It is daunting how everyone seems to want to ignore the acute crisis in which we find ourselves
Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens.
Cross-posted from Yanis’s website
Two days ago, something extraordinary happened. Something that has never happened before in the history of capitalism. In Britain, the news came out that the economy had suffered its greatest slump ever – more than 22% down during the first 7 months of 2020. Remarkably, on the same day, the London Stock Exchange, the FTSE100 index, rose by more than 2%. On the same day, during a time America has ground to a halt and is beginning to look like not just as an economy in deep trouble but also, ominously, as a failed state, Wall Street’s SP500 index hit an all-time record.
Unable to contain myself, I tweeted the following:
Before 2008, the money markets also behaved in a manner that defied humanism. News of mass firings of workers would be routinely followed by sharp rises in the share price of the companies “letting their workers go” – as if they were concerned with their liberation… But at least, there was a capitalist logic to that correlation between firings and share prices. That disagreeable causality was anchored in expectations regarding a company’s actual profits. More precisely, the prediction that a reduction in the company’s wage bill might, to the extent that the loss of personnel lead to lower proportional reductions in output, lead to a rise in profits and, thus, dividends. The mere belief that there were enough speculators out there thinking that there were enough speculators out there who might form that particular expectation was enough to occasion a boost in the share price of companies firing workers.
That was then, prior to 2008. Today, this link between profit forecasts and share prices has disappeared and, as a consequence, the share market’s misanthropy has entered a new, post-capitalist phase. This is not as controversial a claim as it may sound at first. In the midst of our current pandemic not one person in their right mind imagines that there are speculators out there who believe that there are enough speculators out there who may believe that company profits in the UK or in the US will rise any time soon. And yet they buy shares with enthusiasm. The pandemic’s effect on our post-2008 world is now creating forces hitherto unfathomable.
In today’s world, it would be a mistake to try to find any correlation between what is going on in the real world (of wages, profits, output and sales) and in the money markets. Today, there is no need for a correlation between ‘news’ (e.g. a newsflash that some large multinational fired tens of thousands) and share price hikes. As we watch stock exchanges rise at a time of tanking economies, it would be a mistake to think that speculators hear that the UK economy, or the US economy, have tanked and think to themselves: Great, let’s buy shares. No, the situation is far, far worse!
In the post-2008 world, speculators – for the first time in history – don’t actually give a damn about the economy. They, like you and me, can see that Covid-19 has put capitalism in suspended animation. That it is crushing corporate profit margins while also the destroying lives and livelihoods of the many. That it is causing a new tsunami of poverty with long-term effects on aggregate demand. That it demonstrates in every country and every town the pre-existing deep class and race divides, as some of us were privileged enough to keep social distance rules while an army of people out there laboured for a pittance and at risk of infection to cater to our needs.
No, what we are living through now is not your typical capitalist disregard for human needs, the standard tendency of the capitalist system to be motivated solely by the needs of profit-maximisation or, as we lefties say, capital accumulation. No, capitalism is now in a new, strange phase: Socialism for the very, very few (courtesy of central banks and governments catering to a tiny oligarchy) and stringent austerity, coupled with cruel competition in an environment of industrial, and technologically advanced, feudalism for almost everyone else.
This week’s events in Wall Street and the City of London mark this turning point – the historic moment that future historians will undoubtedly pick to say: It was in the summer of 2020 when financial capitalism finally broke with the world of real people, including capitalists antiquated enough to try to profit from producing goods and services.
But let us begin at the beginning. How did it all begin?
Before capitalism, debt appeared at the very end of the economic cycle; a mere reflection of the power to accumulate already produced surpluses. Under feudalism,
production came first with the peasants working the land to plant and harvest crops.
Distribution followed the harvest, as the sheriff collected the lord’s share. Part of this share was later monetised when the lord’s men sold it at some market.
Debt only emerged at the very last stage of the cycle when the lord would lend his money to debtors, the King often amongst them.
Capitalism reversed the order. Once labour and land had been commodified, debt was necessary before production even began. Landless capitalists had to borrow to lease workers, land and machines. Only then could production begin, yielding revenues whose residual claimant were the capitalists. Thus, debt powered capitalism’s early oeuvre. However, it took the second industrial revolution before capitalism could re-shape the world in its image.
The invention of electromagnetism, on the back of James Clerk Maxwell’s famous equations, gave rise to the first networked company, Edison for example that produced everything from the power generation stations and the electricity grid to the light bulb in every house. The funding needed to build these megafirms was, naturally, beyond the limits of the small banks of the 19th century. Thus, the megabank was born, as a result of mergers and acquisitions, along with a remarkable capacity to create money out of thin air. The agglomeration of these megafirms and megabanks created a new Technostructure that usurped markets, democracies and the mass media. The roaring 1920s, leading to the crash of 1929, was the result.
From 1933 to 1971, global capitalism was centrally managed and planned under different versions of the New Deal, that included the War Economy and the Bretton Woods system. Following the demise of Bretton Woods in the early 1970s, capitalism returned to a version of the 1920s: Under the ideological guise of neoliberalism (which was neither new nor liberal), the Technostructure again took over from governments. Our generation’s 1929, that happened in 2008 was the result.
Following the crash of 2008, capitalism changed drastically. In their attempt to re-float the crashed financial system, central banks channelled rivers of cheap debt-money to the financial sector, in exchange for universal fiscal austerity that limited the middle and lower classes’ demand for goods and services. Unable to profit from austerity-hit consumers, corporations and financiers were hooked up to the central banks’ constant drip-feed of fictitious debt.
Every time the Fed or the European Central Bank or the Bank of England pumped more money into the commercial banks, in the hope that these monies would be lent to companies which would in turn create new jobs and product lines, the birth of the strange world we now live in came a little closer. How? As an example, consider the following chain reaction: The European Central Bank extended new liquidity to Deutsche Bank. Deutsche Bank could only profit from it if it found someone to borrow this money. Dedicated to the banker’s mantra “never lend to someone who needs the money”, Deutsche Bank would never lend it to the “little people”, whose circumstances were increasingly diminished (along with their ability to repay any substantial loans), it preferred to lend it to, say, Volkswagen. But, in turn, Volkswagen executives looked at the “little people” out there and thought to themselves: “Their circumstances are diminishing, they won’t be able to afford new, high quality electric cars.” And so Volkswagen postponed crucial investments in new technologies and in new high quality jobs. But, Volkswagen executives would have been remiss not to take the dirt-cheap loans offered by Deutsche Bank. So, they took it. And what did they do with the freshly minted ECB-monies? They used it to buy Volkswagen shares in the stock exchange. The more of those shares they bought the higher Volkswagen’s share value. And since the Volkswagen executives’ salary bonuses were linked to the company’s share value, they profited personally – while, at once, the ECB’s firepower was well and truly wasted from society’s, and indeed from industrial capitalism’s, point of view.
This was the process by which, from 2008 to 2020, the policies to re-float the banking sector from 2009 onwards resulted in the almost complete zombification of corporations. Covid-19 found capitalism in this zombified state. With consumption and production hit massively and at once, governments were forced to step into the void to replace all incomes to a gargantuan extent at a time the real capitalist economy has the least capacity to generate real wealth. The decoupling of the financial markets from the real economy, that was the trigger for this talk, is a sure sign that something we may defensibly label post-capitalism is already underway.
My difference with fellow lefties is that I do not believe there is any guarantee that what follows capitalism – let’s call it, for want of a better term, post-capitalism – will be better. It may well be utterly dystopic, judging by present phenomena. In the short term, to avoid the worst, the minimum necessary change that we need is an International Green New Deal that, beginning with a massive restructuring of public and private debts, uses public financial tools to press the oodles of existing liquidity (e.g. funds driving up money markets) into public service (e.g. a green energy revolution).
The problem we face is not merely that our oligarchic regimes will fight tooth and nail against any such program. An even harder-to-crack problem is that an International Green New Deal, of the sort alluded to above, may be a necessary condition but is, most certainly, not a sufficient condition to create a future for humanity worth striving for. Can we imagine what may prove sufficient? My controversial parting shot is that, for post-capitalism to be both genuine and humanist, we need to deny private banks their raison d’être, and to terminate, with one move, two markets: the market for labour and the share market.
Fully aware of how difficult it is to imagine a technologically advanced economy lacking share and labour markets, I wrote my forthcoming book Another Now – in which I lay out the argument that terminating labour and share markets, along with the type of commercial banking taken for granted today, is a prerequisite for a post-capitalist society with functioning markets, authentic democracy and personal liberty.