation.

The fact that monetary policymakers, in the name of Nobel prize–winning theories and with tons of economic wisdom, still do not tire of trying to influence the banking business through their money creation, in order to achieve perpetual growth with a stable value of money — or vice versa — is presumably due to their professional belief in the right of their nation to economic success, in capitalism as the sure-fire recipe for success, and in the dogma that the reasons for any national economic weaknesses and mishaps can ultimately only lie in errors committed in the management of the capitalist means of business. They think in terms of chains of cause and effect, running through the gamut from the interest rate and other conditions for the supply of liquidity from the central bank, to the ability and willingness of commercial banks to lend, to the credit-needy business world, and think they can pull the right strings. When growth is ruined as a result of failed financial transactions and inflationary effects, then there must have been too many means of growth in circulation, which means that the central bank has to absorb enough of it in advance; when there is no growth at all, then there must have been too few means of growth circulating, so the economy will need cash infusions. When, despite everything, a crisis occurs, monetary policymakers don’t alter their standpoint and certainly not their will to steer the economy and their ideal of being able to manipulate it, but squabble with each other over how to overcome the mess. Some swear by Keynes and believe that the money that the state, with its boundless ability-to-pay, lets its business world earn, and that the central bank indirectly, or, if necessary, directly smuggles into circulation, has the power to get the accumulation process of capital going again across the board. Others express fundamental mistrust in an upswing brought about solely by additional government spending, and thus refuse to certify such a recovery as self-sustaining. And besides, even if an upswing does sustain itself with the aid of plentiful and cheap money, it risks overheating, bubbles, and inflation right from the beginning.

In the end, the next economic cycle starts anyway.

Additional remark 2: On ‘national bankruptcy’

In a modern capitalist society, the standards for growth, to which every downturn must lead again, are no longer set just by the competition of the capitalists, not even by the competition between borrowers and finance capital, but rather crucially by the state with its debt. The state’s creditworthiness ultimately depends on whether money traders, according to their own calculations, judge the rate of capital accumulation, which establishes the fiscal capacity of the state’s economic base, as sufficient to justify the fictitious capital issued by the state. Growth needs to be correspondingly high and durable. If it is not — either because the national debt is too high, or because the lack of capital in the nation is too great — then the economy will suffer high interest rates, the decline of the value of its money, or both; it becomes more expensive to borrow in order to finance the state budget; the state may end up with no more credit at all from the private banking industry. The state proves to be simply too expensive for its society; it can declare bankruptcy.

In this case, monetary policymakers and theorists in nations experienced in business cycles recall the repeatedly proven series of hyperinflation and currency reform: the state doesn’t abandon the business of ruling; it doesn’t stop governing with money. It makes its central bank create what its society, either by taxes or credit speculation, doesn’t provide; the central bank no longer serves the liquidity needs of a proper, private banking business, but instead serves the state treasury. But then this money no longer represents the power of a proper money to increase itself through its use as capital, but only the will and the power of the highest authority to acquire the means for its rule at the expense of the reproduction of social wealth. With this way of creating money, i.e., more and more of it, the state disregards its money’s complete failure as a capitalist force of production, allowing merchants who have anything left to offer in the way of necessities to extort ever higher prices from their customers; a mad rise in prices is the form in which the state contests the necessities of life of the mass of its citizens. For a state that commands a national market economy that can still somehow regenerate itself, the only remaining way out consists in canceling its money, its debt denominated in this money, and related financial assets, and attempting to restart the process of moneymaking by introducing a new credit-money.

In today’s globalized capitalism, it is no longer guaranteed that this is how a nation’s bankruptcy will take place. How it does take place, and what actually happens to a nation classified by finance capital as a ‘failing state’ no longer worthy of credit is, in this world, a question of imperialist decisions.[14]

c)

In its efforts to steer its national economy onto a secure growth path, the modern state places its budget and its monetary policy expressly and consistently in the service of the efficiency and the business success of the nation’s financial capital, in order to enlist the business of finance for the power of the state’s money. Through all the ups and downs of the business cycle, it guarantees the right and the ability of the banking industry to make debt act as capital; it promotes the capacity of the banks to set the economic life of the country in motion by lending money, i.e., to make the wealth of society capitalistically productive and to create the necessary means of circulation. On its part, finance capital accomplishes what the state, according to the laws of property ownership it puts in place, cannot: with their credit business and functional money substitute, financial institutions turn the money of the state into the source of capitalist wealth, and economically confirm and certify it as representing the power to increase itself; they utilize the debts with which the ultimate power finances its budget as fictitious capital and thereby economically justify the freedom of action it allows itself; with their financial power, they represent the capitalist capacity of the nation in a powerful, universally usable form. The perfect separation between a sphere of private enrichment and the state’s authority to enforce order and oversee its society, between business and politics, is the mode in which the state and the business world interact; the growth policy of the state makes this interaction programmatic.

At the same time, this definitively answers the question of autonomy and interdependence of state and finance capital, the relationship between public interest and banking. Each side pursues its interests according to its own logic; this is true even when zealous investigators uncover the far-reaching influence that politicians have on banks and that the banking lobby in turn has on politicians. And just by each party pursuing its own cause do political rule and the private power of credit come together, establish the political economy of capital, and keep it running; this does not depend on the influence of statesmen on financiers and vice versa, but it would be a miracle if such interaction did not take place. It is one thing to legally authorize finance capital to create credit, and to attest and foster its achievements through monetary policy; it is another thing to economically justify the force that restricts the entire society to using money as its means of existence through the business use of money as capital. One is nothing without the other: the reciprocal attestation of wealth and power is what makes up the system. National growth policy explicitly consists in putting the success of this system into effect. It is only logical that the state regards the stable value of money as the criterion for this success: money is to achieve general growth through credit, but without the inevitable over-accumulation, i.e., in such a way that the level of growth achieved economically justifies the masses of credit created. In this regard, stable money is the ideal expression of the state’s demand that private property make the national economic base capitalistically productive according to its own calculations and to its own advantage. Approaching this ideal therefore requires finding a suitable balance in the interaction between the political system and the business of finance.

*

The nation’s growth policy, through which the state acts in unison with the credit trade, is fundamentally, i.e., from start to finish, a test of strength with other nations. Cross-border financial activities are not just any part of how the state supports business: the state promotes the capacities and freedoms of its businessmen so that the nation, on balance, profits on the rest of the world of states, and so that its credit takes effect as capital all over the globe. In the modern world economy, the functional separation and the complementary relationship between state power and money trading assumes a form in which imperialist powers empower finance capitalists — who are primarily based in their nation and who operate with their money — to speculatively compare national economies in terms of their capitalist capacity, and thus to judge the sovereign powers of this world in terms of their creditworthiness, thus deeming them worthy of capitalistic use. That is something in which all the leading states take part, each with the clear objective and the somewhat less clear result of monopolizing and exploiting the capitalistically productive capacities of the entire world for their own nation, i.e., each for itself, through the liberated economic power of credit and thanks to the business calculations of credit speculators.

Appendix: A digression on three “general observations” by K. Marx on the important achievements of the financial sector

“The general remarks, which the credit system so far elicited from us, were the following:

I. Its necessary development to effect the equalisation of the rate of profit, or the movements of this equalisation, upon which the entire capitalist production rests.

II. Reduction of the costs of circulation.

1) One of the principal costs of circulation is money itself, being value in itself. It is economised through credit in three ways.

A. By dropping away entirely in a great many transactions.

B. By the accelerated circulation of the circulating medium.[15] This corresponds in part with what is to be said under 2). On the one hand, the acceleration is technical; i.e., with the same magnitude and number of actual turnovers of commodities for consumption, a smaller quantity of money or money tokens performs the same service. This is bound up with the technique of banking. On the other hand, credit accelerates the velocity of the metamorphoses of commodities and thereby the velocity of money circulation.

2) Acceleration, by means of credit, of the individual phases of circulation or of the metamorphosis of commodities, later the metamorphosis of capital, and with it an acceleration of the process of reproduction in general. (On the other hand, credit helps to keep the acts of buying and selling longer apart and serves thereby as a basis for speculation.) Contraction of reserve funds, which may be viewed in two ways: as a reduction of the circulating medium, on the one hand, and, on the other, as a reduction of that part of capital which must always exist in the form of money[16]

III. Formation of stock companies. Thereby:

1) An enormous expansion of the scale of production and of enterprises, that was impossible for individual capitals. At the same time, enterprises that were formerly government enterprises, become public.

2) The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself.

3) Transformation of the actually functioning capitalist into a mere manager, administrator of other people’s capital, and of the owner of capital into a mere owner, a mere money-capitalist. Even if the dividends which they receive include the interest and the profit of enterprise, i.e., the total profit (for the salary of the manager is, or should be, simply the wage of a specific type of skilled labour, whose price is regulated in the labour-market like that of any other labour), this total profit is henceforth received only in the form of interest, i.e., as mere compensation for owning capital that now is entirely divorced from the function in the actual process of reproduction, just as this function in the person of the manager is divorced from ownership of capital.” (Capital Vol. III, Part V Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital, Chapter 27 The Role of Credit in Capitalist Production)

The subject of Marx’s “general remarks” is the very “systemic” importance of the financial sector dealt with in the preceding text: its essential services for the system of capitalist exploitation.

Point I relates to the emancipation of the expansion of capital from the limits of the particular industries, i.e., from the special conditions that arise out of the particularities of production, the state of the development of trade, and other conditions for earning the highest possible profit from an advanced sum of money. The credit system provides mobility: it inexorably steers funds for production, trade, and services of all kinds to where there are prospects of the best return on loaned money. By gauging all economic activities solely by the profit deriving from its credit transactions and accordingly deciding on the allocation of capital to the business world, it holds the entire economy to the same standard in terms of accumulating money. And when Marx notes matter-of-factly that “the entire capitalist production rests” on this achievement, namely, the enforcement of a generally valid criterion for success on all capitalist enterprises, then he was also aware of the origin of the corresponding productive force that capital draws from credit.

Point II explains the liberation of capitalist growth from the limits set on the process of money accumulation by the available quantity of means of circulation, by the velocity of their circulation, and therefore, to get right to the heart of the matter, by the expenditure needed to complete the monetary phases of the turnover of capital. The relevant achievements of the banking industry remove anything that is capitalistically unproductive from the capitalist money economy, namely, the need for significant amounts of money kept apart from its expansion process. By creating ability-to-pay in the form of promises-to-pay — claims addressed to themselves — it ensures that no reserves of money need to be kept lying around without being put to use in some capitalist mission. On the contrary, money doesn’t even have to be definitely earned in order to enter into circulation in the form of monetary claims guaranteed by the credit system and to act as a capital advance. This makes everything speculative and thus enormously effective.

Finally, point III is about the emancipation of capitalist enrichment from the limits set on the capitalist productive force of property by the size of the private property used for business and, consequently, because always of limited scope, by the private nature of property. The banking industry resolves this paradox by distinguishing, in an exemplary way with the invention of shares, between capital in the sense of self-expanding business assets, capitalistically applied property, and capital as private assets growing by that very means, embodying the accumulation of property as such, separated from its business use, in securities, and organizing it in a separate sphere, namely, its own, the sphere of the money trade. The private power of property acts as business capital in the form of a trans-private aggregate and thereby — says Marx — shows the capitalist mode of production to be a — certainly absurd — sort of aggregation of social productive forces: “the abolition of capital as private property within the framework of capitalist production itself.” All the more does it secure its capitalistically rightful place by the fact that in the sphere of the credit system with its securities, all profit is actually and definitively defined as earnings of money that exists separately and for itself — “as mere compensation for owning capital” — and is pocketed by private owners.

Here, too, the banking industry has perfected the matter — refuting Marx’s hope that “this result of the ultimate development of capitalist production” might be “a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property.” (ibid.) Through the socialization of capital brought about by the financial industry, the antagonism of private property and the competition over its profitable use is not overcome, but rather doubled: supplied with credit and with the power of the combined wealth of anonymous investors, companies wage their fight for market shares harder, more flexibly, and more extensively than ever before; at the same time, they compete on the capital market, with their promises of returns, for the money of society, and the trustees of this money compete among themselves, and as demanders against the suppliers of securities, over the growth of the value of the portfolios they manage. At the same time, the same companies that compete in this way against each other count the financial means as well as the debts of their competitors as their own business capital; the companies in the banking industry not only maintain credit relationships with each other in order to take market shares in big financial business away from each other, but also belong to each other in the form of securities: the socialization of capital by finance capital turns all this, not into a “transitional phase,” but only into more finance capitalist growth and new levels in the escalating competition over returns on private property.

Notes

1 The editors have received various critiques in response to the first drafts of the present chapter III on finance capital, particularly on the subject of inflation, which we have taken account of to the best of our ability in the version presented here. We would like to hear about reservations or objections not yet cleared up or newly arisen, necessary corrections or additional thoughts on this chapter, as well as on the main arguments of Chapter II in volume 2-09 — there is still some need for clarification there as well — in order to fully discuss everything in a reasonable manner, in particular the fundamental questions that have stirred up our thinking on the political economy of credit.

2 On stock exchanges, the subsumption of the profitable use of capital in companies of all kinds under the operation of fictitious capital is part and parcel of everyday business. The wealth that factories, trading companies, construction companies, banks, etc. — now even the stock market itself — operate with, or, more precisely, the business that companies do with their working capital, presents itself here as money-capital in tradable form; private financial assets have their essential source of enrichment in the ownership of this commodity that consists of nothing but legal title, and in trading with it. In competing for the growth of their wealth in the form of such fictitious capital, private owners remove the limitation of individual companies to an individual asset: the business basis of companies that compete for profit on the markets consists in their competition for loans and investments deriving from the financial assets of the entire society. At the same time, private owners of those assets thus no longer restrict themselves in the capitalistic use of their wealth to their own company: the business basis of their enrichment consists in access to shares in all businesses with whose operations money can be made on the markets.

More on this in chapter II.4, The stock market, the “real economy,” and aggregate social capital in GegenStandpunkt 2-09, p. 53 ff.

3 It is assumed here that money creation by banks is not necessarily tied to the availability of a given amount of a material money-commodity — gold, silver, or the like — and that the state, with its definition of a legal tender in lieu of such a money-commodity, sets no real limit to the use of credit tokens as means of payment, but rather dictates conditions for the legal creation of such deposit-money within the scope of the law. This modern state procedure is already explained in chapter I.4 of Finance Capital in GegenStandpunkt 3-08, p. 96 ff, and is discussed in more detail in point 1 of the present chapter III. The effects, given below, of letting credit tokens act as money therefore depend on the sovereign guardian of money certifying the money-creating power of the banking industry by the way it creates real money. But what matters are the consequences from the credit business that the banks, with their power over societal payments, have brought about; therefore the necessary remarks on that are placed here.

4 Since, in the wake the financial crisis, the credit money of nations has become threatened with annulment, it can hardly escape moral-philosophical declarations of love: its true and real substance, so it is said, is the virtue without which human coexistence would be all but impossible — trust.

5 This doesn’t mean, incidentally — to avoid any misunderstandings — that a deficiency in successful growth of the credit industry always leads to an excess of advanced ability-to-pay and has to be reflected in a decline in the value of money; it is certainly not the case that there has to be a quantitative correspondence between weak growth and the rate of monetary depreciation. The business misfortune of loans failing to do their capitalist service appears in different forms: bankrupt companies are the simplest case, a wave of bankruptcies are worse, a failed bank generalizes the damage significantly, and widespread failures lead to a recession or even to a crisis. The history of capitalism is also full of cases where credit, lacking prospects for success, is not even granted in the first place in the amount necessary to reproduce societal capital, and producers are stuck with their goods; because their prices then show an overall downward trend, this phenomenon has also been expressed in money and christened “deflation” by analogy to “inflation,” without this meaning that money’s power of command over the means of its accumulation has grown. The fact that the amount of money shrinks expresses nothing more than a failure of credit as a means of growth. Inflation is a special, particular way that the impotence of capital as commodity makes itself felt — namely, in the very relation of the creation of circulating credit-money to its loss of value.

6 The reason, purpose, and tribulations of state monetary policy come up next in section 3 of this chapter.

7 What is, of course, no issue at all for the functionalist thinking of bourgeois theorists poses a puzzle for some on the left who have learned from Marx that work is the source of value: how can mere pieces of paper, banknotes, be real representatives of social wealth? It is certainly not socially necessary labor, work at profitable worksites, that makes these products of the central bank media of exchange. They function as universal equivalent only because the state, with its sovereign power, wants them to: it defines the unit of measurement of the power of private property in this way and brings an amount of it into circulation as legal tender. This is nothing new, since the authority of the state has always been needed to lend a precious metal customarily used as medium of exchange sole and universal validity as the equivalent, and to officially fix units of measurement; the state has also always used the right made by its might to bring into circulation coins worth nominally more than the purchase price of the material contained in them, as well as paper payment orders on precious metals to an extent far exceeding the available quantity of such a money commodity. Today’s money is characterized by the fact that its paper form no longer has to represent, however fictitiously, a commodity that has been raised to the rank of universal equivalent — and thereby having, by the way, also already swapped its original use-value for the power of access to use-values — but rather is itself what it stands for: wealth in its abstractly general form. It embodies value in the sense that really matters, as private power of command over the world of commodities and the work of others, in a quantitatively specified size, materialized as a thing. And it does so in accordance with its use as credit: it comes into the world as funds to cover the liquidity needs of banks — ultimately, through their business activity, also as cash in circulation; it confirms their credit tokens as fully valid means of payment; and it identifies itself as universal equivalent with the results that the banks bring about with their creations in terms of growth.

8 For modern monetary guardians, minimum reserve requirements and open market operations are instruments for the expeditious steering of bank lending and thereby also capitalist growth on the whole. This objective, its reasons, and its various aspects are treated in section 3(b) of this chapter.

9 There were times and there are countries in which the ultimate powers saw or see themselves called on to set up banks for the purpose of a functioning provision of money and credit; and crisis situations repeatedly arise in which governments find themselves forced to nationalize banks to rescue these services. In these cases, bourgeois states exercise, in a very direct and system-conforming way, their sovereign responsibility for the conditions of business that the system of capitalist enrichment requires: they acknowledge the provision of means of business is ultimately up to them, an affair of state; and they carry out this service they owe their society according to the criteria, in accordance with the types of calculation, and according to the practices of capitalist enrichment through speculative financial transactions. On behalf of capitalist private property, they bring into force its power over money and growth combined in credit, act as it were as trustees of finance capital, and take over expenses and losses that no private company wants to or can afford; they do all this in order to install finance capital — the principles of lending and the sectors of the economy that subscribe to them — as trustee of the money- and credit-power of society. If government budget funds get the banking business going to such an extent that the acquired deficits and lost advances turn into surpluses, then a controversy regularly erupts among experts and politicians over whether it was even right for the state to operate as a banker in the first place, and how much longer it should go on like this.

A modern government also doesn’t lose sight of the autonomy of the credit industry and its acknowledgment as prerequisite for the functioning of a market economy, even when it maintains special banks to steer money capital toward branches of business or regions that in its judgment would otherwise come off badly on normal lending terms. In this case, the political purpose is fully integrated into the logic of finance, entered in the books as a special circumstance adverse to business, and compensated by the special benefit of government guarantees in the procurement of funds.

10 The ideologists of private property interpret this achievement of the modern bourgeois state to mean that it has withdrawn from a sphere that is actually none of its business; as the unleashing of private initiative, entrepreneurial spirit, productive forces, and so on. They continue to view the planned control over the “commanding heights of the economy” by the ruling party in the former system of Real Socialism as a great attack on human rights by dictatorial power on their very own field of activity, human freedom. And when politicians who are loyal to the system dare to lecture the banks on their overall responsibility for the capitalist common good, these ideologues open up an ideological front against the political domination of economic life, which for them already constitutes the beginnings of socialism.

This view contrasts just a bit with the power that businessmen and their friends demand of the state under the banner of “legal certainty.” In fact, the state is not unleashing any primal forces when it orchestrates a sphere of exploitation of land and people, separated from itself, through the private power it attaches to property. Its decree constitutes the world of the autonomous, economic laws of capital. And with its law-making power, it is “involved” in every business transaction, in the conditions, in the execution, and in the application of the results of the power of capital over the means of its own accumulation. Private property draws its economic capacity from the blanket rule of the monopolist of social power, the state, which uses its base by means of authorizing private profiteering and entrusting it to the powerful services of finance capital.

One has to admit that there is a kernel of truth in the compliment paid the ultimate power, namely, that it thereby professes its commitment to the “innate” freedom “of human beings”: the forceful deformation of humans to the status of private owners, and their understanding of the necessity to compete over everything and everyone — this is exactly the freedom that the modern state hands down to its citizens as their ‘second nature.’

11 Here we ignore the comparison with the debt instruments issued by other states, which the imperialist powers have authorized finance capital to make and which plays a rather crucial role in their evaluation. International financial business is a story all to itself, and will be dealt with later.

12 The bare essentials about this can be found in the additional remarks on capitalist crises at the end of Chapter II: The development of the credit power of finance capital in GegenStandpunkt 2-09.

13 In its report of November, 2008, on The implementation of monetary policy in the euro area, the ECB defines its mission as “stabilising money market interest rates and creating (or enlarging) a structural liquidity shortage,” which “may be helpful in improving the ability of the Eurosystem to operate efficiently as a supplier of liquidity.”

14 The last chapter on finance capital is to deal with this matter as well.

15 [Marx’ footnote 85] “The average of notes in circulation during the year was, in 1812, 106,538,000 francs; in 1818, 101,205,000 francs; whereas the movement of the currency, or the annual aggregate of disbursements and upon all accounts, was, in 1812, 2,837,712,000 francs; in 1818, 9,665,030,000 francs. The activity of the currency in France, therefore, during the year 1818, as compared with its activity in 1812, was in the proportion of three to one. The great regulator of the velocity of circulation is credit…. This explains, why a severe pressure upon the money-market is generally coincident with a full circulation.” (The Currency Theory Reviewed, etc., p. 65) — “Between September 1833 and September 1843 nearly 300 banks were added to the various issuers of notes throughout the United Kingdom; the result was a reduction in the circulation to the extent of two million and a half; it was 36,035,244 at the close of September 1833, and 33,518,554 at the close of September 1843.” (L.c., p. 53) — “The prodigious activity of Scottish circulation enables it, with 100, to effect the same quantity of monetary transactions, which in England it requires 420 to accomplish.” (L.c., p. 55. This last refers only to the technical side of the operation.)

16 [Marx’ footnote 86] Before the establishment of the banks … the amount of capital withdrawn for the purposes of currency was greater, at all times, than the actual circulation of commodities required.” (Economist, 1845, p. 238.)